Year-End Realtor Housekeeping

Statute of Limitations
for Deals

How long do you need to retain your files for closed deals?

Barring fraud, the statute of limitations for raising a complaint following a transaction is two years.

So, it's (well past) time to chuck paperwork and notes for those 2004 sales I've been hanging on to.

The one exception to the foregoing?

Tear-downs.

When a home I've sold is subsequently torn down -- or remodeled down to the studs -- there's no reason to keep the paperwork (closing documents like the HUD-1, the Seller's Disclosure, etc. are scanned in and available in Edina Realty's online archive indefinitely).

"Tear-downs," Cheap & Expensive

"Tear Down This Wall(paper)!?!"

No, Ronald Reagan didn't say that -- a Realtor did.

Earlier this week I attended a Realtor meeting in a very impressive -- but cosmetically dated -- home, where, after extolling the home's many virtues, the listing agent/host asked for input.

"Tear it down," came the first agent comment.

"The wallpaper," he clarified.

The other agents laughed . . . while the listing agent let out a huge sigh of relief!

(As feedback goes, that's a whole lot better than hearing "needs a new Kitchen").

Cedar Lake Steal?

Where: 16xx Cedar Lake Parkway, just northwest of Minneapolis' Cedar Lake

What: 2,500 sq. foot. contemporary overlooking the lake
How (much): list price is $247,900

When: (re)listed January 22

Who: co-listed by Teams International and RE/MAX Associates

You could easily spend $1 million-plus (still) for a home overlooking Cedar Lake in Southwest Minneapolis.

So, it's attention-getting when a home just off the lake is for sale for only $248k -- down from $549,000 when it first hit the market in October, 2008. That's less than half(!) the $522,500 tax assessed value.

So, what's the catch?

It turns out that there are several.

They include a wood exterior that's in such bad repair that mold is evident on several interior walls; a plastic swimming pool -- practically full -- positioned below a major roof leak (one of several that were visible); and an incoherent floor plan with only one bathroom in the whole house (and that practically in the middle of the Kitchen).

So, it's a pass, right?

At least for my client.

However, even if the house is a 'goner -- likely in my opinion -- the land alone is still worth the asking price.

Apparently, someone else agreed: the listing agent's front desk said the bank-Seller (a shock, I know) has just accepted an offer.

Don't Go By Asking Prices

Sold! (For 1/3 of Tax Assessed Value)

What: 3BR/3BA walkout rambler with almost 2,600 FSF

Where: 2625 Quentin Ave. South, in St. Louis Park's Fern Hill neighborhood

How much: originally listed for $226,800 on Aug. 5.

When: closed Nov. 18 (Thursday); just posted on MLS this morning.

"Exhibit A" under the category, "don't go by asking price" would be this Fern Hill rambler.

Originally listed for $226,800 back in August, this foreclosure had a tax assessed value of $387,500. That consisted of $158,700 for the land, and $228,800 for the building.

The bank-owner took two, 5% price cuts, then finally got a deal in late October.

It closed Thursday.

So . . . . drum roll . . . . what did the Buyer pay?

Try $130,000.

No, that's not a typo.

Why So Low?

The short explanation is "supply and demand."

The longer explanation is that the house is a tear-down, due to the worst mold damage I've personally ever seen (I showed the house multiple times).

So, you toss out the building value, and focus exclusively on the land.

As I've blogged previously about valuing tear-downs, the analysis -- based on back testing dozens of Twin Cities deals the last 6-8 years -- is to determine the top of the block, add 20% for well-done, new construction, then divide by 3.5.

In this case, the corresponding formula is $400k x 120% = $480k; $480k divided by 3.5 = $137k.

Bingo! (Take off a little extra because of tight credit for new construction, and a soft market for more expensive homes.)

P.S.: and yes, you need to know the "comp's" -- which I do -- to know that the top of the block is $400k.

For Sale Near Interlachen in Edina

Buy the Lot, Get the Home for Free

Beautiful property with west views of Highland Lake! Premier lot close to Interlachen golf course! Home is not available for showing.

--per MLS

"Home for sale, home not available for showing."

Huh??

It turns out that what's really for sale here is the land: according to Hennepin County, 70% of the $588k tax assessed value, or $413k, resides in the land. That compares with the usual 25% - 33%.

Is it worth it?

As I've blogged previously, to determine if the asking price is in the ballpark, multiply by 3.5, then subtract 20%.

In this case, 3.5 x $850k (list price) = $2.975M. Subtracting 20% from that is $2.38M.

If there is a precedent for $2.4M homes on the block . . . the asking price is right. (Twenty percent is typically how much new construction can overshoot prevailing, nearby prices.)

P.S.: sure looks like an aerial shot to me (discussed a couple posts back).

Pop(Up) Goes the Neighborhood

Teardown-Lite

What do you get when you combine a high-demand, close-in neighborhood, smallish existing housing stock, and small city lots (typically, 120' x 40')?

Not tear-downs, because of the lot size.

And not bump-outs, for the same reason (there'd be no yard left).

Give up?

Pop-up's.

As in added second stories.

One of the areas where this trend is well under way is in St. Louis Park's Fern Hill neighborhood -- specifically, the west side of it (roughly between Monterey and Highway 100).

This six block stretch is prime territory for pop-up's because these blocks are full of smaller, $250k-$350k homes -- yet homes just to the east go for $400k-$600k (and sometimes much, much more)

The pop-up's are simply closing the gap.

Over time, this trend is driving all of Fern Hill up . . . literally.

"You Know It's a Tear-Down When . . "

Metastasized Mold

Jeff Foxworthy, the comedian, has a well-worn bit called "You know you're a redneck when . . ."

I suppose the real estate equivalent would be, "you know it's a tear-down when . . ."

In that spirit:

You know it's a tear-down when . . . the mold in the home has advanced so far that the nails in the home's framing are either missing or completely rusted out.

In fact, that describes the home I just took clients through this morning.

Once that has happened, even "gutting to the studs" is problematic -- because the integrity of the studs is in doubt.

P.S.: whether the home is an "economic" tear-down vs. a "functional" tear-down are two separate questions.

An economic tear-down is typically an undersized home on a big lot, in an expensive location. There may be absolutely nothing wrong with the home itself. Rather, the location simply supports a much more expensive home.

A functional tear-down is when the home's condition is so far gone that rehabbing is no longer an option.

June New Home Sales

Exactly Where Are All Those $206k New Homes??

As [new home] sales rose, median prices . . . continued to fall, slipping to $206,200 from $232,100 in June a year ago.

--Jack Healy, "New U.S. Home Sales Rise Sharply as Prices Fall"; The New York Times (7/27/09)

The big financial headline today is an unexpected monthly rise in new homes sales. According to the Commerce Dept., June sales of new, single-family homes increased 11%, to a seasonally adjusted rate of 384,000.

What caught my eye, though, was the median price: $206,200.

Suffice to say that that's not the price of new homes going up in Edina, around Minneapolis' city lakes, or in Minnetonka.

Rather, that's the price of new homes in places like Albertville, Ostego, and Farmington -- areas 30 miles or further away from the city center, where developers threw up tract homes by the thousands.

Closer in, new homes are strictly custom, one-at-time "leapfrogs" from former tear-downs to, well . . . something much nicer.

A quick look on MLS confirms that.

Since 2008, 24 new "spec" homes (built for resale) were listed in MLS Areas 300 and 309 (roughly covering from Cedar Lake to Lake Harriet).

Average price: $1.03M. Median Price: just under $800k.

(The difference is explained by several, extremely high-end new homes in Lowry Hill, which pull the average up.)

Oak Ridge Foreclosure

Want Your Own Private Skyway?*

Where: 96xx Oak Ridge Trail in Minnetonka
What: 5 BR/4 Bath, 3,800 FSF contemporary on .5 acre lot
How much: $325,900 (asking price)
Tax value: $710,700

This sprawling, bank-owned contemporary (read, foreclosure) in Oak Ridge Trails seems like a screaming bargain. Until you go in.

While it appears (to me) to be structurally sound, everything else needs repair or replacement: the Kitchen, baths, flooring, siding, pool -- and, most ominously of all, the windows. Acres and acres of custom, deteriorating windows.

Like so many foreclosures, the asking price doesn't reflect the home's actual cost, but rather the price of admission; the ultimate Buyer will easily put more than that into fix-up.

Assuming they tackle it.

Given the surrounding, upscale neighborhood and very unusual floor plan -- although the home is listed as 5 BR, functionally, it feels like 2 -- it may very well be a tear-down.

*Although it's obscured by the tree in the photo, there is a second level walkway connecting the two "halves" of this home.