19 replies to this topic

[Rail Paul]

Barron's has an article this morning about a major auction of properties in the Sarasota FL area recently. Properties were offered with expected prices from the mid-200s (marked down from the 600s), to the ten million plus range.

The author is a local blogger who has his own real estate watch column. Some of these properties look very nice, and the selling prices seem quite attractive, given the amenities. Some of the more splashy properties didn't garner even a single bid. The author observes that some deals were probably done post-auction, where the 10% premium etc wouldn't necessarily kick in. I suspect the unsettled homeowners insurance situation could also give pause to some potential buyers (some insurers are cancelling coverage anywhere in FL).

As predicted, the enormous bayfront mansion on Longboat that was originally priced at $11, 999,000, the one with all the bells and whistles (home theater, billiard room, four fireplaces, four-car garage, boat dock, infinity pool, etc.) did not do well. The opening bid was set at $5,000,000 but bidders kept their hands down. It didn’t sell. It didn’t even get bid on.

These are the $275,000 units...

These are very nice condos. They’re not quite as refined as their Watercrest competition, but they’re big and luxurious. What I like about them is that they have all the luxury features you want (like the extra-fancy and enormous master bath) but you’re not paying for all sorts of extra bedrooms you’re not going to use.

They started out in the $500s and $600s. They are now down to the low $400s, maybe even less. If I could get one of these babies for under $300, 000, I’d grab it.

Sarasota magazine reports

Barron's:

The bidding began. Slides of the dwellings for sale were projected on giant screens, and even though I'd studied the catalog for hours, I felt a spasm of pride as each one came on. The houses were cannily chosen to reflect the many splendors of Sarasota, and included a $20 million estate on Casey Key, just down the beach from novelist Stephen King's place; a bay front Longboat Key mansion ($11,999,000 asking price); a beautiful three-story Georgian in a tony development called The Oaks ($8.9 million), and on and on. Some were on the beach, some were in new high-rises, and some were in gated communities east of town. But there was little that wasn't over a $1 million, and $3 million homes were common.

One question was paramount: Did they sell or didn't they? Of the 79 properties on the sales list, 18 were offered "absolute," meaning that the seller hadn't set a reserve price and supposedly would accept any bid. But the median sales price these attracted was less than half of the original asking price. Ouch.

Thirty-seven properties were sold "subject to owner confirmation," meaning they didn't receive bids above their reserve price -- the minimum that the seller had told the auctioneer beforehand would be acceptable -- and thus maybe sold or maybe didn't, depending on whether the seller would accept the low-ball bid.

What did go were the more unusual homes in premium locations.

The $20 million estate went for about $14 million -- a 30%-plus discount, but still a record price for a single-family home in Sarasota County.

The Longboat Key mansion, apparently not quite so special despite its home theater, billiard room, four fireplaces, four-car garage, boat dock and infinity pool, couldn't get the $5 million bid at which the auctioneer had hoped to begin the sale.

But the three-story Georgian, perhaps the most refined and distinctive property on the block this day, precipitated a bidding war.

The Bottom Line:
Luxury housing is merely, well, housing. Once prices run amok on the upside, there's always eventually a toll to pay on the downside.

A prosperous-looking young man who happened to be standing next to me really wanted that house. At $6 million, the bid came to him. Would he raise it? The spectators were riveted. After an agonizing moment, he made his decision. "Let Jason have it," he snarled, and turned away. Whoever Jason is, he got the $8.9 million mansion for $6.1 million, plus the 10% commission the buyer pays the auctioneer.

Very high-end condos also did OK. What didn't do well was the mundane. It was a bad day for your typical $2 million Spanish Med. The auctioneers seemed to put the good stuff first, and when the run-of-the-mill came on, well, the crowd was getting tired. The woman sitting next to me was keeping tally -- as were many others -- and after a while, her DNS (did not sell) list got longer and longer.

The Sarasota Herald-Tribune, the local newspaper, reported last week that only $31.9 million in confirmed deals had resulted from the big day.

So, was the auction a success?

It depends on whom you talk to.

"I am absolutely 100% satisfied with the outcome," SKY Sotheby's president, Chad Roffers, declared, although he admits he lost 10 pounds in the process. "We brought buyers out of the woodwork." His arch rival, Michael Saunders, has a different opinion. "I think the results were dismal," she told me later. "Many people were very disappointed. It was much ado about nothing."

One person who analyzed the reported sales concluded that, for the properties sold "absolute," the median sales prices was just 45% of the original asking price, and that 35 properties didn't even get an acceptable opening bid and so remained unsold at the auction.

And, of course, some competing real-estate agents, as steeped in schadenfreude as they are in mortgage rates, quickly came up with a catty saying: If you want to sell your home, call a broker; if you want to give it away, call SKY Sotheby's.

But still, something had happened, and Chad Roffers was the catalyst. The clever real-estate agent had tweaked the auction to his own purpose. It was no longer a gavel-driven, sold-to-the-highest-bidder experience, but rather, a multipart sales tool. It generated massive publicity -- front-page news locally for several days running. Anyone who bid -- no matter how low -- was considering bidding, or wished he had bid, was invited, or rather urged, to meet the seller in one of the private tents that fronted the golf course and see what they could work out. And deals were reached this way on at least several properties.

Drawing-broad conclusions about what one auction in one market says about the U.S. luxury-home market is dangerous. But the Sarasota sale certainly said something about the once-torrid Florida luxury-home market...and similar markets around the country. And what it said wasn't reassuring for those with high-priced property to sell.

Chad Roffers has another auction coming up in March. Will it work any better? No one has any idea. After all that Sarasota's realty market has been through lately, the only thing local people are betting on is that he'll probably lose another 10 pounds

[Orik]

I recently looked at this. While many good properties are selling at a 35-45% discount from their peak, they're still about 3-4 times more expensive than they were around 2000.

[Ron Johnson]

One of my partners has three condos down there he has been trying to unload for several years.

[Rail Paul]

One of my partners has three condos down there he has been trying to unload for several years.

That's unfortunate.

One big problem in much of Florida is the huge volume of stuff still under construction that hasn't hit the inventory yet. Who knows where that will be priced?

One of my associates retired to a gated community in Citrus County (north of Tampa) in 2005. Another co-worker just bought a resale home in the same community for about 40% less.

[E.L.A.]

For most areas, no, not the bottom.

Eric

[Rail Paul]

WSJ has an article today on the housing bust.

In some places with good economies, but overbuilding, the buyers are appearing. In other places, the agony goes on. A few weeks ago, Orlando had a six year inventory of unsold condos, with several buildings still under construction.

John Brady, a retired publisher of Web sites and newsletters, was planning to buy a retirement home three years from now. But while vacationing in Key West, Fla., in January, he and his wife were stunned to see how far prices had fallen since their previous visit a year earlier. "Places were hundreds of thousands of dollars less," he says. The Connecticut couple paid $800,000 for a furnished two-bedroom condo that had been asking $1.75 million a year ago and was most recently listed at $850,000. "I think we got an incredible bargain," Mr. Brady says.

Down 17%: 'Lowerlights,' a Hatteras, N.C., beachfront house that sold in 2005 for $1.1 million, went for $910,000 in January. A mortgage lender bought the seven-bedroom, four-bath house for $945,000 at a 2007 foreclosure auction but couldn't get its $975,000 asking price. Area prices have dropped 10%-20% since 2006, estimates Bob Barris of Hatteras Realty.

Sales have slowed substantially while the number of houses on the market is rising in many localities, particularly those with a high proportion of second homes, such as Santa Fe, N.M., the Outer Banks of North Carolina, Cape Cod and Nantucket-Martha's Vineyard in Massachusetts and California's Napa Valley. That suggests that many sellers are facing pressure to lower their asking prices further.

Prices already have come down steeply in much of Florida, southern California, Phoenix and Las Vegas. With fourth-quarter mortgage foreclosures hitting a record high and delinquencies rising to a 23-year peak, according to a Mortgage Bankers Association report yesterday, there are few signs of a turnaround. Many housing-market economists don't expect U.S. home prices to stabilize until sometime next year.


Down 41%: This four-bedroom house on three acres near the beach in Wellfleet, Mass., which hadn't changed hands since 1958, was listed at $1,750,000 in July 2006. It sold for $1,037,500 in January. Median Cape Cod prices in January were down 6% from a year earlier.

Many home shoppers say that's why they are taking their time. Last fall, Matthew Wilson, a private-equity executive, looked at two dozen Manhattan Beach homes in Los Angeles at prices ranging from $2 million to $3 million. "I saw so much inventory building up," Mr. Wilson says. One seller offered to throw in a Mercedes-Benz 500 along with a house priced at $2.4 million. In the end, Mr. Wilson came away thinking the properties he saw still were overpriced despite recent cuts.

Mr. Wilson considered making a low-ball offer ("in the high ones") for a five-bedroom Craftsman-style house asking $2.6 million but was dissuaded by the seller's agent. The house is now listed at $2 million, he says. "Some day I may reoffer again, but I'm going to bid even lower than I was thinking last time," he says. "Unless I see my dream home ... I think I have a 12-month window to pick my bid."


14% Price Cut: In Santa Barbara, Calif., a two-bedroom cottage sold in 2004 for $765,000. It went back on the market about a year ago starting at $855,000 and now is in contract for less than $739,000, despite $15,000 in upgrades, says the listing agency, Prudential California Realty. The median price of a Santa Barbara home fell 4.5% in January from a year earlier to $895,000, DataQuick says, as sales activity plunged more than 40%.

Most deal hunters are avoiding markets with weak economies, such as Cleveland and Detroit, instead scouring places where the underlying economics are stronger. In Las Vegas and Miami, for example, real-estate problems are rooted in overbuilding; in California, tighter lending after the subprime mess has eliminated much of the potential buyer pool.

And home prices haven't given up all the ground they gained in the decade-long boom. Despite huge recent declines, prices in Miami remain about 64% higher than they were in December 2002, according to Radar Logic, while in Los Angeles prices are 57% ahead.


Down 43%: A Studio City, Calif., condo was listed in June at $700,000, the same price a similar-size unit had fetched in January 2007. It sold for $400,000 in January 2008 in a probate sale. L.A.-area prices fell 15% in 2007, Radar Logic says.

During the real-estate run-up, amateur investors were flipping houses at a profit in as little as three months. Now, with the odds stacked against a quick turnaround, experts say investors should prepare to weather at least three to five years of ownership, budgeting for carrying costs that include taxes and maintenance. "I think to be an investor like this you've got to have a pretty strong stomach," says Jonathan Miller, chief executive of Miller Samuel, an appraisal firm.


Down 33%: An 1,900-square-foot home in the Summerlin community of Las Vegas sold for $420,000 in 2005. It was listed at $323,000 last year in 2007; after a foreclosure, the bank sold it earlier this year for $280,900. Median existing-home prices in Las Vegas fell 14.4% in January from a year ago, according to Home Builders Research.

Jai Kreyl recently agreed to buy an 1,900-square-foot house in Summerlin, a master-planned community in Las Vegas. Ms. Kreyl, an executive assistant at a time-share company, was assisted by Joanne Stucky, an agent with Realty Executives of Nevada who has made a business out of finding cut-price properties. Similar houses were going for over $400,000 in 2005, the rough market peak in Vegas, but Ms. Kreyl is paying $270,000. "For 20 months I've been telling my friends I wanted to buy a $400,000 house for $250,000," she says. She acknowledges that prices may fall further but adds, "I'm still buying at a price I can afford. And I do believe that in three years' time, the market will just roll around."Real-estate brokers say the top sliver of the market nationwide -- houses priced at roughly $3 million or more -- remains firm. Still, some wealthy buyers are holding out for discounts. Bharat Desai and his wife, Neerja Sethi, co-founders of the technology-outsourcing firm Syntel, shopped for a year before buying last month an 8,900-square-foot oceanfront condo on Fisher Island, in Miami Beach, for $12.36 million. That was down from the $17.5 million the seller started out asking in January 2007, and below a $14 million offer the seller rejected in April, says Chris Bluntzer, a broker who handled the transaction with his wife, Elena. "My feeling," he says, "is that the smart money is stepping in."

Not the bottom yet?

[Anthony Bonner]

still waiting for the bottom!

[Eatmywords]

We were about to close on an 800 sq ft condo in Kings Point, Delray Beach, for a family member last month but issues arose. KP is an over 55 community with a mammoth clubhouse, a hundred activities and services including a performing arts theater, indoor outdoor olympic pools, huge gym, restaurants and a golf course. Just not one of the newer ones.

The agreed selling price was $11,000 (no, I’m not forgetting a zero) with a mtnc of $350 mnthly.

Lots of similar units avaialbe.

Is that nuts?

[Anthony Bonner]

My dad just rented a bunch of commercial space (basically a big metal shed for some assembly work) - he's paying something that similarly sounds like he left out a zero.

He bought his condo for less then it originally sold for when it was completed in '91 - and now he thinks he got a bad deal.

Florida, Vegas, Phoenix all have a similar problem - when land has no scarcity value because of zoning permissiveness, and there is an excess supply of housing because of a building boom, there is no lower bound on prices.

[Orik]

When we bought stuff in Mexico someone was telling me I should buy in AZ or FL instead as prices were better. Now prices in AZ and FL are much better while Mexico has stayed more or less the same (except the peso is up some). Then again, the expropriation risk in Mexico is a bit higher.

Eatmywords - look at it this way - it's about $5500/year in rent ($4200 maintenance + the occasional repair + more or less amortization of the $11,000) and there's substantial risk that the community association will need to increase maintenance if units are left unsold, owners default on maintenance, or major repair is needed. How much is rent for a similar unit down there these days? (or do you just walk into one?)

[Anthony Bonner]

I've always heard that back during the last NYC real estate crash some co-ops in buildings with bad finances were essentially free as long as you could prove an ability to deal with any assessments coming down the road.

[Eatmywords]

When we bought stuff in Mexico someone was telling me I should buy in AZ or FL instead as prices were better. Now prices in AZ and FL are much better while Mexico has stayed more or less the same (except the peso is up some). Then again, the expropriation risk in Mexico is a bit higher.

Eatmywords - look at it this way - it's about $5500/year in rent ($4200 maintenance + the occasional repair + more or less amortization of the $11,000) and there's substantial risk that the community association will need to increase maintenance if units are left unsold, owners default on maintenance, or major repair is needed. How much is rent for a similar unit down there these days? (or do you just walk into one?)

We found him a rental, in the development, same unit, for $500 a month. Nice estimates!

Agree on all your points. A risk like any other investment but the downside is low enough esp since they’re flexible on renting and its maybe the most affordable retirement community of its kind in south Fla

[Orik]

I've always heard that back during the last NYC real estate crash some co-ops in buildings with bad finances were essentially free as long as you could prove an ability to deal with any assessments coming down the road.

The funny thing about nyc is that there are always hundreds of personal little crashes happening, and you can still get those same terms if you're good at digging information up.

[Rail Paul]

I've been wandering around the FL keys for the last few days, and the number of FOR SALE signs is staggering. Many have "bank owner" on the sign.

One upscale neighborhood in the Islamorada area probably had 1/3 of properties with signs. Venetian estates, I believe. Dock access behind each property, four and five bedrooms, newer (on pilings) construction. Just about all of the condo towers have "units for sale" signs out front.

[E.L.A.]

The bottom is often like a recession in that you know you've hit it after it happens.

That said, the bottom is reliant upon several things. Just a few are -- while prices may not be "dropping" any longer -- there is still the question of massive supply. Some markets have incredible amounts of supply. Are there buyers? Sure there are. Are they qualified buyers -- meaning money in hand? Not so fast. Credit markets are still in turmoil and banks that do have money are being a lot more selective as to who they lend to. Requirements are more rigid, strict, narrow and so on.

Good thread. Thanks.