LOUIS FOUNDOS didn't think he would have a problem selling out his new condominium project last fall. It was a renovated building in East Harlem with everything a first-time buyer might want, including granite countertops, dishwashers and washing machines in every unit. It was just a few blocks from the subway, and plenty of new development was under way in the neighborhood.
Five months later, when not a single one of his 12 condos had sold, he decided it was time for drastic measures. He would break his long-held vow and follow his bank's advice. He would try an auction.
"It's not an easy decision," said Mr. Foundos, the managing partner of FFS Realty of East Meadow, N.Y. "No one likes to roll the dice when you don't know where they'll go."
Last weekend Mr. Foundos's building, the Winfield, went on the block. The four units without a reserve price were sold. Opening bids started as low as $149,000, or 60 percent off the previous asking price.
"We needed a kick-start, and the auction provided that," he said. "It was kind of what I expected - getting people through the building was good, and it got good exposure."
With few sales, developers like Mr. Foundos, tired of seeing loan payments, taxes and maintenance costs consume the bottom line, are resorting to auctions, in a gamble that selling units at a discount now will be better than sitting on unsold property for another year. In some cases they are trying to sell a building's last remaining units; in others, to prod moribund sales or introduce a property.
Since the housing downturn, condo auctions around the country have increased. But in New York City they have been rare; and in Manhattan, nearly nonexistent.
Brokers and lawyers, sensing that the time may be right for residential auctions in New York, have started auction companies, like BidOnTheCity.com and Paramount Realty USA, in the last two years. Established auctioneers, like Sheldon Good & Company and Auction.com, have opened offices in Manhattan in expectation of a boom.
Yet, for all the interest, fewer than 10 live, in-person auctions have taken place in New York City since the housing bubble burst three years ago. Only about 75 units have changed hands in this way.
"What drives this business is a significant fall in housing prices," said Ken Rivkin, an executive vice president of Auction.com, "and we have not had that in Manhattan."
According to some predictions, the housing bust was going to create a wave of auctions across the country. But despite an uptick, auctions represent less than 2 percent of the overall residential real estate market nationwide. In 2008, the most recent year for which data are available, $17.1 billion in residential real estate sold at auction, or 1.4 percent of all homes sold, according to the National Auctioneers Association. That figure was $11.5 billion in 2003 and $16 billion in 2006.
The majority of homes put up for auction in New York are foreclosures sold in city courthouses or through Auction.com, formerly the Real Estate Disposition Corporation. Foreclosure auctions disposed of 6,621 apartments, single- and two-family homes last year in New York City, according to PropertyShark.com. (Most auction houses avoid foreclosed properties because they don't want the accompanying hassles and uncertainty.)
In the past, developers and individual homeowners were loath to auction properties because of the air of desperation associated with the process. Most have been content to list their homes through a traditional brokerage or to wait for the market to recover. Auction houses report that they have come close to signing deals with developers, only to have them back out the minute they sell a few units.
"What it takes to be a good developer is to be a perpetual optimist," said John J. Cuticelli Jr., the chief executive of the Sheldon Good & Company auction house in Manhattan. "What he doesn't realize when you have 100 to 150 units to consume, three or five isn't a velocity of sales to sustain any business model. There's this continual hope that the market will come back."
Some developers have had problems selling condominiums because of new Federal Housing Administration rules. The agency will not insure a mortgage unless 30 percent of the units in the building have been sold. Banks, too, have tightened their financing demands and generally will not lend unless 30 to 50 percent of a building is sold.
"That's a Catch-22 for a seller," Scott Burman, a developer and a founder of Paramount USA, which auctioned the Winfield condos. "Buyers need mortgages, banks need contracts. Unless you can line up all-cash buyers, it's very difficult to do."
Because of the relative strength of the New York market, banks here have not been pushing developers to hold auctions as they have in other parts of the country. The average price for a Manhattan apartment is 22.7 percent less than in 2008, according to the real estate appraisal company Miller Samuel.
Auctions were more common in New York in the early 1990s, when they were driven by a wave of co-op conversions and a recession. At the time, sponsors had been hit hard by soaring interest rates and a freeze in financing and mortgages, so they resorted to auctions to sell co-ops whose carrying costs had become too high.
"The difference between this time and last time is there was tremendous pressure from banks that forced them to move product," said Jon Gollinger, the chief executive of Accelerated Marketing Partners, a residential marketing company in Boston that auctions condos. "It was primarily bank-driven, and this time banks are not driving it. It's extend and pretend," he said, alluding to a reluctance to declare loans distressed, in hopes that the economy will pick up.
After trying for two years to sell out the Grand at Diamond Beach, a condominium tower on the Jersey Shore, the Carlyle Group, a private equity company, said this month that it would auction 18 units there early next month. Only 34 of 125 condos have sold.
"Because of a correction in the national housing market," D. Scott Jenkins, a vice president of the Carlyle Group, wrote in an e-mail, "accurate pricing for the Grand at Diamond Beach is unclear. Auctioning a limited number of residences will allow the market to determine true value."
An auction moved the last six units at One Hanson Place in Brooklyn for Canyon Johnson Urban Funds, an investment group, and the Dermot Company, a developer. All penthouses, they had been on the market since 2006. The May auction created a sense of urgency and focused attention on the units, Maria L. Stamolis, a Canyon Johnson fund managing director, said in an e-mail. The auction sold all six for prices ranging from $1.457 million to $2.805 million, including the buyer's premium, a fee charged to the winning bidder.
Not every auction is a wild success for developers. At the Solaria in the Riverdale section of the Bronx, only 10 apartments sold in the year after the 64-unit tower went on the market at the start of 2008. Joseph Korff, the developer, decided on an auction.
But there were few in attendance when it took place in November 2009. Most bids came in below the reserve - the minimum price that the seller will accept. Only eight units sold at the auction and in postauction negotiations.
"On this particular property, I wouldn't do it again," said Mr. Korff, the principal at ARC Development in Manhattan. "I'd want to see a greater public acceptance of a model of marketing inventory, and I'd like to see some successes in Manhattan."
He is trying other methods of selling the other units, including inducements like free summer camp for buyers' children.
Auctions are not necessarily deals for buyers, either. Most apartments appearing in auctions have been in less desirable locations, or priced too high for the market.
Many auctions carry a 5 to 10 percent buyer's premium. Some sellers don't disclose the reserve, so the highest bidder may have to wait until after the auction to see if his bid has been accepted.
"Most auctions I've been aware of are faux auctions because they don't have a disclosed reserve," said Jonathan J. Miller, the president of the appraisal company Miller Samuel. "The developer decides whether to sell."
The weekly foreclosure auctions at county courthouses are another option for buyers. Most participants are investors who buy in teams and come with bank checks for thousands of dollars. The winning bidder must be ready to pay 10 percent of the purchase price.
Adam Paul started buying foreclosed co-ops eight years ago when he grew tired of making no money as an actor, and he now owns, with relatives and friends, more than 90 apartments in various stages of renovation, legal turmoil and sale.
"The way you make money in this business is volume," said Mr. Paul, 33, who lives in a rental apartment. "The notion that I have $200,000 and invest in a foreclosed apartment and make a lot of money is the stuff of late-night infomercials. There are a million pitfalls."
Yamil Martinez and his partner, Enrique Garcia, went to an open house at the New Amsterdam Condominiums in Washington Heights on a lark. They liked the 26 condos that were going on the block, so they obtained financing and attended the auction, conducted in February by Sheldon Good. Their budget was $300,000.
Within an hour, after first bidding on a penthouse, they had bought a two-bedroom two-bath condo for $304,000, including a 10 percent buyer's premium. In the months since, they have remodeled the kitchen and bathroom, so the place "looks like an apartment you'd see in SoHo or TriBeCa," Mr. Martinez said.
"You're going to get more for your money, more square footage," said Mr. Martinez, 28, a restaurateur. "I think it's a better deal. The buyer's premium didn't bother me. I would have given it to a broker anyway."
Correction: June 27, 2011
An earlier version of a photo caption with this article incorrectly identified the Alto condominium in East Harlem