271 Longley Way

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

This property looks like a flip that never happened and now the sellers are desperately trying to get out unscathed. In the description it says “seller have plans for approx. 800 sqft master 4th bedroom” so I assume the plan was to buy, put in addition and turn around to sell for profit. However, it must have took them a while to get the building permits because the credit crunch rocked the market soon after they bought it.

Purchase Price $850,000
Purchase Date 02/28/2007
1st Loan $680,000
2nd Loan $84,150
Downpayment $85,850
Mortgage $764,150

Listing History
12/15/07 $988,800
01/28/08 $948,000 (-$40,800, -4%)
02/15/08 $928,000 (-$20,000, -2%)
02/29/08 $898,000 (-$30,000, -3%)

So far there’s been almost $100,000 in price reduction yet that’s still less than 10% off the original listing price. These sellers, like so many we have seen, are reluctant to face the reality of the current market conditions and lower the price to move the property before it’s too late. The Redfin description ends with “Priced to sell” but that’s not a true statement. The property has been on the market for almost 3 months with 3 price reductions and still sitting there. That’s not pricing it to sell. That’s hanging on for dear life.

This property is also up for rent at Craigslist as well. At this point, the sellers have been making mortgage payments for a full year without any cash flow and it’s hurting. For sale or for rent, they’ll take either one. At $2600/month, this property’s gross-rent-multiplier GRM is 345. Rent savers typically jump in as buyers when GRMs are between 160-200. Using a GRM of 180, this property is approximately worth $2600 x 180 = $468,000 or about half of the current listing price.

You can either rent this for $2,600/month or buy it for $4,540/month plus any maintenance costs, insurance etc. Doesn’t seem like a tough decision for me. During the bubble I’ve heard of buyers insulting the seller when the offer was below the asking price. Oh have things have changed in just one year. At $898k, it’s roughly double what its worth so can this situation qualify as insulting the buyer? I would think so.

44 E. Forest Ave.

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

“brand new under construction…convenient location, near stores, shop & transportation…homes will be ready until early next year”

Looks like these sellers listed the house last year before it was even completed. As it stands right now, this property has been on the market for well over 4 months and counting. The sellers are asking $614/sqft for a cookie cutter home on a triangle-shaped lot that literally backs right up to the Santa Anita on/off ramps off the 210 freeway. Wow, $1.35MM for this?!

These sellers obviously can’t see the forest for the trees. They’re so engulfed and consumed by their greed (or denial) that they’ve completed missed the mark. There is nothing in the market right now that points to a sale at the current asking price and things will only get worse for the next few years. Yet after almost 5 months on the market, they’ve held onto the $1,350,000 asking price tighter than ever. It’s a classic example of wishing thinking. Unfortunately, ignorance (at least in real estate) is not bliss.

The price is definitely not right for this listing. I wouldn’t pay a third of the asking price for this property. You can change the way a house looks and feels, but you can’t changes it’s neighbors and location. It only has a neighbor one side, but you’d have to pay me to live here because the location is absolutely awful. The freeway noise itself would drive me batty. Would you consider living here if the price was right? What price would that be?

705 Carriage House Dr.

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

This beautiful property is located in the “exclusive guard-gated community of Anoakia Estates” up in the Santa Anita Oaks area. Too bad they want $3.50MM for it when they paid just $1.95MM five and a half years ago. That’s the same as making over $240k/yr after taxes except you didn’t have to do anything but maintain the property.

Purchase Price $1,953,500
Purchase Date 7/24/2002
1st Loan $1,300,000
Downpayment $653,500

HELOC Date 6/2/2005
HELOC Amt $550,000

Combined Mortgage $1,850,000

These folks actually put down a good size downpayment when they purchased the new home in 2002 for just under $2MM. Interest rates were low so 30-yr amortized monthly payments were probably manageable even for a loan of this magnitude for someone making about $400k/year. Fast forward 3 years and the banks were essentially giving out free money with artificially low rates and option loans so the owners pulled out a $550k HELOC based on the expectation of never ending double-digit growth.

Fast forward another 3 years and their bubble finally popped. They realized that interest rates won’t stay low forever, banks aren’t giving away free money anymore and southern California real estate prices are going for a great big dip. Or perhaps their option loan HELOC rate reseted and they didn’t want to make those payments anymore. Either way, they’re looking to get out and make some good money while they’re at it.

If they get this mansion-sized asking price, they would make over $1.3MM after 6% commission. I understand certain communities, especially gated ones in the hills, normally command a slightly higher premium, but don’t you think $608/sqft is a bit extreme? Even if a move up buyer could put a whopping $700k down payment from their previous sale, they would have to make around $875k/yr and be able to make $18k/month mortgage payments (excluding property taxes, HOAs, maintenance etc). Oh yeah, and they have to prove that they actually make that much so dirty money doesn’t count.

Who’s ready and willing to put down $700k cash and take on $22k/month carrying costs for the next 30 years to own this house? Any takers?

619 Rosemarie Dr.

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

$1,280,000 (asking price) – 6% commission – $480,000 (purchase price) -$598,500 (construction costs @ $190/sqft) – $103,785 (carrying cost @ $2,035/month x 51 months) = approx. $21k profit

Purchase Price $480,000
Purchase Date 11/21/2003
1st Loan $322,000
Downpayment $158,000

This is as cookie-cutter and boring as it gets. Another custom home with granite this and granite that built on a postage stamp size lot. It even says right in the description that it’s “super-sized” so why did they overbuild this McMansion on such a small piece of land? The livable space is almost half the size of the entire lot.

These sellers bought earlier in the game so they have a bigger cushion than the others we’ve profiled who didn’t get into the game until 2006. This house doesn’t seem to have as many lavish extras and the interior actually looks quite cheap so they probably had it built for under $225/sqft. I will assume construction costs of approximately $190/sqft.

Since this was purchased back in 2003 and isn’t considered a turnaround flip, they made many months of mortgage payments. Luckily for them, payments were just ~$2k/month so carrying costs didn’t kill them. However, they didn’t complete construction of this McMansion until the very end of 2007 and missed the golden period to get top dollar. At $406/sqft, it’s still a fairly high price, but at $1,280,000 it’s considerably cheaper than some of the other pricer McMansions we’ve profiled in this series.

They’ve held their ground with the asking price for 56 days, how many more days will they go before the first price reduction? Yes I say first because there could very well be multiple reductions before a transaction is made as more brand new McMansions come on the market. This concludes our series on Empty McMansions. I hope you’ve enjoyed the relevant property profiles and return for more schadenfreude as we continue to document the local real estate market.

333 E. Las Flores Ave.

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

“THIS MAGNIFICENT BRAND NEW CUSTOM BUILT ARCADIA ESTATE IS A SHOWCASE OF LUXURY, TOP QUALITY WITH EXQUISITE DESIGN AND IMPECCABLE CRAFTSMANSHIP. 5 SUITES, 2 DOWN STAIRS. MASTER SUITE HAS JACUZZI TUB, MAKE UP STATION AND UNIQUE BALCONY. GOURMET KITCHEN WITH SEPARATE WOK KITCHEN AND CENTER ISLAND. WET BAR IN FAMILY ROOM. ELEGANT HIGH CEILING ENTRY HAS CRYSTAL CHANDELIER. MANY MORE UNIQUE AMENITIES, TOO MANY TO LIST”

Many realtors like to write in the extremely annoying ALL CAPS format and it just drives me bananas. I’m not a realtor so I don’t know the reasoning behind it, but I suspect that they think it’s attention grabbing. To me it’s just a pain to read because I feel like they’re screaming at me with a loudspeaker.

$1,738,000 (asking price) – 6% commission – $788,000 (purchase price) -$889,650 (construction costs @ $225.sqft) – $56,880 (carrying cost @ $3160/month x 18 months) = approx. -$100k in the red

Purchase Price $788,000
Purchase Date 08/23/2006
1st Loan $500,000
Downpayment $288,000

This is a self-declared “custom built Arcadia estate” so I ask the question, what makes a house custom and what makes it an estate? Is a non-track home floor plan enough to qualify as custom? Or does it require designer paint, a gourmet kitchen, pergo floors, berber carpet and other extras to make the cut. Also what makes an estate an estate? Dictionary.com says it’s “A landed property, usually of considerable size.”

These are the images I get when I Google “estate” and this particular listing looks nothing like them. Maybe I’m too dense and missed it, but what “unique amenities” does this McMansion have over other McMansions? Is it the gourmet kitchen with center island or the unique balcony?

Here’s yet another flipper who bought during the height of the boom in 2006 and rebuilt this brand spanking new McMansion for profit losses. As some of our readers have pointed out, the seller may be more or less underwater depending on their financing options, construction costs and other factors. However, with the general assumptions above, they’re already $100,000 in the red if they manage to get their asking price at $440/sqft.

Over the past week and a half we’ve document flip after flip that took about one and a half years from the original purchase to its first listing of the finished house. That’s not exactly a quick turn around time and to add salt on the wound, these McMansions could be on the market for quite some time. Salt on the wound…ouch.

322 Leda Ln.

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

Welcome back to another week at Arcadia Housing Blog. Today I will continue to document yet another empty, equity burning McMansion. Like #3 from last week, this brand new construction is also listed at $1,999,000. Except for the architectural style of the house, it’s very similar to 415 W. Palm Drive with the exact same listing price and number of bedrooms and bathrooms. Both were purchased in mid-late 2006, have similar lot square footage and were torn down to build McMansions of almost identical size for the same asking price.

$1,999,000 (asking price) – 6% commission – $779,000 (purchase price) -$1,001,250 (construction costs @ $225.sqft) – $55,520 (carrying cost @ $3470/month x 16 months) = approx. $43k profit

Purchase Price $779,000
Purchase Date 11/03/2006
1st Loan $623,200
2nd Loan $77,900
Downpayment $77,900

This is starting to get old, but it is what it is – another property bought at the peak of the bubble in 2006, only to be torn down for a McMansion put up for sale in late 2007 or early 2008. It took many months to get this house back on the market. Although experienced flippers can gauge the time it takes to acquire the necessary permits, construction costs and time, many fail to react to market conditions and choose to live in denial. See no evil, speak no evil, hear no evil – everything must be okay…right?

Since 2006, the market has taken a drastic turn and it’s not a good one for flippers. In the past, new homes typically lead the way in price reductions and I see no reason for it to be different this time around. Once their prices start to give way, the older, less desirable resale homes will be forced to come to terms. This however does not start to occur until flippers recognize and accept the situation. The snowball is already rolling down the mountain and it will only be a matter of time before it reaches a critical mass. These sellers are in the same boat as all the others who are also hoping to find a knife-catcher to bail them out. From the looks of it, most of Arcadia is still in the late denial stage.

To be consistent, I’ve maintained the same assumptions and proceeded with the same calculations for this property as I have with the others in this series. Thanks to reader llking for pointing out that I did not account for the construction loan. If they don’t have investors with cash and did in fact take out a loan, then these folks could already be underwater. This is a likely scenario, but since I cannot confirm the financials of the construction loan, I will leave it out.

Of course, the mortgage industry was still doing plenty of silly free lending with very none to low downpayments back in 2006 so their carrying costs could be much lower if they used an option ARM of some sort. Unfortunately for them, there is only going to be more and more competition on the market and prices still need to go much lower. TheArcadian reported in yesterday’s Inventory and Market Report that volume and foreclosures both rose while median sales price dropped 13% in just one month.

Are you still in denial?

415 W. Palm Dr.

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

Today marks the 3rd day of our Empty McMansion series and this one just came on the market last week. Compared to the last two properties that needed over $500k for 20% downpayment, this one only requires $400k. Whoopie, I’m sure a lot of people out there have $400k cash just lying around in case overvalued property comes on sale.

$1,999,000 (asking price) – 6% commission – $765,000 (purchase price) -$1,006,875 (construction costs @ $225.sqft) – $61,200 (carrying cost @ $3400/month x 18 months) = approx. $46k profit

Purchase Price $765,000
Purchase Date 08/01/2006
1st Loan $535,000
Downpayment $230,000

All that work and all that stress for $46,000? Doesn’t sound logical to me, but then again I didn’t drink any of that toxic kool-aid either. This seller bought the property at the peak of the bubble in summer of 2006. It probably took them months to get permits and funding to build the property for sale today and nearly as long to construct it. For almost $2MM asking price, $46k is not a lot of negotiating room. It would take a year of carrying costs to wipe out $46k, but only a 3% price reduction to start put their books in the red.

How much do you think they spent on that “unique venetian plastered fireplace” or the “expensive Italian porcelain tile?” I don’t know how much, but I do know they’ll be regretting it soon enough.

“Unlike other new homes, you will notice that the interior was professional designed…” It looks the same to me. It has that track-home look and doesn’t look a bit custom to me. Heck it doesn’t even have undermounted sinks in what looks like the master bath. For $2MM you’d think it’ll at least come with some nice fixtures.

Its neighboring house is also on sale. Apparently, they’ve drank the kool-aid too because I can’t imagine why anyone would pay $1MM for a 58 year old dump. Yes, if you purchase this $2MM new construction, don’t expect your neighbor’s house to look that great. This listing is currently at $447/sqft. In this slowing economy and dying RE market, I can’t help but wonder how many months and price reductions will it take to see this property.