A thousand people vying to buy 100 new homes has become a reality in Hawai'i's hot housing market. A fortunate few, however, are escaping the odds through VIP programs.

It's a quiet industry practice sometimes referred to as preferred-customer or insider sales, and it's adding to frustration for ordinary prospective purchasers shut out in a fiercely competitive market where developers can't build homes fast enough to satisfy demand.

Home builders often give priority for buying a small share of their inventory to employees and loyal vendors such as contractors or consultants. Sometimes such insider sales are extended to repeat customers, friends, influential business leaders and prized real-estate agent clients.

The VIP perk isn't illegal or unethical. "From a developer's point of view, you can choose whoever you want," notes Ricky Cassiday, a local housing market researcher.

Other observers say it's not too different from granting access to a popular club or selling a limited-edition car to someone based on who they know.

But when the commodity is a home in a supply-constrained market with escalating prices that make affording a place to live more difficult every day, preferential sales are clashing with a common emotion-charged expectation that everyone should have an equal opportunity to buy a home.

"I think everybody wants to have a shot at a house they want to buy," said Mike Jones, president of the local Schuler Division of homebuilder D.R. Horton. "We try to be fair. It's kind of a fine line there."

Part of the expectation of equal-opportunity new-home buying is that most developers have adopted sale lotteries that suggest everyone has the same odds at a purchase. The less common first-come first-served sale system also implies impartiality. But in many cases, at least a few units are excluded from such offerings.

Hawai'i law governing home sales makes no restrictions on preferential treatment of buyers, except when it comes to condominiums.

By law, at least half the units in any new condo project, including townhomes, must be offered by equal opportunity to the general public, and those sales are restricted to buyers who pledge to live in the unit for at least a year.

The other half of a condo project's units can be sold in any fashion, including to investors, owner-occupants and preferred buyers.

The rule was enacted in 1980 in response to real-estate speculation in the 1970s when "flippers" were buying and immediately reselling condos for higher prices, creating hardship for owner-occupant buyers.

Single-family homes and "resort" condos were excluded from the law.

PREFERRED CUSTOMERS

Jones said Schuler generally tries to restrict preferential sales of new single-family homes to two houses in a release of 10 or 12 homes. Preference is given to employees, long-time vendors and sometimes Schuler's very best repeat customers.

Like Schuler, most big developers limit preferential sales to a small percentage of available units.

Developers also say they prefer to hold down investor purchases because communities with many renters tend to be less stable and less well maintained than ones dominated by owner-occupants displaying pride of ownership.

But at some projects not covered by the owner-occupant law, such as condos at resorts and hotel condos, preferred buyers have snapped up half the available units or more.

Two years ago, the owner of the Aston Coral Reef Hotel announced the planned sale of the 247-unit Waikiki condo hotel, while at least 130 of the mostly bigger one- and two-bedroom suites on upper floors had been reserved by preferred clients of the owner, Andre Tatibouet, and broker Hawaiian Island Homes.

Elwyn Kan, a semi-retired Honolulu resident, arrived for the "grand opening" and found most of the units taken. "That was sort of bad ... some of us need a chance," she said at the time.

Hawaiian Island Homes, headed by local developer Peter Savio, typically markets condos converted from hotel and rental apartment units to past customers, and does little general advertising.

CREATING A BUZZ

Other developers regard VIP sales events as a way to create word-of-mouth buzz that will help sell out a project.

That was part of the strategy for developers of the Kaka'ako high-rise Hokua when nearly three years ago they invited 250 or so friends and business acquaintances to a party/sales event a few days before offering units to the public.

"It was as much a sales event as it was a blessing and a way of getting the word out," said Karl Heyer, principal of Heyer & Associates LLC and a project broker with Hokua. "It creates interest in the project."

Of Hokua's 247 units, which sold for an average of $1 million, VIPs bought about 30. Heyer wouldn't disclose VIP buyer names, but said many were prominent leaders of the local business community, which is Hokua's target market. The project has long been nearly sold out and is scheduled to be finished this year, with the first residents moving in by mid-January.

LIMITS ON VIP SALES

Most developers, however, put limitations on VIP sales, though interest from employees and associates has risen along with general buyer demand in the tight market.

Castle & Cooke, which has a preference program for employees and established consultants and contractors, will typically restrict preferred-buyer purchases to one or two if 10 homes are available, even though there may be more preferred buyer requests.

"We're very sensitive to how many units we release," said Bruce Barrett, Castle & Cooke sales and marketing vice president. "What does a buyer think if I've got 10 lots to release and I only put five on the market?"

Barrett said that seven or eight years ago, there were few requests from vendors and employees to buy homes. But that changed as interest rates and inventory fell to historic low levels.

"I remember years ago begging people, 'Please buy a house from us,' " recalled Stanford Carr, a local home builder with projects on O'ahu, Maui and the Big Island. "Now I have friends come out of the woodwork I haven't heard from in 25 years."

Carr's VIP program includes employees, vendors and loyal customers, but generally avoids preferential treatment for friends because it can present problems.

"It's not like we're only offering two (homes) at a time to the public," Jones said. "We try to be fair."

Getting a leg up on buying a new home

Preferential customers of home developers often include:

employees

contractors

repeat customers

friends

influential business leaders

prized clients of real estate agents

Reach Andrew Gomes at agomes@honoluluadvertiser.com.