Michael Monahan: ‘Remember that Marx brothers’ routine? Groucho is the shady real estate salesman (in Florida, of course), speaking to a crowd of would-be ‘investors’ . . . ‘Folks, we got it all. You can get brick. You can get wood. You can get stucco. Ohhhh, how you can get stuck-o.’ Well, here are some painfully precise anecdotes, ’06 versions, from Sacramento.’
☞ Michael links us to a blog, ‘Flippers in Trouble,’ which shows the previous sales prices and current asking prices of 188 properties. For example, a nice 6 bedroom house someone paid $858,500 for on March 16, 2005, and now has on the market asking $804,900. The blog shows that as a 6.2% LOSS, but that only begins to state the pain. That’s the asking price.
Let’s say someone offers $725,000 and they reach a deal at $775,000. Less 6% brokerage and $5,000 in additional closing costs = $723,500. So now the owner is down $135,000 (15.7% LOSS). Except he may have spent some money fixing it up, which would widen the loss.
Not to mention the costs he may be incurring ‘carrying’ the house while it’s on the market. Sure, maybe he lives in it himself and has not already bought or rented a second place in the city he’s been transferred to . . . or maybe he has a wonderful tenant who is happy to pay full rent as prospective buyers come traipsing through – and to keep paying that rent right up to the day of ‘closing.’ But it would not be at all unusual for the seller to lose two or three months’ rent in this process, but still be on the hook for his mortgage payments, property tax, insurance, lawn care and all the rest – widening the loss further.
And what if he doesn’t get $775,000?
- Faced with the prospect of monthly carrying costs for an empty house, and fears of a weakening real estate market, he’ll settle for $750,000 instead (say) – giving him a loss of at least $160,000 for his year and a half of effort on this project.
- Or, unwilling to take less, he’ll watch as the market weakens further . . . and then, when he finally is ready to accept $750,000, find that the new low ball offer he’s faced with is $650,000.
At some point, and despite the cost to his credit rating, he might just hand the keys to the bank. Foreclosures will not do much to strengthen the market for others on the Flippers in Trouble list.
And if none of this happens? Terrific.
JET LAG ADVISOR
Alan Caroe: ‘This very useful site was described in yesterday’s LA Times.
If they made a movie about YOUR HOUSE, would you go see it?
Well, they have.
Quote of the Day
They maintain themselves high above the fray, descending only to shoot the wounded.~S.J. Perelman, on the press
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