Back in February we profiled a series of empty McMansions in Arcadia. Most of them were brand new, big and overpriced. After a total of 217 days on the market, the following McMansion on 8th Street finally sold.

Original listing price: $2,980,000 ($398/sf)

Final sales price on 6/12/08: $2,600,000 ($347/sf)

The 13% price reduction might not seem significant but the new owner saved himself $400,000 by buying in June versus 7 months earlier.

As for the seller, I wonder whether they made any money off this property:

Purchase Price in 2004: $750,000
Construction Cost: $1,500,000 ($200/sf)
6% Agent Commissions: $156,000
Carrying Cost: $186,200 ($3,800/mo x 49 months of ownership)
Total cost to seller: $2,592,200

Total profit to seller: $7,800

I have a feeling that $2.6MM was the break even point for this seller. What are your thoughts?

**Originally profiled on February 28, 2008.

1103 S. 8th Ave.
Arcadia, CA 91006

*Estimated monthly payment assume 20% down, 30-yr fixed @ 6.50%

“Brand New Luxurious Estate at Prestigious location in Tree Street.”

Riiight. Since when did 8th Street become a prestigious location? The seller would certainly want potential buyers to think that it’s prestigious when in fact it’s just a 6 blocks away from the Monrovia shooting last month. Let’s see, another house requiring half a million dollars downpayment and still over $14,000/month in mortgage payments for basically an overbuilt McMansion doesn’t sound appealing to me.

Assuming the same $225/sqft in construction costs as we did in yesterday’s profile, this house would have cost our specuvestors $225/sqft x 7478 = approx $1.683MM to build.

$2.88MM (asking price) – 6% commission – $750,000 (purchase price) – $1.683MM (construction costs) – $174,800 (carrying cost at $3800/month x 46 months) = just under $100k profit

Purchase Price $750,000
Purchase Date 04/19/2004
1st Loan $616,000
2nd Loan $77,000
Downpayment $57,000

Listing History
11/7/2007 $2,980,000
2/16/2008 $2,880,000

The mailing address for this property’s seller is on the same street as that from the property profiled yesterday. Do flippers congregate and live in clusters? Lately I’ve been seeing a lot of properties on the market where the seller’s mailing address is just a few blocks away right here in Arcadia. It makes me wonder if they decided to buy and flip property on a whim during a stroll in the neighborhood. The number of McMansions in certain parts of the city is overwhelming and with the reckless market psychology we’ve had in the past few years, it’s understandable how so many people got caught up in the storm.

The very act of flipping is going to cause some major problems because flipped properties sit empty. It generates no income yet have reoccurring monthly costs until the property is sold. Every month it sits on the market casts a larger financial anvil on the investors. This particular home has been on the market for almost 4 months with just one 3% price reduction.

If you made $720k/yr, is this a house you’d be willing to pay $14k/month to live in? In an area just a few blocks from recent gang-related shootings? I think not. With the higher interest rates and tighter lending standards, most people won’t qualify for a loan this size. The ones who do have documented income to qualify and enough cash for a $500k downpayment will probably not want to live here.

Things aren’t looking good for these sellers.

Today we have two properties that could not be more different. One is a 69 year old “sold as-is” home located in the Northern hills of Arcadia. It isn’t a flattering place but you supposedly get a “Great city light view”.

The second property is a typical 5,100sf McMansion located near Longden and Baldwin Ave. It boasts of granite counter tops, grand staircases and even a guest house.

They both share one thing: the sellers are stuck in 2006 pricing and hoping to make hundreds of thousands of dollars after a few years of ownership.

2215 Cielo
Arcadia, CA 91006

Price: $1,470,000 ($471/sf)

• Beds: 4
• Baths: 2.25
• Sq. Ft.: 3,124
• Lot Size: 0.28 Acres

Sales History
Dec 13, 1995 $430,000 ($137/sf)
Mar 13, 2003 $665,000 6.2%/yr ($212/sf)

After 5 years of ownership, the owner is currently listing the property for $805,000 more than what he/she paid for it. Did the “city view” get a lot better over the last couple of years?

732 W Lemon Ave.
Arcadia, CA 91007

Price: $1,988,888 ($390/sf)

• Beds: 6
• Baths: 5.5
• Sq. Ft.: 5,100
• Lot Size: 0.47 Acres

This seller bought the McMansion in 2005 for $1,690,000 and has relisted it for nearly $2,000,000. $2MM is easy to stomach when there’s no 20% down payment requirement and you’re on a interest-only mortgage plan. Now take away all that and your buyer pool is quite limited. If I had $400,000 for a down payment, I can think of several dozen homes I’d rather buy than to sink it into this monstrosity that doesn’t even offer proper landscaping:

Sales History
Oct 07, 1988 $154,000
Mar 27, 2002 $508,000
Sep 30, 2005 $1,690,000 ($331/sf)

Currently listing for $1,988,888 ($390/sf)

There is absolutely nothing wrong with trying to maximize your profits when selling a home. You would be crazy to argue otherwise. Unfortunately, what we see here are uninformed sellers stuck in yester-year’s pricing and the Realtor is going along with it. A quick look on Redfin will reveal grander McMansions being sold for under $1.8MM so $1.988 for the one above isn’t even within kife-catching territory.

1235 Magnolia Ct.
Arcadia, CA 91006

Price: $1,800,000 ($418/sf)

• Beds: 5
• Baths: 4.5
• Sq. Ft.: 4,304
• Lot Size: 10,729 Sq. Ft.

This McMansion is part of a new 5-home cul-de-sac located East of 10th Ave. and near the Monrovia borderline:

It is so far from the other McMansion neighborhoods that these 4,000+ square foot properties look completely out of place:

During the height of the bubble, flippers and developers realized that anything they put on the market would sell. Everything from raw land, fixer-uppers to overbuilt McMansions could all be sold at a premium. Since buyers were not required to make a 20% down payment, getting into a new home was easy and effortless.

Since the listing shows this property as a “new construction” built in 2007, I suspect that it’s been on the market for some time now. Developers typically try to sell the home before construction is completed to reduce carrying costs (e.g. taxes, interest and maintenance).

If I recall, a couple of large McMansions near Longden and Baldwin Ave. sold for around $1.8MM earlier this year. If that’s the case, would you spend the same amount to live near Monrovia and a much older neighborhood?

Sales Comps:
370 Walnut Ave. – $1,789,000

417 W. Norman Ave. – $1,480,000

1030 Heritage Oaks Dr.
Arcadia, CA 91006

Price: $1,098,000 ($336/sf)

• Beds: 6
• Baths: 4
• Sq. Ft.: 3,265
• Lot Size: 10,220 Sq. Ft.
• Year Built: 1976

At first this property seemed like a decent deal assuming you can knock $100-200k off the asking price. A 6 bedroom SFR for $336/sf? Seems like a steal in this bubble market. Then I started browsing through the photos. Either the owner who purchased it 8 years ago had the fashion taste of 2 decades before or they never bothered to update the interior:

So let’s knock another $100k off for upgrades and renovations. $800,000 is starting to sound like a great deal on this 3,265sf home ($245/sf). But… and there’s always a ‘but’ isn’t there? One look at the aerial map and I’d be surprised if anyone would even consider this home for $700k.

What a great view of San Gabriel Valley’s finest freeway!

Applying our standard appreciation table doesn’t help the evaluation of this property. I guess sitting next to the congested 210 freeway isn’t a highly desired amenity.

Last purchased in 2000 for $489,000.

After 8 years of ownership:

4%    $669,230    ($205/sf)
5%    $722,476    ($221/sf)
6%    $779,392    ($239/sf)
7%    $840,193    ($257/sf)

123 Eldorado St #A
Arcadia, CA 91006

Price: $589,000 ($405/sf)

• Beds: 3
• Baths: 2.5
• Sq. Ft.: 1,453
• Property Type Attached, Townhouse

OWNER PURCHASED THIS PROPERTY AT YEAR 2005 FOR $575,000 AND SPENT $20,000 TO UPGRADE KITCHEN COUNTER TOP, CABINETS, HARDWOOD/TILE FLOOR AND GARAGE FLOOR. THIS IS PRICED TO SELL.

Here’s a seller hoping to get out of his 2005 purchase with a minimal loss. Assuming the $20,000 spent on upgrades is true, here’s where he currently stands:

2005 Purchase – $575,000
ADD Upgrades- $20,000
ADD Agent Fees – $35,340
MINUS Sales Price – $589,000

Total loss = $41,340

Unfortunately, I do not think $589,000 is “priced to sell”. Other PUDs in the area are similary listed at $405/sf but actual sales are closing between $300 to $360/sf. At 1,453sf, this property should fall within the following price range:

$435,900 $300/sf
$479,490 $330/sf
$523,080 $360/sf

A neighboring PUD, newer and bigger, is currently listed at $404/sf and has been sitting unsold for 222 days. Will this seller suffer the same fate?

The following property is profiled by the request of one of our readers. It seems like many people are attracted to these PUD/townhomes. If you’re not into yard maintenance, driveways or require large lots to entertain with, then I suppose this is the perfect property for you!

901 Holly Ave.
Arcadia, CA 91007

Price: $888,000 ($334/sf)

• Beds: 3
• Baths: 3.75
• Sq. Ft.: 2,660
• Lot Size: 10,408 Sq. Ft.
• Property Type: Attached, PUD

Excellent location, walk to Arcadia Golf Course and Park, custom built PUD, like new condition, many upgrades and features…

I can’t argue about the location of this PUD. It’s a stone’s throw away from the golf course, Santa Anita Race Track, Arboretum and Westfield Shopping Mall. In fact, this is probably one of the closest properties to all 4 attractions!

Exit, make a left and you’re on Huntington Dr. Can someone tell me whether this is a high traffic intersection?

As far as valuation goes, my first comment would be that PUDs like this one used to go for ~$400k+ in early 2000. Although I know much has changed since then, it doesn’t change the fact that this class of property was built to be more affordable than single family homes and still generate a sizable profit for developers.

Today’s valuation will be based on 2 properties located fairly close to this one or at least within proximity to all the same attractions.

453 Fairview Ave #D.
Arcadia, CA 91007
Currently listing for $669,000 ($284/sf)

– 3 bed, 3 bath and 2,356sf

815 W Duarte Rd.
Arcadia, CA 91007
Sold on 7/31/08 for $680,000 ($230/sf)

– 6(?) beds, 3 baths and 2,962sf

So just based on these 2 comps, $334/sf for today’s PUD is asking too much. If this was a small detached home on a 7,000sf lot then maybe there would be a case for the $888,000 asking price.

Since this property is new(er) and appears to be well maintained, here’s how I would value it:

$260sf – $691,600
$270sf – $718,200
$280sf – $744,800

Stray a little farther West on Huntington Dr. and you will start to see PUDs currently listing for around $680,000 – $750,000. That is far below the today’s “lucky” $888,000 asking price.

1061 Fallen Leaf Rd.
Arcadia, CA 91006

Price: $4,998,000 ($643/sf)

• Beds: 7
• Baths: 7.25
• Sq. Ft.: 7,769 (8,000sf+ incl. guest house)
• Lot size: 1.05 Acres

There’s not much to say about this property. The home is big, the lot is huge and the price… just under $5,000,000.

With 1 acre of land to work with, there’s no chance this home can be overbuilt like the hundreds of McMansions in Arcadia.

Of course, high-end homes like these are not immune to price declines:

Listing history
Jun 27, 2008 $5,488,000
Jul 29, 2008 $4,998,000

That’s a $500,000 (9%) price reduction in 30 days. Even at this price point, the seller is not looking for a knife catch. Rather, he needs a filthy millionaire to come by who just has to live in Arcadia (for whatever reason).

Valuation based on last sales price:

Purchased in 1996 for $1,750,000.

After 12 years of ownership:

4%    $2,801,806    ($361/sf)
5%    $3,142,749    ($405/sf)
6%    $3,521,344    ($453/sf)
7%    $3,941,335    ($507/sf)
8%    $4,406,798    ($567/sf)

If you’re wealthy enough to buy this home, will another $400-600k price drop concern you?