Tradewinds Auction – Results & Analysis

This turned out to be the most “interesting” auction to date in Orlando. A complete contrast from downtown Solaire last month, and nothing like the Lake Mary auction of last year, the Tradewinds auction in MetroWest finally solidified the notion that right now, your average home buyer is both terrified – and somewhat clueless.

A pre-auction show of hands revealed that most attendees had never attended a real estate auction before; most clearly came without a Realtor and few had done their “homework” to any meaningful degree.

I would guess that about 350 people turned out for the auction. A good handful were no doubt Tradewinds owners – watching eagerly from the sidelines, waiting to see just how hard they were about to get screwed. Pretty hard as it turned out.

Tradewinds AuctionThe “high bidder’s choice” auction began with the 2/2 floor plans, but despite everything, the auctioneer couldn’t raise more than $105k for any of them, a very disappointing start for the developer. These were the first ‘steals’ of the day – with a couple right on the lake. I could almost sense the collective shock under the marquee from those in the business – and it all went downhill from there.

The 1/1’s were next under the gavel and quickly bottomed out at $65k. A 10% “buyers premium” was then added to each high bid price for the auction company (arguably, the biggest rip-off of the day.)

Although touted as a “100 Absolute Auction” it quickly became clear that the developers would not allow pricing to fall below a certain level (can anyone explain that?). Once that bottom was reached ($85k/$65k) all potential buyers were allowed to jump in and take a condo at that price before the auction was shut down. All in all, about 40 of over 200 hundred available condos were actually sold.

This bizarre state of affairs seemed to leave nobody really content, and was the most telling snapshot to date of the confusion in the condo market right now. Clearly, this was a less than perfect result for the developers both in terms of revenue raised and units sold, but what really shocked most of us was the fact that more buyers still don’t recognize a good deal when they see one. And while there is still a huge disconnect between the expectations of both buyers and sellers – in my view, the buyers were the ones who got it wrong yesterday. $85k for a 2-bedroom, 1000 square foot condo with high ceilings on one of the most beautiful lakes in MetroWest — and you don’t want it??

I over heard a few comments from folk who were clearly not planning to jump in until the bidding dropped to $40k. Guys, that was never going to happen. This was a marketing event, not a liquidation bloodbath. I’ll be the first to admit that prices in many, many cases are still to high but if you were looking for Dollar Store or Craig’s List pricing yesterday you came to the wrong event. Yes, it IS a buyer’s market — it’s NOT a housing-revenge, Black-Friday-style, free-for-all grab-and-go (yet). And if you think the market will see these condos come any cheaper (other than short-sales /foreclosures) then I’m going to stick my neck out and call you wrong. These were without any doubt the lowest prices seen for a product like this since the bubble burst, and this was the first Orlando condo auction I’ve seen where real ‘auction deals’ transpired – if only a few. Congrats to those that got in. You got it right.

Ok, now tell me I’m wrong and beat me up.

15 Comments

  1. Mr. Marcus Burke
    At the month of November of 2007 part of my job is looking for a deal on the properties, I remember made an offer at that time for this property in particular, for that time was a sales associated who negotiated with me.
    I propose an offer if they are available on sale all the inventory for a 75K a key, he don’t even want negotiated and walk away from the offer.
    The customer in that time was a keep the property for rental income, this event don’t even surprise to me.

  2. Marcus,
    I’m not too familiar with MetroWest but it sound like what is happening up there is also down here in South Florida, although we do not auction anything…

    True, buyers do not know a good deal when they see it, and that is unfortunate, regardelss of how much education you provide.

    I had an investor make a cash offer to a developer on the spot for less than 50% of what the units were selling for. The developer kindly escorted the foreign national who had absolutely no clue about values to the door.

    The market here has picked up dramatically with both first time buyers, and those trading up. With the federal government throwing everything at the economy, it is no doubt those who purchase over the next 6 months-Year are going to enjoy great appreciation in the their property.

  3. Marcus,

    Thanks for the update. One question though: What was the asking price on equivalent condos prior to the auction? In other words, how good was the immediate deal?

    Dennis

    I believe from $100-130k on the 1/1s, and $120-160 on the 2/2s?

  4. I had debated whether to attend the auction or not. I expected the units to sell for considerably more. I ended up buying a 1 bedroom as an investment and am *very* comfortable that I will make money in a short time when the market turns around.
    I am glad to see that you agree. The common areas (clubhouse, pools, lakeside grilling area) are all tastefully done and in perfect condition. I think the people who bought this weekend will do very nicely when the market turns. I have always thought that MetroWest got a worse rap than it deserved for crime. With such a large number of residents, there are bound to be a few crimes, but all-in-all I would feel very safe there – even walking at night, etc.
    I have to say that I wasn’t impressed with the auction company itself. There seemed to be lots of errors, confusion, etc. The auctioneer would read back a bidder number and get it wrong, etc. Once I had my winning bid, I followed the aucion employee to the front to make sure he got my desired unit info entered correctly. With these units at this location being offered for sale, I’m not sure they did very well marketing the properties either. I know the market is horrible, but there should have been more interested buyers at these prices.

  5. First, a “good deal” is determined by the market. The people who were there looking for a place to live for the next 5-10 years did fine (although the people who won the first bids on each size should not be feeling too bright right now). They now own their home for about what they would pay in rent on a comparable space.

    Anyone who was there as an investor did the right thing (I believe) by staying out of the mix at those prices. One, with so many units having been vacant, what kind of shape is the HOA in? Two, the rents noted on the auction guide just can’t be realistic to expect going forward. To get one of those units rented immediately and kept that way month in-month out would take a good 10-20% reduction on those rates in my opinion. Obviously there is a glut of apartments/condos for rent in the area or else the developer would have had more rented. Also, you have similar sized units in much nicer complexes in the neighborhood languishing on the MLS at prices just a tad above the max auction price at Tradewinds.

    Also, anyone interested in grabbing a unit at the floor price ($65k 1BR, $85k 2BR) was an absolute idiot to get up and stand in that line. Once the minimum acceptable price was established, they all should have come back and gone straight to the developer on Monday and saved themselves the 10% “buyer’s premium”.

  6. Some good points Rob, except I’m not sure this was ever intended (or billed) as an “investor opportunity”. Investors do their own math and if the price is right, then they make their move. At least one of my clients did this on Saturday – and looking at his math, I think he’ll be ok. I agree about the rents – one had to factor in for some reduction there, as well as factoring in for the 10% buyer’s “premium” when making the final bid. As for Monday morning, what you say is a great idea in theory (and I think some will do that), but what if the remainder are bought out in a bulk next week? The opportunity will be lost. And if I were the developer, that’s exactly what I’d be looking to do come Monday morning…

  7. Thanks for the reply.

    I *thought* that I had read/heard that the developer had already tried and failed to offload the units in bulk and that is what prompted the auction. I do not know if I got this from any reliable source or if it is just scuttlebutt that I picked up milling about before the auction.

    A couple of questions for you…I saw a news report that said about 100 units sold, but by the time I left the place was pretty dead and I only had recorded about 40 or so having gone. Any way to determine what the actual figure was at this point?

    Also, will all the auction sales appear as comps in the near future?

  8. Rob: As far as I’m aware, it’s not so much that he “failed” to offload them, rather that the bulk offers were so low that it seemed possible that an auction might actually produce better results. Looking at last year’s auction at the Village Townhomes and more recently, Solaire, it wasn’t beyond the bounds of possibility. For whatever reason, this one just didn’t go that way.
    As for the total numbers sold, those should become more apparent this week, and others will no doubt chime in on that. As for comps, yes, technically they will become precisely that in 30 days, assuming they close – but in reality, anyone looking at comps will have to reconcile those new numbers with prior “real” sales since we all know that auction numbers represent a special kind of “distressed” sale. I know there are some that might disagree with me on this but appraisers would almost certainly design in some mathematical accommodation for this situation, the same as they would with a foreclosure or short sale. Perhaps someone who understands the appraisal side better can clarify this.

  9. What does going comp in 30 days mean? I am new to property investment and am looking to educate myself.

  10. A “comp” is short for a comparable sale, meaning a recent sale of a property with similar characteristics in the neighborhood of the property in question. They are used by appraisers when trying to determine current value of a property, and by homebuyers to see how much per square foot other homes in the area have been going for prior to making an offer.

    I was wondering if all of these auction sales would appear as comps to anyone looking at purchasing other condos on the market in the MetroWest area, thus lowering their value to the purchaser.

  11. Hey Rob, with a ‘distressed’ sale like this (i.e. an auction) any appraiser looking for comps may not include special event auction prices. Of course, there will be a slight lowering in the minds of everyone, but they should not be used as direct comps.

  12. I was thinking of the comps not so much from the appraiser side, but from Average Joe’s agent pulling them prior to him making an offer on a property.

    Tough to see someone offering $110/sqft when there are 40 comps at $90/sqft staring him in the face.

    Just not sure if a Realtor would use the same distinctions as an appraiser in evaluating comps.

  13. Very funny to read this and then go to the property appraiser site and look up the condo sales now in Tradewinds. As much as you folks who earn your living in real estate want it to, the market won’t be booming anytime soon. Too many people getting a slice of the pie and prices are unrealistic considering the actual cost of materials and the cheap ilegal labor building these projects.

    Even at the current prices these condos aren’t worth it. Much cheaper and less hassle to rent than to own.By the time you pay the payment,HOA,Taxes etc…you would be much better off renting and banking the extra cash and investing it elsewhere.

    I have a family member renting a 2 bedroom in Tradewinds at 800 a month and they aren’t locked into it for more than their lease term.

    MetroWest is turning into the next Pine Hills (I live there in a condo I paid 25K for) because of the increasing number of rental properties. Crime escalates in high density rental markets and that area and its proximity to the low wage tourist attractions is full of Illegal imigrants who bunk up with a bunch of others so that even though the rents are higher than they are elsewhere and the buildings are nice its diluted by the 6 people paying it.

    If I were to invest into condos I’d buy in the downtown area highrises where those younger doctors are going to want to live

Leave a Reply

Your email address will not be published. Required fields are marked *