Building a Mystery — Sarah McLachlan
In sales, it is an effective technique to build mystery. Entice a prospective buyer with how great a product is, and often times he will purchase just to satisfy his own curiosity. If any of you have stopped by the web page for my book, you probably noticed it reads like one of those cheesy sales pages littering the web. Apparently, these pages are effective, or you wouldn’t see so many of them. Or perhaps, I have read too many realtor descriptions…
Today’s listing agent has come up with a fantastic way to market this property through building mystery. Look at the picture below. You don’t have to refresh your browser, the gray is not going to disappear. That is really the picture that was put on the MLS. Notice the MLS logo in the corner. Don’t you wonder what the property looks like? Aren’t you waiting for the gray to disappear so you can see the rest of the house? Maybe you should contact the realtor and schedule a showing. It might be the most attractive front elevation in Irvine. Or not.
Asking Price: $619,000
Income Requirement: $154,750
Downpayment Needed: $123,800
Monthly Equity Burn: $5,158
Purchase Price: $745,000
Purchase Date: 5/31/2006
Address: 7 Hickory, Irvine, CA 92614
| Beds: | 3 |
| Baths: | 3 |
| Sq. Ft.: | 1,587 |
| $/Sq. Ft.: | $390 |
| Lot Size: | 3,570
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Cottage |
| Year Built: | 1984 |
| Stories: | 2 |
| Area: | Woodbridge |
| County: | Orange |
| MLS#: | S554706 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 2 days |
living room and hallway, french doors in living room and dining area,
opening up to the backyard. Seperate laundry area. Vaulted ceilings in
living room and master bedroom. Separate kitchen area with breakfast
nook (can also be used as family room). 1 Master and 2 spacious guest
bedrooms upstairs. Big size wrap around yard with two patios (one
covered) and oversized side yard. Close to parks, schools and South
Lake. Easy access to the 405 Freeway. Priced to sell!
Separate?
oversized side yard? Is it 12′ wide rather than 10′ wide? When the adjacent walls are taller than the space is wide, it doesn’t feel or look particularly “oversized.”
Priced to sell! We will see.
Most of the properties I profile are already underwater, and usually it is the bank that is losing a great deal of money. Today’s property is a bit different. The property was purchased on 5/31/2006, right at the peak, for $745,000. The owner used a $521,500 ARM, and a $223,500 downpayment. He refinanced into an Option ARM on 5/4/2007 also for $521,500.
Look at the situation these owners are in. They are not underwater yet, but they have a toxic loan, and property values are declining. I find it interesting that they are trying to sell. I believe most homeowers in their position would hang on to the property and try to wait out the market. Perhaps they must sell to relocate, or perhaps there was a job loss. I don’t know. It is possible they see the trajectory of prices and believe they must sell now to stop from losing even more money. Most readers of this blog believe that to be true, but based on the activity we have been seeing, it appears the buying public does not share our view. Regardless of their motivations, they are now bargaining to see how much of their downpayment they will recover. It must be an agonizing position to be in. Most people in their circumstances would price over the market and chase it down to an even larger loss.
If this property sells for its asking price, and if a 6% commission is paid, the total loss of the owner’s equity will be $163,140. This would allow them to escape with $60,360 minus the negative amortization on the loan. This is priced 20% off the peak, and in Woodbridge, we have seen properties selling at an even larger discount. They may get lucky and find a knife catcher at this price, or they may not. They may end up losing all the money they put into the deal. They probably wish they would have taken out a HELOC…
I hope you have enjoyed this week at the Irvine Housing Blog. Come back next week as we
continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.
🙂
{book}
You come out at night
That’s when the energy comes
And the dark side’s light
And the vampires roam
You strut your rasta wear
And your suicide poem
And a cross from a faith that died
Before Jesus came
You’re building a mystery
You live in a church
Where you sleep with voodoo dolls
And you won’t give up the search
For the ghosts in the halls
You wear sandals in the snow
And a smile that won’t wash away
Can you look out the window
Without your shadow getting in the way?
You’re so beautiful
With an edge and charm
but so careful
When I’m in your arms
Cause you’re working
Building a mystery
Holding on and holding it in
Yeah you’re working
Building a mystery
And choosing so carefully
Building a Mystery — Sarah McLachlan
Looks like they corrected the photo on Redfin. How about the illusion of lake front property in photo 16.
My guess is these folks couldn’t afford the ARM payment so opted for the Option ARM, the down payment probably came from a previous sale.
I have no way to know, but I suspect the scenario you describe is exactly right. They climbed the property ladder, and the last step just broke.
At least the realtor fixed the photo. He probably isn’t too pleased we found the old one; although, I did give him free publicity and suggested people should contact him. He should be happy.
I’ve wondered how many of the knife catchers are people who sold 1.5 to 2 years ago at a nice profit, and now decide that they need to buy a new residence in order to avoid paying capital gains tax. Perhaps they believe that prices won’t fall more, or that further declines will be less than the tax, or that they can wait it out until prices (soon) recover.
None of that is my particular case, I’m just wondering how many ways there are to run the calculations. Of course they may be conditioned by the bubble good times not to make any calculations at all.
It has been my observation, among the people I know in Irvine, that the most willing to be knife catchers right now are people that have cash from a previous sale of their property. Easy comes, easy goes I say 🙂
At first I found myself feeling sorry for this owner because of the large down payment brought to the table, then I remembered nobody ever brings 200K in cash from savings to the table, just appreciation from the sale of their former house.
I bet it would take the average joe making 75K per year about 10-20 years to save up 200K in personal savings from his W2 job depending on how frugal he can be.
For a couple each earning $75k a year, you can save money pretty fast.
Not true.
After I graduated college I lived frugally while making an avg of $65k for 3 years. In that time I managed to save $90k. Granted, I had roommates so a lot of bills were cut in half.
http://www.crackthecode.us/images/7HickoryFront.jpg
Another classic.
It looks like the house is underwater.
With all the beds in the process of being made, I’m wondering if they were renting it out furnished. There were some wierd things in the photos that indicate a lack of seriousness, despite their attempts to get out of the market now. Hangers on the curtain rod in the last bedroom? A towel rack out next to the bed? Paper chains up in the kitchen? Maybe they’re just in a serious hurry.
So Ipop, what are their chances of getting out quick at this price?
Clint at the Portland Housing Blog has been having fun with similar idiot photos, and the blog “It’s Lovely! I’ll Take It!” does nothing but collect bizarre real estate listing photos. It’s interesting: a third of the really bad photos are obvious Photoshop jobs intended to conceal something particularly vile about the houses, one-third are ones of really scary properties where the realtor was obviously too terrified of the mother-stabbers and father-rapers in the neighborhood to leave the car while taking it, and the rest are of horrible scenes where it’s obvious that the sellers aren’t even trying.
Some funny ones on http://lovelylisting.blogspot.com/ (I especially liked the hula hoop in the funeral parlor) — thanks for the tip.
Great post as always. Patience is key as I’d love to jump into the market but I also know that I just need to be patient and wait it out.
On a side note your landing page, while flying contrary to popular believe that visitors don’t scroll was proven to be effective:
http://www.seomoz.org/blog/announcing-the-seomoz-landing-page-competition-winner
Depending upon how your affiliate link with Amazon and the other distributor works you may want to setup an A/B test to see if this holds true in your case.
IR – thank for all the info, I usually read this blog everyday and at one point I was in escrow on a house and you profiled it and I pulled out. I think I probably owe you some money. Todays property is interseting, first it kills the property on Greenmoor the street over and then there is a house on Flaxwood that goes up for the same price. I am trying to figure out the GRM (?). If I pay 2800 a month in rent wouldn’t that put these houses right at a GRM of 18? Also, wouldn’t that put these house just about at rental parity? thanks for your help.
Thank you. I will check it out.
Assuming this could rent for $2,800 (which I think is high), and assuming rental breakeven is at a GRM of 180 (which I also think is too high), the property value is $504,000. If I were estimating value, I would assume a $2,500 rent, and a 160 GRM resulting in a fundamental value of $400,000.
For the sale of a principle residence, there is no longer a requirement to replace the property in order to exclude the gain from income (up to $500,000 if married).
I am surprised that the realtor did not say that this place is “cute as a doll house.” At 1587 sq ft, it might as well be. $619,000!! Who is going to buy this place? Loaded Munchkins?
$745,000? Are you kidding me? Crazy people. I wouldn’t pay over 450k for this place as is.
The low-lying fog in that neighborhood is a bitch…
then again if I only stood to make $25,000 on this transaction I’m not sure I’d be that motivated to work that hard to try to do a professional job either… 15 minutes is 15 minutes…
Thx 4 teh memrees AZDFelix!!!