Another 2004 Rollback In 90402 *Update 2*

I last featured 209 Euclid back in August 2009.

To refresh...Details: 5 bed/6 bath 6,859 sq ft house, 7,500 sq ft lot, 2004 construction

Previous Purchase: 8/13/04 - $3,950,000

Listing History: 2/5/09 - $4,400,000
Reduced: 04/02/09 - to $3,999,000
Reduced: 06/11/09 - to $3,899,000
Reduced: 07/31/09 - to $3,800,000

Re-Listed: 2/23/10 - $3,795,000


This is $553/sq ft and is well into 2004 rollback territory. This is also another example of a listing coming back out of the shadows as we head into spring selling season. There are plenty of these types of sellers and I anticipate seeing more listings like this. At least this seller doesn't seem too delusional on pricing (although they could have made a cut between the last list price and the current list price). Maybe one more good cut and we see a sale?

How To Sell REO

Address: 2525 6th - 90405

Details: 2 bed/1 bath 1,032 sq ft house, 2,897 sq ft lot, REO

Description: *REO* Bank owned. Sold AS-IS, no WPA. Fantastic CA Bungalow, 2+1+fam.Rm. Buyer to verify additions. LOCATION, LOCATION! near beach, trendy shops, restaurants, Main St, schools, transportation, etc. Hardwood flrs thru-out, tile in kitchen & bath. Light, bright, open. ALL CONTRACTS/OFFERS ARE SUBJECT TO ONEWEST SERVICES, LLC SENIOR MANAGEMENT APPROVAL AND ANY OFFERS OR COUNTER OFFERS BY ONEWEST SERVICES,LLC ARE NOT BINDING UNLESS THE ENTIRE AGREEMENT IS RATIFIED BY ALL PARTIES. See Private Remarks

Previous Purchase: 12/30/04 - $850,000

Trustee's Deed (bank buyback): 7/22/09 - $661,004

Listing History: 12/29/09 - $682,000

SOLD: 2/17/10 - $735,500

The late 2004 price looks high, but then again the bubble was really chugging and this is a "house" so it must have looked like it was worth a million bucks back then.

The bank got aggressive and priced this well below the late 2004 price. This elicited what was likely a bidding war and this went into escrow after 12 days and sold well over list. Late 2003 price on the ultimate sale?

Successful Flip - Everyone Wins

Address: 1024 Bay #5 - 90405

Details: 2 bed/2.5 bath 1,252 sq ft townhouse, 1988 building, $300/month HOA, "completely remodeled"

Description: 2 bed + loft, 2.5 bath townhome. Completely remodeled, light & bright, bamboo floors. Open kitchen w/ CaesarStone countertops, breakfast bar, SS appliances. Spacious living/dining area w/ fireplace. Polished concrete floors in bedrooms. Roomy master w/ sliding glass door to private patio. Master bath includes claw foot tub, marble tile. Custom vanities w/ above counter bowls in master & hall bath. Large multi-level rooftop deck w/ views. Inside laundry. Private 2-car garage. Bldg is FIOS ready.

Purchase History:
3/29/02 - $405,000
4/14/04 - $668,000
8/1/06 - $805,000
6/16/09 - $506,250 (GMAC forecloses on peak bubble buyer from 2006)
8/26/09 - $489,000 (flipper somehow buys this at a very attractive price)

Listing History: 11/20/09 - $699,000

SOLD: 2/12/10 - $676,000

This unit shows just how big the bubble was. We start with a 65% increase in just two years between 2002 and 2004. Then, to make things really nuts, we essentially double the 2002 price by 2006 where a peak bubble buyer made the poor decision to buy.

Then I would guess that the teaser rate was up and it came time to face reality and the bank (GMAC) foreclosed in mid 2009. Then, somehow, a potentially sophisticated flipper comes along and picks this townhouse up for just $489k from the bank. That comes out to something like a late 2002 price. The flipper then "totally remodeled" the place and put it on the market for what was actually a rational level.

The buyer then purchased this from the flipper paid $676k which is basically a mid 2004 price but they got all the upgrades for free. Good job by the flipper of pricing appropriately and getting it sold quickly...but how did they steal this from the bank for just $489k?!

Canyon Flip - For Sale Or Rent *Update 2*

I last featured 386 Entrada back in September 2008. To refresh, this is a 2 bed/2 bath 1,044 sq ft house on a 7,800 sq ft lot - Flipped condition.

Previous Purchase: 3/31/06 - $990,000

Listing History: 2/4/08 - $1,999,000

Also For Rent: $6,750/month - "Fully furnished & ready to go!"

Re-Listed: 4/28/08 - $1,919,000
Reduced: 07/10/08 - to $1,699,000
Reduced: 09/06/08 - to $1,649,000

Re-Listed (short sale): 2/1/10 - $825,000

After just 2 days on market, this is now listed as "pending". Seems like someone must have had a heads up before this hit the market. Also interesting to see it listed at half of what it was asking back in 2008. I think this is interesting because I would have assumed that some level of delusion would still be present and that the short sale listing would have come out with a still much too high price which sat on the market for a long time slowly cutting the price (that is how many others have proceeded)....

Another interesting angle here is a comment which was left on the blog last time I featured this house.

the 386 home was never a "flip" but a second home to the owner,who spent over 400,000 to remodel to his liking. The financial circumstances of the USA forced him to put it for sale. you dont spend 400,000 on a flip less than 1100 sq feet. I know all this because I am a close friend to the owner. Your comments all they do is create an image that is incorrect. the fact that there was reductions in price, again are a reflection of the economy. The home is beautiful and it enhanced the already beaten old homes that exist in that small area of the canyon.

Obviously I almost always have incomplete information. I have several pieces of the puzzle and I have to try and put them together and make educated guesses about the rest of the situation. In this case, given that this was upgraded and then put on the market almost exactly 2 years after the original purchase and at such a lofty asking price, it looked a lot like a delusional flipper to me...But I can always be wrong. This is why I have my little disclaimer up top.

I'll do an update post when/if this closes. Thanks to the reader who e-mailed me about this.

$526/sq ft For 2005 Construction In 90403 -- Near Rent Parity? *Update 1*

In the comments section of my last post on this building, J in SM gave us the heads up that another unit is currently for sale in the building and it is being advertised as a short sale.

To review, we just featured unit #2 which sold on 2/5/10 for $925,000.

We are now looking at unit #3 which has the exact same square footage.

Listing History: 10/8/09 - $1,200,000
Reduced: 10/28/09 - to $1,150,000
Reduced: 11/11/09 - to $1,099,000
Reduced: 12/08/09 - to $999,000
Reduced: 02/08/10 - to $949,000

Given that the exact same unit just sold for $25k less, it appears that the current asking price on this isn't too far away from a market clearing level. However, I think the price they ultimately get (assuming the lender accepts it) will be closer to $900k than $950k which they are asking now.

It should also be noted that property taxes on this appear to be delinquent by more than $60k but I don't see any type of default into on RealtyTrac (yet).

$526/sq ft For 2005 Construction In 90403 -- Near Rent Parity?

Address: 837 18th #2 - 90403

Details: 3 bed/3 bath 1,757 sq ft townhouse, 2005 construction, $280/month HOA

Description: Spectacular Santa Monica Condo ! - Newer construction, With Attached 2-car garage, 3 bedrooms, 3 baths, Beautiful open floorplan with great room and loft with spiral staircase, 3 balconies and patio, Partial Ocean and city views, This unit has Bamboo flooring upgraded baseboards, Custom 2-tone paint, a 3-way fireplace in the great room, central air and heat, walk-in closets, jetted tub in master. Kitchen has stainless appliances, Granite counters, gas cooktop and microwave. Plenty of windows and a Skylight for natural lighting. Gated, with secured parking and alarm system. Great location, approx 1.5 miles from the beach. This condo is move - in Ready and gorgeous.

Listing History: 11/14/09 - $1,075,000
Reduced down to - $995,000

SOLD: 2/5/10 - $925,000

This isn't far from being new construction, the location is great, and the buyer seemed to get a relatively good deal when looking at the location, age, and overall $/sq ft.

For a comparison to rental rates, I did a search on the blog and found someone left a comment saying that unit #4 from this building was asking $5,700/month as of June 2009.

If you actually put a proper down payment on this, you could get a pretty low mortgage rate right now. To err on the safe side, let's use 6% including all fees, etc and then let's tack on another 1% for property taxes. We come to about $5,400/month with another $300/month for HOA and we are at the rental rate. You obviously will be paying more than that when you include principal -- but I think using the interest+tax method is best when comparing to rent. I'm not giving any tax benefit to again err on the safe side and to account for immobility, etc when you buy.

You obviously need to figure out whether $5,700/month rent or near that level is actually attainable. I think closer to $5,000 is more realistic and there could be downside to that in the short term but I don't think you are going to rent a unit like this for $4,000...

654 Hill Rollback Analysis

Address: 654 Hill - 90405

Details: 3 bed/2 bath 1,728 sq ft house, 5,066 sq ft lot, 2003 (remodel?)

Description: Fabulous architectural home by Kevin Daly A.I.A in desirable Ocean Park. This 3 bed + 2 bath home features an open, light filled floor plan w/wonderful living space that includes art gallery great room, cooks kitchen + master bedroom w/doors that open to outdoor space. Exposed beam vaulted ceilings and skylights, sustainable bldg. features (bamboo, radiant heat floors, energy saving appliances) and back/front yards. Sophisticated + turnkey living - walking distance to Main St.+ beach.

Previous Purchase: 7/11/03 - $989,000

Listing History: 11/12/09 - $1,395,000

SOLD: 2/8/10 - $1,260,000

This redone house looks pretty neat inside and I am thinking that the 2003 purchase was done after the upgrades. Thus we are looking at an apples to apples comparison in prices.

From the $989k price in 2003 to the price that this just sold at, we've got 3.8% compound annual appreciation. Not too bad. Inflation + a small premium.

Of course, most of us think there will still be some pressure on prices because by using a mid 2003 price as a base, you are ignoring the massive, bubble type appreciation that took place over the few years before 2003.

Another way to look at this is to assume something like 15%/year bubble appreciation from the 2003 price to see what type of nominal rollback this might be. If we do that, we get to something like an early/mid 2005 price. This is basically where things have been selling lately. So I don't think you can argue that this buyer got a great deal...they basically paid the going market level which I still maintain has some downside to come but is at least down materially from peak bubble levels.

(not builders) Remodeling Owners Bailing Mid-Construction *Update 1*

I last featured the disaster of 825 Berkeley back in January 2009.

Previous Purchase: 7/12/06 - $2,000,000

Listing History: 1/8/09 - $2,400,000
Reduced: 02/09/10 - to $2,200,000
Increased: 02/10/10 - to $2,400,000

Thanks to a reader comment, we see that the price was cut recently and then raised right back up the next day. This would be done to try and get attention on a very stale listing. This, in my opinion, is one of the worst sales tactics and will most likely turn off most buyers because buyers don't want to dick around with some underwater sellers who are playing games with their listing price.

This thing has been sitting for over a year now with no price cuts. The price is likely too high by something approaching high 6 figures.

One of the added signs of desperation here is that the listing now has the following language at the end of the description: Owner willing to carry to make this so easy for you!!Let's get creative!

They pretty much have to do this because no bank is going to give you much of a loan on an abandoned remodel that has enjoyed over a year of weathering.

My advice; cut the price down to about $1.5mm, take your lumps and move on. Pretending like you aren't heavily underwater is just going to cause you to bleed holding costs forever.

La Mesa Rollback *Update 2*

I last featured 2158 La Mesa back in December 2009 after it was "withdrawn" from the MLS.


Previous Purchase: 11/14/07 - $6,332,000

Listing History: 11/1/09 - $5,795,000
"withdrawn": 12/8/09

Re-Listed: 2/8/10 - $5,795,000

After a brief moment in the shadow, this thing is back. Could have shed a couple hundred thousand but I guess that will take some more time.

5% CAGR

Address: 924 15th #2 - 90403

Details: 3 bed/3 bath 1,774 sq ft townhouse, 1979 building, $230/month HOA

Description: Fabulous 3 Bedroom/3 Bath Townhouse+Den with sun porch/possible 4th Bedroom! Quiet private 15th Street! Living room w/plantation shutters, recessed lighting, Spanish pavers, gas fireplace. Large entertaining space. Large master suite w/soaring ceiling, 5 windows & walk-in California closet. Washer/dryer in unit. Private 2-car garage w/direct entry to security building. Great storage. Central Heat/Air. Low HOD $230. Close to Montana. Best school district.

Previous Purchase: 10/19/92 - $388,500

Listing History: 9/10/09 - $950,000

SOLD: 2/2/10 - $892,000

It has been a bit over 17 years since this unit last sold. It does not appear to be upgraded so it is basically an apples to apples situation. Looking back at the last cycle, I don't think real estate had bottomed in late 1992 but it was certainly down from the peak of its past cycle.

Using a compound annual growth rate of 5%, you get a value very close to the current sales price. Small changes in annual growth rates have big impacts when compounded over many years (ask the original Buffett partnership investors)...

My fair value compound rate that I have been using is 4%/year which is composed of 3% for inflation and 1% extra. Using a 4% rate, we get a current fair value of $760k which is 14.8% lower than the current sales price. I don't know if we will ever get to that type of value in nominal terms, but it is a far cry from the 30%+ drops in value which you were exposed to if you bought at the peak of the bubble.

247 20th -- 90402 Foreclosure *Update 1*

I last featured 247 20th back in May 2009.

It is a 3 bed/3 bath 2,676 sq ft house on a 8,940 sq ft lot.

In my last post, I showed that the bank (US Bank) had already taken back the property at the trustee sale and we just had to wait until it would appear on the MLS as an REO. Well...the day has finally arrived.


Previous Purchase: 4/13/03 - $1,500,015

Bank Buyback (US Bancorp): 4/21/09 - $1,570,210

REO listing: 2/5/10 - $1,739,000

To figure out what type of rollback price the bank is asking, you need to make an assumption about annual appreciation rates back between 2003 and 2004. Going with 15%, this listing price is a mid-2004 price. If you assume prices were rising just 10%, this is a late 2004-early 2005 rollback. I think prices were rising above 10%/year so this is most likely in the 2004 price range.

I think people will get overly excited by the prospect of "buying a REO in 90402". I also think that a mid-late 2004 price is attractive relative to the levels where other properties have been selling at lately.

I think this will sell quickly for near list price. Agree/disagree?

Thanks to the reader who alerted me to this listing.

Look at Comps -- Don't Get Ripped Off *Update 1*

I last featured 908 17th #102 back in October 2009. It is a 3 bed/2.5 bath 2008 built townhouse.

In my last post, I compared it to unit#108 from the same complex which is also a 3 bed/2.5 bath townhouse which sold on 5/21/09 for $1,115,000.

Here is the history for unit#102:

Listed: 9/10/09 - $1,475,000
Withdrawn after 63 DOM and no price cuts

Re-Listed: 1/7/10 - $1,475,000

SOLD: 1/29/10 - $1,425,000

These appear to be similar units in the same building so it is very odd that unit#102 just sold for $300k more than unit #108 did back in May. The only thing that could explain this would be a square footage differential (I can't find the square footage for #102) or some other large upgrade on #102.

Thanks to the reader who caught this.

Another Agent Owned Flip Attempt *Update 1*

I last featured 942 26th back in January 2008. Wow...two whole years ago!

Details: 3 bed/3 bath, 2,477 sq ft house on an 8,329 sq ft lot. Totally flipped.

Previous Purchase: 10/31/05 - $1,549,000

Listing History: 1/19/08 - $2,295,000
Expired after 61 days on market

Re-Listed: 1/28/10 - $1,875,000



When I featured this back in January 2008 the listing agent was also the owner/flipper. The same thing is going on this time...

The $2.3mm asking price was clearly delusional. I guess we should give a little credit for cutting the price on the re-list but I still think it is way too high. Let's see why.

Given that this is on a very busy street (26th) and is right by a roundabout, we know we aren't in a great location and we know that these types of properties are the leaders on the downside (say vs. another property a few blocks away on a good street). So we can clearly see the late 2005 price of $1.55mm which is what this house sold for before the remodel/flip upgrade.

I would argue that this should be our base value and that in today's market, this base value should be at least 0.5-1 year rolled back off that level. So I'm going to say about $1.4mm gets us there. Then you need to add on some value for the upgrades...Look at the photos and make your own determination. I don't think this has a shot at getting over $1.8mm.

The agent should show that he knows what he is doing by letting it sit at this overpriced level for 20-30 days and then take a large cut to the price and bring it down 15% or so where I think buyers will take notice and a bid could emerge.

Oh and in case you aren't sick of me saying it yet...this is another great example of all the SHADOW inventory that we need to work through. This thing was hidden for 2 years before coming back on the MLS.

**EDIT** Thanks to an alert reader, it looks like there may be more to this story. Realty Trac and other sites show that this property may be in some stage of foreclosure...Realty Trac specifically shows a notice of trustee sale (no date given as it is "awaiting update") and shows an opening bid amount of $1,423,500. Property taxes appear to be current though...so not sure what the deal is. Might be a situation where dealing directly with the bank will be the ultimate best course of action.

Specs Bailing *Update 1*

I first featured 444 10th all the way back in November 2008.

This is an larger than average lot at 11,250 sq ft and it includes plans for a 5,500 sq ft Robert Ramirez designed house.

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

Listing History: 11/13/08 - $3,130,000
Expired after 126 days on market and no price cuts

Re-Listed: 1/26/10 - $2,800,000

This is a classic case of a spec builder bailing. We all knew this listing had no chance of selling back in 2008 with its bloated price, and once again I would suggest that this does not stand a chance of selling at its current price. They are asking just 5.1% less than the peak purchase price made in mid-2007.

This also illustrates once again that there is a significant shadow inventory to work through. As we keep seeing listings like this one pop up, we know that there is a lot of underwater merchandise that needs to be properly marked down and put into stronger hands. The bust isn't over and prices don't really start recovering until we have worked through much of this inventory. My bet is that it still takes another year to two to really get through this inventory so we can get back to a market that properly clears. When you see a lot of people in precarious underwater positions hoping and praying that the market will somehow "come back" and bail them out then you know there is more pain overall to come. Thanks to the reader who brought my attention to this listing.