Wednesday, February 13, 2008

A Local Anecdote

We had some good friends over for drinks this weekend and, as usual, talk turned to real estate. We mentioned that we’ve had our eye on a house that is currentlyfor sale in their neighborhood, and not only did they know the house, they knew a bit about the owner. Their comments were:

"That house is owned by Mary (not her real name). She made a bunch of money as a mortgage broker and bought six investment properties over the past few years. Her income has dropped recently and so she's trying to thin out her holdings and she listed that house a few months ago. Her original plan was to fix it up to get top dollar, but now she's just hoping to get out from under it fast. She's already dropped the asking price once, and will probably drop it again."

I can't help but think we're going to see more and more stories like this over the next few months (and years). If you were a buyer interested in this house, what would you do? Wait? Submit a lowball offer?

23 comments:

bearlee said...

So what did she pay for it?!?! Thats where I would start my thought process. Come April/May when things usually pick up offer her 10% less. If she does not bite then watch it sit through late August and the usual good time to sell then offer 20%. I guess it comes down to how out of line her purchasing price was cuz she will be less likely to budge if she herself paid way too much for the fixer.

Unless its a great house in a sweet neighborhood and priced right (subjective) it aint going anywhere.

Patient Renter said...

I would (and will) wait a few more years. Why buy something that's going to keep dumping in value for years to come?

Ian said...

patient renter: given your screen name your comment comes as no surprise!

Ian said...

bearlee said: "So what did she pay for it?!?! Thats where I would start my thought process. Come April/May when things usually pick up offer her 10% less. If she does not bite then watch it sit through late August and the usual good time to sell then offer 20%. I guess it comes down to how out of line her purchasing price was cuz she will be less likely to budge if she herself paid way too much for the fixer.

Unless its a great house in a sweet neighborhood and priced right (subjective) it ain't going anywhere."

ok, let's throw some numbers in here to make it interesting.

she paid $230k for the house 5 years ago. it's now listed at $450k and has been for at least 6 months.

assuming she paid full price, and that rent covered all her expenses and she didn't make any improvements, that's a 14.3% annual ROI.

assuming she put 30% down, and again assuming that rent covered all expenses, that's a 31.1% annual ROI, or only 28.8% if she has to pay 15% capital gain taxes.

the fact that his house hasn't sold just speaks to the amount of greed that is out there, if this owner is holding out for a >30% return and is risking watching the market tank. drop the price, sell it and be happy! sheesh!

Anonymous said...

It depends on how much you want the house. The only way list prices will start aligning with real value is if buyers offer prices adjusted for where they would be without all the speculation.

I live in Beaverton and have seen two houses in a 2005 subdivision go on the market for $425K -- way overpriced for what they are in a neighborhood where I've counted over 30 for-sale signs on properties that just aren't moving. They're priced at the assessed value, which will only decline when houses start selling in the area. That will happen at lower prices.

Personally, I say offer a low-ball offer, one aligned with other properties that haven't turned over in the past three years (even if it means a loss for the seller). I'm seeing a real discrepancy between prices on homes owned for 5-10 years and those bought within the last three years. Why should buyers today pay for inflation created by speculators? There's no reason for a buyer to pay 2007 or even 2006 prices these days.

skeptictank said...

I'd wait.

These mortgage broker types really got into eating their own dogfood, drinking the koolaid, etc. Let'em twist in the wind for a while and you'll get a better price.

AllanF said...

IMO it always comes down to intrinsic value. The median house should cost between 3 & 4 times the median salary of its community. Anything more is unsustainable.

Worrying about DOM and whether something has been relisted, worrying about the owner's finances and what they paid for it, worrying about what is happening in SoCal or Seattle is all a distraction. Don't get me wrong, it is a tempting distraction, but it is a distraction nonetheless.

So what is its price and what is the median salary of the household size it is suited for?

skeptictank said...

she paid $230k for the house 5 years ago. it's now listed at $450k and has been for at least 6 months.

Well, there's the rub right there. That $450K is over the conforming limit (at least until a few days ago) so it's likely been difficult to get a loan on that.

Now, just because the conforming limits have been raise doesn't make it any easier - in fact, if I recall correctly the new rules for these new "conforming Jumbos" include 20% down. So unless you've got $90K sitting around and proven income to support the payments you're not gonna qualify.

That said, if you do really want to make an offer it's nice that you're armed with the inside info (mortgage broker with six houses twisting in the wind). If you really must make an offer you probably want to start out at 20% off. She'd still be in the money and you'll be able to determine how desperate she is. She'll likely counter, but hold firm. Don't let emotion enter into the equation at all. Remember, if you've got the money to put 20% down on this thing you're sitting in the catbird seat because now cash is king. Sounds like she really needs the cash right now, but you don't really need the house (if you don't get this one, there will be plenty of others). Patience will pay excellent dividends in this market.

skeptictank said...

Just one more...

Remember this is a mortgage broker you'd be dealing with. She's had a front row seat to the credit crunch. She'll have a pretty good idea how hard it is to get a loan now (she probably has no clue why, but that's a different story). If you've got an excellent FICO and you've got a good paying, stable job and cash on hand (enough for 20% down) then flaunt that if you make your very lowball offer (depending on the condition of the house you may want to start even lower than 20% off). If she declines your offer leave her your business card and tell her to call you if she changes her mind. Then walk away and let her stew - who knows, she may not be able to find another buyer as qualified as you are (assuming you are) for a good long time.

AllanF said...

So what is its price and what is the median salary of the household size it is suited for?

OK, when I wrote that I missed seeing where you said she was asking $450. Maybe the house has a lot going for it to put it well above the median house, but according to HUD, the median household income for a family of 4 in Portland in 2007 was about

$64k
.

I haven't been able to find any std dev. data on houses or incomes. They would be interesting to know as well. Anyone know?

bearlee said...

Chances are she did some creative financing on this one..did anyone put anything down in the past 5 years?!?! If she did put something down it was pulled from another one of her properties and since it's not her primary residency she likely had to put a little down. Heck, she might have already taken money out of this one for her vacation or SUV!. Her loan could be $320K for all we now!

So it's a fixer that she never got around to fixing?!?! I say it's gonna be worth $250K if she realizes it or not. Though I am still shocked at how few folks realize what is happening to the housing market and economy. Most are just focused on getting that $600 check from the feds not realizing the implications.

Anyone see the defense budget proposal this week?!?! HOLY SH!T!

Hold tight, that house ain't moving at 450K or even 400K, come fall she will come down. Heck, she may even be unemployed come fall.

Though I do not know what neighborhood this is house is in, I keep an eye on Laurelhurst, Hawthorne, Division area and there are some sweet houses just sitting at about $425K that would have easily sold for $450K just two years ago.

This has been a slow painful process for me to watch. Just slash that dang prices and get this market rolling.

kirk coburn said...

Just wait for her to go into foreclosure. Guaranteed she over extended herself, 100% financing, probably a pay option arm or a 2/28 or 3/27. Guaranteed once her arm is set to re-adjust she will not be able to qualify for a decent loan. She is a property investor on paper. Her rate will be 9% or 10%, probably more, because the only way she can get a loan is by going stated b/c her commissions went to hell in a handbasket. Trust me on this, just wait, buy it from the bank or as a short sale. Interesting how greed can consume people isn't it? By the way, I read today on the "Calculated Risk" blog:

Seven states saw sales declines greater than 30%: Nevada (44.2%), Wyoming, New Mexico, Oregon, Arizona, Utah and Maryland.

The deal of a lifetime comes around every day. Probably several times every day. For the next several years. Do the math. That's thousands of "deals of the lifetime" to look forward to for the next few years.

Anonymous said...

Realtor: "Now is a great time to buy. They aren't making any more land."

Scientist: "True. They are not making any more land. But the universe is ever-expanding."

Realtor "..."

elneal said...

Patience is a virtue, but wait several more years to buy??
I don't want to be the loser who buys - then watches prices fall another 20%, but I also don't want to rent another couple of years.........
Maybe wait for another 6-8 months and see where the price are then???

Anonymous said...

Charles Turner on www.portlandrealestateblog.com posted rmls numbers for Jan 2008. Boy is it ugly. Inventory doubled since last Jan.

Anonymous said...

And that inventory probably doesn't include condos offered by developers.

I have noticed a couple bank owned properties that don't seem to be on the MLS. I know that the developer condos often don't appear on the MLS, but other than that venue how do banks market their properties???

skeptictank said...

I don't want to be the loser who buys - then watches prices fall another 20%, but I also don't want to rent another couple of years.........

Oh, boo hoo, wah, wah, wah...
Come on elneal, suck it up. 20+ years ago it was common for people just starting out to save up for 5 or 10 years (or more) for that 20% downpayment. What's a couple of years?

Sorry if this comes across as harsh, but Americans are so soft now. Time to start re-learning how to live within our means and save again instead of always wanting instant gratification.

Be encouraged by the over 12 months of inventory on the PDX market right now.

Kim said...

Hi, everyone! This is Ian's wife (and sometime editor). I was just wondering if anyone has sold a property recently. Although (you may have gathered this already) we have grown quite frustrated with what we perceive to be sellers' inability to see that their property doesn't command the high price they think it should, I am curious to hear the sellers' perspective. Did you finally lower your price? After how long? What is the advice you received from your realtor?

Anonymous said...

A bit of a scoop!

Two north portland flippers that were touted as master-gentrifiers by Ryan Frank have 8 NODs!


The original O article:
Unrepentent flippers

Go to foreclosure.com and sort preforeclosures by name and look for Alemseghed.

SE_renter

Anonymous said...

Actually if you search by their names (Robel and Meron) on foreclosure.com there are 11 properties under NOD/NFS.

SE_renter

Anonymous said...

It turns out that Robel is a Larouchie.

Thousands donated to Lyndon Larouche:
google cache

SE_renter

Perplexed said...

Speaking of foreclosures on Foreclosures.com, can anyone tell me anything about a foreclosed condo on NW 9th offered at $231,900? I can't find it on NWMLS, Condo Compare or John L. Scott's website.

PDXOutsider said...

Perplexed, I see 4 foreclosed condo's on NW 9th, 2 in foreclosure, 2 bank owned, and one that looks like the one you are interested in. If you're interested in foreclosures I'd recommend subscribing to RealtyTrac.com or Foreclosure.com for more details.

Do you know something about this one that you want to share?