Another Steep Discount From Listing Price
If you have to sell Christmas week in what is already a soft market . . . you may not like the price.
This is the second instance I've seen of a property sold then accepting a very deep discount from the most recent list price. The home is located in Minneapolis, just northwest of Cedar Lake:
http://matrix.northstarmls.com/de.asp?k=411903X1JL0&p=DE-39406710-836
In this case, the last list price was $299,900; the selling price was $220,500, a 26% discount!
So did the Buyer get a deal?
I didn't see the interior, and therefore can't speak to either floor plan or condition (the home was a foreclosure). However, I do know the neighborhood, tax value (almost $400k), what the last Buyer paid ($490k in 2004), and the home's tortured selling history (almost 3(!) years of market time, starting at $539,900).
And perhaps most crucially, I've got a very educated guess about when the deal was struck: going by the off-market date, January 2, you'd infer that the Purchase Agreement was consummated right after Christmas, and that the Inspection occurred shortly thereafter (most Inspection Contigencies play out within a week).
Based on the foregoing, I'd guess "yes" -- unless the Inspection turned up a major issue (or several of them).
Tuesday, January 13, 2009
"De-Listing" Dilapidated Homes
$30,000 Houses: Smarter to Raze than Restore
When the share price of a company traded on the New York Stock Exchange ("NYSE") falls below $1, it faces the prospect of being dropped from trading ("delisted").
Presumably, the rationale is that such companies are in extremis, and, for the health of the broader market as well as more viable concerns, need to be culled.
So, too, there should be an analogous principle for homes on the Multiple Listing Service ("MLS"). Once a home's list price falls below a given amount -- say, $30,000 -- it presumptively is in such bad shape that: a) no future owner is likely to find it cost-effective to restore; and b) given (a), the home's only remaining role is to sit, abandoned and deteriorating, dragging down the value of surrounding homes.
Better to cut out the cancer before it spreads.
Sadly, in many cities nationally, foreclosed homes have fallen so dramatically in price that the cost to buy and raze them may now be less than the cost to board and police them.
Locally, more than 160 Minneapolis homes are now listed for less than $40,000.
Assuming that their fair market is actually about $30,000 apiece, the city could buy them all for less than $5 million. For another, say, $5 million, the city could, through its eminent domain power (which requires due process and fair compensation), assemble contiguous parcels that could either be turned into parks and green space, or redeveloped on a project-by-project basis ("let 1,000 redevelopment plans bloom??").
Such an initiative would have three immediate, widespread benefits:
One. Remove a pox on the local housing market.
Foreclosures are to a healthy housing market what gangrene is to the body: a spreading, mortal threat.
Financially, foreclosed properties depress surrounding properties as much as 50%. Why? Because no one wants to live on a block with a neglected and deteriorating house -- let alone three of them. Don't think foreclosures are contagious? Let me give you a guided tour.
Like Faulkner's line about "pain's surcease," removing a negative IS a positive.
Two. Razing the worst of the worst will remove a large and growing stress on city resources (police, fire, cost of boarding abandoned homes, etc.)
The city's current strategy -- trying to recoup its oversight costs by hitting bank-owners with a $6,000 abandoned home fee -- ultimately acts as a tax. Such taxes tend to get passed through to buyers -- or taxpayers -- one way or another.
As the saying goes, "better to drain the swamp -- get rid of the offending homes -- than to swat mosquitoes."
Three. Create productive, aesthetically pleasing space -- open and otherwise.
If done intelligently and well -- if -- such a project could actually make a positive impact. Think of it as an incubator for micro-developments. Or as a blank slate for future Frank Law Olmsted's. Or as a canvas for new home designs that incorporated new, cost-effective technologies (built-in electric car ports? communal "smart" gardens?). The plain truth is: the bar's pretty damn low.
Ironically, at least in Minneapolis, much of the most dilapidated housing is concentrated in well-located, close-in neighborhoods with otherwise good infrastructure.
Which raises the inevitable attacks.
Critics will no doubt argue that such an approach tears apart vulnerable neighborhoods, destroys affordable housing, or will otherwise aggravate rather than solve the housing market's worst problem(s).
Such criticisms may have been valid once, but not now.
An urban neighborhood full of $30,000 homes isn't a neighborhood any more. It's a no man's land at best, a crime and war zone, at worst.
And the only way to make $30,000 homes habitable again is to spend a multiple of that fixing them. (Substitute "banks" for "homes," "profitable" for "habitable," add seven zeroes -- and you've got the nation's banking crisis in a nutshell.)
By definition, homes selling for $30,000 need all new major mechanical systems, new roofs, windows, appliances, siding, landscaping and a host of other fixes. They also frequently require remediation for water intrusion, mold, or other damage associated with neglect.
Far better to spend that repair money on something altogether new, and actually get something for it in return, than pour good money after bad.
When the share price of a company traded on the New York Stock Exchange ("NYSE") falls below $1, it faces the prospect of being dropped from trading ("delisted").
Presumably, the rationale is that such companies are in extremis, and, for the health of the broader market as well as more viable concerns, need to be culled.
So, too, there should be an analogous principle for homes on the Multiple Listing Service ("MLS"). Once a home's list price falls below a given amount -- say, $30,000 -- it presumptively is in such bad shape that: a) no future owner is likely to find it cost-effective to restore; and b) given (a), the home's only remaining role is to sit, abandoned and deteriorating, dragging down the value of surrounding homes.
Better to cut out the cancer before it spreads.
Sadly, in many cities nationally, foreclosed homes have fallen so dramatically in price that the cost to buy and raze them may now be less than the cost to board and police them.
Locally, more than 160 Minneapolis homes are now listed for less than $40,000.
Assuming that their fair market is actually about $30,000 apiece, the city could buy them all for less than $5 million. For another, say, $5 million, the city could, through its eminent domain power (which requires due process and fair compensation), assemble contiguous parcels that could either be turned into parks and green space, or redeveloped on a project-by-project basis ("let 1,000 redevelopment plans bloom??").
Such an initiative would have three immediate, widespread benefits:
One. Remove a pox on the local housing market.
Foreclosures are to a healthy housing market what gangrene is to the body: a spreading, mortal threat.
Financially, foreclosed properties depress surrounding properties as much as 50%. Why? Because no one wants to live on a block with a neglected and deteriorating house -- let alone three of them. Don't think foreclosures are contagious? Let me give you a guided tour.
Like Faulkner's line about "pain's surcease," removing a negative IS a positive.
Two. Razing the worst of the worst will remove a large and growing stress on city resources (police, fire, cost of boarding abandoned homes, etc.)
The city's current strategy -- trying to recoup its oversight costs by hitting bank-owners with a $6,000 abandoned home fee -- ultimately acts as a tax. Such taxes tend to get passed through to buyers -- or taxpayers -- one way or another.
As the saying goes, "better to drain the swamp -- get rid of the offending homes -- than to swat mosquitoes."
Three. Create productive, aesthetically pleasing space -- open and otherwise.
If done intelligently and well -- if -- such a project could actually make a positive impact. Think of it as an incubator for micro-developments. Or as a blank slate for future Frank Law Olmsted's. Or as a canvas for new home designs that incorporated new, cost-effective technologies (built-in electric car ports? communal "smart" gardens?). The plain truth is: the bar's pretty damn low.
Ironically, at least in Minneapolis, much of the most dilapidated housing is concentrated in well-located, close-in neighborhoods with otherwise good infrastructure.
Which raises the inevitable attacks.
Critics will no doubt argue that such an approach tears apart vulnerable neighborhoods, destroys affordable housing, or will otherwise aggravate rather than solve the housing market's worst problem(s).
Such criticisms may have been valid once, but not now.
An urban neighborhood full of $30,000 homes isn't a neighborhood any more. It's a no man's land at best, a crime and war zone, at worst.
And the only way to make $30,000 homes habitable again is to spend a multiple of that fixing them. (Substitute "banks" for "homes," "profitable" for "habitable," add seven zeroes -- and you've got the nation's banking crisis in a nutshell.)
By definition, homes selling for $30,000 need all new major mechanical systems, new roofs, windows, appliances, siding, landscaping and a host of other fixes. They also frequently require remediation for water intrusion, mold, or other damage associated with neglect.
Far better to spend that repair money on something altogether new, and actually get something for it in return, than pour good money after bad.
Monday, January 12, 2009
Kicking Lereah When He's Down
David Lereah's Kind-of Mea Culpa
Though he's hardly a household name, David Lereah -- formerly the chief economist for the National Association of Realtors -- achieved not a little notoriety for writing the extremely ill-timed (2005), "Are You Missing the Real Estate Boom?"
For that, Lereah is forever assured a place in financial trivia Hell along with James ("Dow 36,000") Glassman and economist Irving Fisher ("stock prices have reached what looks like a permanently high plateau") -- that, just before the 1929 Stock Market Crash.
However, Lereah no more caused the real estate bubble than Glassman caused tech stocks to skyrocket or Fisher was behind the roaring '20's stock market.
Today's Wall Street Journal profiles Lereah with a half-tweak, half "where are they now" piece, Realtors' Former Top Economist Says Don't Blame the Messenger.
Given all the truly culpable actors in the housing and credit mess, piling on Lereah seems a little gratuitous.
Though he's hardly a household name, David Lereah -- formerly the chief economist for the National Association of Realtors -- achieved not a little notoriety for writing the extremely ill-timed (2005), "Are You Missing the Real Estate Boom?"
For that, Lereah is forever assured a place in financial trivia Hell along with James ("Dow 36,000") Glassman and economist Irving Fisher ("stock prices have reached what looks like a permanently high plateau") -- that, just before the 1929 Stock Market Crash.
However, Lereah no more caused the real estate bubble than Glassman caused tech stocks to skyrocket or Fisher was behind the roaring '20's stock market.
Today's Wall Street Journal profiles Lereah with a half-tweak, half "where are they now" piece, Realtors' Former Top Economist Says Don't Blame the Messenger.
Given all the truly culpable actors in the housing and credit mess, piling on Lereah seems a little gratuitous.
Property Tax Pitfalls
How Foreclosure Buyers Can
Reduce Their Property Taxes
Q: When is fair market value not "fair market value"?
A: When it's a foreclosure sale.
Because of the process(es) described in "Sticky" Property Taxes, foreclosure buyers should not expect dramatic property tax relief any time soon after closing their purchase. Even worse, unless they're careful to document the initial condition of their property, they may inadvertently be penalized for any home improvements that they subsequently make.
That's because many cities calculate each home's annual tax assessed value as of a fixed point in time (in Minneapolis, it's January 2).
As an example of the potential property tax pitfalls, assume that someone buys a dilapidated foreclosure January 1, 2009 (eleven days ago) for $60,000. Further assume that the foreclosed property's tax assessed value is currently $200,000. While that would make the purchase price 70% below the tax assessed value, in this market such discounts are increasingly commonplace.
So the new buyer's tax assessed value for 2009 is $60,000, right? Wrong.
Because 2009 property taxes are determined January, 2, 2008, the 2009 taxes are already set. That means 2009 taxes are pegged to the old, $200,000 assessed value.
Comparing Bruised Apples to Oranges
So at least the Buyer's 2010 property taxes will reflect the $60,000 purchase price, right? Wrong again.
As of January 2, 2009 -- the date relevant for establishing 2010 property taxes -- the foreclosure was merely a pending sale, as far as the city and county are concerned. It won't be until 6-8 weeks later, when the sale is typically recorded, that the government will know otherwise.
That means the default value for 2010 property taxes is the old, $200,000 tax assessed value.
However, thanks to an informal appeals process, taxpayers effectively have until mid-April to dispute property tax values set January 2. Here's where it gets interesting.
The foreclosure Buyer will definitely want to contact the city assessor assigned to his neighborhood -- the assessors each have geographic territories -- and challenge the $200,000 assessed value. But the $60,000 he just paid is not deemed relevant for establishing property tax values, because foreclosures are not deemed "valid sales" for comp purposes.
Instead, the city assessor can only consider recent, nearby sales of homes that were not bank-owned. In practice, that means that the home's new tax assessed value won't be $60,000, but an amount much closer to $200,000 -- most likely at least $140,000 (in practice, a 30% reduction from the previous year's tax assessed value appears to be the maximum) .
The new owner must also carefully document the condition of the home at the time of purchase.
Otherwise, any post-closing improvements done by the new owner may have been deemed to exist as of January 2, driving up the following year's property taxes!
Reduce Their Property Taxes
Q: When is fair market value not "fair market value"?
A: When it's a foreclosure sale.
Because of the process(es) described in "Sticky" Property Taxes, foreclosure buyers should not expect dramatic property tax relief any time soon after closing their purchase. Even worse, unless they're careful to document the initial condition of their property, they may inadvertently be penalized for any home improvements that they subsequently make.
That's because many cities calculate each home's annual tax assessed value as of a fixed point in time (in Minneapolis, it's January 2).
As an example of the potential property tax pitfalls, assume that someone buys a dilapidated foreclosure January 1, 2009 (eleven days ago) for $60,000. Further assume that the foreclosed property's tax assessed value is currently $200,000. While that would make the purchase price 70% below the tax assessed value, in this market such discounts are increasingly commonplace.
So the new buyer's tax assessed value for 2009 is $60,000, right? Wrong.
Because 2009 property taxes are determined January, 2, 2008, the 2009 taxes are already set. That means 2009 taxes are pegged to the old, $200,000 assessed value.
Comparing Bruised Apples to Oranges
So at least the Buyer's 2010 property taxes will reflect the $60,000 purchase price, right? Wrong again.
As of January 2, 2009 -- the date relevant for establishing 2010 property taxes -- the foreclosure was merely a pending sale, as far as the city and county are concerned. It won't be until 6-8 weeks later, when the sale is typically recorded, that the government will know otherwise.
That means the default value for 2010 property taxes is the old, $200,000 tax assessed value.
However, thanks to an informal appeals process, taxpayers effectively have until mid-April to dispute property tax values set January 2. Here's where it gets interesting.
The foreclosure Buyer will definitely want to contact the city assessor assigned to his neighborhood -- the assessors each have geographic territories -- and challenge the $200,000 assessed value. But the $60,000 he just paid is not deemed relevant for establishing property tax values, because foreclosures are not deemed "valid sales" for comp purposes.
Instead, the city assessor can only consider recent, nearby sales of homes that were not bank-owned. In practice, that means that the home's new tax assessed value won't be $60,000, but an amount much closer to $200,000 -- most likely at least $140,000 (in practice, a 30% reduction from the previous year's tax assessed value appears to be the maximum) .
The new owner must also carefully document the condition of the home at the time of purchase.
Otherwise, any post-closing improvements done by the new owner may have been deemed to exist as of January 2, driving up the following year's property taxes!
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