Bressi Ranch...16 new homes to be auctioned off 10/21/06

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Submitted by lendingbubbleco... on October 7, 2006 - 2:22pm

From the Saturday 10/7/06 Union Tribune's "Change of Address" advertising supplement...

"(16) Fully-Furnished Designer Model Homes"

"Previously listed from $849,500 to $1,422,000"

Smells like a SCAM to me...looks like these are all Lennar homes, too...gotta get short again on the next big uptick.

Remember, I am the one who reported back in March about Bressi being off 25%...maybe it's going to be more clear that I wasn't far off and that I'm not just a jealous bitter renter. In fact, I remain a smug, confident, non-REIC employed (thank God) renter and will for several years to come, most likely.

Submitted by Chrispy on October 7, 2006 - 4:12pm.

Good call, LBC. BTW, who would buy a fully-furnished home? If you had enough money to buy one of these dogs (even at an auction price) wouldn't you want to furnish it your own way?

Submitted by MaxedOutMama on October 8, 2006 - 7:46am.

I found the auction page. I'm not sure if the furniture comes with the houses, or if they have just been "staged" by firms with a deep grudge toward the homebuilder. You can see the images here as html. The one with the black dining room with those black things on the table looks like it's a set for some Hollywood movie entitled "The Blair Witch House Hunt".

Lime green sitting rooms? Unbelievably vast wallpapered bathrooms in tragically poor taste? Missing bathroom doors? Ugh. I had a (very personal) strongly negative reaction to what seemed to me to be monuments to bad taste, bad values and bad family karma. In the main these houses did not look liveable to me; they reminded me of a story my mother once told about neighbors her mother used to take her to visit as a girl. She was quite vehement about the fact that the house was not for living. She said there was nowhere she felt like she could sit down, and she used to flee to the yard and play with the dog, who she felt was similarly afflicted. She said it was an unhappy house with no room for people.

I think perhaps these houses aren't selling because they are not well designed, and the poor decorating effort reinforces the bad design. Houses built for ostentation still need to have liveable nooks in them. I would caution about placing too much weight on the eventual selling prices as a reflection on the overall housing market.

Submitted by Bugs on October 8, 2006 - 9:21am.

These homes are all appear to be owned by an investor group that made a bulk purchase of many of Lennar's model homes in Bressi Ranch in 02/2005. The upgrades and options represent the best of what Lennar was offering for these projects. Model homes often sell complete with some or all of the furnishings, depending on whether the buyer wants to pay for them.

It looks like at least some of these homes are currently listed in the MLS, generally at prices that would result in a break even or a slight loss from their original prices after considering brokerage fees. I assume the original purchases all involved lease-back arrangements with the seller. Many of the lease-back agreements I've seen involve exhorbitant rental fees that far exceed what a typical tenant would normally pay. More than enough to pay the mortgage and insurance. If this is the case here, their losses may not be that high - they could possibly break even or clear a small profit.

Of course, all this assumes that the "investor group" isn't another entity of Greystone/Lennar itself. If they actualy are investors I'd imagine they're not that happy with the performance of this particular investment.

Submitted by JES on October 8, 2006 - 1:39pm.

So there is the possibility that an investment group affiliated with the builder actually made a bulk purchase of homes in order to create the perception that homes were selling? Nothing surprises me anymore. Any idea what price the bids will start and if there is a minimum bid for these homes?

On a side note, did anyone see the UT Homes section today? There is a light orange commentray section every week that is filled with realtor propaganda. Today's article is the worst example of blind misinformation I have ever seen. The realtor blames the media for creating the perception that prices are falling, and even denies that the market is falling. Every single paragraph is filled with lies! And he is from San Marcos; a city that is crashing very badly in many areas right now. The home I sold in March there is now selling for 100k+ less - someone tell this guy to wake up!

Submitted by Bugs on October 8, 2006 - 2:15pm.

I have no idea if this particular investor group is directly or indirectly affiliated with Lennar. I do know that this kind of thing has happened in the past.

What's interesting is that when there's a new subdivision, the first couple of closed sales are generally considered to be the most indicative comps for the homes that get finished later. I know for a fact that these homes were used by appraisers in appraisals of subsequent units from those projects - I know this because I personally reviewed some of those appraisals.

The thing is, an investor group can work a deal out to buy a model home at whatever price the builder wants to set, and then recover some of that sale price in the way of excess rents during the 12 or 18 month period that it takes to sell off the remainder of the project.

For example, I recently saw a model home purchase from a builder (NOT Lennar) where the leaseback was for a 12-month term with 18-month option and the rental rate was about 350% of what the home would have rented for had it been exposed to the rental market. In this case, those excess rents would have amounted to over $120,000 just for the first 12 months. That payback essentially amounts to a sizable sales concession, and that sales concession would be invisible to every appraiser and every buyer who came into that project thereafter. There's no way anyone coming in from the outside would have found out about the true sale price of that model home.

Sneaky stuff. That's just one more reason why I know there's a lot of room in the current prices for contraction. Sure, some of the costs have gone up in response to the demand, but the builders are also using various ways to hide a lot of profit in their transactions. At this point, I'm pretty sure I'd never buy a new home from a subdivision builder, any more than I'd let a new car dealer sell me a car based on the monthly payment.

Submitted by Colombo on October 8, 2006 - 3:47pm.

Can someone search the MLS or County Records on these homes and find out who the owner(s) of record is (are) and post it to the board? If owned by a corporate entity, a quick search at the courthouse will reveal the fictitious business name and the "true" owners. If in fact these were sham sale/leasebacks designed to prop up unsupportable comp prices then there is serious fraud afoot.

Any SD attorneys feel like forming a class action? The class would obviously consist of any other purchasers in this development who paid inflated prices based on sham comps.

Very shady stuff indeed.

Submitted by JES on October 8, 2006 - 5:14pm.

Just to clarify. The builder sells the home to an investor group at close to asking price, but then the investor group rents that house back to the builder at 350% of the typical monthly rent? So the builder is effectively funneling the discount back to the investor group each month. Did I get that right?

If this has been going on legal action really does need to be taken. If there were a specific example that could be confirmed it would make headlines, I'm sure of it. To take this Bressi Ranch case as an example, what types of things would one look for to confirm that it is indeed a scam? EG: The homes have been vacant for a year, or all have been rented for a year? Perhaps they were all bought at list price at a time when discounts were being given, therby raising the question of why the investor group didn't get a lower price. Even better, if the monthly rent records of the payments from the builders to the investors could be gotten a hold of...

Submitted by Bugs on October 8, 2006 - 6:46pm.

Before we're off to the races I should clarify a couple things:

1. I have no idea if the company that owns the houses in this auction is affiliated, directly or indirectly, with the builder.

2. These homes have not sat vacant; they've been used by Lennar as the model homes for their projects. That means that when a buyer is out shopping for a new home, they walk through one of these tricked out models with all the options and upgrades. A model home is the equivalent to a demo at a car dealership.

3. While I assume there were leaseback agreements with Lennar, I have no idea what the rents were or whether those payments exceeded the market rents for a fully furnished home (the excess portion being that portion that could be characterized as an undisclosed payback). The example I gave was of a DIFFERENT builder, NOT Lennar.

4. If an appraiser uses a model home as a comparable for one of the later units, they know to consider the effect on the sale price of furnishings and options packages, as those will vary for all the units in the project. What no appraiser can know about a model home sale that occurs prior to the other sales in the subdivision is whether or not the sale incluldes a leaseback, what the rental terms are and whether those rents are typical for what the residential occupancy of that unit would be during that time.

5. Regardless of the sales inside the subdivision, typical appraisal practice is to also include at least one or two sales from different outside subdivisions as a cross check. So in terms of pricing a builder can't get too far out in front of their competition - even in an overheated market - because it's still an open market and their buyers still have options.

Like I said, this situtation might be a little smoky or it might not, but there's no point in getting excited about it until you see the fire. After all, there is the possibility that what we can see is all there is to see.

I still wouldn't buy a new home from a subdivision builder, though.

Submitted by powayseller on October 8, 2006 - 9:23pm.

Bugs, besides the shoddy construction,why don't you like new subdivision homes?

Submitted by Bugs on October 9, 2006 - 9:19am.

It's not the homes themselves, it's the marketing machine I don't like. There's nothing wrong with an average quality home built on a mass scale. If the initial designs are functional AND if the different floorplans and elevations in the project complement each other then you can end up with a neighborhood that has some homogeneity.

The marketing machines are something else, though. Many of these builders treat their homes like they're cars, offering a base buildout that almost nobody will accept at that price. Then they price their better finishes and buildouts as a separate profit center that allows them to jack up their average price by 10% and the homes with real options by as much as 25%. Those markups are outrageous in relation to their retail cost, let alone the wholesale costs the builder gets them for. It's the classic bait-n-switch.

As for Bressi in particular....
I'm not feeling Bressi Ranch because they mix and match their elevations and floorplans to result in a disjointed "feel" for the neighborhood. I realize there are people who decry the idea of cookie cutter subdivisions that only offer 4 floorplans, each with the one elevation; but I also think it's possible to offer 3 elevations of similar theme for each floorplan. Each of the Lennar projects at Bressi mix Tuscan, Ranch, and that wierd Traditional thing they've got going. I find that mix to very disorienting. Nobody could drive into that neighborhood and think of it as a neighborhood that matured over a 30-year period, so why try?

But that's just me as a consumer. The appraiser side of me doesn't care one way or another because.....we basically don't care one way or another.

Submitted by PerryChase on October 9, 2006 - 9:58am.

I drove through Bressi Ranch recently when I was up in Carlsbad. I actually like the mix of house styles. In my view, it's better than the uniform California/Spanish style that's so common in San Diego.

I have to say that the new tract developments of today are much better in design and contruction quality than those of 20 to 30 years ago (except for the price and location).

Mass tract developments are one reason why Americans can live in spacious confortable homes (as compared to other countries).

Submitted by JES on October 9, 2006 - 10:14am.

Bugs: I second your comment about the mis match of themes and home styles at Bressi Ranch. I remember driving by there with my wife a few years ago and looking south from Palomar Airport Rd. towards the NE part of Bressi Ranch, near the 'grand entrance'. The mix of colonial, craftsman and other style homes just didn't look right together. I've driven through there a few times this year and I also don't like the narrow roads, alleys behind homes, quality of construction, and cookie cutter feel of the neighborhood. These issues are all the more disturbing when you compare Bressi to other neighborhoods like Rancho Carillo and even Aviara in Carlsbad where you may pay a little bit more but get a world of difference, and in some cases no mello roos (Parts of Aviara).

Submitted by Bugs on October 9, 2006 - 10:20am.

So right there we have the "different strokes" effect: PerryChase likes the mix and JES doesn't. That's why appraisers don't care, because they recognize that tastes vary.

Submitted by farbet on October 19, 2006 - 3:19pm.

Anyone going to the Bressi Ranch Auction this Saturday?
I am curious to see the bidding process and the results.

Submitted by no_such_reality on October 19, 2006 - 4:30pm.

What's the reserve on the auction. There's a small development in Huntington Beach, like 9 units total, 3 of the big ones remaining $1.6-1.9M that are being auctioned on Nov 4th. Two have reserves, one doesn't.

If the auction has a reserve, IMHO, it's not an auction.

It's basically a ploy to make people think they're getting a deal when really, they're just hitting the sellers min-bid.

Submitted by an on October 19, 2006 - 4:45pm.

no_such_reality, I don't know why you think auction with reserve are not real auction. Reserve is just there so that seller have an option not to sell to too low of a bid. If the reserve is too high and there was someone who bid on it, then too bad of them if they got caught up in the bidding war. If you do your research, then you, as a bidder, should have a max bid on an item/house as well. So if your max bid>reserve, then you both win, if not, then the house/item doesn't sell and the seller will lose some money for putting it on auction.

Submitted by no_such_reality on October 19, 2006 - 7:17pm.

AN, it depends on the reserve and I understand the purpose, in the event the event has too little interest, the seller doesn't let it go for 10 cents on the dollar.

However, in the current market, I suspect the reserve is really just about the buyers asking amount at this time and in sense, means the auction is a waste of time. For the small auction near me, I suspect the reserve is in actuality, 80-90% of their current asking price that they haven't been able to get for the last several months.

Since the Bressi is larger, hopefully, their reserve since there are several properties is lower.

Submitted by jimklinge on October 20, 2006 - 9:37am.

Bressi's auction will be having reserve prices, but they're not releasing them until the day of the auction.

What does that tell you? They won't be too low, that's for sure.

I'm guessing they won't sell one of them at the auction.

Jim the Realtor

Submitted by an on October 20, 2006 - 10:15am.

no_such_reality, I agree that if the reserve is too high, then it won't sell. But not only will it not sell, the person(s) who put it up for auction will lose money since it cost money to put it up. That's the whole point of auction, only the realistic sellers will get their property sold. I'm sure most people who come to bid only car about those properties anyways. Be it 10% of the properties being auctioned or 100%.

Submitted by JES on October 20, 2006 - 10:45am.

Sounds like a great news story, even if they do sell all the homes. Let's get the NC times to show up. Can you imagine the headlines if they don't sell any!

Submitted by farbet on October 20, 2006 - 10:52am.

Yes, we should all go and just remain silent. No bids. They probably will have their shills to bid up the prices!!
If no takers surely they will have to go to plan B---etc
Bressi will send a message to the other developers " come on down".

Submitted by farbet on October 20, 2006 - 10:56am.

Does any one know the time of the auction?

Submitted by Carlsbadliving on October 20, 2006 - 11:39am.

Here's an article on the auction from today's UT.

Submitted by wawawa on October 20, 2006 - 5:18pm.

I am going to attend the event and see what is going on.
According to San Diego County recorders office this properties are owned by MODEL HOMES PARTNERS L L C .

Submitted by no_such_reality on October 21, 2006 - 7:30am.

I was thinking of coming down, but won't make it. Can you please report the following back to the group?

How many qualified bidders with paddles?
Starting and final bids on each house?
Whether or not the bid met minimum on each house?

Also, just curious, are you pre-qualified bid? I was wondering if they'd let you in if you don't have a bidding paddle, hence my reason not to make the trip.

As a side note, Bressi has a $205/HOA aleady and a 1.38% to 1.50+% property tax rate. That adds roughy $1500/month in HOA and taxes to the monthly mortgage at their supposed value.

Submitted by wawawa on October 21, 2006 - 10:03am.

I am not pre-qualified, I just want to see how many fools there are buying these overpriced homes. I was told that I still can attend and watch the bidding despite that fact that I am not bidding, we shall see.

Submitted by wawawa on October 21, 2006 - 3:31pm.

Not a single one of them was sold.

I went to the auction and there were about 110 people showed up. Only 10-15 people were holding “auction number” at their hand and the rest of crowd were just observer.

Last night I looked at the San Diego County records web-site and found out that these properties were sold on Feb. 2005. Price paid for these 16 properties were in the range of $950K to $1.31M.

Highest bids were in average $250K-$300K less that the sold price of Feb. 2005. As a face saving measure they called these bids “subject to approval”.

Lady who was sitting beside me told me that most people in the auction are residences of Bressi Ranch who came to see how much their properties worth. That explains sad and somber faces that I saw at the end of the auction.

Owner of these properties who are investors/lawyers from L.A. are screweeeeeeeeed.

These smart guys are going to lose $300K-$400K on each property. Lawyers, Huhhh, it could not have happened to any better groups of people.

Submitted by farbet on October 21, 2006 - 4:00pm.

Thanks Wawawa. I had planned to go.
As you wrote they are truly screwed. Hope The other developers take notice. 40% mark up is ridiculous.
Thanks once again

Submitted by JES on October 21, 2006 - 4:13pm.

Just to clarify - Do you think that the bids will be accepted? You said none sold, but you also said that some people bid 250k or so below the previous sold.

Submitted by Bugs on October 21, 2006 - 4:46pm.

I wonder if the makeup of the audience had any influence on the bidding?

I don't think the sellers need to take $200k losses. They'll probably just go back to marketing the homes in the MLS, probably at the current list prices -10% discount. Maybe throw in a car as an incentive to keep the recorded price up. Those prices probably would drum up some impatient suckers.

One thing's for sure - this group basically has to sell and get ou, and sooner is going to be better for them than later. These properties have nothing to do with providing shelter for the owners group. It's strictly about the money and I'm pretty sure they've figured out that the longer they wait the more they're going to lose. They wouldn't have owner-occupancy financing terms on these homes as they were not purchased for owner-occupancy. For all we know their loan terms may have a short term call date on them.

The rents they were getting from Lennar were probably enough to cover the payments going in, but there is no rental income coming in right now, so how ever many partners there are would be covering the entire mortgage payment out of pocket between them. If they try to rent the homes out alls that does is reduce their out of pocket losses. Of course, those payments would all represent permanent losses once they're paid out.

Just wait until 16 fully-decked out homes in Bressi Ranch do end up selling for 15% or more off their 02/2005 sale prices. I'll betcha anything that prompts a few other flippers in the project who are already upside-down to walk, too.

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