Two Years and 20% Later

Market chasers are at odds with their own emotions. Do they want to sell? Or do they want to get rich? It is quite a quandary.

Our featured property was first for sale 2 years ago at a price 20% higher.

1 Fern Cyn inside

Asking Price: $564,800

Address: 1 Fern Canyon, Irvine, CA 92604


Chasing Pavements — Adele

Should I give up,
Or should I just keep chasing pavements?
Even if it leads nowhere,
Or would it be a waste?

Chasing the market is an interesting psychological phenomenon. It is the battle between wanting to sell and wanting to get more money. These desires are at odds with one another. In order to sell, the asking price must be lowered until it reaches market bids. In order to get more money, asking prices must be raised. What to do?

In a rising market, these problems resulting from these conflicts are minimal. In time, rising prices will reach almost any asking price, so if a seller is particularly greedy, it just means they have to wait longer to sell. However, in a declining market, the conflict between these two desires becomes a real problem.

Greed compels sellers to ask too much. Since the market is moving away from their asking price rather than toward it, they do not sell the property. After a while, the desire (or need) to sell becomes more urgent, and they overcome their greed (temporarily) and lower the price. If they are still too greedy, they will set another price above the market, and they will continue to chase it down.

This seesaw between wanting to sell and wanting to profit can go on indefinitely. Today’s featured property was originally for sale in March of 2007 for $711,800. It was also for rent for $2,550. I know because I went and toured this house in early 2007. The owner was a floplord who tried to stop the cash bleeding. Unfortunately, this property is only worth about $400,000 ($2,500 * 160), instead of the $640,000 the owner paid or the more ridiculous $711,800 she was asking.

Here we are two years later, and the seller has relisted the property with a 20% discount from her original asking price. IMO, it is still overpriced for today’s market, and it is 30% over its bottoming price. For her sake, I hope she finds a knife catcher before it drops all the way back to $400,000.

1 Fern Cyn inside

Asking Price: $564,800IrvineRenter

Income Requirement: $141,200

Downpayment Needed: $112,960

Monthly Equity Burn: $4,706

Purchase Price: $640,000

Purchase Date: 6/9/2004

Address: 1 Fern Canyon, Irvine, CA 92604

Beds: 3
Baths: 2
Sq. Ft.: 1,689
$/Sq. Ft.: $334
Lot Size: 4,800

Sq. Ft.

Property Type: Single Family Residence
Style: Garden Home
Year Built: 1974
Stories: 1
View: Trees/Woods
Area: El Camino Real
County: Orange
MLS#: S565843
Source: SoCalMLS
Status: Active
On Redfin: 1 day

New Listing (24 hours)

Rare to see on the market, and in an excellent cul-de-sac location,
this is a great opportunity to own a single-level detached home in
Irvine. On a good-sized level prime corner lot, and a short walk to
elementary school, association pool, spa, playground and large
greenbelt. Sparkling white kitchen, private patio just off the living
room and master bedroom. Large master with walk-in closet and skylight
in master bath. The private backyard features a newer patio that is
perfect for enjoying the great Southern California weather. The home
also offers newer AC and furnace, cathedral ceilings, wood flooring,
and a fireplace in the spacious living room.

This is not a bad description.

This owner paid $640,000 for this property on 6/9/2004. She used a $510,000 first mortgage and a $130,000 downpayment. On 9/22/2005 she refinanced with a $521,000 first mortgage. She still has $119,000 in the property.

If this property sells for its asking price, and if a 6% commission is paid, the total loss on the property will be $109,088. After she pays off the loan, she will be left with $10,000 of her $130,000 investment. That is not a particularly good return on investment.

I sometimes feel sad for owners like this one because she is losing so much of her own money. I only feel sad to a point because someone who was investing that much money should have had a better grasp of the fundamental valuations of the asset they were trading. It is hard to feel a great deal of compassion for speculators that lose money. There is always risk in speculation, and speculators knowingly assume that risk for the potential rewards. Unfortunately, with the free-flowing kool aid, many had no concept of the risks they were taking on; however, does that mean we should feel compassion for their ignorance? I don’t have those answers. You tell me.

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.



Should I give up,
Or should I just keep chasing pavements?
Even if it leads nowhere,
Or would it be a waste?
Even If I knew my place should I leave it there?
Should I give up,
Or should I just keep chasing pavements?
Even if it leads nowhere

I’d build myself up,
And fly around in circles,
Waiting as my heart drops,
And my back begins to tingle
Finally could this be it

Chasing Pavements — Adele

33 thoughts on “Two Years and 20% Later

  1. granite

    I have no compassion for anybody who paid too much. All they did was shut me out from buying a house at a much more reasonable $400,000. Even that’s too high when I have to listen to the closeby train everyday.

    Assuming I could rent for $2250/mo (which I am currently in Northwood), the real value is closer to $350,000.

    1. george8

      Looks like it is about 100 yards from the rail. So, it might be ok considering how dense Irvine is over all.

      However, it is aged in and out and needs some freshing up.

      In conclusion, another 20% down at $450k listing is suggested to create a bidding war. It should be priced like it were REO steal to sell quickly at acceptable price (probably just over $500k).

    2. minou270

      I agree. Why should we feel sorry for people who helped drive prices up to WTF levels?? I don’t.

      1. mmg

        400k would about right in a normal economy, but even though alot of people here think Irvine is special 😆 we have to look at the macro picture, with people losing jobs, banks have yet to go under in droves, tight lending, rising taxes with less deductions putting pressure on higher priced houses in Irvine(i assume), negative wealth effect from stocks losing 50% and PSYCHOLOGY.

        All this will have an effect on prices, this place was built in the 70s, 1700 sqft, close to the rail (per commentators), without seeing it my self–> 300k sound about right. JMO

        1. former_irvine_resident

          It’s not “close to 1,700 sq ft”. The actual square footage is 1,589. I know. I owned one of these.

          For this model the Realtards often lie and include the atrium which in this case is not closed in. I could accept rounding up to 1,600 but 1,689 is clearly misleading.

          See this comparable property for reference:

          This one is a lie too (you can clearly see that the atrium is not enclosed):

  2. Lee in Irvine

    I had a friend who sold his OC house in 2005 and moved out of state. The home listed, and within a few days there were multiple offers on the house. Ultimately the potential buyers started competing, bidding the house up almost $100,000 more than the original asking price. Needless to say, my friend was very happy.

    Here’s where the problem started … Appraisal … after 3 tries, they couldn’t find an appraiser who would sign-off on the winning bidders offer. The home could have sold above the appraised value, but the winning bidder would have had to make up the difference in a larger down payment. That created a problem because they didn’t have an extra $40,000 to use as a deposit … hell, they didn’t have any down payment at all. The house eventually funded at $60,000 more than my friends original asking price, with NO money down.

    I used to think of this story and roll my eyes when the local real estate industry (Gary Watts, etc) talked about supply and demand. The demand for real estate in Orange County had everything to do with what a lender was willing to loan a third party buyer, than anything else. Heck, lenders were stupid enough to blindly loan money to (under) qualified borrowers, in order to keep the music running. We had a situation were new buyers, with no money, underperforming incomes, and less than stellar credit, were allowed to participate in our already overpriced real estate market. The banks cheapened homeownership and created a sense of entitlement with everyone. If you weren’t buying a house, it wasn’t because you couldn’t qualify, it was because you had an independent streak, prudent mindset, and you probably were a “bitter renter” too. We waited for the music to end — and end it did. 😉

    1. Party Pooper

      wow. in 2005, they couldn’t find an appraiser who would just “hit” the right number? the buyers must have been dealing with a credible REA and broker.

      I’m stunned.

  3. NoWowway

    She’s had a lot of skin in the game and she’s in deep denial, so you’ll see this property eventually capitulate into a short sale/forclosure because she’ll not be able to “take the loss” she is facing right now. She’s putting off the inevitable. That’s my prediction.

    The home is dated and she is asking for a half million dollars for the size of a large condo in Irvine. Job losses, a terrible economic outlook, crashing stocks, rising costs in all areas and now utilities/electric, substantial property taxes on this kind of purchase…. who would jump on this “deal” of a house?

    Sorry…. this one’s going to end way worse than she could have ever seen coming 2 years ago.

  4. LC

    20% in two years is nothing — considering that many places have dropped 50% in just the past year. Just look at the median in LA County, for instance.

    This is a detached condo. Over half a mil for this? KoolAid comes in eight great flavors!

    1. nowwaat

      You don’t have to venture out to LA County. Just look at South Orange County (RSM, LF, MV). Better yet, look at Corona’s Green River area ($300k buys you a newer 2,400+ sq.ft. house) which is a toll-road throw from Irvine . I guess there is the So Cal Premium, then there’s the Orange County premium, and then there’s the Irvine premium on the top!

    2. SeattleDave

      “KoolAid comes in eight great flavors!”

      LOL!!! I love it! Does anyone remember the ditty:

      Kool Aid, Kool Aid, tastes GREAT…

      Wish we had some, can’t WAIT!

  5. nowwaat

    I suppose this lady may feel she has no reason to sell now which will net her back very little of her down-payment. But I still think it’s worth it to sell to preserve her credit rating, thus keeping her future options open.

  6. clown car

    She had NO IDEA she could lose money because, at the time of purchase, prices rose almost daily. How does one lose if shit keeps appreciating?

    Absolutely no sense of the KABLAMMM! that was to come. Greedy bastards, I have no pity.

    1. camsavem

      Exactly. I remember hourly watching my tech stocks back in the 90’s. Go to lunch, make a couple of grand. Buy and hold was the name of the game, don’t get caught trading in and out…..LOL

      I knew the game was up in Real Estate when they had web sites that would track your homes equity appreciation DAILY.

      In a couple of years people will begin to view homes for what they are, a place to raise a family.

  7. former_irvine_resident

    The house I sold when I left Irvine was identical to this and in the same neighborhood. Of course I sold in 2006 and priced it to move. The neighbors across the street were selling at the same time with the exact same floor plan. I am sure they didn’t like me pricing 50k below them. I wasn’t about to chase down the market. Theirs eventually sold a year later for a lot less than mine. Best move I ever made.

    1. Party Pooper

      great decision by you. did you troll RE blogs like this & housingdoom & realize what was coming?

      1. former_irvine_resident

        Nope. I only started following the whole housing driven economic mess in the summer of 2007 when I came across the IHB.

        It was a timely job offer on the East coast that presented us the opportunity to sell. Otherwise I would still be in the home and dreading the lost equity and nightmarish scenario facing the state of CA. (Note: I bought in early 2001 so I wouldn’t have been underwater – yet)

        I originally thought of keeping the home and renting it because prices keep going up, right? Thank goodness my better sense came into play (my wife) and we sold. We came to realize that prices were just out of touch with reality and the market was softening. We consider ourselves very fortunate.

        1. granite

          Very interesting. Would you be willing to let us know what you paid for it in 2001? Thanks in advance.

          1. former_irvine_resident

            300k and it was a complete dump. It had been a rental for a lot of years and while I lived there we replaced the roof (definitely not cheap with the HOA required lightweight tile!), water heater, air conditioner, and garbage disposal. We stripped the most ugly wallpaper from nearly every room and removed poorly done waynes coating. Painted inside and out. We had to remove all the carpet and pad because they had dogs that urinated everywhere. We even had to treat the concrete to remove the smell. I also scraped the popcorn ceilings and re-textured.

            And even after all that it was still a junky 1970’s house with drafty old windows/doors, and light switches at waist level (don’t ask my why they used to do that).

            Needless to say I wasn’t sad to leave. Although there were lots of things I loved about Irvine, that house was not one of them.

            To even afford the place I had to do an 80/10/10. I came in from out of state and my extended family wondered what the hell I was thinking paying that much for a piece of crap. Now that I rode the bubble they get it, but I got lucky.

            My focus these days is on how to preserve what I have been able to accumulate. The insane behavior in DC just makes me sick. These guys are totally out of touch with reality and I truly fear for this country – especially those in California.

            Bloggers like IrvineRenter should be commended for raising the awareness. I follow Mish regularly and he has saved me a lot of money. (Just Google “Mish” if you don’t know who I am talking about)

  8. Gemina13

    This reminds me of what happened with an old family friend. She received a large inheritance when her father and great-aunt died in 2003, which she added to by selling their home in Boston. Armed with seven figures in cash, Friend headed to Sarasota, FL, and bought seven houses–one for her, her daughter and granddaughters, and six to use for income as rentals.

    The trouble was, she didn’t buy the houses outright. She took out interest-only loans for all seven of them. Three houses didn’t rent, and so she tried selling them for a profit in 2006. That didn’t work, but in the meantime Friend blew through what was left of her inheritance with frequent trips, shopping, and gambling.

    Then her loans reset and she couldn’t meet the mortgages for any of them, even with rental income. Friend tried to sell, short-sell, and then beg people to move into these houses, to no avail. She lost all six rental properties by 2007, and number seven was foreclosed on in 2008.

    The inheritance money is gone, her credit is a smoking ruin, and she has nothing to show for any of it. I really hope the floplord of this house gets a clue soon and dumps this house before it turns out to be her ruin as well.

    1. former_irvine_resident

      How unfortunate for her. She had such a great opportunity and blew it completely. It reminds me of those stories about lottery winners who blow their money and screw up their lives. Just sad.

  9. Woodbury Renter

    Good description but is it truthful? What elementary school are the kids going to walk to? ECR Elementary closed and moved to Woodbury 2 years ago. The new owner’s children will have to walk to Greentree on the other side of Yale. About as far as you can get from an elem school in Irvine.

      1. Woodbury Renter

        Yes, you are right, because I just looked at the map and the house is not in El Camino Real, it is in Deerfield.

        1. former_irvine_resident

          We lived nearby and the kids went to Deerfield but we soon switched and took them to Eastshore. We were not that impressed with Deerfield.

  10. Mike7

    Zillows monthly equity burn on this property is $4500.00, they also say the home was worth about 100k less in a year.

  11. IrvineRenter

    Does anyone else feel schadenfreude in the denial exhibited by this Real Housewife of OC?

    Real Housewife takes O.C. house off market

    “According to Jeana Keough, also a member of the cast, Barney and her husband had received a couple of “lowball offers” and decided to wait out the market at this time.

    “We gave it a few months and didn’t get offered what we wanted,” said Barney in an e-mail to the Orange County Register.

    Barney said that she and her husband Simon had planned to take it off the market if they did not get the price they wanted.”

    Those “lowball offers” she is complaining about are the last gasp of stupid knife-catchers attempting to overpay. Wait until prices really drop out there. Those lowball offers will look Kingly in two years.

    1. Party Pooper

      she’s an REA & he’s trying to start his own business. I hear it’s failing miserably. I don’t think they were trying to move to a better neighborhood; just trying to get that mortgage payment down.

    2. NoWowway

      Wow, the comments are brutal! A lot of them are pretty personal in regards to the show. But even the Real Estate related ones are strong.
      Here’s just one

      “From the original post of Mrs. Barney trying to scam people into buying her home to save her soul.
      First of all, according to county records she isnt even on the deed of this house. Her husband owns it soley, secondly he bled the equity in 2007 by refinancing the first on a 40yr mortgage and taking out a line of credit…..grand total = $1,317,500.00. Yes Ms.Bimbo I would say you are upside down because you are not going to get 1.6 for it. I guess she thought she was the only one with access to county records.

      OUCH. You should have used that line of credit to buy your PINK MOTORCYCLE! Then you and your trailer trash husband could ride back to the gutters you came from!

      BUH BYE!!”

  12. IrvineRealtor

    [b]Updated MLS Irvine Closed Sales for [color=red]February 2009[/color][/b] [b][url=]here[/url][/b].
    (previous years are at tabs at the bottom)

    As a refresher:
    [b]Yellow[/b] is still unconfirmed (no data reported yet)
    [b]Blue[/b] is “suspicious” even though it is recorded.
    [b]Green[/b] is confirmed.

    Thank you and good luck,

  13. former_irvine_resident

    “Our featured property was first for sale 2 years ago at a price 20% higher.”

    Actually, the price 2 years ago is 26% higher than today. The price has been reduced by 20%.

    That’s the interesting thing about market losses… It takes a greater percent gain to make up the percent loss. Most people don’t think in those terms.

  14. Dunbar

    “she’s an REA & he’s trying to start his own business. I hear it’s failing miserably. I don’t think they were trying to move to a better neighborhood; just trying to get that mortgage payment down.”

    I think he was a manager at that huge Mercedes dealer in OC (Fletcher Jones?). Gotta wonder how he could afford that lifestyle on that kind of salary. If he was being paid on commission or bonus he had to be hurting big time in this economy. The wife mentioned “one of the companies” he invested in was a premium Tequila. Oye vey, I hope he has some sort of inheritance to fall back on. He seems like a nice, down to earth guy. She seems like a hot, high maintenance MILF.

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