Average consumers are sometimes locked out of preconstruction sales of condominium units, but a new online auction site aims to change that, said Tony Isbell of Condobid.com.
Isbell, executive vice president of operations for the upstart CondoBid.com auction site, said that developers sometimes offer first dibs at new condominium units to “a select group” that can include friends and business associates.
“We are replacing the offering system that developers are using, which we feel is unfair to the general public,” he said. The current system employed by some developers, he said, “is very similar to an IPO with a stock offering – if you’re not in, you’re not going to get in.” Investors who buy in the early phases of construction will sometimes sell the property once a down payment is due, and in some cases “they will resell or flip those units to someone else – and sometimes it’s another speculator,” Isbell said.
The end result is that condo prices can rise substantially before the units are even occupied.
The goal with CondoBid is to provide a “completely open, fair, level playing field” to buyers of condo units put up for auction, Isbell said.
Steve Presley of SmithMorgan, the holding company that is a parent company to CondoBid.com, said, “Our belief is that even though high demand and rising prices make it easy to sell Gulf Coast pre-construction real estate to people already in the loop, opening the process to the public is beneficial to everyone involved. It is our intent to level the playing field for all investors and condo buyers.”
CondoBid, which formally launched this month, focuses on the Gulf Coast region. The new auction site also is affiliated with national property auction site RealtyBid.com, which specializes in bank-owned properties, and Isbell also serves as president and CEO for that company. Another affiliate, LuxuryBid.com, focuses on luxury-home auctions.
RealtyBid has assisted in the sale of about 1,000 properties a year since its start in 2001, Isbell said. Stewart Mortgage Information, a subsidiary of Stewart Information Services Corp., purchased RealtyBid in August 2002 but the companies parted ways on Jan. 1 this year. Officials at Stewart were not available for comment today about the end of this relationship.
In an announcement about the launch of CondoBid, company officials noted that the pre-construction period is the time “before groundbreaking when investors and end-users with connections are allowed to purchase specific condominiums, because the construction lenders do not allow developers to begin a complex until most of the units have been pre-sold. As a result, complexes are virtually sold out before construction begins, leaving average buyers out of the process.”
Real estate agents also can be largely excluded from the pre-construction sales process, Isbell said, and another aim of the company is to open this market up for a variety of agents who can make a commission on the sale for bringing clients to participate in the auctions.
CondoBid is offering auctions for pre-construction units, resales of soon-to-be-completed units and completed units. “We have access to several developers through previous relationships that allows us to get units that other people cannot get to offer,” Isbell said.
CondoBid auctions feature a 21-day online bidding process, and every bid is visible to other registered bidders. The company receives a fee for handling the auction details and also receives a commission based on a percentage of the sale price.
Brad Hunter, director of the South Florida market for Metrostudy, a company that provides housing market information, said it’s typical for developers to slowly release units for sale during the pre-construction and early-construction phases of a project. Some companies will conduct “lotteries or something similar to that” in which prospective buyers are given the opportunity to purchase units in a pre-construction sales event. There are reports of condo sales in which the units sell out “an entire building in a weekend or several days,” Hunter said.
One development, the Reunion Resort & Club of Orlando, reportedly sold $170 million worth of land in less than six hours to 790 property owners during a sales event in March. The sales included 48 condominium units and 712 homes.
“In the past couple of years I think those who bought in those lottery-type situations did exceptionally well. Whether or not this is going to hold for the next year is in question. Right now there’s a feeding-frenzy among investors,” Hunter said. While many investors may have the mindset that “anything I can buy (pre-construction) is going to make me a lot of money – I think a lot of those people are going to be in for a surprise.”
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When and if the market turns, these investors may not be able to flip the units as quickly as they had hoped, Hunter said.
While there have been scattered reports of quick sales of condominiums and other properties in the Gulf Coast region, the Florida Association of Realtors and the Florida Home Builders Association do not track any statistics on how many units were sold through auction or lottery-type processes. And Mike Cochran, director of the Florida Division of Land Sales, Condominiums and Mobile Homes, said that it’s up to the developers how they want to sell the units. “How that (developer) goes about selling a unit in that condominium (project), we don’t regulate that.”
Harold Gallo, director of marketing for The Related Group of Florida, a development company that has built several condominium projects in Florida, said that its property sales don’t involve giving numbers to prospective buyers who wish to participate in the purchase of units.
Rather, “we take names of those prospective buyers and when we open our project they are invited to attend,” he said. Gallo had no further comment about how this list of buyers is selected, deferring other questions to another office that did not respond this morning.
While CondoBid has a small inventory of properties available at this time – 16 were listed on the site today – Isbell said he expects a steady stream of properties to be auctioned off on the site. “Inventory is not going to be an issue,” he said. The current inventory of properties includes condominium units in Panama City Beach, Fla., and Gulf Port, Miss.
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