$1,000/Sq Ft , One Bedroom Flip...Will A Greater Fool Appear?? *Update 2*

We first featured 911 21st #A back in November 2007 (over a year ago!!) when we saw a delusional seller trying to get over $1,000/sq ft for their little condo.

We then featured the property once again in August 2008 when it was re-listed.

You can go back to the older posts and read about the pros and cons of this property, but today our update comes as a result of another price cut and some new language in the description of the property.

Previous Purchase: 10/10/06 - $599,000

Listing History: 8/10/07 - $749,000
Reduced: 9/28/07 - to $719,000

Relist History: 7/1/08 - $699,000
Reduced: 08/12/08 - to $669,000
Reduced: 11/18/08 - to $635,000

New Description: Short sale subject to bank approval. Story book charm in this intimate condo n.Of wilshire. This 1 bdrm.+ office w/builtins is completely remodeled & mature landscape. Nu kitch & ba, washer/dryer,striking expresso hdwd flrs., crown molding...

Last time I featured this unit, I said:

The fact that this seller only reduced $20K since the last price almost a year ago shows that they are either highly delusional or highly desperate (i.e. not actually able to reduce anymore because otherwise they would have to bring a check which they don't have to the closing table). This is another case of "know your seller". You don't want to deal with unrealistic sellers and you certainly don't want to deal with sellers that can't physically reduce to market.

With the "short sale" language now included in the description, we can now say that indeed, much (or all) of the cause for the highly delusional pricing was the fact that the seller simply can't reduce the price down to a market clearing level.

Now going even further, if we were to check on one of our SMDM leading indicators of distress, we would see that this seller is in default on their property taxes to the tune of more than one semi-annual installment amount.

Depending on how flexible the bank is willing to be, I would say this unit has a decent chance of going into foreclosure. However, the good location and some of the "pros" of the property, combined with a flexible bank might set up a successful short sale. If I were bidding on this unit right now, I would be lobbing in offers WELL below current list as this thing is still way too expensive.

Speculating With Some "Aloha" Attitude *Update 1*

We previously featured 1328 Hill back in August when we showed how this agent-owned property was a failing, aborted spec which needed to cut its price. At the time I said, "I would say about another $100K price cut is going to be needed to start to attract some real interest"

Previous Purchase: 7/10/07 - $1,050,000

Listing History: 6/30/08 - $1,278,000
Reduced: 07/23/08 - to $1,178,000

Re-Listed: 11/14/08 - $1,098,000

Looks like they just about took my $100K price cut recommendation to heart. The problem is, the market and economy have taken a serious leg down from July/August when this was last listed...so in all seriousness, it looks like they need another $100K cut from their new price level.

Link to new listing and new description:

Unique opportunity! Perfect location at top of hill in Sunset Park. Approved, signed, stamped plans by city of SM and all fees and permits paid for planned remodel. Seller/agent owner willing to cooperate with buyer to structure creative financing to build planned remodel or design and create your clients dream home. CHECK CSO!

Again, this should illustrate to buyers that jumping in too early can and likely will cost you a great deal of money (in cases like this, over $100K). The lesson to sellers is that you need to price your properties realistically and cut the price by a good chunk after a few weeks if it doesn't attract serious offers quickly. Keep cutting til you find the market clearing level -- the market is not going to "rebound" anytime soon. Fail to follow these simple rules and you risk chasing the market down like so many of the sellers we feature on this blog.

Photo Credit -- Westside Bubble (thanks!)

90403 Cost of Entry *Update 2*

Westside Bubble beat me to it again and had a nice post up showing the declining prices in the north of Wilshire/south of Washington neighborhood. Specifically, we will look at 1030 Chelsea which we have featured previously.

Previous Purchase: 1978 - Long time owner

Listing History: 7/31/08 - $1,399,000
Reduced: 9/15?/08 - $1,299,000

SOLD: 11/25/08 - $1,200,000


This sale represents an 18.8% decline from the August 2007 comp at 1020 Chelsea which we featured as part of our "Chelsea trio" in this post.

90402 Livable Entry Level *Update 1*

While I was poking around in the condo market, Westside Bubble beat me to the quick and posted the results for 460 Lincoln which just closed.

We previously featured 460 Lincoln here.

Previous Purchase: 1/13/97 - $825,000

Old Listing History: 4/14/08 - $2,395,000

New Listing History: 8/20/08 - $2,195,000

SOLD: 11/21/08 - $1,900,000

Despite eliciting some comments last time about a strange layout, when featured last time I said:

While I have not seen this house in person, it appears to be very livable. Good bed/bath numbers, good square footage, good kitchen, deck, good location -- nothing fancy here but certainly would fit the needs of your 90402 entry level family.

I also said:

This seller also meets some (but not all) of the characteristics of the type of seller you want to be dealing with. Assuming they didn't refinance all their equity away, they will have a nice gain even if you bid them lower than their asking price. This should help make them more realistic -- i.e. they have the room to negotiate.

So now that we have seen where it closed, we can add yet another data point to our mountain of data points showing that indeed the bears were right and prices are falling. Again, not a big deal and this should be expected. If you want to look at the silver lining, you can actually say that it is impressive that houses like this have held up so well and aren't down "that much" when just about every other asset class (including most real estate in most places) has gotten murdered over the past year (and especially over the past few months).

Another Battle, Even Thicker Skulls *Update 1*

Same building as the unit we featured in the last post (unit #2). Almost the same pricing dynamic going on here as well. If you aren't demanding a minimum of 2005 pricing, then you are surely overpaying...even on recently built units.

We last featured 1254 24th Street #1 back in March. 2 bed/3 bath unit (very similar to the unit in our last post) -- 2005 building. These two units were battling when we first featured them and we now have the details on their sale prices.


Previous Purchase: 10/20/05 - $885,000

Listing History: - 1/31/08 - $969,500
Reduced: 02/15/08 - to $969,499
Reduced: 02/27/08 - to $969,399
Reduced: 03/11/08 - to $969,299
Reduced: 03/26/08 - to $969,259
Reduced: 03/27/08 - to $964,999

SOLD: 8/28/08 - $840,000 (early 2005 rollback)

It looks like all those $100 price cuts every few weeks didn't work so well as this seller was over 13% too high with their original listing price.

Lies or Half-Truths? *Update 1*

We last featured 1254 24th Street #2 back in June. This is a 2 bed/3 bath unit in a 2005 building. It is also across the street from the newly sold spec house on 24th that we recently featured.

Previous Purchase: 1/6/06: $860,000

Old Listing History: 1/15/08 - $949,000
Reduced: 03/11/08 - to $899,000

Relist History: 6/24/08 - $879,000

SOLD: 9/26/08 - $825,000 (2005 rollback)

Last time we featured this unit, I said the following: Bottom line: Probably still overpriced and should ultimately sell below the original purchase price of $860,000 (and making this at least a 2005 rollback).

Also note that this is a pretty new building (2005) and that this sale price is below the price which appears to have been paid when it was new.

Expired RE License Leads To Foreclosure *Update 1*

Just wrapping up some more closed sales (from a while ago).

We previously featured 1419 15th Street #1 back in June. This is a 1 bedroom condo in 90404...this segment of the market was the first to get hit and has gotten hit hard so far.

Previous Sale: 1/31/06 - $431,000

Bank "buyback": 4/25/08 - $337,500
Listing History: 5/29/08 - $389,900

SOLD: 9/8/08 - $357,003 (17.2% rollback)

10th Street Townhouse *Update 1*

We previously featured 1111 10th #103 back in June. This is a 2 bed/2.5 bath 1,584 sq ft townhouse in a 2001 building.

Previous Purchase: 5/15/07 - $1,288,000

Listing History: 6/23/08 - $1,195,000

SOLD: 9/2/08 - $1,050,000 (18.5% rollback)

A recent comment left on the blog: I forgot to add that Warchest likes to use reversion to mean. That only works if you have a continuous supply or commodity...Unfortunately, you are trying to use commodity trading methodology on something that is not a commodity. But this is the lack of rigor this blog invites.

Looks like my insistence on reversion to the mean, commodity trading methodology, and lack of rigor are working out just fine, as we seem to have little trouble showing rollback after rollback. Prices have been declining for a while now and have recently begun to really start showing bigger declines (extermination of phony financing and a recession are certainly helping the correction -- combined with a 1997 rollback for the stock market).

The one main theme of this blog has been that cycles can be counted on to occur in real estate (and across most other asset classes as well). Santa Monica is a great place and real estate here will likely continue to trade at a sizable premium to many other areas of Los Angeles. In the long run, prices will certainly rise above levels seen even at the peak of this current bubble. However, there is no question that SM took part in the major credit/housing bubble and there is no question that we are currently correcting. I don't know how long prices will continue to decline, nor do I know how far they will fall, but I don't think 2008 is going to be "the year of the bottom".

Finally, I am happy to make this blog a friendly place for real estate agents, property owners, sellers (both delusional and rational), and all sorts of "bulls" that may exist. I encourage everyone to participate in a respectful way -- but coming on here and spreading lies (haven't we already had enough of that during the up cycle?) in the face of overwhelming evidence of market decline is just unacceptable and will only serve to make me all the more energized to spread the truth."I welcome any comments. All they do is fire me up, and all they do for America is fire us up. Before the relay we were fired up, and that made just made us more fired up and fueled us even more to get ready to swim. I always welcome it, and I love when people say that somebody can't do something because you want to go out there and prove it that much more."

Rent Control Short Sale *Update 1*

We previously featured 1048 9th Street #9 back in July. Remember, this is a 2 bed/1.75 bath condo with a rent controlled tenant in place (rent is at $1,227/month).

Previous Purchase: 8/16/04 - $399,909
Cash Out Re-fi: 6/1/05 - $500,000

Listing History: 5/29/08 - $500,000
Reduced: 07/02/08 - to $415,000
Reduced: ???????? - to $315,000

SOLD: 10/31/08 - $317,000 (20.7% rollback)

Subtract out property taxes and HOA expenses and at current rental rates (assuming the tenant stays put) you are looking at 2.8% return on your money. Also, this might be our first look at a 2003 rollback...and check out the hit that the bank must have taken on the $500K cash out re-fi!!

Foreclosure - Before and After

We last featured 924 5th Street #10 back in August when we had our crystal ball out...


Our crystal ball was a little cloudy but we had a feeling that this agent owned property was going through foreclosure. The photo to the left is from the original listing when the agent was trying to unload this flop.




So fast forward to today and our 1997 S&P 500 rollback economy and here we find that indeed the property went through the foreclosure process and is now being marketed by Wells Fargo. The photo to the right is from the new foreclosure listing. What a difference...

To refresh, this is a 3 bed/2 bath 1,254 sq ft penthouse unit. The new description is as follows:

Bank owned penhouse in prime location of santa monica. Large decks and patio area with amazing views of the santa monica mountains.Indoor and outdoor flow.One kind of property. Kitchen need appliances, the building does not have an elevator. This building is a torca conversion.There is 2 private garage on the front. The building security is gated.Buyer to be prequalify by a wells fargo home mortgage before presenting the offer.Hurry will not last long. Will be open friday 21st 2-3pm sunday 1-4

Now I am a little unclear on what the "building is a torca conversion" means in terms of occupation limits. If the unit is empty and you bought this then you could live in it, right? If so, I think that this property should attract some interest since the bank is clearly looking to offload this thing:

Previous Purchase: 3/8/07 - $1,054,000 (90% financing)

Listing History: 10/12/07 - $1,149,000
Reduced: 11/3/07 - to $1,075,000

REO Listing History: 11/18/08 - $684,900 (35% rollback)

Former million dollar penthouses in Santa Monica only 5 blocks from the beach showing 35% rollbacks...

90403 Starter Condo Rollback *Update 1*

Getting back to what we do best here, we last featured 1028 19th #6 back in mid-September.

Previous Purchase: 6/27/06 - $549,000

Listing History: 6/10/08 - $549,000 (how cute, trying to break even...)
Reduced: 07/09/08 - to $540,000
Reduced: 07/22/08 - to $529,750
Reduced: 08/12/08 - to $519,000

SOLD: 11/13/08 - $499,000 (late 05 rollback)


This seller did a good job of quickly accepting reality and lowering their price down to a market clearing level -- and I think they should feel good about the sale because I think there is no way that a $499K level is anywhere near a bottom for this type of unit. Even if you want to argue that this is a very nice 1 bedroom, it is still an old building (1947) and the unit isn't exceptionally huge (720 square feet).

While I am still uncertain how close prices will get to their "rental break-even", I think that at $499K, there is way too much of an ownership premium being paid. At 6.5% interest, 1.1% property taxes, and $184/month HOA dues, the monthly cost comes to $3,344/month. What would something like this rent for? $1,500/month? Factor in all the tax breaks you want to but you still aren't even close -- and you are going to have depreciation for at least another few years at best. Sold to you.

The Fog of War

I have received several e-mails over the past few months regarding real estate data and the way that it is presented by "the industry". To jump right into it, here is the first comment that I found to be interesting (posted with permission):

If you hang out on the MLS guest search site as much as I do, you may have noticed this already... Until recently, they noted the # of listings returned by a search. So, if you searched for all SFR for sale in Santa Monica, they would tell you 156 (or whatever is accurate), and then break them out for you in blocks of 20 per page (so, 8 pages for up to 160 listings). Now, with inventories swelling, they don't want buyers/vultures/your-readers to quickly be able to spot inventory changes. So they've eliminated a valuable and convenient piece of data to try to spackle over the crumbling fundamentals of their industry.

Another reader e-mailed me the following a while back and it is something that I have noticed even Zip Realty does (at least with the green downward arrows):

I'm signed up to receive email alerts from the MLS on properties in certain areas (primarily Westside) and price range. Anyway, the listings usually come through on email with a picture, general details (address, BR/BA, price) and MLS listing description. In the cases where the price had been dropped (most of them recently of course), they would say "Price Decrease" in bold red letters, and list the new price in red. Well, I guess the agents must have tired of seeing the red bloodbath everyday in listings ... in a bit of pop psychology perhaps, I noticed recently that the listings are coming through where, when the price has been decreased, it now simply says "Price Change", and - so hilarious - there's a GREEN downward pointing arrow next to the reduced price! What's even more funny is in the rare cases where the prices have "increased" (mostly due to the relisting game), there's an upward pointing RED arrow!

Finally, something which I have personally noticed and which I believe to be the trickiest of all came as a result of spending WAY too much time looking up condos on Zillow. See, with Zillow, the listing agent can put in their own little red marker (links to the property for sale) on top of the property. It seems that some agents don't want you looking at comps in the building or don't want you seeing that the seller is desperate because they overpaid 2 years ago at the peak, so they conveniently place the red house icon directly on top of the normal Zillow icon which lets you see all the units in the building. Yet another attempt at obfuscation if you ask me.

In addition to the three items above, we have the traditional "fog of war" tactics such as relisting, not disclosing that the listing agent is the owner, raising the price by 10% right before special 10% off sales, etc. My point is that while the real estate market has always been a bit slippery, the current climate is one in which the buyer must truly "beware". Agents have been doing less transactions and are hungrier than ever for deals to close, many sellers are desperate to get out of their depreciating properties, and the real estate business (and business model) is more challenged than ever as online resources have opened up the ability for buyers (and bloggers) to access data which previously was tightly guarded by agents. I don't want to turn this into a rant against agents in general or against the traditional real estate brokerage model (although I certainly could say a lot about both of these topics); its more of a caveat emptor warning in what is currently a very foggy battlefield.

I would recommend that buyers try hard to steer clear of sellers and agents who are utilizing "fog of war" tactics -- likewise I believe that sellers and their agents who are the most transparent and straightforward (when combined with a sense of reality about pricing) will be most rewarded in this market.

And finally, a quick note about "market clearing" from my last post. From Calculated Risk, SoCal Home Sales Highest Level This Year -- half of these resales were foreclosures and much of the volume came from "inland markets where prices have fallen 30 percent or more. Depreciation in such areas has triggered record foreclosures, which tend to sell at a discount, attracting bargain hunters."

Rentals Everywhere (and the need for markets to clear)

Seems like a lot of properties are for rent these days...this is not a sign of a healthy market. I think the market would become healthier if it were allowed to "clear" (i.e. all these holders need to accept reduced price bids on their properties). Properties need to find their way into the hands of long time holders in order to get inventory down and stable (eliminate the on again, off again and rented out shadow inventory).

First up, we have 411 Lincoln which we recently featured here. It just sold on 10/9/08 for $4,100,000 and now it is listed for rent at $30,000/month. Although this doesn't fit our profile of a holder who can't sell and is trying to rent it out instead, we have to wonder why it is being offered for rent. The description says, "six month lease" so maybe the person who bought it can't move in yet for whatever reason...anyone know anything here?


Next up, we have 823 Yale which is a spec house that has been on and off the market for a long time now. Last time it was listed for sale, it ended up not selling and instead being rented out. It recently came back onto market asking $3.295M and is also trying to be rented out once again. The rental listing doesn't show the address, but we know what this house looks like so we aren't fooled. It's asking $16,000/month.





Next, we go a bit further south and find two properties which are both examples of bailing builders. First up is 1027 Ashland which we recently featured on the blog earlier this month. The property was purchased in early 2006 for $1.185M and was listed for sale at $1.249M as of earlier this month. They are also trying to rent it out for a measly $3,800/month as well...doesn't seem like that is going to cash flow. Everyone loses when we play the "death by a thousand cuts" game.





Finally, we arrive at 3224 Pearl. We have not featured this on the blog so far but it is a good example of a bailing builder. The property was purchased in early 2007 for $835,000 and is currently for sale at $899,000. It is also for rent and is asking $3,000/month.

There are a whole host of other properties out there that are both for sale and for rent, but I think you can get the picture from these examples. I think the ideal situation for everyone would be for us to get back to a more normal market. The problem is that for us to get there, we need the market to "clear". The only way to do this is for everyone to essentially mark to market and take their losses. This means that all these speculators and bailing builders need to accept losses and lower their prices until they find buyers. I think this would make the market much more stable and healthy -- and this "market clearing" type of environment is something which I would look for as we get closer to a bottom. We are still seeing far too much delusion, on and off the market behavior, renting properties out, and other games that I can't say that we are anywhere near a true market clearing environment.

Specs Bailing

Address: 444 10th - 90402

Details: 11,250 sq ft lot, plans for a 5,494 sq ft house

Description: Great opportunity to build on this 11,250sf (75x150) lot north of montana. There are plans for a robert ramirez design 5494sf home consisting of 5 bedrooms, gourmet kitchen/family room, the "great" room, 500sf detached gym/office studio. Main rooms flow out to covered lanai with w/b fireplace, gardens & pool. Ideal for entertaining. Close to montana ave, shops, restaurants, school & park. Repts & plans available. Seller to select services. Property fenced & locked. Call to view plans & property

Previous Purchase: 6/6/07 - $2,950,000

Listing History: 11/13/08 - $3,130,000

This appears to be a strict lot value situation (I don't know if anything has already been torn down or not). Here we have a spec builder ("llc" owner listed on Property Shark) bailing on an interesting piece of land (it is materially larger than a normal lot).

The question of valuation comes when you try to figure out how much of a premium this oversized piece of land deserves. I think that they are absolutely dreaming with a listing price around $3M, let alone north of $3M...it should also be clear that this should be a rollback so it should be below the $2.95 purchase price.

What the sellers are doing is hoping that somehow they get lucky and find someone who is very wealthy and impatient and doesn't care about a few hundred grand here or there as long as they get their large lot NOW. I don't think this will happen. I also think it should be obvious to buyers that these sellers can't be too happy with the massive holding costs they are bleeding...so they should be flexible on price relatively quickly. Good luck.

1st Pac Pal "Green" Home

Address: 1043 Hartzell - 90272

Details: 4 bed/3.5 bath 3,017 sq ft house, 5,200 sq ft lot, New construction (1st LEED green home in Pac Pal)

Description: Pacific Palisades 1st LEED Green home. The Charleston, South Carolina inspired home is over 3,000 sq ft w/4BD, 3.5BA & 4th BD could be den/ofc. Features walnut-stained bamboo flrs, crown molding, no & low volatile organic paints & finishes. Tankless water heaters. Three kilowatt, photo voltaic (solar) system. Large Cook's/entertainment kit w/energy star appliances. Living room w/FP, dining area, bright master suite w/dual FP & spacious walk-in. Fully landscaped, detached 2-car garage.

Previous (lot value) Purchase: 10/19/06 - $1,150,000

Listing History: 8/26/08 - $2,588,000
Reduced: 09/24/08 - to $2,488,000
Reduced: 11/08/08 - to $2,295,000

As many of you know, I don't generally look at listings from outside of Santa Monica. However, there is a new listing in 90402 for a "green" spec house which recently came to market (I may do a post on this house at a later date). The relation here is that this green spec house in Pacific Palisades was done by the very same developer so I figured I would check in on it and see if it had sold. The answer is clearly no.

I then quickly ran the numbers in my head and if we are looking at $250/sq ft for construction, we get to $1.9M for the lot and construction combined. Throw in about $400K worth of property taxes, holding costs, opportunity costs, and a 5% transaction fee and you can see we come to a total of $2.3M. The developer here appears to be a professional so I would imagine that the price cuts aren't random. Funny how we are now at the exact break even estimate...

Unfortunately for this developer or anyone else in the market trying to sell, the market turned a while ago and the downward momentum has accelerated rapidly over the past few months. A project which looked like a slam dunk back in 2006 will now likely end up in a loss.

Finally, taking a quick look at other listings in the $2M-$2.3M range within this zip code, it appears that there is a decent amount of competition out there (and it is amazing at how much further one's dollar stretches in PP vs SM). While this house is brand new and has the unique "green" characteristics, I believe it is suffering a bit from its small lot size (5,200 sq ft).

$1M+ Townhouses *Update 1*

We last featured 933 15th #C back in August.

Remember, this is a 2 bed/2.5 bath 1,700 sq ft townhouse (2000 construction).

Previous Purchase: 8/8/03 - $815,000

Listing History: 8/12/08 - $1,329,000
Reduced at some point --- to $1,195,000

SOLD: 11/12/08 - $1,135,000

Also remember from last time, we used unit #D as a comp when we said there was no way they were getting over $1.3M for this place because that would represent appreciation over a 2007 price. Unit D last sold on 11/14/07 for $1,300,000.

Unit D appears to have the same specs as this unit (exact same square footage). So since we have a nice, apples to apples situation, we can see that if the buyer of unit D had simply shown some patience and been a reader of the Distress Monitor, they could have saved themselves $165,000 (or 12.7%) over the course of just one year.

This is it folks, the entire point of the blog right here. If you didn't exercise any caution and patience, you could have fallen victim to the "Santa Monica is immune" and "It's always a good investment to buy property in Santa Monica" nonsense that was spewed by so many.

This blog was founded on the principle that markets are cyclical and that real estate (even in our great city of Santa Monica) was at the peak a massive cycle/bubble. "Trees don't grow to the sky".

Eventually it will make more sense to buy -- because all cycles eventually turn. I don't believe we are at any sort of a bottom yet though, so stay patient and be safe out there in what appears to be an increasingly deep recession.

You Look Familiar

Address: 1222 Princeton #2 - 90404

Details: 1 bed/1 bath condo, 635 sq ft, $194/month HOA fees

Description: South of wilshire blvd....Prime location, beautiful tree line street. Walk to shops & restaurants. Gated entry, charming court yard. Updated kitchen features gas stove w/oven, dishwasher, stainless steel refrigerator & washer, dryer unit the living rm has been freshly painted w/designer colors and features large picture windows. Bedroom is complete w/floor to ceiling mirror glass closet doors, wall display shelves, ceiling fan & designer back out drapes. Enjoy the sparking pool & lush landscapin

Previous Purchase: 3/14/08 - $400,000

Listing History: 10/27/08 - $429,000

Sorry for all you SFR only fans, but these condos (especially the 1 bedrooms) keep giving us interesting and telling examples. Here we have a unit which we already featured on the blog back in November 2007 when we found a battle going on in the building.

At that time, we had this unit (#2) listing at $449,000 when a neighbor undercut it.

However, it turns out that our seller of unit #2 persevered and accepted an offer of $400K (we did an update post here), while it appears that the competing unit (#11) never sold.

That brings us to today where we have the new buyer of unit #2 listing the unit for sale roughly 7 months after they bought it. Unfortunately, they are starting out on the wrong foot and trying to get more than they paid earlier this year. They will clearly need to take an offer below $400K in order to get this sold, so this listing is just going to collect dust until they decide to get serious.

For now, here are some rollback benchmarks to look for.

Unit #11 (same specs as unit #2) - 11/2004 -- $350,000

Unit #2 -------------------------- 8/2003 -- $280,000

I don't see why this couldn't eventually get back to a 2003 or lower rollback.

Flippers Still Alive In 90402

Address: 703 25th Street - 90402

Details: 5 bed/5.5 bath 5,220 sq ft house, 8,700 sq ft lot, "spectacular and complete renovation"

Description: Spectacular & complete renovation! Totally pvt 5bd + 5.5ba home, apx 5,220sq ft on corner lot. Perfect floor plan, skylights & walnut flrs. Bright & airy w/soaring ceilings everywhere! Enormous kitchen-family rm w/marble counters, viking stainless appliances & custom cabinetry opening to pvt grassy yard. Master suite w/pvt sitting room, walk-in closets & spa-like bath. Pvt guest wing. Close to franklin school. Newer home totally remodeled & updated w/top quality finishes & detailing.

Previous Purchase: 6/17/08 - $3,000,000

Listing History: 11/6/08 - $4,688,000

At first, I thought that this flipper might have literally stolen the place when they got their $3M offer accepted in June. However, taking a look at the previous listing history, we see that it was listed on 3/14/08 for $3,195,000. The original description went as follows:

This 5 bedroom home was renovated in 1991. Excellent floor plan, quality construction & loaded with architectural details, very bright & airy. Beautiful two story entry. Marble staircase to Master suite with retreat & children’s wing. Large kitchen w/adjacent family room.

Seeing as how the purchase didn't close until a full 3 months later, it would appear that this was a fair sale. It appears that the house was originally built in 1936 and then "renovated in 1991" and then renovated again after 6/17/08. I looked at some of the pictures from the previous listing and compared them to photos from the current listing and it looks like our flipper made some big changes/upgrades (at least to surfaces...not likely that square footage was added).



On the right you can see the hallway and stairs from the original pre-flip listing.







And here on the left you can see a photo from the flipped listing. This is just one example, but it looks like they also did a fair amount of work on the kitchen and in other areas of the house.

This seems to be a pretty professional job, but the question you have to ask is whether you think that there is nearly $1.7M in improvements here. You already know what I think...

Oh and one more thing...the owner/flipper here has an expired real estate broker license in his name and also has a currently licensed real estate corporation in his name (address on Montana). Flipping used to be easy for everyone...now it is something only a seasoned pro might attempt. We'll see how this guy does.

Rent Control Foreclosure

Address: 924 5th Street #2 - 90403

Details: 1 bed/1 bath 618 sq ft condo, $306/month HOA fee, foreclosure

Description: Great central Santa Monica Location. Small, quiet complex. Unit has an open floor plan. Laundry in building. Unit has rent control tenant protected from eviction for life, paying approx. $550/month.

Previous Purchase: 6/20/05 - $329,000*

Bank "buyback": 10/15/08 - $346,500

Listing History: 10/30/08 - $337,500

*The initial purchase was done using 100% financing by a licensed real estate "salesperson".

So what we have here is another insider buying near the peak of the market using $0 down. To make things better, it appears that there was either some negative amortization or some refinancing that happened because on the notice of trustee's sale, the unpaid debt secured by the property is listed at $484,917. That is over $150K more than the original purchase amount at the peak!! Additionally, there is a rent controlled tenant in the unit paying well below market rent...that means hardcore negative cash flow for as long as they are there. I would thus imagine that nobody is going to be willing to step up and pay what the bank is asking right now.

Cecil Gale Delusion

Address: 2619 Washington - 90403

Details:3 bed/2.5 bath 2,037 sq ft house, 7,040 sq ft lot, 1934 Cecil Gale

Description: Authentic cecil gale span architecture w/3bd, 2.5ba in desirable n of wilshire neighborhood. There is a lg step-down lr w/peg & groove hwd flrs, corbel beamed clng & woodburning fp. Fdr w/fp, french drs & blt-in cabinetry open to pvt crtyrd w/fountain. The kit has lg center island w/sub zero refrig, dbl ovens & skylight. Spac mstr bd w/french drs & skylight opens to grassy bkyd. Classic period details, hwd flrs & cust colors showcase the property. Enjoy indoor/outdoor living; pvt & gated.

Previous Purchase: 12/20/96 - $715,000

Listing History: 11/3/08 - $2,284,800

This house is in a good location and appears to be in good shape (it is not a teardown). However, it doesn't appear to have been remodeled in a big way recently (the non granite kitchen counters are a dead give away). I would say that this Cecil Gale is likely "better" than the other three we have featured since it has 3 bedrooms and is larger (2,000 sq ft). However, the lot size here is a bit smaller than some of the other Cecil Gale's.

All of this being said, I don't know how they think they have any kind of shot at getting almost $2.3M, especially considering that the market has deteriorated further and this is still so much higher than the other comps below:

865 Harvard - sold 7/11/08 - $1,725,000
1060 Harvard - sold 9/10/08 - $1,692,000
2722 Washington - sold 9/26/08 - $1,500,000

Further, for almost $2.3M, you could be setting your sights on something somewhat comparable in 90402 or something much better in 90403 or 90405. I will be surprised if they can get anything even near $2M for this place.

Why are these sellers always so delusional? Are the agents saying "sure, lets' s list it at x and see if we can get it" or are the agents trying to get the clients to list lower and failing?

New Spec on 25th *Update 1*

We last featured 603 25th here in September.

I was pretty sure that we would need to see a big price cut before a sale would take place. Instead of cutting the price, the seller accepted an offer under their asking price. The amount that they got was materially higher than what I thought they could get.

Listing History: 9/4/08 - $4,995,000

SOLD: 11/5/08 - $4,700,000


After seeing the struggles of the 14th street specs as well as the multiple withdrawals from the market from the 21st place spec, I didn't think this one would go so quick or for so close to asking. But as I said before, this looked like a solid quality house on a really good street and on a good sized lot. We are seeing once again that high quality properties in pristine locations are holding up better than expected.

LOCATION, LOCATION, LOCATION (and lot size) *Update 2*

We last featured 1255 24th here when the seller took the wise step of cutting the price by a large amount.

Thanks to a reader, we have found out that it sold.

Previous Purchase: 9/28/06 - $970,000

Listing History: 8/4/08 - $2,695,000
Reduced: 09/23/08 - to $2,395,000

SOLD: 10/31/08 - $2,300,000

Reduce your price quickly and by realistic amounts and also be prepared to take an offer under your newly reduced price and you will still be able to get bids. As I speculated last time, I would have a hard time imagining that this developer made much (or any) money on this project (my guesstimate of all hard and soft costs came to $2.365M).

"Bring your investros"

Address: 1027 Ashland - 90405

Details: 1,518 sq ft teardown, 8,555 sq ft lot, zoned R2 but has approved parcel map for 4 units

Description: Great opportunity for development with approved tentative parcel map to build 4 luxuries condominium on a huge lot with great dimensions. The house is a fixer upper but still livable and great for remodeling. Bring your investros... Price slashed $150k for immediate sale!!!


Previous Purchase: 3/3/06 - $1,185,000

Listing History: 4/25/08 - $1,395,000
Reduced: 06/04/08 - to $1,295,000
Reduced: 07/16/08 - to $1,249,000

Another example of bailing builders (or potential builders). This thing likely needs more price cuts for a new investor (or "investro") to be interested. At 193 days on market, it looks like that "immediate sale" hasn't materialized.

I just looked through some additional 90405 listings and I noticed more than one example of a potential development situation that was purchased during the last few years. These types of properties were generally put on the market earlier this year at complete wishing prices and have now cut down to the point where they are almost true rollbacks. It should be apparent by this point that we need to see these properties cut further if they hope to generate a sale. The market did not "come back" in 2008 and I think it is very likely that it won't "come back" in 2009. I would suggest that all these types of properties need to have their current asking prices below their previous purchase prices in order to have a good shot at selling.

FORE!!-closure

Address: 1625 Dewey - 90405

Details: 3 bed/3 bath 2,434 sq ft house, 8,939 sq ft lot, REO

Description: Bank owned foreclosure. Sunset park charmer with view of penmar golf course. Offers spacious yard with pool and grassy area. Living room with high ceiling and fire place light & bright. Do not disturb the occupants.

Listing History: 10/29/08 - $1,450,000


This looks like a legit foreclosure but I can't quite figure out what is going on. I don't see the typical "peak market purchase". Was this a re-fi abuse case? Anyone have any info?

I expect more foreclosures over at least the next 12-18 months and I think it is still too early to be buying unless you can scoop up a great deal. From the "bank buyback" of $1,200,000 on 10/23/08, it looks like whoever is selling this has some cushion built into the asking price. You generally aren't getting a good deal when you pay up above the "buyback" price and buy one of the first foreclosures in the cycle (for your area).

More Speculators Leaving The Market...And Taking Losses Along The Way *Update 1*

Since we were recently talking about distressed situations involving multi-unit zoning in 90405, I thought I would take the opportunity to do a follow up post on 2724 6th which we featured back in November 2007.

Previous Purchase: 6/20/06 - $1,089,000

Listing History: 2/19/07 - $1,125,000
Reduced: 04/18/07 - to $1,075,000
Reduced: 07/07/07 - to $999,000

SOLD: 5/5/08 - $800,000 (26.5% rollback)


Remember, this was a tear down on a 4,000 sq ft lot which is zoned R3. Given what has happened since the closing date (6 months ago), I am willing to say that if this had to sell today it would be materially lower. Any developers out there want to speculate what will happen with this situation?