[El Jefe]

Update.
Deal is off the table.
An unsolicited offer has been made at 1.5 mill.
Rumor got around the neighborhood that the family was looking to sell. Even though they are family friends, $400,000 is a big difference.
We will see if it closes.

If it doesn’t close, any advice on trying to attain that 1.1 mill purchase price.
As previously stated I thought the house would sell at 1.4.

I guess letting them know my offer stands is the only option.

My advice is to keep in contact. I see deals like this fall through all the time for many reasons.

If it truly is an unsolicited, site-unseen peek over the fence offer, the buyer will likely have 3-400K worth of adjustments to the offer before all the i’s are dotted and the t’s crossed. 1.1-1.2 may actually be a realistic offer for an older unimproved sunset cliffs house in this market. Cindy Wing had an REO listing 1 block of Sunset Cliffs Drive about 2 blocks from the end for ~1.25(IIRC) last time I talked to her… and she said it’s not generating much traffic.

If you really like the area keep looking. I do not agree that these houses do not come up for sale. I live in Point Loma and have bought/sold several houses here at great bargains. PL is an older community and the probate/trustee sale is your friend. At least half of this peninsula has one foot in the grave right now.

Oh yeah… with regard to your original post about unobstructed views, the only onobstructed view is one that you own. So if your property does not back right up to Sunset Cliffs Blvd, earmark some $$ and try like hell to get the max height deed restrictions necessary to maintain you view corridor if you buy at the bottom of the hill on the flatlands.

[El Jefe]

I frequently will add a clause to my contracts similar to the “72 hour clause” giving me the right to continue to market the property not only until all contingencies are removed, but until all earnest money has been released from escrow. IMHO, earnest money is a bunch of BS as the buyer can delay signing the release almost indefinately, and the agents will come up with some whoppers of excuses as to why it hasn’t been done. You say you had a bidding war on your hands, you are in a position of power here. Send 1 notice to perform, if you don’t get results in a day or two, ammend the contract to add a 72 hour clause requiring the buyer to drop contingencies and release all earnest money, and then start fielding offers. If the buyers agent is hungry they will march the buyer down to the escrow office and put the pen in their hand.

[El Jefe]

I frequently will add a clause to my contracts similar to the “72 hour clause” giving me the right to continue to market the property not only until all contingencies are removed, but until all earnest money has been released from escrow. IMHO, earnest money is a bunch of BS as the buyer can delay signing the release almost indefinately, and the agents will come up with some whoppers of excuses as to why it hasn’t been done. You say you had a bidding war on your hands, you are in a position of power here. Send 1 notice to perform, if you don’t get results in a day or two, ammend the contract to add a 72 hour clause requiring the buyer to drop contingencies and release all earnest money, and then start fielding offers. If the buyers agent is hungry they will march the buyer down to the escrow office and put the pen in their hand.

[El Jefe]

While I have used many of the online/print resources in the past… by far the best tool I have found for scouting rentals is my mountain bike. Ride around, be friendly, stop to talk to people and get the inside scoop. Talk to the people out walking their dogs… they walk those streets every day and know exactly what is for sale/rent. Talk to the little old lady, she is the one who has a couple of rental properties in the area, or knows someone who does. In my experience, the house you are looking for has an 8″x12″ generic red for-rent sign stapled to the garage door with nothing but a phone number on it. Those for me have always been the best places, the best landlords, and the best prices.

As as a bonus… a mountain bike in the areas you are looking will get you in pretty good shape.

[El Jefe]

While I have used many of the online/print resources in the past… by far the best tool I have found for scouting rentals is my mountain bike. Ride around, be friendly, stop to talk to people and get the inside scoop. Talk to the people out walking their dogs… they walk those streets every day and know exactly what is for sale/rent. Talk to the little old lady, she is the one who has a couple of rental properties in the area, or knows someone who does. In my experience, the house you are looking for has an 8″x12″ generic red for-rent sign stapled to the garage door with nothing but a phone number on it. Those for me have always been the best places, the best landlords, and the best prices.

As as a bonus… a mountain bike in the areas you are looking will get you in pretty good shape.

[El Jefe]

The issue that I have had and you may run into is when doing anything that does not fit into the cities comfort zone… ie studs on 16″ centers/concrete block/structural steel… they will want to see ALL of your engineering to give them a warm fuzzy feeling that what you are building will still be standing in 10 years. Typically that means that your structural engineer is going to have to spend a day down at the building dept, assumed guilty until he can prove otherwise, reviewing all his calcs and justifying any assumptions. That can be big $$$ depending on how eco friendly you plan on getting. All the title 24 stuff is also stacked against you if you are using any materials that do not have well established energy insulating properties.

[El Jefe]

Long live Elm Avenue…

[El Jefe]

HA… I wouldn’t even touch Mira Mesa with YOUR 20 foot pole!

[El Jefe]

Northpark was one of those areas that had a huge turnover of houses during 2004-2006, many ex-rental units cashing out and many other longtime residents moving up. Most of the high priced listings in the NP/CH/Kensington area are on the market for what they sold/refi’d for in 05 + 6% realtor commission + closing costs. It is almost uncanny how you can take the asking price, add 6% and round up to the nearest 10K mark to come to the AP. Just people trying to get out without losing their shirts.

[El Jefe]

Whatever the builders will tell you, the law in California has the builders on the hook for 10 years. 10 yrs from when the COO is issued is the statute of limitations on construction defects, on top of any warranty the builder offers. It’s not going to likely help you with niggling little things if the house is out of the builders “warranty period”, but will definitely help you in a situation where there are major issues with a house.

It reminds me of a case many years back where a builder had to buy back an entire phase because the concrete sub didn’t use enough steel in the foundations.

So basically… minor issues that would not fall into the defect category will not be covered, but things like leaky roofs, cracked slabs, compacting soil etc will usually be taken care of for a full 10 years because the builder knows that you can sue and will most likely win.

[El Jefe]

While the value of land in a land+residence situation has gone up recently, I don’t think that there quite the crazy price disparity, ie bubble pricing, on the values of existing bare lots as there has been in other properties. The value of 5000sq/ft of dirt, and the value of 5000sq/ft of dirt with a 600sq/ft falling down shack will never be the same. The lot with the shack will always fetch a large premium compared to the lot, and the value of the dirt under the shack will be far more valuable than the corresponding bare lot dirt because of the entitlement value of a house vs dirt. The only time buying land really makes sense is if you were going to knock down the house and start from scratch anyway.

If you are looking to build… there are quite a few factors that make buying a lot and building a house different from buying a house.

The first thing that you will run into is that it is very hard to get a bank to finance land with the intent of building a home. Most want to see a minimum investment of 25% out of your pocket before they will even offer you a cup of coffee and a seat at the table. Some want closer to 40% ltv on a land purchase. This will be your first stumbling block.

Once you have the lot, you need to secure a construction loan. In order to get a construction loan your bank will want to see 1) plans… you need get the plans drawn, various engineering done, plans submitted, approved and ready to permit. 2) A bid and schedule from a contractor with a portfolio of projects that gives the bank a warm fuzzy feeling about the contractor being able to do the job. And 3) a full financial prospectus showing that the value of the finished house will be worth at least as much as the outstanding debt on the Land + Permitting Fees + Building Costs + 10% reserve(shit happens fund) + 10% loan fees. And then if all goes well and things finish on time, your bank will roll your outstanding balance into permanent financing when you get your coe.

Add to this the 50-100K you spent on Arch/Eng/Plan Approval fees and you can see that building a house is not as easy as many people think it is.

Many of these things can be done cheaply if you know what you are doing, and can get the deals for the out of pocket expenses, but the bottom line is that the price of the land + all the rest of the crap listed above needs to result in a house that can appraise realistically and get financing in the area where it is built. That means that it can’t cost much more than what the neighbors house is worth. This severely handicaps the value of a raw lot. In most projects, the purchase of the land is one of the smallest expenses in a buy a lot/build a house project like this.

[El Jefe]

Realistically, I cannot see prices falling the 40-50% that everyone seems to hope for. The tightening of credit will exclude some at the low end, and make borrowing more difficult for everyone, but the largest factor sustaining real estate prices is the ridiculously low interest rates. All in all, the amount people spend each month on housing hasn’t increased in proportion to the increase in prices. People monthly housing expenditure, while certainly higher than 20 yrs ago, is not THAT much higher after inflation is factored in.

We all talk about how absurd it is to consider spending 8-10x your annual gross on a home, but the true number that directly affects peoples bottom line is how much that home is costing per month. As an example lets assume a monthly house payment of $3500 in 2005.

Monthly cost:
2005 – $3500
1985 – $2000 (inflation adjusted from $3500 2005 dollars)

Buying power:
2005 ($3500/mo 6%) – $600,000
1985 ($2000/mo 14%) – $165,000

165K in 1985 and 600K in 2005… both houses for ~$3500/mo

Therein lies the problem… the median house owner spends roughly the same amount per month now as they did in the mid 80’s. I think that interest rates really have to start increasing to truly pop the bubble. Only then will house prices begin really tumbling, but so will the purchasing power of the mortgage dollar, so you will end up spending the same $3500/mo on a $350K house at 12% interest.

[El Jefe]

I’m not sure that the comparison is really valid as the cause of the downturn back then was much different than it is now. Back in 1990 the downturn was caused by the national recession, that resulted in huge losses in the high end job market in So-Cal. Lose the high end jobs first and the high end of the market collapses first. Keep in mind that these companies continued to operate, they were just firing senior management/engineers and replacing with new grads or not at all, the low end jobs were not affected nearly as badly, which kept the low end of the market alive for much longer.

This time around the problems are completely opposite, starting at the bottom, not the top. Now the problem is the ridiculous lending policies that enabled people that should never been able to borrow money at all to get free money in the form of 100% no doc financing. Now that these loans are going in the crapper, it takes low end housing with it immediately, following shortly after it will effect the broader economy as the investors that financed this boom lose billions, the shaky economy which will trickle back up the chain to the high end jobs as companies baton the hatches in the economic instability, and finally back to high end properties as the top 1% start worrying about their jobs.

[El Jefe]

From what you describe, you enjoy the perks of an ‘urban’ lifestyle. I say urban in the sense that you do not get in a car every time you need a gallon of milk, a cup of sugar, want to grab a sandwich or a beer. I grew up in north county and can tell you that there are very few places where you would find a similar lifestyle. Del Mar, Encinitas, Leucadia, Carlsbad and Oceanside. The catch is that you MUST be west of 5 or you way as well be living in Mira Mesa or Poway. I too prize the ability of parking my car on Friday and not getting back into it until Monday morning, but I think that you will have a hard time finding anything in Encinitas for less money than you would in PB. PB has always been known as one of the best values in beach front real estate in SD after OB. Unless you want to load your bikes into your truck and drive them down to the beach.

As for the stability of the PB real estate market, I respectfully disagree with anyone who thinks that the market will hold values through the coming cycle. If anything, I feel the PB market will get hit proportionally harder than some of the other areas due to the demographic of purchasers that the PB market attracted… 1st time buyers with that were previously renting in the area that want to be able to get their kayak to the bay, their surfboard to the beach and their Schwinn cruiser to the Liars Club without getting in a car. I watched these people, and people just like them rush in and buy these ex-rental POS houses for top dollar under the “I’ll be priced out forever” clause when their landlord stuck the for sale sign in the front yard, and many/most got in WAY over their heads.

The same happened up in North Park/Kensington/Normal Heights. That demographic was the young hipster with his BSA or old moto guzzi hanging out at Lancers/Live Wire/Red Fox Room, Alibi etc. The disaster has already started up there because of the relative stability of the purchasers.

Pacific Beach will have its day. Now if you are holding your breath for a 50 cents on the dollar deal up on Mt. Soledad, or over by Tourmaline you may be waiting a while, but if you want your beach cottage on beryl there will be screaming deals to be had… just like the last time… and the time before that… and the time before that…

[El Jefe]

Just keep in mind that the reassessment does not change your original cost basis. It is a temporary valuation for tax purposes only. As soon as values really start to increase again and recover, your taxes will shoot right back to where they would have been assuming they had gone up 2%/yr from when you originally purchased, not 2% from last year, far exceeding the prop-13 cap. A lot of people don’t realize this, and when the tax man “recaptures” those lost taxes after many years of price stagnation, they are hit with a property tax hike of the likes of a neg-am teaser readjusting.

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