Details: 3 bed/1.75 bath 1,664 sq ft house, 7,500 sq ft lot, "upgrades throughout"
Description: Located on one of the most desired streets of Sunset Park, this charming 3+2 features a remodeled gourmet kitchen with granite counters, a spacious living room with fireplace and surrounded by windows, and an extra large lot - almost 7,500 sq ft. Upgrades throughout, copper plumbing, detached 2-car garage and hardwood floors. Veggie planters in the lush garden. Quiet, tree-lined, non pass-through street. Near shops, restaurants and parks on Pico and Ocean Park Blvd!
Previous Purchase: 9/18/01 - $599,000
Listing History: 7/5/10 - $995,000
SOLD: 7/28/10 - $1,005,000
The first thing to look at on this is when the upgrades were done. I don't know the answer but you should be cognizant of the fact that they are there...Next, look at the summer 2001 price.
If you use 3% inflation + a 1% premium and compound that over 9 years, you get a current estimated fair value of $850K. Again, this is ignoring the upgrades. If they were done after the 2001 purchase then you would add on whatever value you want to ascribe to them to the $850k to get current fair value.
Then take a step back and realize that rates are much lower now so you get the affordability stretch as a counter against the fact that the $1mm sales price looks a little above our estimate for fair value. It is interesting to note that this house went into escrow after just 5 days on market and then SOLD in less than a month. That is pretty rare from what I have seen. So I'm guessing someone put up a lot of cash or didn't finance this? I am less familiar with how good the odds are of something going through escrow in a few weeks if financing is involved (my guess is that is rare).
This house is not very big and there isn't much about it that is all that special. But it has been upgraded to the point where you can raise a family in it. Our single YB probably is not looking to buy this. Hence we are going to most likely look at a young family (YF) which might have two solid incomes...or as many have pointed out, one $300k income which could support this.
But looking at what your dollar buys, I don't see how this type of property falls 20% from here. It would be too affordable at $800k. As houses like this fluctuate in value from roughly unchanged to down 5 or 10 percent over the next few years, the market should clear. I think it would take a major economic stumble and/or interest rate spike for this thing to fall 20% and be in range of a conforming buyer with a 10% down payment.
It's liveable, I agree, but it's really a very plain jane house. There's very little windows, which is a holdover from the very old construction period when they liked it dark. It's less than 2 full bathrooms and they are small, the kitchen is updated but done cheaply. About the only nice thing is the lot size and the yard, but it's not a great location either.
ReplyDeleteWarchest is right that to value correctly you have to take a price before the Bubble skewed everything and add some 4% a year for appreciation (although the bubble started in 2000 so by 2001 there was already 10-20% magic increase to begin with).
I wouldn't call the result a "fair value" estimate though, it's more of a "normalized" estimate, i.e. we're taking the Bubble froth out of what a normal appreciation curve would be, and get the price this will settle at once the correction we're still in the middle of ends.
And yes, with the remodel this might be worth a bit more than $850k, but we'd be at $900k at the most. I would not be comfortable paying anything over $900k for this, there is a good 10% bubble inflation left here that this place will shed over the next couple of years.
Arti,
ReplyDeleteI think we actually agree. I think 10% down seems like a good base case. Hard to forecast to but I think that's as good a guess as any. Would have to also factor in dispersion of results. I would say though more desirable locations & properties maybe down 5% or so whereas less desirable locations & properties maybe down 15% or so--averaging out.
Arti,
ReplyDeleteHow do you know that the kitchen is done cheaply? Did you actually visit the house or can you tell just be looking at the pictures? I sure would love to have the ability to spot the tell tale signs of cheap construction by looking at the pictures.