Asking Price: $599,000

Purchase Price: $760,000

Purchase Date: 6/23/2006

Address: 131 Talmadge, Irvine, CA 92602

Beds: 3

Baths: 2

Sq. Ft.: 1,752

Year Built: 2003

Stories: 2

Type: Condominium

County: Orange

Neighborhood: Northpark

$/Sq. Ft.: $342

MLS#: U7002421

Status: Active on market

On Redfin: 4 days

From Redfin, “OUTSTANDING ASSOCIATION WITH A GUARD GATED COMMUNITY! IN THE HEART OF NORTH PARK IN THE MOST SOUGHT AFTER CITY OF IRVINE. THIS HOME FEATURES THREE BEDROOMS AND TWO BATHROOMS, ASSOCIATION POOL AND SPA. OUTSTANDING SCHOOLS AND PARKS. CLOSE TO TRANSPORTATION, SHOPPING, ENTERTAINMENT. .. THIS HOME IS IN THE TUSTIN UNIFIED SCHOOL DILSTRICT. HOME IS BEING SOLD ‘AS-IS’ AND ‘WHERE-IS’ WITHOUT WARRANTY. “

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You have to love properties like this one. A flipper who timed the market top perfectly walked away from this nightmare and left the bank holding the bag.

In our analysis posts, we discussed the theoretical possibility (probability) of foreclosures leading to lower prices. We haven’t seen much of it to date to demonstrate how it works. Here it is.

In the past, a property like this one would have sold in a day at above asking price. There would have been no negative impact to the neighborhood comps. Right now in the markets, there are few buyers, and those who are buying are putting in cautious bids. There will probably be no bidding war for this property. This transaction will be very telling of where the market is today, and where it is heading.

It still takes some form of exotic financing to buy this property. I doubt many families with a $171,000 annual income with an $85,000 downpayment are rushing out to buy this place. Somebody making $85,000 a year utilizing a huge DTI ratio will take out a 10 year I/O, buy this place, and spend the next 10 years underwater eating Ramen Noodles.

However it goes down, this will be a comp killer. All those sellers holding on to a breakeven wishing price just got clobbered. As each distressed homeowner succumbs to the terms of their exotic mortgage, they become another foreclosure. Each foreclosure reinforces the previous low comp and drives a dagger into the hopes of other neighborhood sellers.

This is how it happens: one foreclosure at a time.

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I would like to say a special thank you to Purplehaze for tipping me off to this property.

We have a first today: a property that is a flip, a knife-catcher and a WTF award winner — the kind of property that really makes this hobby fun.

Asking Price: $1,890,000

Purchase Price: $1,485,000

Purchase Date: 2/27/2007

Address: 18991 Edington Terrace, Irvine, CA 92603

Bedrooms: 4

Full Baths: 2

Partial Baths: 1

Square Feet: 2,831

Type: SFR

Status: ACTIVE

MLS #: P582554

1st Loan $1,000,000.00

2nd Mtg. $250,000

Lender — Americas Wholesale Lender

From ZipRealty, “‘spectacular view of city lights and mountains’. This hard to find turtle rock terrace home has 4 bedrooms, 2.5 baths all on one level. This is the model 70 presidential home. Enjoy the city lighs view from the master bedroom, living room & family room. This house is at the end of a single loaded street with only 6 houses. As an additional bonus, take the pull down ladder to the attic and view all the storage space. This house is ready for you to put your own creative touch on it.”

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Lets take a look at the rest of this home:

So here we have a house built in 1970, and it hasn’t been updated since then — unless perhaps the white tile kitchen was an 80’s update. How about the exposed white brick living room, or the paneling and yellow carpet upstairs. This property is a joke.

I will give these sellers credit for having enough sense to recognize this when they said in the description, “This house is ready for you to put your own creative touch on it.” In other words, you have to do the renovation. So what have these people done to warrant the $405,000 price increase? Are they such savvy buyers that they purchased this property that far under market? These people paid $524 per square foot, and they are asking $667/SF for the property. This is insane!

I have to admire the delusional thinking. They put $235,000 of their own money into this transaction, and they plan to walk away with $640,000 after six months. That is a great internal rate of return (near 600%). It certainly would be better than 5% at the bank. Of course, I think they will be lucky to get out before this becomes a short sale, but only time will tell.

So what about the comps? We happen to have a great comparable property:

Price: $1,498,000

19041 GLENMONT TER

Irvine, CA 92603

Beds: 4

Baths: 2.5

Sq. Ft.: 2,605

Lot Sq. Ft.: 8,670

Year Built: 1971

Stories: 1

Type: Single Family Residence

View: City Lights, Peek-A-Boo, Trees/Woods, Other

County: Orange

Neighborhood: Turtle Rock

$/Sq. Ft.: $575

MLS#: S483106

Status: Active on market

On Redfin: 61 days

From Redfin, “Elegant & Sophisticated Style! Det. Single Level on Oversized Corner L ot, Popular Plan 60 w/ a Gourmet’s Dream Kitchen, All new Stainless Appliances, Custom Cabinets & Granite Counters. Extensive Upgrades incl. new Tile flooring, new Dual-Paned Vinyl Windows & Doors, new Roof-Furnace-AC, Upgraded Electrical systems, Custom Fireplace Mantle, Remodeled Powder Room, All new Shower-Tubs w/ Intricate Tile Inlays & More! Pool sized yard w/ view offers total privacy. Quiet, single loaded cul-de-sac street.”

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Does the front elevation look familiar? These houses are nearly identical, and they are so close together than the Edington Terrace house actually looks over the roof of the Glenmont Terrace house. Is the view worth $400,000 extra (plus renovation costs)? In my opinion, the Glenmont Terrace house is overpriced as well (it is priced $200,000 over its 2005 purchase price), but as a comparable, it clearly establishes Edington Terrace is in WTF territory.

Turtle Rock appears to be the last bastion of kool-aid drinkin’ maniacs. When I look around at listings, most are priced in the $500/SF range. There are a few over $600/SF, and they have been on the market for a long time. There is nothing I can see to justify the price this flipper paid much less the $405,000 extra they want for the property. I am dumbfounded, and being so means they have truly earned today’s WTF award.

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I would like to express a special thanks to JoonB for alerting me to this property.