real estate

[So Cal Suspension]

Thank God a real estate topic. Finally...

 

With interest rates the way there are, there are more and more "barely capable" buyers creeping in on the market. They are stretching their pocketbooks to get into the absolute biggest and most bad ass house they can before the market recovers. Around here (Temecula, Murrieta, Menifee, Winchester) we have seen two bubbles already since the initial decline in the market in ~2007. 3000sqft+ houses were selling for the mid-low 200's, and they were being bought up by anyone who had good credit and a mediocre job.

 

The fact is, to qualify for a $200k house, doesn't take a huge amount of money. FHA is 3.5% down. So $7,000 plus closing costs. Typically I have been covering allowable closing costs for FHA and VA buyers to seal the deal. We've been selling FHA and VA loans at 3.2-3.5% for the last 2 or 3 months. That puts your principal and interest payment at roughly $1,100/mo. There will be Mortgage Insurance, and other fees, like taxes, insurance, etc. Figure on your payment being $1,300 a month.

 

We can qualify an applicant who makes as little as $3000/mo net with excellent credit.

 

The fact is, homes are worth what someone is willing to pay. When we list properties, we have a very strict procedure that we follow when we're putting a value on a property. We do several CMA's (Comparative Market Analysis), and two to three BPO's, (Broker Price Opinion). We also pull individual sold comps of that property within a certain radius. In urban areas, we limit our radius to 1 mile, rural or suburban areas we expand as necessary to get good comps.

 

"Comps" are properties that compare in age, square footage, lot size, amenities, br/ba etc. The ONLY comps we use in listing prices are SOLD comps. We do not use LISTED comps, as those prices could be artificially low to entice offers and effectively "auction" the property without conducting an official audtion. Alternatively, they could be artificially high because the seller is a douchebag and, as you stated, thinks their property is gold. I would venture to say that 90-95% of brokers in the country use the same method I do to value a property. No agent or broker wants to sit on a listing that will never get an offer, and waste valuable time and money marketing a property that will never be sold.

 

Just recently, I had a lender that I work with come to me with a property that one of her clients wanted to list. They had a set price in mind, because they had an informal offer from a friend of a friend on their house. Reluctantly, I listed the home for them. It was 2900sqft, BRAND NEW, never lived in, 5br, 4ba, fully upgraded on 5 acres of horse property amongst the wineries here in Temecula. This area is practically my back yard, so I knew their pricing was ridiculous when I signed the broker agreement with them. It was a favor, so I did it anyways. They wanted $2.69m for their property. Effectively, the land itself, unimproved, was worth around $1.6m in the current market. Winery property out here is worth an incredible amount depending upon where it's located. This one is in a pretty good spot.

 

I valued the home itself, with no property at roughly $313,000. I used the current "build" rates to put a number on the house since it had never been lived in, and was JUST built. Right now, homes are being built here for roughly $108sqft. $108 x 2900 = $313,000. That price includes the wildfire water reserve, well, septic, water/sewer gas/propane, electricity or whatever other utilities need to be dug/brought to the property. This was a move-in ready rate.

 

$1,600,000 (property)

$313,000 (improvements)

= $1,913,000 (replacement cost)

 

After determining what it would cost to re-build this home, it gave us a starting point. I pulled comps of similar homes on similar lots, and came up with a current market value of $1.96m. This was only a $40,000 profit for the clients. They were not impressed, and basically told me that my value was wrong. I spent another $2300 in ordering CMA's, and BPO's to further prove my valuation was accurate. A few BPO's came in slightly higher (10-15k), and the CMA's and two BPO's came in almost right on the spot. After showing this to the clients, they STILL wanted over a $2m price tag. I told them that being over that $2m mark, we will lose a ton of potential buyers who only search for <$2m. I did what they wanted, and listed the property at $2.01m. We didn't see a single offer for two months. Only about 4 showings, and none of them serious. 60 days rolls around, and it's time for either a price reduction, or we need to reconsider the marketing of this property. I already had it in home magazines, and every MLS in the region. There wasn't much more marketing I could do. I held broker's opens every other week, and even paid for the home to be included in the home bus tours around here. We got one offer of $1.69m, we countered with $1.99m, and they countered with $1.82m. Needless to say, my clients rejected the offer, and after my 120 day broker agreement was up, we ended our business relationship.

 

The moral of the story is: Just because a home is listed high, doesn't mean that you can't throw a low offer at it. Often times, if it's listed high, the listing agent KNOWS it's listed high, and will be willing to try to convince their seller on your behalf to accept the offer. It is a rare occurrence (around here, at least) that homes are listed artificially high. In this current market, homes are (9x out of 10) listed artificially LOW to entice dozens of offers. It works, it's tried and true, and it's one of the most common practices among SFR listings.

[locogato11283]

Fucking typical stupid ass homeowner thinking their shit is worth gold..

 

Here's a story from about 2 weeks ago involving my brother who was trying to buy a house...

 

House is in a nice, new sub-division.. The lot sucks. It drops 6' in about 50' in the back. It's totally useless for anything other than your dog shitting in.

 

The house has been on the market for nearly 400 days. It started at $319,000. After 6 months or so they dropped the price to $308,000. At the point my brother looked at it, it was at $304,000.

 

It's a nice looking house, built by probably the worst builder in the area. Even the realtor knew that.

 

So, my brother and his wife offer $250,000 on it. Why not, gotta start somewhere?!

 

The homeowners come back with $303,600.. YES, you're reading that right. They were apparently so insulted that they decided to totally fuck up a potential sale on a house that has been on the market for almost 400 days. They told the realtor that they weren't going any less than $304,000 on the house.. Ignorant, especially for this area and some people are too proud of their shit.

 

If I subbed the house and built it myself, I could do it on a better lot for a lot less than $304,000.

[possum]

Matt i just bought a 07 3150sqft 5 bed 4 bath 3 car rv side. Here in san jacinto for 172,000 3 years ago when it finally basically hit bottom. 2 years before it was new at 335,000. Taxes are 6000 a year which i hate but my total payment is 1520.00. And i was renting a smaller house for 1400 before i bought. So its worth it to buy around here in a heartbeat

[So Cal Suspension]

Matt i just bought a 07 3150sqft 5 bed 4 bath 3 car rv side. Here in san jacinto for 172,000 3 years ago when it finally basically hit bottom. 2 years before it was new at 335,000. Taxes are 6000 a year which i hate but my total payment is 1520.00. And i was renting a smaller house for 1400 before i bought. So its worth it to buy around here in a heartbeat

I used to do a ton of business in San Jac, but we had trouble finding buyers, so now I avoid it at all costs. We were picking up packages of 8-10 properties in the 2005-2009 range for less than $500k in early 2011 at auction. Certain areas of Hemet, San Jac, and the Morongo area have AWESOME houses, it's just a stretch trying to convince buyers to move to those areas if they're not already from there (if that makes sense). If you like the area, you got a smoking deal. Beaumont is taking the ultimate plunge right now... you couldn't give away houses in Beaumont/Banning right now. I've been sitting on a 2840sqft single story in a 55+ community for almost 9 months. We started at $185k, and are down to $111k, and haven't seen a single offer.

 

There are still some great deals to be had. Sounds like you got one of em.

[possum]

The area isnt my favorite but its my price range and family is close. Ive been in the area since 95'. But i might consider buying another house more menifee/temec area if ever possible. I have been wondering how easy it is to get the new refied rates. Im at 5.0. Heard there 3.5-3.75 range.

[So Cal Suspension]

The area isnt my favorite but its my price range and family is close. Ive been in the area since 95'. But i might consider buying another house more menifee/temec area if ever possible. I have been wondering how easy it is to get the new refied rates. Im at 5.0. Heard there 3.5-3.75 range.

I've seen some conventionals close at 3.5ish, but FHA and VA's are lucky to close under 4 right now. Most definitely you'd be paying all of the closing costs, and even buying down your rate to get close to 4. 5 is a pretty good rate right now unless you have a ton of cash to bring to escrow.

[possum]

No cash to buy down. Id do it if its free!

[wacko2000]

There giving these home

Away with only 3% down- only downfall is the PMI insurance if you put down less than 20%

Which could add a few hundred bucks to your payment till the 20% is paid back to the bank than the PMI insurance comes off the mortgage!

If you can't afford to put down a simple 3% on a home than your in no shape or form ready to be making that purchase

JMO

[possum]

Wacko i bought 3 years ago. I ment im not gonna "buy down" my rate. Unless it goes to 3%

[wacko2000]

Wacko i bought 3 years ago. I ment im not gonna "buy down" my rate. Unless it goes to 3%

That wasn't directed towards you but it's just the way I feel about people jumping into homes that they really can't afford!!

[possum]

I agree. 100%

[Sandy2314]

On 7/1/2012 at 10:28 PM, So Cal Suspension said:

Thank God a real estate topic. Finally...

 

With interest rates the way there are, there are more and more "barely capable" buyers creeping in on the market. They are stretching their pocketbooks to get into the absolute biggest and most bad ass house they can before the market recovers. Around here (Temecula, Murrieta, Menifee, Winchester) we have seen two bubbles already since the initial decline in the market in ~2007. 3000sqft+ houses were selling for the mid-low 200's, and they were being bought up by anyone who had good credit and a mediocre job.

 

The fact is, to qualify for a $200k house, doesn't take a huge amount of money. FHA is 3.5% down. So $7,000 plus closing costs. Typically I have been covering allowable closing costs for FHA and VA buyers to seal the deal. We've been selling FHA and VA loans at 3.2-3.5% for the last 2 or 3 months. That puts your principal and interest payment at roughly $1,100/mo. There will be Mortgage Insurance, and other fees, like taxes, insurance, etc. Figure on your payment being $1,300 a month.

 

We can qualify an applicant who makes as little as $3000/mo net with excellent credit.

 

The fact is, homes are worth what someone is willing to pay. When we list properties, we have a very strict procedure that we follow when we're putting a value on a property. We do several CMA's (Comparative Market Analysis), and two to three BPO's, (Broker Price Opinion). We also pull individual sold comps of that property within a certain radius. In urban areas, we limit our radius to 1 mile, rural or suburban areas we expand as necessary to get good comps.

 

"Comps" are properties that compare in age, square footage, lot size, amenities, br/ba etc. The ONLY comps we use in listing prices are SOLD comps. We do not use LISTED comps, as those prices could be artificially low to entice offers and effectively "auction" the property without conducting an official audtion. Alternatively, they could be artificially high because the seller is a douchebag and, as you stated, thinks their property is gold. I would venture to say that 90-95% of brokers in the country use the same method I do to value a property. No agent or broker wants to sit on a listing that will never get an offer, and waste valuable time and money marketing a property that will never be sold.

 

Just recently, I had a lender that I work with come to me with a property that one of her clients wanted to list. They had a set price in mind, because they had an informal offer from a friend of a friend on their house. Reluctantly, I listed the home for them. It was 2900sqft, BRAND NEW, never lived in, 5br, 4ba, fully upgraded on 5 acres of horse property amongst the wineries here in Temecula. This area is practically my back yard, so I knew their pricing was ridiculous when I signed the broker agreement with them. It was a favor, so I did it anyways. They wanted $2.69m for their property. Effectively, the land itself, unimproved, was worth around $1.6m in the current market. Winery property out here is worth an incredible amount depending upon where it's located. This one is in a pretty good spot.

 

I valued the home itself, with no property at roughly $313,000. I used the current "build" rates to put a number on the house since it had never been lived in, and was JUST built. Right now, homes are being built here for roughly $108sqft. $108 x 2900 = $313,000. That price includes the wildfire water reserve, well, septic, water/sewer gas/propane, electricity or whatever other utilities need to be dug/brought to the property. This was a move-in ready rate.

 

$1,600,000 (property)

$313,000 (improvements)

= $1,913,000 (replacement cost)

 

After determining what it would cost to re-build this home, it gave us a starting point. I pulled comps of similar homes on similar lots, and came up with a current market value of $1.96m. This was only a $40,000 profit for the clients. They were not impressed, and basically told me that my value was wrong. I spent another $2300 in ordering CMA's, and BPO's to further prove my valuation was accurate. A few BPO's came in slightly higher (10-15k), and the CMA's and two BPO's came in almost right on the spot. After showing this to the clients, they STILL wanted over a $2m price tag. I told them that being over that $2m mark, we will lose a ton of potential buyers who only search for <$2m. I did what they wanted, and listed the property at $2.01m. We didn't see a single offer for two months. Only about 4 showings, and none of them serious. 60 days rolls around, and it's time for either a price reduction, or we need to reconsider the marketing of this property. I already had it in home magazines, and every MLS in the region. There wasn't much more marketing I could do. I held broker's opens every other week, and even paid for the home to be included in the home bus tours around here. We got one offer of $1.69m, we countered with $1.99m, and they countered with $1.82m. Needless to say, my clients rejected the offer, and after my 120 day broker agreement was up, we ended our business relationship.

I've been looking into different real estate opportunities lately, and one that really caught my attention is in Batumi, Georgia. The Modern mziuri wellness Complex seems like an incredible option, especially if you're into coastal living with a blend of luxury and wellness. From what I've read, it offers a lot of amenities right by the sea, which could be ideal for anyone looking for either an investment property or a second home. Would be interesting to see how property values in Batumi evolve in the coming years, given how much development is happening there.

The moral of the story is: Just because a home is listed high, doesn't mean that you can't throw a low offer at it. Often times, if it's listed high, the listing agent KNOWS it's listed high, and will be willing to try to convince their seller on your behalf to accept the offer. It is a rare occurrence (around here, at least) that homes are listed artificially high. In this current market, homes are (9x out of 10) listed artificially LOW to entice dozens of offers. It works, it's tried and true, and it's one of the most common practices among SFR listings.

Very informative post.