$1 Million Price Cut = Market Clearing Price on Yale

We last featured 823 Yale in November as a part of our "Rentals Everywhere" series when it was asking $16K/month as a rental (and was also for still for sale).

Its 2008 re-listing (yes, another one) was featured back in October when it came to market asking $3.3M.

And finally, it was first featured back in October 2007 when it was on the market for a second time as a brand new spec house.



Listing History: 3/28/07 - $3.8M
Reduced at some point to $3.6M

Re-listed: 10/4/07 - $3,295,000

2008 Re-List: 10/20/08 - $3,295,000

SOLD: 12/23/08 - $2,750,000

So there it is...a price cut of over a million dollars to get the thing to sell (of course the very first price was completely delusional though). Think the developers made any money? ...(the lot was purchased for $1.345M in Jan 2005)

Inside SMDM Headquarters - "Real estate only goes UP!"

90402 Lot Value Data

Address: 534 19th - 90402

Details: 2 bed/2 bath 1,925 sq ft house, 8,940 sq ft lot

Description: Located in Santa Monica's coveted Gilette Square. Come and fix up or build your dream home. This is a trustee sale. No court. No showings until Tuesday Sept 9th caravan. Co-Listed.

Listing History: 9/3/08 - $2,250,000

SOLD: 12/19/08 - $2,000,000

While we never did a post on this property when it was active, I figured it would be worthwhile to take a look at the result. As far as I can tell, there isn't any location discount and this is also a good size lot (8,940 sq ft). I don't know if you would call this a strict tear-down or if you could live in this and/or remodel.

So I think with this data point, we can confirm that pretty much any 7,500 sq ft lot (or for that matter, any lot under 8,940 sq ft) is most likely under $2M (but this isn't new news...).

1st Pac Pal "Green" Home *Update 1*

We recently featured 1043 Hartzell - 90272 in November. It was a case of a spec "green" home that looked like it wasn't doing so well in Pacific Palisades.

(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

SOLD: 12/18/08 - $2,250,000


Think any money was made on this? Also, if you are interested in looking at another "green" house done by the same developer, there is one on the market in 90402 right now.

Sunset Park Sale

Address: 1337 Maple - 90405

Details: 2 bed/1 bath 1,055 sq ft house (shack), 6,850 sq ft lot

Description: Best price home in excellent Prime Sunset Park on a quiet tree-lined street. Great opportunity for potential fix-up or expand. Home includes: great floor plan, all rooms good size, hardwood floors throughout, crown molding, living room w/ fireplace and bay window. Formal dining room w/built-ins, China cabinet and wainscoating. Kitchen has bkfst area, Fenced yard & detached 2 car garage. Great location, close to beach, shopping and restaurants. Sold as is. Trust sale. No court confirmation.

Listing History: 9/8/08 - $929,000
Reduced at some point to $895,000

Sold: 12/18/08 - $825,000

This looked like a case of a longer-term owner who may have passed away. The house was on the market long enough for the seller to realize they needed to lower their price, and they were wise to accept a reduced offer after that.

I think examples like these where there is clearly a lot of equity and there is a demonstrated desire to actually sell are refreshing. This is what a market clearing situation looks like.

I am also featuring this because I believe it goes along with what Westside Bubble said on a recent post of his:

A failed escrow at 1213 Oak (2/1.5, $895K) and sale of 2232 21st (2/1, $$1,079K) for $980K further establishes the low end of Sunset Park below $1M.

Better Relative Value

Address: 939 24th - 90403

Details: 4,000 sq ft house, 8,000 sq ft lot, 4 bed/4.5 bath, Year 2000 construction/remodel

Description: No showings until tue. Beautiful spanish featuring 4 bedrooms, 4.5 baths filled with authentic details. Gracious living room features fireplace and high cathedral ceilings. Formal dining room & hardwood floors thru out the entertaining areas downstairs. Gourmet kitchen with breakfast area. Master suite with large walk-in closet. Large family room with french doors leading out to lovely private yard with pool and spa. Serene backyard with bonus room and _ bath above garage.

Listing History: 10/30/08 - $2,695,000

I can't seem to find any good data on the previous sale, but Zillow is showing 6/4/98 - $740,000 with an asterisk next to it (not sure if this is a real sale or not). However, I believe this house was heavily remodeled/rebuilt in 2000 (date given as "year built" on the Zip Realty listing). There is only one photo (come on real estate agent, get in there and snap some shots!) so we can't see too much and I haven't been in the house, but it appears that this is a well done Spanish custom remodel (I think I know who the architect was).

The title of this post is "Better Relative Value" because I believe that a house like this is SUCH a better value (and better overall property) than the one we just featured on 23rd. I see no reason for a location discount here, the lot is much bigger, you get more square footage, AND most of all, this thing is still $100K cheaper...yes, it is "used", but who cares as long as its in good condition. I would also add that there might be an argument to be made that having a custom remodel is preferable to a newly constructed house...I think you can imagine the incentive for any spec builder to rush their build at this point in the cycle and quality could suffer...

In the end, I think this house is still going to fall from this level (and I think they need a price cut ASAP), but I think this is a good illustration of a property that represents a much better relative value than the one on 23rd.

South of Montana New Construction

Address: 1024 23rd - 90403

Details: New Construction, 4 bed/4.5 bath 3,500 sq ft house, 6,118 sq ft lot

Description: New construction s. Of montana. Cape cod. 4 bd, 4.5 ba. Spac 2-sty home w/hi clngs, lots of light & walnut flrs thuout. Formal lr, dining & gst qtrs down. Fab mstr w/huge walk in closets, balcony & gorgeous master bath. Grand gourmet kit w/thermador appliances, carrera marble island/countertops & breakfast area. Fr w/beaut fp & french doors leading to grassy landscaped yd. Home has surround sound, pre wired for internet, plasma tvs, sec sys, ipod compatible & remote control opening skylights.

Previous Purchase: 8/8/07 - $1,445,000

Listing History: 10/8/07 - $2,975,000
Reduced: 11/11/08 - to $2,795,000

Here we have a newly constructed (and quickly at that) house on 23rd street south of Washington. Being south of Washington means a smaller lot (just over 6,100 sq ft) and being on 23rd means that you have more traffic (and those annoying speed bumps on your block). There is a light on Wilshire and 23rd and Whole Foods is just down the street (also on Wilshire and 23rd). Thus, I think a decent sized location discount is deserved for this location.

From the previous purchase, we can say that the developer messed up by purchasing the tear-down/land at a price that didn't reflect the coming declines in the area. We know that prices are much lower now as shown by the recently closed tear-down comp at 1030 Chelsea which went for $1.2M in late November. But I would argue that the Chelsea comp means that the land value for this house on 23rd is even lower because the Chelsea location doesn't have the same location discount as 23rd - and the lots are exactly the same size.

Now, looking at the construction, I thought the house wasn't bad. The square footage is modest for new construction, but I think a big reason for this is that the lot size of 6,100 sq ft means you can't build a 6,000 sq ft monster even if you want to. Overall the house reminded me a lot of 848 25th which closed earlier this year for $2.85M. But this house is inferior to 848 25th in a lot of ways (848 25th has an 8,000 sq ft lot, an extra bedroom, 700 sq ft more interior space, no location discounts, etc)...Just more signs pointing to the overpriced status of 1024 23rd.

So ultimately, while I don't have anything bad to say about the actual house on 23rd, it looks like the location discount combined with further market declines means that the price is still much too high and needs a good six figure chop to get back to reality.

More High End Townhouse 2005 Rollbacks

Address: 944 5th Street #105

Details: 2 bed/2.5 bath 1,492 sq ft townhouse, 2005 construction, $372/month HOA

Description: Beautiful & well located mediterranean townhome close to the beach. This 2 + 2.5 + loft end unit features many pleasing aspects including: bamboo flooring thruout, high ceilings, fps in lr & master, recessed lighting, large patio off dining area & private 2-car garage w/direct access. Large kitchen has stainless appliances & a breakfast bar. Master has balcony, bath with tub & shower, loft & big sun deck with views. This peaceful & classy unit is close to the bluffs, montana ave & the promenade.

Previous Purchase: 3/30/06 - $1,279,000

Listing History: 6/6/08 - $1,349,000
Reduced: 07/30/08 - to $1,299,000
Reduced: 10/16/08 - to $1,220,000

We very briefly featured this unit as a part of our "Townhouse Update" post back in October where we were showing a handful of townhouses at or near rollback levels. This unit in particular reduced its price shortly after we featured it and it is now at true rollback status.

Unfortunately, our seller here is still delusional and out of touch with their current $818/sq ft asking price. We know this for two specific reasons. First, they have had the property sitting on the market for 188 days and it hasn't sold, but more specifically, its "true rollback" price is now almost 2 months old and it STILL isn't selling.

Second, we have a fresh comp in the building. Unit #103 (which is approx 75 sq ft larger) recently sold on 11/25/08 for $1,180,000.

So if I am a buyer today, I have to look at this comp and say that at the very minimum, the seller is $40K too high. Then you need to adjust a touch for the square footage differential. But most importantly, you need to adjust for the fact that although the comparable sale took place pretty recently, the economy is sliding off a cliff right now (over 500K job losses alone on the last NFP number).

I don't know where this thing eventually sells, but I'm pretty sure it has no chance of selling above $1.18M and I would say that the seller is lucky if they can get much more than $1.1M. They would be wise to cut their price aggressively right now to below $1.18M and show that they mean business. Otherwise, I have no problem envisioning this thing drifting below the $1M eventually.

"Owner Has Plans..."

Address: 1509 Pearl - 90405

Details: Teardown/development situation on an R-2 lot (6,873 sq ft). Plans for 3 units.

Description: Unique, flexible opportunity in sunset park. Live in existing single family home on a large r-2 lot while planning your remodel, your new dream home or three new townhomes. Existing beautiful large salt water swimming pool measuring 24 by 36. Zoning allows for three townhomes. Parcel map in place. Owner has plans for 3 "unattached and green" units with a yard in between each one. Each unit could be approx. 2100 square feet with three levels and an 800 sq foot rooftop deck. See private remarks.

Previous Purchase: 12/28/07 - $1,043,000

Listing History: 10/13/08 - $1,189,000
Reduced: 11/21/08 - to $1,099,000

Pretty straightforward example of yet another bailing developer/builder. The current asking price is nowhere near market and the loss on this property will likely be substantial. The credit markets are completely shut for projects like this, and the economics of building new units just don't work out without substantial markdowns on the raw land.

I forget the exact quote, but someone e-mailed me a while back that said something to the effect of "With real estate, you never know how much you've lost until you have to sell". This seller here needs to aggressively reduce their price or else I fear they will be very surprised just how far the market has fallen while they thought they were going to get $1.1M.

Finally, can someone post the "private remarks"? And what is the point of openly saying there are private remarks? Any buyer is going to want to know what they are if they see that phrase, so why not just get them out in the normal description?

"Wave of Rationality in Sea of Idiocracy"

Address: 939 15th #5 - 90403

Details: 2 bed/2.5 bath 1,419 sq ft townhouse, 1981 building, $350/month HOA

Description: Open sunday dec 7th 1:00-4:00pm. Recently painted, gorgeous, spacious updated townhome with maple floors, beautiful designer finishes, gourmet kitchen and wood burning fireplace in living room. New carpeting in bedrooms. Spacious master bedroom with large walk-in closet. Den can be used at 3rd bedroom. Large patio off of living room great for entertaining. Private direct access to 2 car garage. Feels like a home. Walk to montana avenue shops and restaurants.

Previous Purchase: 6/2/03 - $619,000

Listing History: 10/17/08 - $950,000
Reduced: 10/25/08 - to $879,000
Reduced: 11/01/08 - to $849,000
Reduced: 11/25/08 - to $819,000

Today's property is being featured thanks to an e-mail from a reader. In sticking with our theme of know your seller, this property is being featured as an example of one where we have a seller who seems ready to "make a deal".

After using several of our SMDM tools, it appears that we have a good seller to work with. The property taxes are current (although the semi-annual installment due on 12/10 appears to still be outstanding) and the seller doesn't seem to have been re-financing himself into a jam or playing games with title transfers. With a mid 2003 purchase price, there should be enough equity available at this point to have the ability to cut the price down to a market clearing level.

Now, clearly the original price tag of $950K was completely delusional so we must deduct a few points for that -- but the seller appears to be getting serious very quickly with several price cuts over a relatively short timeframe after the last of the koolaid wore off.

Before you jump all over me and tell me that the current asking price is still delusional and that this thing is very likely to be a 2003 rollback in due time, I will say that I agree. I'm not arguing that this is a great price to be buying at - I think it would be foolish to buy this at this price right now. But for what appears to be a well located unit in what looks to be a decent building, this seller is sending a clear message that they are ready to deal and that they actually want to sell their unit (as opposed to all the other delusional sellers out there with listings rotting on the MLS).

Ultimately I think the market clearing level for a unit like this is still above mid 2003 levels, however I also think that $819K is still way too high for today's market. If this seller remains rational and keeps up the aggressive cutting and/or accepts an offer well below current list price, I think this thing could sell somewhere in the 700 range. Again, I think the value of a unit like this will ultimately roll back to at least mid 2003 levels (and thus at least to the low 600s), but I still think that with realistic behavior on the part of the seller, we could see a transaction in the 700s.

Finally, I would like to extend an invitation to any readers (sellers, agents, etc) who believe they have a very motivated and realistic seller who is demonstrating that they are accepting reality to e-mail me with details on thier properties. I am all for "market clearing" to take place and I am happy to feature more of these types of examples as I think it is part of a "healthy healing" process. Finding delusional sellers is too easy (hint: the majority of listed properties have delusional sellers behind them at this point) and it is also backwards looking. We are trying hard to stay ahead of the curve as I think that adds the most value -- and realistic sellers who are willing to accept reality and sell at true market clearing levels will end up helping the market heal in the long run.