When the market turned in the summer of 2006, Columbus Grove dropped precipitously. The owner of today’s featured property missed that memo.

Asking Price: $1,249,000

Address: 14 Desert Willow, Irvine, CA 92606

BTW, the IHB is mentioned in Huntington Homes today. Surf City home-equity ‘abuse’: ‘So many you can’t believe it’

Go Your Own Way — Fleetwood Mac

You can go your own way
Go your own way
You can call it

In case you hadn’t noticed, sellers can set whatever asking price they want for their properties; the prices do not have to be reasonable, and here in Irvine, they often are not. Can you put yourself in the shoes of a listing agent for just a moment? You have just been contacted by a wouldbe seller, and you excitedly drive over to their property to take the listing. You know the property is worth about $800,000 in today’s market, but you have no idea how much the seller wants to ask. After a brief conversation, the seller tells you they want to list for $1,249,000. How do you feel then?

Think of the thoughts that would be going through your mind as a listing agent:

1. If I burst out laughing, will they be really offended?
2. Did the owners see me giggle when they said how much the wanted to ask?
3. Can I regain my composure before speaking?
4. Should I thank them for their time and leave?
5. Do I bother to take this listing?
6. Can I talk them down to reality in a couple of months? They are so far over the market, I don’t know if it is possible.
7. If I take the listing, since it has no chance of selling, am I going to spend even one penny marketing it?
8. Is there a competitor I do not like that I could refer them to?

How would you respond?

A government orchestrated spring rally seems to be upon us. The few people who are not impacted by the recession are picking over the limited inventory of REOs setting market pricing. The organic sellers continue to price in la-la land as evidenced by today’s featured property.

So is this asking price really that ridiculous? Well, the neighbor at 27 Desert Willow just listed for $799,000. Is this property really $450,000 better than that one? You could buy the property at 27 Desert Willow, raze it to the ground, and rebuild a house identical to 14 Desert Willow, and it would probably not cost a total of $1,249,000. Perhaps that puts things in perspective for you.

Asking Price: $1,249,000

Income Requirement: $312,250

Downpayment Needed: $249,800

Monthly Equity Burn: $10,408

Purchase Price: $1,274,000

Purchase Date: 6/26/2006

Address: 14 Desert Willow, Irvine, CA 92606

Yes, Hurry!! This one will be on the market forever.

attahced?

Did you notice the realtor did not call it a gourmet kitchen? The Swedish Chef from the Muppets would be proud.

This property was purchased for $1,274,000 on 6/26/2006. The owner used a $1,018,850 first mortgage and a $255,150 downpayment. Apparently, this owner has not emotionally accepted the loss of his quarter million dollar downpayment. I wonder how he will react when he comes to realize that not just has he lost his entire downpayment, but he will be a short sale if he really wants to sell. There is much pain ahead for this owner. Now, while he is still in denial, it is laughable, but later when he accepts the truth, it will just be sad.

{book2}

You can go your own way
Go your own way
You can call it
Another lonely day
You can go your own way
Go your own way

Tell me why
Everything turned around
Packing up
Shacking up is all you wanna do

Go Your Own Way — Fleetwood Mac

When an owner pays off a 30-year mortgage and then borrows himself into oblivion, who is the predator? Is it the borrower or the lender?

Asking Price: $375,000

Address: 11 Sunflower #23, Irvine, CA 92604

Amazing Predator Rap!

The traditional definition of predatory lending has the lender making a loan to a borrower the lender knows will default in order to acquire the property in foreclosure and profit from the sale. In fact, the main reason a foreclosure auction is public is to limit a lender’s ability to acquire properties for below market rates to remove the incentive for predatory lending. Despite this systems in place, much of the lending during the Great Housing Bubble was predatory because the lender was still going to profit from making the loan through origination fees at the expense of the borrower who was sure to end up in foreclosure.

When lenders have incentive to produce large quantities of loans without regard to quality, lending standards are eliminated in order to increase volume. Ultimately, this system collapses once people start defaulting and lenders do not get their money back. This is exactly what caused the credit crunch, and it is why our market continues to spiral downward.

Predatory lending is strongly condemned because the lenders are supposed to be the adults in the transaction. Borrowers are not the sophisticated parties involved. There are many ways lenders can rip off the unknowing, so regulations are in place to ensure we don’t end up with a system of “borrower beware.”

But what about predatory borrowing? We have read case after case of borrowers who HELOCed and refinanced themselves up to maximum value at the peak of the bubble and walked away from the debts. This behavior is clearly predatory as none of these borrowers had any intention of paying this money back unless their house sold for more than the loan amount. This behavior is not as strongly condemned because the lenders should have known better than to give away all that free money.

Today’s property is rather different. It was purchased in 1975, and it is still owned by the original purchaser. There are no refinances in the property records, so the original loan–which would have been around $40,000–would have been paid off in 2005. To live 30 years in a property means this owner must be near retirement age. On 11/29/2004 the owner takes out a mortgage for $290,000, and on 2/5/2007 he takes out a refinance for $385,000.

What do you make of this borrowing? If this owner wanted his money, couldn’t he just sell the property and claim his retirement savings? Why borrow this much money after paying off a 30-year mortgage? Why would a lender give him a loan like this?

Asking Price: $375,000

Income Requirement: $93,750

Downpayment Needed: $75,000

Monthly Equity Burn: $3,125

Purchase Price: around $50,000

Purchase Date: 10/10/1975

Address: 11 Sunflower #23, Irvine, CA 92604

Wow! a well-written description. Nice.

This property has $385,000 on it. After 34 years of ownership, it is going to be a short sale. Amazing.

If this property sells for its current asking price, and if a 6% commission is paid, the lender will lose $32,500.

I hope this guy made good use of the money because his retirement is now gone…

Where did you spend the eve of the Millennium? I proposed to my wife on December 31, 1999, in today’s featured property.

Asking Price: $815,000

Address: 6 Rocky Knoll St #3, Irvine, CA 92612

{book6}

Millennium — Robbie Williams

Live a life of solitude
till we find ourselves a partner someone to relate to
Then we slow down,

I moved to California in 2001. But prior to that I was invited to come to California by the owner of today’s featured property to visit for a week, and I could bring a friend if I wanted. He had just purchased this place in 11/1/1999, and he got it remodelled in time for the Millenium. We enjoyed our time spent in Irvine, and on the eve of the Millennium I proposed to the woman who became my wife. It really was a special day. This is the only property in Irvine other than the places I have lived that I have any real connection to.

Of course, we had no idea we would end up in Irvine when we came to visit. I lived in Florida at the time, and I had no thoughts of moving. We always remembered the great time we had here and what a wonderful place to raise a family Irvine is. As life worked out, we decided to move to California, and we finally ended up here.

Now before you flood the comments with questions, this is not listing I am associated with in any way, I am not doing this owner a favor (we are no longer close), and I do not think anyone should go out and buy this property.

This owner works in an industry related to mine, so I know times are not particularly good. He was not very responsible with his mortgage, but this is not a short sale either. My guess is that he will do what he needs to do to sell the property. This one will not sit on the market for months with a WTF asking price. The property is priced in the large spread between current asking prices and recent transactions. This is the least expensive property in the area, and it is also priced over recent comps. It is a crazy market.

Asking Price: $815,000

Income Requirement: $203,750

Downpayment Needed: $163,000

Monthly Equity Burn: $6,791

Purchase Price: $415,000

Purchase Date: 11/1/1999

Address: 6 Rocky Knoll St #3, Irvine, CA 92612

Fabulouse?

thru out? Has that error become so common that it becomes correct through usage?

Did you notice that a house that is neither REO or a short sale is a selling point? That says much about the market, doesn’t it?

The pictures on the MLS are crap.

Since I do know this owner, I am not going to give the details on this property; it would make it too personal. Suffice to say, he did what everyone else was doing, and now he has to sell his house. If he can manage to get his selling price, he will escape with a few dollars to start over. Somebody will catch this falling knife and help him out.

Live for liposuction
Detax for your rents
Overdose for christmas and give it up for lent
My friends are all so cynical refuse to keep the faith
We all enjoy the madness cause we know were gonna fade away.

So where were you on the eve of the Millennium? and what were you doing?

I hope you have recovered from this stressful 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.

🙂

{book7}

Weve got stars directing our fate
And were praying its not too late
Millennium

Live for liposuction
Detax for your rents
Overdose for christmas and give it up for lent
My friends are all so cynical refuse to keep the faith
We all enjoy the madness cause we know were gonna fade away.

Millennium — Robbie William

Distressed sellers have no room to negotiate on price, and often these transactions have to be cleared through other interested parties. Sellers with equity have no such limitations.

Our property today is owned by motivated sellers who are not distressed. They want to get out, but they do not have to.

Asking Price: $679,900

Address: 14872 Yucca Avenue, Irvine, CA 92606

{book4}

I Want Out — Helloween

Shut your mouth and take it home
cause I decide the way things gonna be

I want out… to live my life alone
I want out… leave me be
I want out… to do things on my own
I want out… to live my life and to be free

In a normal real estate market, buyers and sellers negotiate a sale
price and close their transaction. Sellers are supposed to have equity
in the property because they put 20% down, and the property has
appreciated since they bought it. When buyers and sellers come together
to negotiate a sale, they are negotiating the amount of cash equity the
seller will be taking with them when the closing is complete. At least
that is how it is supposed to work.

During the deflation of the housing bubble, few transactions are occurring
in the normal way. It is rare to find sellers in today’s market who put 20%
down or bought early enough to have significant equity. Most homeowners
who are still in a positive equity position either do not want to sell
or do not need to sell. They are not in the for-sale market. The
properties that are available are generally distressed, and they have
their own sales dynamics.

The inventory in Irvine has been building steadily since the beginning of the year. Several of the recent additions to the market have been sellers who have significant equity. These are the sellers who were notably absent from the market over the last year. With any group of homeowners, there are those who are cautious and see reality. These homeowners are going to sell if they can because they don’t want to lose any more equity, and they live with the reality that house prices are going to continue to fall.

Sellers with equity have room to negotiate. If they become motivated, they can lower their price to sell the property. If they have a significant equity position, they can lower the price substantially. They need nobody else to approve the sale. If they want out, they can get out.

Are the owners of today’s featured property motivated enough to lower their price to find the market? At a $268/SF asking price, it looks like they might be.

Asking Price: $679,900

Income Requirement: $169,975

Downpayment Needed: $135,980

Monthly Equity Burn: $5,665

Purchase Price: $163,900

Purchase Date: 2/25/1999

Address: 14872 Yucca Avenue, Irvine, CA 92606

This realtor is telling the truth, and he did a decent job of writing this description, although it is a rather short. I would like to know more about the property.

This property was purchased on 2/25/1999 for $163,900. The sellers’ mortgage data isn’t available, but we can surmise they used an 80% first mortgage. There is no other mortgage activity on this property. This couple did not spend their home.

If this property sells for its asking price, this couple stands to make $475,206 after a 6% commission. They will not make that much, but since they have the ability to drop the price half a million dollars and still come out ahead, they have plenty of room to negotiate.

{book5}

So they keep talking and they never stop
And at certains point you give it up
So the only thing thats left to think is this

But dont push me to the maximum
Shut your mouth and take it home
cause I decide the way things gonna be

I Want Out — Helloween

When a house has been on the market over two years, and the owner is not lowering the price, perhaps it should just be taken off the market.

Today’s property is 774 days and counting…

Asking Price: $789,000

Address: 11 Pollena, Irvine, CA 92602

{book4}

Give Me Just a Little More Time — Chairmen of the Board

Life’s too short to make a mistake
Let’s think of each other and hesitate
Young and impatient we may be
There’s no need to act foolishly

Sometimes I write about macro issues facing the housing market. Sometimes I write about our specific location conditions. Sometimes I just write about some particular property that has a story to tell. Today’s featured property is of the last category.

This property has been on the market for 774 days. WTF?

At some point in the last 774 days, did the owner decide she really did not want to sell it? If so, why is it still listed? If she did want to sell it, why hasn’t she lowered the price to sell it? These are simple questions that the realtor should have asked about 60-90 days into the listing.

In case the seller has not noticed, prices have dropped 20% since this house was listed. She has dropped her asking price 16% chasing the market down the whole way. It was overpriced when she listed it, and none of her price reductions have caught up to the market decline. If she had dropped her price sooner, she might have intersected with reality at a higher price point. As it stands, she remains in denial, and she remains priced above the market.

What is the point? Why not just take the property off the market?

Asking Price: $789,000

Income Requirement: $184,750

Downpayment Needed: $147,800

Monthly Equity Burn: $6,158

Purchase Price: $472,000

Purchase Date: 3/20/2002

Address: 11 Pollena, Irvine, CA 92602

Beds:	4
Baths:	3
Sq. Ft.:	2,478
$/Sq. Ft.:	$318
Lot Size:	1 Sq. Ft.
Property Type:	Single Family Residence
Style:	Traditional
Year Built:	2002
Stories:	2
Area:	West Irvine
County:	Orange
MLS#:	P554341
Source:	SoCalMLS
Status:	Active
On Redfin:	772 days
Unsold in 90+ days

I profiled this property because this owner is one of the rare ones who did not add to her mortgage. The property was purchased on 3/20/2002 for $472,000. She used a $275,000 first mortgage, and a $197,000 downpayment. She refinanced on 6/26/2003 for $271,500. She actually paid down her mortgage and didn’t take anything out! I hadn’t seen that in so long I just had to share it. She was responsible: no refinances, not second mortgages, and no HELOCs. Amazing!

This does give her plenty of room to negotiate on the price. If it sells for its current asking price, she stands to make $269,660 after a 6% commission. Not bad considering she overpaid in 2002. If she can manage to lower her price enough to lure a knife catcher, she can probably get out before the price rolls back all the way to what she paid for it. Somehow I rather doubt she will. Two years of chasing market tells me the greed is just too strong. She is already hurting from “losing” $150,900 in asking price. Dropping the price another $70,000 to get it within range of today’s knife catchers is a lot to ask. I don’t see it happening.

I believe this house will sit on the market until she gets bored with the listing, then she will take it off the market. She will own this property as its value plummets all the way to her entry price (and perhaps beyond). All that phantom equity: all gone…

{book5}

Give me just a little more time
And our love will surely grow
Give me just a little more time
And our love will surely grow

Love is that mountain we must climb
Let’s climb it together your hand in mine
We haven’t known each other too long
But the feeling I have is oh so strong
I know we can make it there’s no doubt
We owe it to ourselves to find it out

Give Me Just a Little More Time — Chairmen of the Board