Will they or won't they?

A reader tipped us to this interesting Laguna Niguel property. It's being offered at a steep discount from the price paid in 2005, but as a short sale it is subject to lender approval. Will they agree to take a huge hit?

22822 Tamora Drive, Laguna Niguel, 92677
Asking price: $455,000

Asking price/ sq ft: $332
Income requirement: $113,750
Purchase price: $625,000
Purchase date: 12/15/2005
Size: 2 beds, 2 baths, 1,369 sq ft (built in 1977)

MLS: F1743733 (6 days on Redfin)

2006 property tax: $6,356
HOA dues: $206
Type: Single Family Residence

Style: Traditional

Stories: One Level
From listing: SHORT SALE SUBJECT TO LENDERS APPROVAL. GATED COURTYARD ENTERY TO THIS BEAUTIFULLY UPDATED BEACH HOUSE. TILE FLOORING THROUGH OUT KITCHEN FLOOR. DINING ROOM AND LIVING ROOM. PLUS TILE FLOORING IN BATH ROOMS. MIRRORED DINING ROOM AND PLANTATION SHUTTERS THROUGHOUT THE HOME.

"Beach house?" Hardly. Close to the beach, but not close enough to actually deserve this label. It is right next to a street called Ocean Way, though. Does that help?

Some properties in this area can have excellent views, but since it's not mentioned in the listing we're assuming this is one of the ones that does not have anything spectacular.

As you can see, there was plenty of updating in at least one of the bathrooms. It must have gone so nicely that the picture was deemed worthy of being included twice in the listing.

The kitchen didn't fare so well, though. It looks like some good work was done, but it's hard to tell when the photo is very blurry.

Assuming a sale at this price (which would require a slow, painful lender approval) the loss would be $197,300, including 6% sales costs. This would also equate to a depreciation of 27.2% in a matter of almost two years (not including transaction costs).

Notice that the previous sale was for $81,000 in 1980. Even with its inflated bubble purchase price in 2005, the property "only" saw an appreciation of 8.5% per year over about 25 years.

If we assume the asking price of $455,000 is the property's true market value today, that would equal an appreciation rate of "only" about 7% over those 25 years. If property values continue to fall, the downturn will eat into that 7% annual return even more.