With eight or nine condo auctions completed in Seattle during the past year, and another, the 5th & Madison, coming up on March 28, it’s pretty clear that many local condo developers chose the wrong time to build. Instead of waiting, and waiting, for condo sales to pick back up, some builders are turning to “bulk buying”—a new twist on the age-old real estate marketing problem of how to move product in a sluggish market.
In bulk buying, sellers (i.e. developers) and their lenders sit down and hammer out low-ball prices they’d be willing to accept on the condition that those prices will move a lot of property quickly. Then the developer and its sales team list the properties all at once, crossing their fingers that the steep discounts will move fence-sitters to make offers.
The Hjarta in Ballard—now at 35 percent off.
Like an auction, the deep discounts—about 35% off in the case of the Hjarta in Ballard and Florera in Green Lake, which are both holding open houses starting this weekend—are designed to motivate buying. But unlike some forms of auction, “bulk” sales are first-come, first-served—meaning that any buyer who qualifies can buy a condo at its advertised price, rather than participate in a bidding war where the advertised price is just an opening ask.
In a typical auction, units are offered at up to 60% off their original listing prices, but are usually bid up to around 30 percent below listing price.
Units at the Hjarta and Florera go up for sale starting on March 27, according to Dean Jones of Realogics Sotheby’s International Realty, which is handling the bulk sale of 100 units across the two buildings. Realogics has handled bulk sales before at places like The Decatur.
“Auctions are sensational and interesting, but they’re not always useful to the buyer and seller,” says Jones. “Bulk condo sales offer an auction-like price with a more sympathetic sale process.” Jones says bulk buying gets rid of the gavels, uncertainty of bidding wars, and general hysteria associated with auctions.
While the notion of “volume discounts” on property seems to borrow from big-box discount stores and depersonalize the otherwise touchy-feely concept of home shopping, Jones says borrowing a page from the retail playbook actually works with condos.
Getting banks to cooperate up front with pricing is key, he says, since banks, in some cases, don’t recoup 100 percent of the money they loaned for construction. Jones says it’s easier to sell that kind of “volume pricing” scheme, where both the developer and the bank can recoup a large chunk of money all at once, is easier than asking a bank to accept that kind of deal on a case-by-case basis. In the residential market, some of the trouble with so-called short sales—where a homeowner has to sell for less than the amount they owe their lender—results from lenders resisting a sale price that means they won’t recoup 100% of the loan. But in a bulk sale, a lender can get rid of a lot of problem or hard-to-sell property all at once.
In the case of the Hjarta and Florera, developer Pryde Johnson converted the condos to rentals when the buildings were finished, reasoning that they wouldn’t sell in last year’s lousy condo market. With many leases now expiring, and first-time buyer tax credits fading on April 30, Jones says that the buildings finally hit a good timing for a bulk offering. The big idea is that the first cluster of units available may appeal to buyers interested in getting in before the April 30 window closes.
