Priced-in on Sheridan

Sheridan Kitchen

Asking Price: $899,900

Purchase Price: $940,000

Purchase Date: 5/10/2005

Address: 18 Sheridan, Irvine, CA 92620IrvineRenter

Beds: 4

Baths: 2.5

Sq. Ft.: 2,453

Lot Sq. Ft.: 6,400

Year Built: 1977

Stories: 2

Type: Single Family Residence

View: Pool

County: Orange

Neighborhood: Northwood

$/Sq. Ft.: $367

MLS#: S477606

Status: Active on market

On Redfin: 70 days

From Redfin “Beautifully Upgraded End Of Cul-de-Sac Cape Cod Home W/ Pool & Spa. Rem odeled Kitchen W/ Newer Stainless Steel GE Profile Appliances, Granite Countertops/Backsplash, Cherry Cabinets & Breakfast Counter. Originally A 5 Bedroom Home Where A Bedroom Has Been Converted Into A Huge Master Bedroom Retreat. Incredible Outside Amenities; Enclosed Front Courtyard, Very Large Grassy Side Yard W/ Rose Bushes & Fruit Trees, Backyard With Shady Patio Cover & Large Private Pool & Spa. No Mello Roos Or HOA Dues.”



Sales History

Date ————- Price ———–Appreciation

05/10/2005 — $940,000 — 30.5%/yr

01/14/2003 — $507,000 — 6.6%/yr

04/17/2000 — $425,000 — 5.4%/yr

11/17/1993 — $304,000 —

If the property records I have access to are accurate, there is no mortgage on this property, so there is no lender to share in the losses. When you look at the sales history for this house it certainly looks like this seller overpaid in 2005. This was a time when prices were rapidly appreciating, and the buyer probably was convinced they should buy now or be “priced out” forever. Now, 2 years later, they are looking at a $94,094 loss assuming a 6% commission. Now, they are “priced in” forever.

Think of all the money these owners could have saved if they had rented. I know I spent less than that over the last two years…

20 thoughts on “Priced-in on Sheridan

  1. lee in irvine

    Last summer there were no homes listed for less than 2005 prices in Irvine.

  2. squareround

    Hi, Irvinerenter,

    Can you help me find out something about this house:
    916 N Redondo Ave, Manhattan Beach, CA 90266

    It was only 310K in 1999. Now it was just sold at 1625K. How much down by the current owner? Thank you very much in advance.

  3. WiseWithMoney

    To compare owning vs renting in this case, we need to add two year interest on 940K to the loss as well. So the total loss is
    94,0944 + 94,000 . 94K is the two years interest on 940K at 5%

  4. buster

    WiseWithMoney is right on the mark. Whilst some would say that, since there is no mortgage, there is no interest payment that would be wholly incorrect. What could that $940,000 cash purchase have earned, figured extremely conservatively? If they had rented and put the $940,000 into short term treasury bills (by the way, you can buy these direct for as little as $1,000 and a term as short as 91 days at they would have earned just over 5% (no California tax, by the way). So if they had rented they would have earned $47,000 in zero risk interest the first year and $49,000 the second year, total lost earnings $96,000 plus $24,000 in property tax they paid plus $94,000 sales loss plus the insurance and upkeep. Total loss is $214,000. I sure could rent a nice place for the $9,000 per month they spent…..

  5. crucialtaunt

    I have a hypothesis that this might have been a “move up” buyer who brought in significant equity from previous house sale(s), who might be justifying his potential loss on this sale as something that he did not have to begin with before his good fortune in making out by selling his previous properties.

    Anyone care to blow holes into this hyposthesis?

  6. fumbling

    you can buy t-bills through schwab or tdameritrade or etrade, a lot safer and more convenient to buy $1million in tbills this way with one order to the broker than spread it among 10 different bank cds. with tbills you don’t need no stinkin’ FDIC insurance…:)

  7. No_Such_Reality

    He could just as easily spent the money on blow and hookers in Vegas, but he didn’t. Looking at other opportunity costs to calculate his unrealized loss is rather pointless.

    More importantly, his loss has nothing to do with what we care about which is the price of the market. That is only 4.3% below his July 2005 purchase (provided it sells).

    That price in itself appears to be a tad high compared to his neighbors selling the same time period and roughly same size. So much so that his current asking price may still be above what could be considered reasonable comps for that home in 7/’05.

  8. Mr Vincent

    Pretty nice house. I think its worth the 2003 price of about 500k.

    Neighbor has a nice view into your pool area . I guess you wont be able to do any skinny-dipping or have loud parties out there. Its a deal breaker for me…LOL. I see no way to fix this because the lot is so tight.

  9. ochomehunter

    Well, to truly assess the loss, why not add delta of monthly payments from what you would have paid while renting. This will add up quickly

  10. lendingmaestro

    Opportunity cost always needs to be considered. That’s why it makes sense sometimes for banks to unload REOs because they are non-performing assets. Of course we are speculating that he could have invested his money.

    I concur with your hypothesis crucialtaunt. You’ve unearthed a major fuel-point in the housing bubble. Trading up. At some point, no matter how much you sell your home for there is a maximum home/mortgage you can afford. This will always cap the market.

    Think of why companies have stock splits. A 50 dollar stock price is much more affordable than a 100 dollar stock. The cost is too high for some people. If a consumer can purchase an investment and earn the same ROI % as a high priced investment, they’ll choose the lower price.

    In regards to that article it, I can’t stress enough the point I always try to make. These blow-hards on CNBC have no idea of the depth and bredth of the major faults in the lending industry. Unless you are immersed in the business on a daily basis, and are speaking to actual homeowners than you don’t see the true picture. Even the traders who buy and sell CDO’s and MBS don’t have a true grasp of what’s going on.

  11. SmartMoney

    I would walk over there and give them $600K cash right now if they would take it. It’s worth more than its 2003 price, but only a reasonable appreciation rate (5 or 6 percent per year), not a wild ridiculous one.

    One argument you regularly hear from people trying to justify the housing price overvaluing is that Irvine is the greatest place in the world to live and everyone wants to live here. Ergo it is reasonable to expect high double digit price appreciations year after year. The fact of the matter, though, is that all the positives people point to about living here were positives before the run-up, and existed when the price appreciation was in the realms fo the sane five or more years ago. It is the negatives (pervasive fraud, toxic financing, etc.) that only became widespread late in the game.

    Normal appreciation (from the prices pre-run-up) is entirely reasonable to expect, but the normal percentage based appreciation from what prices were just a few short years ago accounts for and includes all the premiums for the weather, schools, and desirability. That’s what I don’t get: why do people think the attractions of Irvine are fundamentally different than they were five or ten years ago?

  12. IrvineRenter

    “That’s what I don’t get: why do people think the attractions of Irvine are fundamentally different than they were five or ten years ago?”

    Sometimes I wonder if people really believe this BS or if they just spout it to make themselves feel better? All the bullspin was true when the market was in the crapper in 1996. Southern California did not suddenly become the greatest place on earth.

  13. lendingmaestro

    Irvine hasn’t decreased in the quality of living. It’s more than likely increased which increases the demand to live there

    Compare it to other surrounding areas, i.e. santa ana, fountain valley, anywhere in LA, that are becoming more of a shit-hole everyday.

  14. IrvineRenter

    It is true that move-up equity feels like found money, that also probably explains why people don’t mind spending it like income.

    For your hypothesis to be true, the homeowner would have had to pay off a mortgage at some point and/or move down. If they made $1,000,000 on a $2,000,000 home and put the profits into a smaller home to avoid a mortgage, then your hypothesis makes sense. Empty nesters often do this when they claim their one-time capital gains exemption. There will also be some people doing this who sold at the peak and bought back in when prices dropped.

  15. k.o.

    I could argue that the Irvine of yesteryear, aka about a decade ago, was a lot better than the Irvine today. No insane traffic down Culver during the workweek. Orange groves and their blossoms that permeating the air. More “regular” middle class families that didn’t have 3 beamers for 2 drivers glutting the streets. Less crime and murders (although our crime rate is still extremely low today).

    In my opinion, in several different ways the quality of life in Irvine has DECREASED from years past.

  16. SoCalwatcher

    Excellent article!

    Bubble Bloggers= Facts, not fluff

    Economists= Cotton candy figures and theories

    NAR,RE Agents and MTG Brokers= Full of shit.

    Keep going, bloggers. I love the no frills insights and call-it-as-you-see-it attitude.


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