Try to put yourself in the place of the owner of 26966 El Retiro in Mission Viejo (pictured above). They paid $317,000 for this 3-bedroom, 2 bath house in March 2002, and are now hoping to sell it for $619,000. There are also probably a few jokes to be had here with the street name, but we'll leave those alone.
They've added granite countertops, maple cabinets and "newer" appliances in the kitchen, plus a new roof, water heater and carpet, among other improvements. So, that should justify their asking price, right? Potential profit (minus 6 percent selling costs) assuming a sale at this price is $264,860. Obviously, it's going to be much less in reality considering the work they've done on the house has no doubt cost a decent amount of money.
But, let's assume that despite the repair/upgrade work, they're still in line to make a nice little bit of cash because they didn't tap into their home equity and/or were able to pay cash for the repairs. Perhaps it's time, these owners decide, to move up into a larger house. After all, the NAR says it's a buyer's market and therefore a great time to buy!
Meanwhile, there's a blowout sale going on just one street over, because the owner of 26926 Colmenar (pictured at left) has taken a large, sharp machete to the price of the property. Once listed for $629,000, the house is now showing up in Redfin at a price range of $499,000-559,000 (a discount of anywhere from $70,000-130,000, or 11-21 percent, depending on which part of the range you're calculating from).
Since these owners paid $673,000 in January 2006, the projected loss could be as much as $203,940 if we figure a sales price at the bottom of the price range, and factor in 6 percent selling costs.
This Colmenar property, by the way, is a bit larger and has one more bedroom than the El Retiro house.
Is there something we're not seeing here? It's very clear that the Retiro house is drastically overpriced considering the competition. By the way, this argument receives more support from neighbor 26971 Retiro, which is the same size as the other house on that street and appears to be an REO. The asking price on this property is $564,900. It's been sitting on Redfin for 130 days.
Uh oh.
Does the first Retiro property and its "totally turnkey!" condition justify the ridiculously high premium, considering it's smaller and has one fewer bedroom? No way, and these sellers are probably going to have to cut their price to keep up, despite their home's slight advantage in terms of repairs/improvements. Again, remember the principle of substitution. That's all you need to know.
Monday, October 01, 2007
Burned by fire sale
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5 comments:
I just think it's crazy that a single-story house built in the mid 70s can go for this much. I mean, I see them listed but I always wonder "who in the right mind would buy these things?" especially when you can get something larger, newer and at a much cheaper price. And this house is less than 1500sq feet. That's nuts!
Seriously! how did anyone let houses get this expensive!!!!
It's a nice house. No, not $400/sf plus nice. For their price they should have remodeled the outside so it doesn't look quite so dated and added about 800 sf.
My response to the linked article on it being a good time to buy according to the NAR....
If I am to believe this statement as true, “Charles McMillan, a top executive at the NAR, tells The Heat that it's a broad over-generalization to say that Realtors are always telling everyone it's time to buy. He says they are trained to look at each individual's situation and make an appropriate recommendation” then I must also accept as true, that the majority of buyers who bought homes at the top of the market and are now underwater must have decided to do so in complete disregard for their Realtor’s training to “look at each individual's situation and make an appropriate recommendation.” Where are all the angry Realtors crying out that they informed their clients NOT to buy in the market conditions of 2005 and 2006 and their clients bought anyway, in the face of their Realtors pleas of an overheated market? Where are all of these heroic Realtors who tirelessly opined and advised to their clients to stay clear of the bubble? Where are all the buyers now, remorseful and lamenting in their rebellious decision to disregard their heroic Realtor and buy an overpriced home anyway? Yeah, I didn’t think so.
I've walked through all three of these houses. The one in question is the only "livable" house of the three references. They are all the exact same model, but the 4 bedroom homes just have converted the master retreat into a 4th bedroom. The Colmenar house is a complete dump; it looks like it's been a rental for many years, has old paint, and the back fence is all but falling over. The bank owned property on El Retiro is likewise a complete dump and has properties on both sides that are in disrepair. So, both the bank owned El Retiro property and the Colmenar property are in need of at least 50K in upgrades to make the homes modestly livable, and the property in question is already livable. Nonetheless, I still think the price of this property is way high - I can't beleive we haven't seen any reductions in the last few months.
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