(author note: If you have not read the original article (link below), I suggest you do so before reading this one)
From “How Much Is Your House Worth Today? Another Crisis Brewing?” …
"Maybe it is time to sell the ‘investment’. After all, it has been more than ten years since our investor broke ground on his personal gold mine. But, after speaking with the realtor, our investor is even more discouraged. Apparently, a reasonable asking price is somewhere in the neighborhood of $690,000.00 – $700,000.00. That is considerably less than the purchase price of $1.1 million. And it is also less than what is still owed – $850,000.00. Which means it will have to be a short sale – if the bank will agree. After some negotiation, the bank agrees to a conditional listing at $749,900.00. Exactly two months later, the asking price is reduced to $699,000.00. And a short two weeks after that, it is reduced again – to $649,000.00. Ten long weeks later, an offer is tendered. The offered price is $550,000.00. It is quickly turned down by the bank. The listing is removed."
Now for an update. Five months after removing the listing, our investor decided to try again. The house was relisted in July 2018. The listing price of $749,900.00 was identical to the original listing price in August 2017.
But something is different. While the ‘new’ listing price is still one hundred thousand dollars less than what is owed on the property, the plan in place is that the owner/investor will make up any shortfall between the eventual selling price and his loan amount; up to as much as one hundred fifty thousand dollars.
Theoretically, if the house sells for $700,000.00, putting up the additional cash will take him out of the sinking money-pit he is mired in. And it should get around short-sale delays, too.
Five weeks later the asking price is lowered by five thousand dollars. Two weeks after that, it is lowered again. This time to $699,900.00, which is still close to the original minimum expectation of $700,000.00.
The house is currently off the market. Again.
Below is a chart of estimated values for the house going back to 2015.
At the time of the original listing ($749,900) in August 2017, the estimated value of the house was $878,600. Which might lead one to believe that the house was listed for a quick sale.
I don’t know if that was the thought at the time the house was listed, but I’m sure the owner was hoping to rid himself of a huge burden because of the impending doubling of his payment a couple of months later.
An offer was not forthcoming, however. And, yet, within a few short months, the estimated value of this home soared to $1,400,000! Even more incredible, nearly all of that increase incurred in one month.
The estimated value of the house in October 2017 was $860,000. In November 2017, the estimated value was $1,376,000. There are no fundamentals which support that kind of increase.
Somewhat ironically, our beleaguered owner, had lowered his asking price that same month to $649,900.
We might wonder whether there was faulty input which led to the radical change in estimated value, or whether there was something unique to this particular property which led to such a huge increase.
But the increase was not entirely inconsistent with the prevailing activity and attitudes at the time; both in general and specific terms. The house is located in a gated community that saw its own new construction of units higher than at any time in recent years. And this was within the context of a broader, favorable real estate climate locally and nationally. And other houses showed similar spikes in estimated values.
But, while a small flurry of interest in viewing the property came shortly after, there was not much to get excited about. In fact, as we already know, the only offer received was for $550,000 in February 2018.
As you can see in the chart above, the (mis)pricing comedy continued. The estimated value had fallen from a peak of $1,400,000 in January 2018 to $1,136,000 in February 2018, the same month that the offer of $550,000 was received.
A few short months later, in August 2018, the estimated value had fallen to $736,000. Coincidentally, the owner re-listed the house that same month for the same original asking price of $749,900.
These inconsistencies are further highlighted when looking at the Property Tax history below…
Why the huge drop in assessed value 2017-18? Is it related to the sudden spike and subsequent large drop in estimated value that we talked about earlier?
We could say that the extreme swings in estimated value and assessed value are examples of the difficulty in determining appropriate prices and values, no matter what the purpose. And that the actual transaction history of similar properties is a better barometer.
But it seems quite ironic that the sudden, huge increase in estimated value occurred in the same year that the assessed value decreased by forty-five percent.
As it stands now, the house is estimated to be valued at $814,400. But the assessed value of the house is only $359,205.
And there are other homes that reflect similar extreme conflictions, as well as those that don’t. But none of these things will explain or satisfy the lack of active demand at the asking prices set by owners who think their house is worth more than it really is.
It amazes me what people will pay and how much they will pay when fear (of missing out) and greed (I want what he’s got) are the dominant emotions.
Later, as the actual reality becomes clear, we find that our one million dollar house is not worth what we paid for it. It is worth much less. It is, in fact, an albatross around our neck, draining us monthly.
There were a lot of high quality homes built a dozen years ago at peak cost. Those homes, especially, the more expensive ones – $700-1,000,000 – are worth considerably less than when they were built.
And, even when owners are open to selling at less than they think the house is worth, they are just too expensive for the majority of home buyers.
New construction also limits the potential target market of buyers for whom affordability is not an issue. Those buyers often choose to build, rather than buy, especially in that higher price range.
As we said before: “How much is your house worth today? It is worth what you can sell it for. Not what you think it’s worth. And not what it is assessed for. Also not what your realtor or an appraiser says it is worth.”
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!