dumb property developer/investor

A house was purchased pre auction May 2011 in Niddrie Vic for $880,000...2 BED 1 BATH RENOVATED HOUSE ON 650sqm BLOCK..

They demolished the house late last year and there stood an empty block for 9 months.
The house was listed for auction about 4 weeks ago with plans and permits to build 2 4 bed double storey townhouses. The property price range was set at 650-740k...the auction was today and property passed in.

Does it get any dumber than this?? Best case scenario the vendor will lose $180-190k including stamps and agents fees if they sell at the high end of the range!!! Oh my!