[VanMorrisonFan]

What is the typical sales price in this development? If the developer absorbs the Mello-Roos Fees of $150,000, what does that represent as a percent of the purchase price of the home? Just curious.

[VanMorrisonFan]

Properties are generally taxed at their cost basis, unless the cost of the property was artificially low, as it might be in a transfer between related entities, a foreclosure sale, or an auction.

Let’s say you buy vacant land for $500,000 and subdivide it. If there are significant costs in subdividing the land (i.e., putting in streets, utility lines, light poles, etc.) then those costs get added to the sale price of the land to determine the new assessed value.

Now let’s say you build five houses, and the cost is, say, $1,000,000. The tax basis of the property is the original purchase price ($500k), plus the cost of subdividing the land, plus the construction cost of the homes.

Assessors typically base the construction costs off of the information that the developer used when applying for his building permit, but they aren’t required to do this.

Sometimes assessment lags the development process, especially in a booming market. Assessors always complain that they don’t have the staff needed to stay current on all the development activity.

[VanMorrisonFan]

The appraiser probably screwed up, but the home buyers would have been equally unhappy if the appraiser had come in with a lower value.

I still can’t believe what people paid…$800,000? There was a picture of one of the homes in the O.C. Register and the house just didn’t look like an $800,000 home to me. These are small homes on very small lots. If you live here, you know what your neighbor has for breakfast!

[VanMorrisonFan]

Bike Riding…

Maybe people will ride their bikes more. I am not saying that will solve the whole problem, but it is one step that could, believe it or not, help in some important ways. Many trips that people take today in their cars are relatively shot (5 miles or less from home) and they are driving alone in their cars. You can go five miles in a bike pretty quickly. Even a trip of 10-15 miles in heavy traffic is pretty slow in a car, simply because there are so many cars on the road.

In Holland about 25% of people use their bikes for regular commuting, and there are bike trails EVERYWHERE in the country.

More bike riding would reduce oil use, pollution, and traffic congestion, aside from having positive benefits for the health of individuals. Obesity is a growing problem (pardon the pun) especially among the young.

I’m amazed that over the last 20 years or so our average fuel economy has declined. This isn’t a plot on the part of oil companies or car companies. It’s what people want.

[VanMorrisonFan]

Yes, this does happen, especially on foreclosed properties.

Typical scenario is that a lender forecloses on a property and wants to dump the property ASAP. They don’t like being in the real estate ownership/management business. They want to sell. A smart buyer makes a low-ball offer, but the lender needs an appraisal in order to do the sale. The appraiser comes up with “market” value, which may be higher than the low-ball offer. Here the lender pressures the appraiser to come in with a LOWER value so the sale can go through with no questions asked.

I once appraised a mobile home park that had some big problems, but was in a good area with very few housing options. There were successful mobile home parks in the area that were fully occupied. There was a lot of value in this troubled mobile home park, and my valuation reflected it. The lender wanted me to drop my value so he could do a quick sale. I said “No.”

[VanMorrisonFan]

Appraisal is partly art, partly science. The tricky part is appraising in a very slow market, where there are few (or maybe no) good “current” comps.

Your friend’s appraiser who first assigned a value of $405k relied on some old comps – but maybe there weren’t any current ones. The fact that a buyer was willing to offer that much suggests that this value was within reason. That it did not sell is due to bickering over closing costs – not necessarily a function of value. Perhaps the buyer wasn’t really wanting to buy at $405k and wanted some way to either get a lower price or get out of the purchase.

The fact that eight months passed between the failed sale at $405k and the sale at $345k indicates a strong decline. Not knowing where the condo is it’s impossible to say what happened. Did other people put their condos on the market too, with a glut forcing down prices, or did your friend price her condo below market just to get a quick sale?

On the second go-around the appraiser probably used the sales price as market value because there were few good sales.

Appraisers are under enormous pressure to “make” the number needed so a sale can close. It’s illegal, but there are many cases where lenders pressure appraisers – especially in “up” markets, but sometimes in “down” markets as well (where there are few sales and appraisers are competing for the few appraisal assignments). Lenders will hint or suggest that they want “cooperative” or “helpful” appraisers, and everyone knows what that means. I’ve been pressure on many occasions. Where a lender/client can point to sales that I may not have known about I am more than willing to reconsider my conclusions. However, at times a lender or client will simply yell, “You’re stupid…you don’t know what you’re doing.” I will always politely ask if there are any truly comparable sales that I have overlooked, and I usually get silence followed by a hang-up.

[VanMorrisonFan]

Cooprider14…read the whole article! The article stated that “bubble markets” (including Southern California) were poised for a greater fall.

The mistake is thinking that we have one real estate market in the U.S. We don’t. We have a whole bunch of them. The headline of the article doesn’t really apply to So. Cal.

[VanMorrisonFan]

Best time to buy would probably be after Christmas…say, the last day in January.

[VanMorrisonFan]

What others have said in passing I will say more emphatically. Don’t confuse large numbers of people at a mall with large retail sales, especially of the high ticket variety.

I’m not a big spender, but I enjoy going to the malls. I usually look around, buy a plain cup of coffee and maybe a newspaper, sit and read, and then go home.

Next time you are at Fashion Valley try to notice how many people are actually buying big ticket items. I’ll bet not that many.

[VanMorrisonFan]

PerryChase said:

“I don’t beleive that a 50% drop from the peak in real estate prices necessarily means a deep protracted recession in the general economy.”

I think it does, actually. Real estate doesn’t exist all by its lonesome. It interacts with the broader economy. In some ways it influences the economy, and in other ways it is influenced by the economy.

A 50% drop in value wouldn’t happen all by itself…it would have an effect on the broader economy and it would also be caused by things happening in the broader economy. For example, if interest rates shot up (say, a 30-year mortgage going to 10%) there would be a huge drop in real estate values, but there would be other consequences as well. A lot of jobs in lending and finance would be lost. Business capital spending, which employs a lot of people, would be decimated. Interest-sensitive stocks would be hurt enormously. Millions of people would be “underwater” on their home loans, potentially defaulting, etc.

Think of the last downturn we had in So Cal. Many people (myself included) lost their jobs and struggled to pay the bills.

I am hoping for some sanity in the market, but a 50% drop would be way too harmful for the economy.

[VanMorrisonFan]

I’ve worked in the field of commercial real estate for about 20 years and I don’t think that there is a bubble in commercial real estate, although there is cause for concern.

In general, in this cycle, lenders have been more cautious about construction lending (with the exception of condos, which aren’t considered commercial real estate). Supply/demand balance for office, retail, and industrial space is much better than it is in the residential sector. I can’t think of a major market with a huge inventory of vacant office, retail, or industrial space.

The bubble in residential real estate will probably have some effect in commercial real estate as mortgage companies, real estate agents, title companies, etc., downsize, but I don’t think the effect will be large.

In general I think that commercial real estate buying tends to be less emotional than single family buying. There are a lot more people involved in a decision to buy a 50-story high rise office building, and at least a few of these people are usually thinking straight – or they have been in this cycle.

I do see cause for concern. Yields on commercial real estate have been driven down to very low levels, precisely because there are so many people lined-up to buy that 50-story high rise. If interest rates rise a great deal, and the economy slows, there will be a lot of investors “upside down” on their commercial real estate investments.

If you wanted to make money in commercial real estate you may have missed your chance. The major REIT funds have registered impressive gains over the last 3-5 years. Going forward it’s unlikely that they will do as well. Vanguard has a REIT fund, and it’s done pretty well over the recent past.

[VanMorrisonFan]

Shane…

I am thinking of driving down from Pasadena…if anyone can give specifics (exact time…exact place)…

[email protected]

[VanMorrisonFan]

Orange County…

Orange County is considered only very slightly less risky than San Diego, and Los Angeles is only slightly less risky than Orange County. Look at the regional risk of all three counties together!

In Orange County “conventional wisdom” has been that the market did not as crazy in the OC as it did in San Diego, so it would not fall as far as the San Diego market.

[VanMorrisonFan]

I think a lot of the speeding is due to the fact that rush hour has gotten worse (it lasts longer and the speeds are slower) so when the traffic is relatively clear there is a tendency to rush even more.

I am amazed at how many people tail-gate, and I’ve never heard of anyone getting a ticket for it. There was the “rule of thumb” in driver training that you should allow one car length for every 10 mph that traffic is moving. At, say, 80 miles per hour, that is a minimum of EIGHT car lengths you should allow (more in rainy weather). I see cars right behind the car in front of them…right behind. Yes, sometimes the driver “in front” is driving a little too slowly, but still…

The other thing that is interesting to do is to notice the expressions on people’s faces. So many people seem to be saying (through their facial expressions), “I don’t think I can take another day of this” or something like that.

[VanMorrisonFan]

I know nothing about the building…but at $240,000, with 20% down and a 6.5% fixed 30-year mortgage, I get a pmt. of $1,213.57/mo. Property taxes of $2,640/year (1.1% of sales price) are $220/mo. HOA dues are maybe $250 mo? That is about $1,683.57/mo. What would this unit rent for?

This looks to be a classic “must sell” situation. Any idea what the last actual sale was for this model in this complex?

Seller has already taken 33% off the price – assuming he would sell at $240K.

[Author]

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