(FORTUNE Magazine) – LONG REGARDED as schlock affairs, real estate auctions are suddenly stylish. This is unexpected news, for in the past auctions were such a sign of failure that sellers avoided them except in extremis. But in the period since real estate booms collapsed in many parts of the U.S., auction sales have moved big inventories of condos and houses so successfully that owners have begun to respect them as an effective marketing tool even for new and upscale properties. The seller, often a developer, gets quick cash and is spared the expense of a lengthy sales effort; the buyer often picks up a bargain. The auction has the virtue of concentrating the attention of potential buyers. It gathers prospects together and forces them to translate latent demand into competitive bids. A successful auction can excite buyers enough to reinvigorate a slow market, at least briefly, while the seller walks away with every cent that can be squeezed out of the throng. With so many satisfied buyers and sellers, auctioneers will sell an estimated $2 billion of U.S. real estate in 1987, vs. perhaps $500 million three years ago. As a result of this surge of activity, the auction has matured into an important real estate specialty, dominated by six or seven private companies that compete vigorously for new accounts. The auctioneers are a supercharged, self-confident lot, salesmen and showmen in equal measure, not above self- puffery and exuberantly optimistic about their ability to revolutionize the marketing of real estate. Perhaps the most flamboyant is Jim Gall, who in 1979 grandly named his then tiny Miami firm the Auction Co. of America to give it the cachet of national presence. His favorite prop is a gray stretched Lincoln limousine in which he ferries potential clients, who become, willing or not, captive audiences for the videotapes of successful auctions that Gall plays on his mobile VCR. The auctioneers' elevation in status began about five years ago and has accelerated in the past two. Although all are private companies under no compulsion to publish financial results, the top auctioneers are eager to talk about their escalating sales. For example, Sheldon Good & Co., a national firm based in Chicago, reports doing almost as much business in the first six months of this year -- $72.5 million -- as in all of 1986. Hudson & Marshall, headquartered in Macon, Georgia, claims the highest sales in the field: $219 million in 1986. Although most of these sales involve residential properties, all the auctioneers handle commercial buildings such as office blocks, motels, and shopping centers; some auction farmland as well. All stand to make a lot of money. Their take, usually calculated on a sliding scale, ranges from 10% down to 4% of an auction's gross proceeds. A typical fee might be $310,000 for an auction that moved $7 million of real estate. Most auctions occur within 45 days of being conceived, and clients pay for the advertising. The auctioneer's out-of-pocket costs are minimal. , At the upper reaches of the market, auctions often prove the best response to intense buyer demand. Sellers of top-quality real estate, whether the country estate or the urban office tower, want an open bidding contest in order to produce the highest price. Such is the reasoning of Christie's, the renowned art auction house, and Cushman & Wakefield, the equally celebrated real estate broker. They recently joined forces to organize an auction of prime commercial real estate that will take place in New York City in November. On the block will go top-of-the-line office buildings, hotels, and shopping centers, each with an estimated market value of $5 million to $50 million or more. Christie's expects buoyant demand, especially from foreign investors with cheap dollars to invest. Most of the auction growth so far has come not from the elite trade that Christie's is cultivating but from hard-pressed sellers in places where demand is soft and ordinary homes can sit unsold for years. Cities in the depressed energy belt, such as Houston, Dallas, Oklahoma City, and Denver, have become particularly active auction markets. Sharp drops in the price of oil led to a deluge of defaults on mortgages insured by Fannie Mae, the Veterans Administration, and other mortgage guarantors. Forced to foreclose, they ended up with far more properties on their hands than local real estate brokers could readily liquidate. Desperate, they turned to auctioneers. In the nine months ended last June, Larry Latham, 34, a rising auctioneer out of Moulton, Alabama, sold $29 million of VA houses at auctions where homes went under the gavel in lots of 100 to 300. Fannie Mae disposed of some 2,200 houses last year in the same fashion, mostly using the services of Hudson & Marshall, realizing around $100 million. Generating the most excitement in real estate circles is the auctioning of new and often high-quality houses, homesites, and condominium apartments. Such auctions have become popular in dispirited markets in South Florida and parts of California, Oklahoma, and Colorado. The auction's great attraction to developers is that it drastically reduces carrying charges, which include interest as well as maintenance and marketing expenses, during the year or two that it usually takes to sell a project. Carrying charges can range from 15% to 24% of the property's value per year. Developers have always been saddled with such charges, but when interest rates were low they could afford to wait out the downswings in the cycle until demand revived. High interest rates in the early 1980s suddenly made carrying costs an enormous burden, and although rates have since dropped they remain at relatively high levels: nearly 11% these days for construction loans, vs. 6% in the 1960s. FOR A DEVELOPER whose sales are falling significantly behind projections, the advantage of eliminating additional carrying charges often makes up for the lower unit prices that auctions frequently deliver. One example given by the Santa Monica-based Kennedy-Wilson firm involves the auction sale of a development with an asking price of $4.5 million. Even if the auction knocked 15% off that retail price, the developer would net $322,000 more at auction than through a conventional sales effort that dragged on for a year and a half. In many auctions the owner may anticipate a far greater discount but still benefit by cutting losses. In the spring of 1986, Allan Rozansky, 53, a seasoned developer based in Bethesda, Maryland, paid $4.4 million for a partially completed condominium project named Deer Ridge in a Baltimore suburb. He launched his sales effort while completing construction, which took seven months and cost another $1.5 million. When he finished early this year he realized that he had drastically overestimated demand for his condos. ''I hoped they would sell out in two years,'' Rozansky says, ''but sales were very slow. In over a year I sold only 14 units out of 74.'' Rather than sweat it out for as much as three more years with annual carrying charges of $600,000, he decided on an auction. An employee recommended the Sheldon Good outfit. Rozansky's son Glenn attended one of Good's auctions in Florida and was impressed by the slick performance. He signed up and five weeks later attended his own auction. His $80,000 marketing program included mailing colored brochures to likely prospects from Good's in-house mailing list as well as publishing ads in the Baltimore Sun, the Washington Post, and a local weekly. The auctioneers also offered real estate brokers in the area a 2% commission on purchases by people they referred. On Sunday, August 9, a crowd of around 700 packed the ballroom of Baltimore's Marriott Inner Harbor Hotel. Promptly at 1 P.M. the lights dimmed, music filled the room, and a booming voice emerged from the darkness to describe the format of the auction. Fifteen of the units were to be sold ''absolute'': at the best price offered, no matter how low. (That gimmick always appeals to buyers hoping for a steal, although few seem ever to walk away with one.) Rozansky placed a reserve on the remaining 45 units, meaning he could reject any bids he thought too low. Every successful bidder had to fork over a deposit of $3,000 or more in the form of a certified or cashier's check; sales contracts were signed on the spot, and representatives of local lenders were on hand to arrange financing. The lights came back up and bidding began, urged on by the mesmerizing, swift-paced chant of the auctioneer, who would endlessly repeat the last bid and urgently solicit a higher one, while occasionally throwing in an aside -- ''Bashful doesn't buy. Bashful will come back tomorrow and say, 'Why didn't I buy?' '' Meantime, five bid assistants worked the floor, urging on the hesitant. Everything sold, in a little over three hours, for $5,817,000, which was 70% of the original total price. Rozansky had hoped to top $6 million but says he was pleased, and the Good organization got a $260,000 fee. IN SOME CASES a developer goes directly to auction without even trying conventional marketing. Two years ago the Unocal Land & Development Co. of Los Angeles prepared 84 homesites in a new subdivision on nearby Lake Arrowhead. From the outset, the company had been planning a sales effort of four to six years. Just before construction ended, the Kennedy-Wilson firm proposed that Unocal go the auction route at once. The notion was unexpected but attractive. ''When you compared the cash flow and the time involved,'' says Unocal's Pat Ellis, ''it was clear that we could cut prices significantly and get the same net discounted value of our money.'' Unocal hired Kennedy-Wilson and set minimum prices for the auction at 45% of the original list. The auctioneers then launched a $300,000 marketing campaign. The auction realized $7.5 million -- 15.4% over the minimum and about 52% of the original price. That gave Unocal nearly the same handsome profit it had originally sought, with considerably less anxiety than a sales effort that might have lasted six years. The auction is not a panacea for distressed markets. When too much property is slated to go under the gavel in a down market, the auction will only further depress prices. Steven L. Good, executive vice president of Sheldon Good & Co. and the namesake's son, faced that problem when he joined the rescue effort for the Aransas Princess, a luxurious 114-unit condominium resort on the Texas Gulf Coast, one of the most distressed real estate areas in the U.S. The Princess's developers had gone bust without selling any condos; the lenders, a group of S&Ls, had foreclosed. Good recommended a modest auction effort limited to 35 units, with 15 offered ''absolute.'' The auction attracted 400 people, and Good sold 22 units for sums ranging from $90,000 to $165,000 -- less than half the original asking prices. The other 13 units failed to sell. Riding the publicity of the auction, the S&Ls launched a conventional sales effort, which moved a few more units. So low were expectations that the sellers regarded all this as a success and later arranged another auction. Auctions can fail, of course. Last year, Michael Fox Auctioneers of Baltimore attempted to sell the old Mayfair Theater, a downtown relic long in disuse. A decent crowd turned up, but when the sale began only two bidders competed. The top bid was $200,000. The auctioneer scornfully rejected it with the words, ''This property has not been put up to be given away.'' The Fox outfit, however, has scored more hits than misses. A few months later President David Fox, son of the founder, personally auctioned a historic 775-acre estate in Virginia for $4.1 million. That is far more than anyone anticipated, for the property's appraised value was only $2 million. The client was the federal government, which had confiscated the estate as the ill-gotten gain of a drug dealer who had been packed off to prison. Fox's fee amounted to $143,500, not bad for the modest effort expended. Says William Fox, David's brother and company chairman: ''The allure of determining value through the auction is a constant high.'' With the old stigma fading, buyers and sellers are finally getting a chance to share the middleman's exhilaration.