What's Selling . . . East Edina

Where: 4617 Tower St.
What: 5 BR/5 Bath new construction by Elevation (division of Streeter)
How much: $1.2 million asking price
When: sold in one day earlier this month (with more buyers reportedly waiting in the wings).
Who: listed by Marian Peterson and Noelle Varecka of Edina Realty

It's not hard to tell what the Buyer liked about this home: an exceptionally open, flowing floor plan; a state-of-the-art Kitchen; and wide halls, tall ceilings and oversize windows that make the actual square footage (just under 4,400 FSF) feel even bigger -- all on a big (.25 acre) lot.

The East Edina location, east of Highway 100 and south of Country Club, is attracting lots of attention from builders and remodelers because of the combination of large lots and older, modestly-sized (and priced) existing housing stock.

Reason for Tougher Negotations

"What's That House Cost?" -- Vol. #42

Want to buy 100 shares of Microsoft?

If the last trade was for $25.43, it's a good bet that you'll have to pay . . . .$25.43 (or maybe $25.42 or $25.44).

Want to buy a nicely updated, four Bedroom Colonial in East Edina?

That'll be . . . . $950,000. Or maybe $875,000. Or perhaps a cool $1 million.

For the same house.

Defining "Market Value"

Why such a broad range?

Because there haven't been that many recent deals to serve as benchmarks (called "Comp's," or Comparable Sold Properties," as they're known in the trade).

With fewer transactions to serve as precedents, Buyers and Sellers have more ground to bridge to reach what everyone agrees is "market value."

Edina on Sale

Not So Recession-Proof, After All

No, it's still not cheap by Twin Cities-wide standards, but asking prices for Edina homes have come down dramatically in the last 2-3 years: from $350 to even $400 per finished square foot ("FSF") in mid-2006, to around $200 per square foot today.

Translated into bricks-and-mortar choices, that means that $600k -- the average list price of the 250 homes now for sale in East Edina -- gets you a home with about 2,500 FSF.

In West Edina, where the homes are bigger and prices per square foot are a tick lower, the "average" home now lists for $700k and sports almost 3,600 FSF (that's typically 4 or even 5(!) Bedrooms).

And those are the asking prices -- Buyers may very well be able to negotiate lower prices (see below).

Lag in Prices

Two other interesting features of Edina prices.

One. Compared to asking prices, actual "sold" prices are 10% lower. That suggests that Edina sellers may still be unrealistic.

Two. While Edina prices initially held up well, as the housing downturn and recession have ground on, they've been increasingly impacted.

That echoes what has happened with consumer "luxury brands" like Tiffany, Coach, etc.

Eighteen months ago, they were all thought to be "recession-resistant," if not recession-proof; today, it's clear that they're not.

(Thanks to John Smaby, manager of Edina's 50th & France office, for the foregoing statistics.)

Tear-down Prototypes

Attributes of Tear-Down Neighborhoods

I've posted previously about the somewhat counter-intuitive attributes of tear-down houses ("Tear-Down Economics," "Contender . . . or Pretender?"), so I'm not going to revisit the analysis here.

However, tear-down neighborhoods -- areas with lots of tear-down activity -- also have their own attributes.

Here's what they seem to have in common.

Location. Duh, right?

Actually, there are two kinds of locations that are popular.

The first is what you'd expect: the premier, A+ lots in the premier locations -- on Lake of the Isles in Minneapolis with skyline views, beachfront property on Lake Minnetonka, etc.

However, many if not most of those locations already have existing, trophy homes sitting on them. You don't dismantle a Lamborghini to build a Ferrari (at least, not usually).

So, in practice, much of the tear-down activity actually occurs in adjacent areas where the location is only slightly less desirable -- call it "A" instead of "A+" -- but where the existing housing stock is much more modest (and therefore cheaper).

As a result, the potential upside is much greater. This is the second type of tear-down neighborhood.

Ultimately, it is the size of this gap -- between existing and new construction -- that determines whether a neighborhood has tear-down potential (the bigger the gap, the more tear-down potential).

Examples include the areas just west of Cedar Lake and south of Lake Calhoun in Minneapolis, and South Harriet Park in east Edina.

Contender or . . . Pretender?

"They're Asking How Much??"

Where: 5500 Park Place, in Edina's South Harriet Park neighborhood
Asking Price: $549,900 (white picket fence included)
Key Stats: 3 BR/2BA; 1,500 FSF. Year built: 1947
Lot Size: 60' x 134.8'
Time on Market: 64 days

In any other Twin Cities neighborhood, this unassuming 3BR/2BA home with a white picket fence would be worth $150,000, tops. If there were any foreclosures nearby, that number could easily drop to $100,000.

But it's not (in just any neighborhood, that is).

It's just south of Minnehaha Creek, in Edina's up-and-coming South Harriet park neighborhood. The lots are nice-sized, and the location is prime -- just south of Edina's tony Country Club area. Best of all, the existing stock of housing is older and undersized.

Voila! Tear-down territory.

As someone whose clients have bought and sold several tear-down's the last few years, I've found that a good rule of thumb is to multiply the projected selling price of the would-be tear-down by 3.5. If the resulting number makes sense for new construction on the immediate block . . . the house is a bona fide tear-down candidate.

So if a house is worth $300,000, to be a tear-down, the neighborhood would have to support new construction over $1 million (I call this "tear-down leapfrog," or "the last shall be first" phenomenon, because the former tear-down often gives way to the nicest home on the block).

Contender . . or Pretender?

So is this house for real? Or more to the point, is the land underneath it worth anywhere near the asking price?

To find out, you start at the end -- namely, by determining the upper price limit of the immediate block (and to lesser extent, the surrounding neighborhood).

In this case, a brand-new, 4,000 FSF house just sold for $1.5 million a block away (in fact, it sold before hitting the market, a good omen). So clearly, the block has lots of upside.

The next step is sizing up the particular lot.

At 60' x 138', it's not gigantic, but it's still more than 30% bigger than a typical, 40' x 120' city lot. It's also comparable to other East Edina lots that now have new construction.

It's also a corner lot, which is a plus to some, and a negative to others. Net those out, and it's a wash.

More important is the fact that the lot gently slopes towards the rear. That makes it suitable for a walkout, which allows more light in the lower level and allows better access to the backyard.

So what's the verdict?

Contender. (If you want to know what it's likely to sell for, though, you'll have to call me . . .)