Last Saturday, December 13, about 300 people packed into a wood-paneled, subterranean room of the Grand Hyatt on Seventh Avenue and Pine Street, clamoring to bid on discount condos. Fifteen units in the Press Condos on Capitol Hill still hadn’t sold since they went on the market in 2006, and at this event, the bidding would start at about half the condos’ listed prices.

“This is the new normal,” says Rhett Winchell, president of Beverly Hills–based Kennedy Wilson Auction Group, which specializes in auctioning real estate that has failed to sell in the withering economy. The company held 30 auctions nationwide this year, and Winchell expects more in Seattle in 2009. Next February, for example, the entire 91-unit Domaine condo building on Queen Anne will be auctioned off as a single item because the owner defaulted on a construction loan. “Auctions obviously do grow in popularity when the economy slows because builders need a way to sell property quickly,” says Winchell.

One unintended consequence of the spree of condo conversions across Seattle in the last few years has been a surplus of unsold condo units—including nine at the two-building Press, which started as half apartments, half condos. Fourteen units at another converted Capitol Hill condo building, Seventeen07, were auctioned off in October.

Before the circus of bidding began at the Grand Hyatt, I squeezed through the crowd to talk to prospective buyers. They were a mix of folks in their 20s, many of whom came with their parents, and folks in their 30s and 40s, who had their real-estate agents in tow. Mike Norman, a CPA who lives in Bremerton and works in downtown Seattle, had been searching for a condo in the city for two years. “I gave up last year because the prices got so ridiculously high,” he said.

The auctioneer, a large man who spoke in a reassuringly slow cadence, started the bidding on the first unit at 60 percent of its market price. Bidding began aggressively while the prices were low. But as the prices started to break $300,000, the auctioning team had to coax the crowd for higher bids.

Each time one of the 15 condos sold, the auctioneer pointed to the winner and boomed, “CONGRATULATIONS!” as people in the audience clapped for the lucky buyer. Two floor men, meanwhile, scoped the crowd. If a bidder raised his or her auction card, or nodded yes, or so much as blinked in a way that seemed approving, the floor men yelled “HUP!” and the auctioneer would increase the bidding. If the crowd stopped bidding, the floor men would gaze pathetically for another bid, like puppies begging for a walk.

Norman, the CPA from Bremerton, had been eyeing a two-bedroom unit with a courtyard, but he wasn’t going to pay more than $300,000. It ended up going for about $350,000. “I was shocked to see it went for so much,” he said. Although everyone I spoke to before the auction said they would not bid above $300,000, not a single unit sold for less.

On average, the condos in the Press sold for about 80 percent of their listing price—an average of 30 percent above their starting bids.

“It’s still a deal,” said real-estate agent Mary Granen, a real-estate agent who joined a 34-year-old male client, an artist for a computer-gaming company. Comparable units on Capitol Hill are selling for “probably another 10 [thousand dollars],” she said.

What do residents of the Press Condos think about discounts in their building? “I think a two-bedroom going for that price could upset people who… got a one-bedroom for [the same] price,” says Brian Fornelius, who shares a one-bedroom condo at Press with a roommate.

It’s hard to say if unsellable condos are spurring the auction phenomenon or if the market is being driven by the auction industry. While developers benefit from selling property quickly—avoiding the accrual of mortgages and taxes—companies like Kennedy Wilson are seeding the market. “Most auction companies are going after the builders,” instead of the other way around, Kennedy Wilson president Winchell said.