Robert Rouse, whose Los Angeles company auctions condominium units from Miami to Hawaii, doesn't mind saying he is doing a rousing business.
Sales for the first quarter of this year already amount to almost half of last year's $30 million total, he said. And Rouse made more than $2 million last year auctioning them off.
But the auctioneer says he is also rousing the anger and fear of the real estate industry.
"They call us carpetbaggers from the West Coast," he said in a recent phone interview. "We're as popular as gentiles in Miami."
Robert Rouse and Associates have been auctioning unsold condominiums for nearly three years, selling these units to individual buyers for as much as 50 per cent off list price - although occasionally, he says, exuberant bidders have been known to pay more than the original asking price.
In the course of an afternoon of auctioneering, a builder or banker whose project has lain vacant or largely unsold for a year or more stands to recoup an average of 75 cents on the dollar he once expected to earn, Rouse says.
In the bargain, the realtors who may have spent much time and money trying to move the condos are cut our entirely. Some have gone so far as to exert pressure on their local boards to keep the likes of Robert Rouse out, he says.
An auotioneer for many years of industrial property and construction equipment, Rouse got into condo auctions at the beginning of the recession when a desperate builder asked him to try to auction 52 units at a Colorado resort. The builder guaranteed him a $50,000 fee even if no units were sold. As it turned out, 3,500 people responded to his blitz of advertising and the condos were all sold out within hours, Rouse said.
Since then he and his nine employees have found buyers for 1,543 condominuim units in 30 projects in eight states, mainly on the West Coast and in the Sun Belt area of the South and Southwest. Rouse said he considered holding auctions in Hagerstown and Ocean City, Md., but concluded there were not enough unsold condos there.
If the country is pulling out of the recession and second homes are again selling, why should Rouse's business by rousing?
First, he says, there is the backlog of several hundred thousand unsold units, especially in Florida.
In addition, backers of slow-moving projects are now willing to let an auctioneer take over for them - even though it is a risky, expensive and often embarrassing procedure. Among those who have done so, according to Rouse, are Citibank, Prudential Insurance Co., Western Mortgage Corp., and TransAmerican Mortgage Advisors.
There is no guarantee of the outcome, although auction trustees representing lenders to have the right to reject any bids they deem too low, he said. And, so long as a businessman is optimistic that market conditions will improve and he can sell condos by shaving the price 10 or 20 per cent, he is reluctant to gamble on getting 50 cents on the dollar, Rouse maintains.
Rouse has worked out gambling odds that boil down to this: If the project can be sold conventionally within one year, the backer would lose money by auctioning; if it goes unsold for more than two years, the carrying costs make auction a better deal; but if the timing falls in between, it's a toss-up.
Rouse takes 10 per cent of the gross sales price as his commission. In addition, the backer must assume costs of fixing up the units if they have deteriorated or are incomplete. There is also advertising and conducting the sale plus legal and financing costs, which can add up to $100,000.
Finally, often staid lenders bristle at some of Rouse's tactics like huckstering and advertising that make auctions look like bankruptcy proceedings. The use of a local "trustee" serves several purposes: it enables Rouse to broke in states where he is not licensed; it permits the real financial backers to remain anon yinous; and its presence on advertising - "Public Auction by order of the Trustee pursuant to recorded trust agreement" - makes the public think it can acquire real estate at rock bottom prices.
Media accounts from around the country picture the bidding as good natured and spirited even though people are incurring large financial obilgations perhaps on impulse and must forfelt the 10 per cent deposit if they back out later. (In fact, at any given auction one fifth to a quarter of the buyers are speculators who resell the units often before settlement.) Purchasers' credit is checked on the auciton site, and if approved, financing is offered on the spot: 10 per cent down, 9.25 per cent mortgage plus a point, although the exact terms vary locally. Forty-five minutes later the proud new owner is on his way home, according to Rouse publicity.
Some critics - realtors, predictably - contend that Rouse uses pressure tactics by getting his workers to pit one bidder against another. In Atlanta a developer charged that the original list price for units sold at a Rouse auciton included amenities like a club and swimming pool that were never built, information that was not passed on to the bidders.
Other drawbacks are the equity existing owners stand to lose when buyers get the same model condo for less, and the difficulty new purchasers have of knowing who their next door neighbor will be. To the existing owners, Rouse explains they would stand to lose more if the project were foreclosed. To the prospective purchasers, Rouse replies they have only to look around them at the type of persons bidding. Besides, he shrugs, a bargain is a bargain.
Apart from lost commissions, local realtors in communities where Rouse has operated not only fear that property values may sink to auction levels may eventually encroach upon their livelihood.
Rouse laughs and says, "We have no plans to auction off lots or single family homes. I figure we can keep on (condos) for the next couple years. After that you, can bet the bankers won't make the same mistake (overextension) again."