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ParticipantThe Hovnanian project off of 76/I-15 is right off the freeway. Eureka Springs requires driving over surface streets all the way through Escondido. In this case, the Hovnanian homes are a little farther away from downtown but it would be a slightly faster commute. As long as the freeway isn’t backed up.
ParticipantMost of Fallbrook is a real nuisance to get in and out of. This area has easy freeway access, but you’re a ways from services.
ParticipantTwo things:
The costs I used are adjusted for local market conditions and local costs. The fees alone would add up to over $35,000, which is much higher than for most other areas of the nation. Workmans Comp is more expensive here, the contractors charge more for their overhead, etc.. So compared to other areas of the nation, particularly those areas away from the coasts, costs here are always going to be a lot higher.
The “price” of a townhome or condo or apartment or office includes the contributory value of the site even if that individual site can’t be broken out from the whole. The land didn’t come free. You might not be able to buy the individual condo “site” out of a project, but if you divivded the project site by the number of units there would still be a value/unit attributable to the site.
Incidentally, the trailer park might sell as a whole, but the value of the whole is estimated on a price/space basis. Otherwise, a 6-space trailer park would be valued the same as a 160-unit project, which of course would never happen.
ParticipantI did a cost analysis on this unit using some agressive assumptions about the quality of construction and condition. Going strictly by the numbers and when including the driveway, walks, landscaping, porch and some landscaping/fencing for a small yardlet to the rear, the cost new on this unit would be somewhere around $225k at the most, probably a bit less if I backed off on the quality.
However this unit is now 20 years old, so it isn’t new. Using a depreciation table and accounting for a reasonable remaining economic life of the structure it ends up coming down below $200k.
This doesn’t include the value of the site or the common elements in the project, which at the least apparently include a pool and most likely a small clubhouse or rec room. There are apparently 54 units in the project so the pro-rata cost of those improvements wouldn’t amount to more than about $5,000/unit, which would still put our costs for this unit at about $200k, not counting site value.
Raw land value could be in the $65k/unit range and having entitlements and approvals makes it worth quite a bit more, but some of those costs would go to the construction itself, so a $300k selling price could reflect the current value by cost based on current market conditions.
Of course, those costs would include a 20% developer incentive, which is surely higher than the market would bear right at the moment, and it also includes hard costs that are only now coming off peak pricing. By the time these developers, subcontractors and suppliers get a little hungry those costs could all come down by 15% and everyone would still be making a buck. The land value could easily come down by more than half in a depressed market.
I remember appraising existing 1980s apartment properties in the north county areas back in the mid-1990s at $40,000/unit inclusive of the land and improvements.
I think this unit could end up below $200k in an undervalued market, which would put it at a gross rent multiplier of ~140.00 if based on a market rent of $1400/month. Actually, at a $1400 monthly rent a $200k price would still be a little high. A 125 GRM would only result in a value indicator of $175,000. At $175k it would be just under 50% of the peak pricing for this puppy, which would put it back into line for the long term pricing trend.
Participant“JJ, my overvaluation is based on economic fundamentals not on comps. It’s based on the trendline for the last 20 yrs. It’s based on the fact that there are absolutely no supporting factors to support the 120%+ price appreciation for the region in the last 6-7 yrs. And last but not least, it is based on the fact that carrying costs for a mortgage are approximately twice as much as renting the equivalent property ;-)”
That’s an example of “what should be” type of thinking, not “what is”. Based on the economic fundamentals, I agree with you that the pricing structure for the entire region is not supported or sustainable. However, within the context of the sales activity that is actually occurring, the price for this particular property may be a very reasonable starting point. For all I know, the list price might even be representative of the current market value of the property. Or not.
My point is that while we may be waiting for “what should be”, by definition what should be….isn’t.
ParticipantThat’s easy. For the most part, the commercial and industrial markets lagged being the residential markets when entering into the price appreciation cycle, and they are lagging exiting it, too.
People were watching their homes double and triple in value and were wondering why their commercial properties weren’t doing the same. Over time, many of the commercial market segments have become just as overpriced relative to their rents as the residential markets as a result of those buyers letting their little head do all the thinking.
The difference between the two markets is that no matter what, a residential property does provide a basic necessity of shelter. Commercial properties are all about profitability, so ultimately these prices absolutely will adjust to reflect the realities of the rental markets.
There was a big article in the Union-Trib the other day about spec builders in the office markets. There was a reference to sale prices in the $500/SqFt range and in the same breath a comment about tenant opposition to rents in excess of $3.00/SqFt. If you run the numbers, after taking out the taxes and other expenses, a sales with those numbers wouldn’t even come close to debt servicing their mortgages even if they were completely occupied, which none of them are. These investors are apparently betting on continued increases in pricing and/or increases in rents; and there’s really no reason to think that either of those will occur. A company has options about where they need to be based, more so than a homeowner.
So yeah, some of these commercial buyers have become just as dumb about their commercial properties as they were with their homes. And yeah, some of these commercial markets are destined for the same types of price corrections.
ParticipantConsidering the proximity to the beach areas and there are some blue water views in the neighborhood I wouldn’t say the 2006 sale price was necessarily out of line. As a listing price, the $755k isn’t a bad point to start from. Interior paint and carpet are relatively inexpensive to complete, so the $5k isn’t far off, either.
For reference, this area is somewhat comparable to the area west of I-5 and east of Coast Highway in Encinitas, and I’m sure you’d find similar pricing there. Over the long term, south OC has always sold at slightly higher prices than northern SD county because of the better proximity to major employment centers.
ParticipantJapan’s national bank brought their interest rate down to zero and it didn’t reverse their downswing. The only thing that reversed it was the price adjustment to wages and rents.
I imagine Bernake recognizes that.
ParticipantOkay, then I also apologize for the sponge comment.
One other thing of note here is that Juice already has 3 kids. That’s a bit different than having 2 kids, it’s a LOT different than having only 1 kid, and it’s another planet away from having no kids. Strangely enough, I think I was 29 when my wife had our 3rd child, so that makes about 5 parallels between his situation and mine way back when.
By the time I got to 3 kids my own personal goals became very secondary to my responsibilities as a parent. A kid isn’t like some video game that I could just pull off the shelf when I had time to play with it. They are a huge responsibility and I felt I had to work around their needs to some extent, not work them around my needs.
That didn’t stop me from pursuing a career change but it did influence the direction I went as well as the means I used to get there. True story.
ParticipantProbably a better way for me to have phrased that would go like this:
In appraiser jargon, a “comparable sale” would be one that could be considered to be among the most proximate, recent, and similar properties that would also fit the definition of a Market Value sale. A “comp” would be one of the sales that an appraiser would present in their appraisal for direct comparison purposes.
REO/Short Sale transactions could fit all the other criteria, but if they didn’t also fit the definition of a MV sale then they wouldn’t normally be considered as “comps” the way an appraiser uses that term. The exception to that being if there were enough of them to establish their own trends and drive the market pricing.
By the way, this happened during the last downturn. I remember doing appraisals wherein the majority of closed sales involved foreclosures and to a lesser degree, short sales. And you better believe that the sales that weren’t REOs still reflected the same pricing trends because these sellers were all competing for a limited number of buyers.
Now just because an appraiser might not use a sale as a direct comparable doesn’t make that sale totally irrelevant to the appraisal. Appraisers are supposed to research and comment on the market trends, any apparent discounting or sales concessions commonly being offered and the marketing times that are necessary to produce these transactions at these prices.
Just as an example, if I write up an appraisal report on a house I might only present 4 or 5 closed and/or pending sales in the report to support my opinion of value. However, I will also generally have researched 20+ sales for that one assignment, not to mention the continuous and cumulative referencing of the trends that occurs as a result of doing this type of analysis on a daily basis.
By the time I get done with an appraisal my value conclusions will be based on all that information, not just the few sales I present as the most comparable.
Having said all that, I would be remiss to not acknowledge that there are some appraisers who approach an appraisal strictly in terms of how much they can justify on it without getting caught. These individuals probably would completely ignore the “low sales” altogether. However, that attitude does not represent professional appraisal practice and I don’t consider those idiots to be among my peers. Obviously I will not defend such laziness and misconduct.
ParticipantBoston,
Your “safe choice” comment was a nice shot.
Of course, I’m confident that Juice has already done everything he needs to do in this lifetime to prove his manhood. In my opinion someone like you is in no position question or comment on his ballsiness.
Juice,
Education is the best investment you can possibly make, PROVIDED you have some passion for where you’ll end up. Lots of people go to school for one thing only to do another because the job they were chasing turned out not to be their thing.Pursuing an education primarily for the money is cool if that’s what you’re about. Boston sounds pretty happy about his choices other than the fact that he’s hanging out on an SD-centric blog and reminiscing about being a boogie-boarder (surfers usually refer to them as speedbumps – but that’s another topic altogether).
You have been speaking in terms of money so it’s clear that’s on your list, but I’m not getting the vibe from you that the big paycheck will overcome all. Were that the case you’d stay at your current job that already pays more than the one you’re considering as well as what a majority of attorneys here in town make. I’m sure your current job has it’s own trajectory that includes salary and promotional increases somewhere down the line.
It’s good that you’re trying to take the longer view, ’cause getting the job only marks a beginning, not an end. Maybe your decision process will save you from making a decision that you’ll regret by the time you turn 40. Whichever way you go I wish you good fortune.
ParticipantAn appraiser is required to research the recent sales history on the comparable data they’re using and to analyze their market. An appraisal is not supposed to be based on the 3 most favorable or least favorable sales data in lieu of the predominant trends.
If a seller is a bank or management company this information is readily available to the appraisers and they are supposed to recognize it when they see it.
Now the answer to the second part of your question is a little less cut-n-dry. If sales in a project include short sales or forclosures they would not normally be considered comparables because the terms of those sales do not fit the definition of Market Value upon which those appraisals are based. The reason for that is because the definition of MV used for mortgage lending includes an assumption that the sales price is not affected by “undue stimulus”. Forced sales by definition include that “undue stimulus”, whether the seller is a bank or a desperate homeowner or a divorcing couple or whatever.
Having said all that, if enough properties are selling with those types of motivations it can no longer be characterized as being atypical. After a certain point, a savvy buyer recognizes that if they’re patient another foreclosure or short sale will come along shortly, so based on the principle of substitution they have no incentive to pay more. Thus, in a condo project that has a lot of NODs in the pipeline and already has several closed foreclosure sales, those prices will set the trend for all the other units that might become available whether their sellers are banks or not.
So the short answer is: “Yes, REOs can (and do) drive the market if/when there are enough of them.”
ParticipantI completely agree that role models are important to kids and that how a person chooses to live does set an example for their kids. However it does depend on exactly what a person’s definition of “great things” includes. That’s something that will vary by individual.
My dad worked his entire career in the executive jobs circle that you’re so fond of. Having seen it up close for the first 20 years of my life, I ended up choosing a different way and I’ve never once regretted that choice. For me, great things means something different than it did to him when he was my age back in the 1980s.
Different strokes. My initial job choice was also that of a commissioned officer in the military. Based on my experiences I daresay that even today someone starting out that way probably still has somewhat different priorities and different requirements than someone who started out on the corporate path. Fortunately, our world needs both kinds of people.
ParticipantThe farther along in the development process a property is, the more money that’s been invested in it. After a certain point, a developer reaches the point of no return. They and their lenders have no choice but to follow through and hope the market recovers in the interim. It bears repeating that there are still a lot of developer-affiliated economists who are toeing the NAR line that the worst is behind us. A developer who’s listening to their economist might truly believe this downturn is over and we’re headed for better days.
Still, for every project that’s still in motion there are a couple others where the developers have already forfeited those land options that they could walk away from, and a number of other projects that were going to be built that are now on hold.
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