The house across the street from me finally sold, and I respresented the buyers. As so often happens in our market, the house had been for sale forever, was listed by four different Realtors, and essentially chased the market downward in price.
When my neighbors listed it a year ago at $765K, I thought was a bit high, though a reasonable starting point (remember, back then people were still debating the existence of the bubble). They soon reduced to $735K, which I thought was a pretty good price compared to what else was available in Somersett, but still no action.
The house sat, and I rarely saw anybody over there for showings. Each time they reduced: $729K, $709K, $699K… it seriously seemed like a competitive price for the market. (And I am not just saying that because I live across the street. I was looking at comps.) I showed the house to several buyers, but either they weren’t ready to act, or it wasn’t the house for them. The buyer pool had shrunk.
Now keep in mind that this is a spacious, high-end production home with many
thousands in interior upgrades, beautifully landscaped, with panoramic
Peavine views. It’s a beautiful house. So when the price hit $685K, it was seriously in the realm of good value. (But of course we offered less.) The final price? $662,500.
About a week after we went into contract, the identical model for sale down the street got real and came down $100K from $799K. At $699K on the golf course with pond views, this home too is now looking like a pretty good value.
Yes, I am personally responsible for bringing down values in my own neighborhood. Do I care? Sure, it’s a bummer to see your own values drop and know that you’ll need to stay put for several years in hopes that they’ll come back. (Good thing I like Somersett.)
But did I hesitate to offer less on behalf of my clients? No. I want them to get the best deal possible. That’s my job. The market is what it is, and it’s going to do what it’s going to do regardless of how I feel about it. So I may as well adapt.
Some people get really worked up about their own house values. Another client was telling me a story about a successful local agent at an HOA meeting who vehemently stood up to defend her neighborhood’s values when someone questioned them. Why would she bother?
In my own experience, before I got into the business, my husband and I were moving to a new city. We found our agent online, a top producer, and had been working with her for a while. We had already purchased a vacant lot through her and needed a house.
After looking all over town, we settled on one and decided to offer less than asking price. Why? The market was slow, and googling the owner revealed that he was a spec builder sitting on five different properties, including this one which was his personal residence, and he needed to move something so that he could finish building his dream house up in the hills. So we figured this guy would be motivated to deal.
The house was listed at $369K. We wanted to offer $300K for all the reasons above. The agent was taken aback. We just don’t do that around here, that’s a really low offer, I’m not sure I can get this through… was pretty much the response, which was odd given that we had offered quite a bit less on the lot as well, and she hadn’t blinked an eye on that one.
But the lot wasn’t in her own personal neighborhood. The house was. We sensed protectionism. Nevertheless, she did her job, and we got the house for $325K.
I have a hard time understanding people who defend their home values like it’s their God-given right to have a house worth (fill-in-the-blank-with-outrageous-number-here). Sure, we all go through some period of denial when our neighborhood numbers fall, but what’s the point of arguing about it? The numbers are the numbers. It’s better to accept the truth for what it is and deal.
My own truth is that my home is maybe worth what we paid for it. And, incidentally, we locked that price in Spring 2003. The money I’m putting into my backyard landscape makes no sense financially, and if I had to sell tomorrow, after expenses, we would be losing. C’est la vie.
My neighbors who sold are probably in the same boat, but they are happy to be out and in their newly remodeled next home. (And I’m sure they’re glad to be rid of those dual mortgage payments.) My neighbors who remain hopefully won’t hate me for bringing down the neighborhood (though I may not get invited to the summer block party). But at least I can count on one set of supporters, my nice, new neighbors across the street who got a great deal on a lovely home where they plan to spend many happy years.
You know, there are three other homes for sale on my block. Given this incident, I could probably use a few more supporters…
Won’t you be my neighbor?
NAS
“I’ve always wanted to have a neighbor just like you.”
Impressed you are willing to share information-both good & not so good. Having looked at the home you are referencing, agree with everything you write except the price, but what the heck, if the new owners are happy, what does it matter?
We plan on returning to Somersett in a few months to seriously look with our checkbook in hand. Call me crazy, but I believe home prices will continue to slide a bit for a number of reasons.
If your current neighbors seem irked about you doing business, oh well. When I get settled, the welcome mat is out for a BBQ.
Guy Johnson
Diane,
Great post. And a job well done on your clients behalf. I have only one point of contention. You mentioned a couple times that you are personally responsible for bringing down values in your neighborhood. I don’t believe that to be the case. And, with all due respect, I suspect that you really don’t believe that to be the case either. We all know that price is determined by what the market will bear. …not by what agent X declares price to be. You, yourself, state in your post, “The market is what it is, and it’s going to do what it’s going to do regardless of how I feel about it.” Absolutely, true.
As real estate agents, you and I (and many others in our industry) simple facilitate pricing. Granted, some of us perform this task more efficiently than others. However, this market efficiency works in both down and up markets. Those same neighbors who may decry you for “bringing down values” will thank you when the market turns around, and you, in your characteristic process, efficiently obtain top-dollar for their homes.
Lindie
Don’t all the bubblesitters just love the smell of falling comps?
But I thought the charts and graphs prepared by your broker indicated that the market has hit bottom. I thought that the “economist” from the title company you quoted a few weeks ago, as well as Leslie Appleton-Young, the “economist” from CAR, both distinctly said that the Reno market is on the rebound because 1)the economy is strong here, 2) interest rates are going up, and 3) the drop is over.
Perhaps you could offer then your explanation of why real sellers, like your former neighbors, continue to have to lower their price in order to get an offer. Guy has just told us that he recommends that serious sellers price BELOW the most recent sales to get an offer. How can this be the case given your broker’s charts and graphs and the wisdom of these unbiased “economists’?
Reno Ignoramus
Diane, you say “my home is maybe worth what we paid for it. And…we locked that price in Spring 2003”.
Are you saying that Somersett values are back to what they were in Spring, 2003?
DNN
As Diane’s new neighbors, we did not mean to create such a fuss.
I found this site last year through browsing one of many housing bubble blogs and sent the link to my wife who began communicating with Diane. They hit it off talking about HGTV and other things. In three subsequent trips to Reno from the Las Vegas area, we physically saw over three dozen houses and seriously reviewed the specs on 100 plus more. We had made offers on two others but we could not reach a deal, despite what we thought were fair market-based bids.
To find a home across the street from Diane was accidental. We were looking in the neighborhood and her street came up on the lists of offerings. While she may think she brought down values in her neighborhood, we do not think so. We think that Guy is correct in noting Diane did not move the market. The market is what it is. We might have helped to move the comps a little further down had we made an offer on a nearby house that Diane showed us that was foreclosed upon. But we did not and stretched a bit to get the house as described by Diane.
A couple of points:
Diane represented us very professionally and did not express the concerns in her most recent blog entry to us. We hope that our purchase will not have a negative long-term effect on any of the neighbors, including Diane & family, but we suspect that Reno may not have hit bottom yet. My models have anticipated another 10 percent decline. But that is just paper and only pertinent if you sell at bottom. We are buying to live here for the foreseeable future
However, I do respect and understand that the sting of a down market is real, even if it is applicable to anticipated and unrealized gains. As a long-time investor, I vividly remember the pains of the 1987 crash and the 2001 tech meltdown. We also suffered through the early 1990s Southern California real estate crash and survived and eventually thrived. Nonetheless, the Humpty Dumpty eggshell feeling is still clear in memory. My sympathies also extend to the sellers, who were very decent in the transaction. They too did not sell at top. But it is an axiom among experienced investors that no one can time the market.
But why invest in Reno property now? Although directly coming from Vegas, we are Californians who have contemplated that it is economically irrational to retire in California. In our many drives across the Mohave Desert, I frequently have recalled Dr. King when hitting the Primm border – “Free at last! Free at last! Great God almighty, Free at last!” The 10 percent state tax burden is a retirement lifestyle choice. Now the MLK effect will shift to Verdi. Reno represents good value and its real estate will not drop off a cliff. It is already down.
As relatively young old farts, depending upon how long we live in our Reno retirement, I contend that the bulk of the new house can be paid for from avoided California income, property and ninny taxes and income generated from reallocating up to $500K more for an equivalent house in California. We just have to stay alive, healthy and active for a good number of years. In this sense, Reno has tremendous promise for the coming wave of retiring baby boomers, many from California.
In the meantime, while we hope to live long and prosper, we will probably have a few BBQs for Diane and the other new neighbors.
Derrick
Reno ignoramous any idea when those “stucco sh*tboxes” will be selling for 175k in spanish springs like you suggested?
to try and answer lindie. its quite simple some sellers are still in denial and think their properties are still worth 2005 levels. that would explain the constant lowering of prices. but as sales suggest thats not the case with everyone or else we wouldnt be seeing an improvement in sales overall. I for 1 do believe the reno market is on the verge of a rebound. thats not to say were going to see double digit appreciation anytime soon considering the sentiment the market now has. As soon as more buyers can realize their homes arent valued at 2005 levels the sooner the recovery will take on a stronger hold.
I wonder why people are always talking about how rediculous some sellers are with their inflated prices, which is completely understandable. but how come there is no discussion about how unrealistic some buyers have become? Is it fair to offer someone 25% below asking price when they have done their job and priced the house accordingly? I think greed goes hand in hand. Its not only the sellers that are being unrealistic but also some buyers are as well. thats just an observation ive noticed by looking at both sides of the debate. Certainly it doesnt hurt to offer 10% below asking and more in certain situations where you are dealing with sellers living in la-la land. But when a house is priced at or below current market prices its insulting to throw an offer out thats 20-25% below asking. In MOST cases these people arent buyers they just want something for nothing. I feel the more buyers that act this way will only result in more properties expiring or being pulled from the market only to wait a year or 2. Im not taking any sides here But there are 2 sides to every argument. Its not only sellers that are being unreasonable.
2sleepy
There is nothing you or I, or my poor friend stuck with a house in Southern California, can do to affect this market. She had to move out of state due to a job transfer 6 months after buying a new house. She has dropped the price of her house 20k every 2 months for the past 10 months she is now upside down on the mortgage by about 110k. She’s making payments of about $3500 a month on a vacant house. If she ever sells it, I don’t think she will feel any guilt over dropping the price of homes in her neighborhood, particularly since she is surrounded by 4 foreclosures.
Move to Reno?
Diane, can you provide the square footage of the house you sold and the size of the lot? It would provide some metrics to today’s market.
Reno Ignoramus
Derrick I believe you have me confused with somebody else. I have NEVER referred to a house as a “stucco sh#tbox” and I never will. I have also never suggested that any houses in Spanish Springs will be selling for $175K. I defy you to identify the date of such a post by me. If you are going to fling your insults around the blog, at least try to keep the objects of your insults straight.
Reno Ignoramus
Diane, my question above was not intended to be rhetorical. Based upon your post, it appears you are saying that MAYBE you could sell your house for what you paid in Spring, 2003.
Do you think Somersett prices are back to Spring, 2003?
Diane Cohn
RI, I have not had time to thoroughly analyze this, but on my own block in Somersett I do believe that we are only slightly above Spring 2003. With Meritage Homes Winter Creek starting in the mid fours, The Vue selling at $160 per square foot, and some of the homes on Morgan Pointe listed in the mid threes, just eyeballing it I would guess that parts of Somersett are approaching 2003 values. Just a guess based on anecdotal evidence…
Reno Ignoramus
Since we are on the subject of falling values in Somersett, the house located at 8405 Fairway Chase Trial has been foreclosed upon and is now owned as REO by Greenpoint Mortgage Co.
This house sold on 11/3/05 for $789,285. Current asking price by the Mortgage Co. is $599,900. If the Mortgage Co. accepts an offer for 90% of asking, that is $540,000. That is a 32% haircut off the 11/05 sale.
$540,000 might be a good price for this house today. But how will it look say, by Christmas of 2008, when there have been 10-12 more foreclosures in Somersett?
My observation of the Somersett market is also that we are back to 2003 pricing. Now tell me again, what is it exactly that suggests that the downward slide is over?
Reno Ignoramus
In the Reno-Sparks MLS there are today 337 SFR listings in the $500K-$600K price range.
17% of them have a pending offer.
That is 5% of listings with an offer in that price segment.
The pendings:listings ratio is the most reliable leading indicator of a housing market. 5:100 is a dismal listings: pendings ratio.
If only half of these 337 sellers are serious about selling, how can prices not decline from here?
Now tell me again, what is it exactly that suggests the downward slide is over?
DNN
RI – Fairway Chase is the house that Diane showed us that truly would have brought down the comps. We did not bid on it as it did not suit our needs.
We did make an offer on another house in Somersett that has been subsequently foreclosed. Even when directly contacting the bank that owned 100% percent of the defaulted notes, the losers could not deal. In our experience, the pain and headaches of dealing with the pre-foreclosure clueless was not worth the potential gain.
The takeaway is that we have become Diane’s neighbors in a nicer house than we were targeting.
My response about the foreclosures to come, which you probably are spot on about, is so what? People have to live somewhere and they should be happy in doing so.
If you want to make a few bucks, I suggest you buy AAPL pre-iPhone, Leopard, and living room domination. Reno real estate may not go anywhere for a while, but if you look at the long-term demographics, we believe the fundamentals are sound.
Enjoy your life. Your assets should not have a 100 percent real estate allocation. Once we are settled, we will have Diane and family over and we will toast to your happiness and prosperity.
Give Somersett a chance. It is not a dump.
Reno Ignoramus
Come on, DNN. Don’t put words in my mouth. I never said Somersett is a dump.
I do suggest that values will continue to fall in Somersett. So the bank-owned house at 8405 Fairway Chase was not for you. Fair enough. But it will be the house for somebody, and it will be sold by the bank at a major haircut from what it sold for in 11/05. So you were not the buyers that drive the comps down by purchasing that house. Somebody else will be. As I have said before, the only way a market declines is through sales.
DNN
RI – we may be saying the same things but are coming at it from different angles. The market is down. The housing bubble was real.
Nonetheless, I had allowed for another 10 percent fall in Reno housing prices. For partially non-economic reasons we bought the house in Somersett. By our purchase, we are taking on the risk that the slope of the decline will flatten out and then eventually trend upward.
The Fed meets at the end of June and in early August. If Mr. Bernanke drops rates at either of those meetings, or even in September, all bets are off. The economy will begin to grow again. Housing will stop the fall or tick upward. We believe we will have our house not at the bottom, but close enough.
What bothers me, as a new buyer, is that you and some others on this blog seem to be rooting the market down. Judging from the headlines, we have already seen a 25 percent drop in prices, maybe more in some areas. I just do not believe we will see as large a drop from the top.
Even so, when compared to California, our new house is a bargain. A comp would be $500K more with $5K extra annual property taxes. We would also still have an avaricious income tax that treats capital gains as ordinary income. So, we took the Somersett deal and look forward to many happy years in Reno.
RI – if you find a very lowly priced foreclosure, maybe you should bid on it yourself. I am sure Diane would like your business.
Reno Ignoramus
DNN:
The last thing this blog needs is a bunch of us pontificating on what the Fed is going to do, and what impact that will have on the price of houses in Reno. Let’s just all agree to stay away from that, ok?
If you are saying that the Reno market has another 10% to fall, and that we are looking at a 35% drop from the top (which was Q3 ’05) I think we may be fairly close in our approximations. I do think, however, the fall is not going to be evenly spread across all neighborhoods in Reno. You say “I had allowed for another 10% fall in Reno housing prices”. Are you saying that you think we still have another 10% to go?
As far as “rooting the market down”, I am just commenting on what I see. I see 8% of the resale listings with an offer. I see 35%-40% of all MLS listings vacant. I see the builders still building and 100s and 100s and 100s of new houses not even listed in the MLS. I see pretty aggressive pricing now by the builders, and I see no way mom and pop resellers can compete.
If you can look at these things and see something positive for the market, I would love to hear. Let’s have an intelligent conversation. I have been posting on this blog since the dasys when I was the only person posting on this blog, and I welcome an intelligent voice. Maybe we can elevate the discourse here from the name calling and insult throwing that has been unfortunately creeping in here.
NAS
RI:
Here Here. I read this site to gather information. Most of the opinions, facts, and objective/subjective observations have been helpful.
And yes, an occasional laugh and eye rolling.
GreenNV
HOW TO KILL YOUR OWN COMP-A TALE OF ROADKILL
Hey, it is early 2005, they were feeling a bit flush and decided to start investing in real estate (ironically, they hail from a state West of here and a town named “Rescue”). 2300 Roanoke in Somersett looks like a slam dunk for a flip, so they sign a sales contract in March for delivery in January 2006. What can go wrong? Growing market and they got 100% financing?
The thought of rolling in dough after the flip gets them giddy, so a month later they sign a sales contract for 1525 Meridian in Sierra Canyon for February 2006 delivery. Actually had to put 10% up on this one.
2300 Roanoke purchased 26 January 2006 for $644,417. Default city, obviously. Taken back by the lender for $541,323 14 May 2007, and listed today for $546,000. (Listing agent notes that everything is done except the backyard – hmmm) That’s about 17% under the sales price less than 18 months ago, and no guarantee it will sell there, but a comp has been established.
OOPS, 1525 Meridian is a month behind Roanake in the foreclosure process, better cut and run. Purchased 23 February 2006 for $624,125 and currently listed at $599,900, or about 4% below purchase price. Oh and yeah, there is a tenant until January 2008! Maybe a bidding war – NOT.
So our friends from Rescue let their own first failure set the comp for their second impending crash and burn. And they are either in denial or simply don’t care, or both. They listed (or relisted) the second property the very day after they lost the first, so they knew the new comp they had created, and didn’t price the listing anywhere near reality. Foreclosure number two next month.
Lessons:
– You can loose serious money extremely quickly in real estate. It is not just upside.
– A lot of buyers are idiots.
– I have no excuses for the borrowers, but did the lenders even look at market conditions before making the loans and HELOC’s? Dumb question.
– The market peaked about a year before the statistics indicate. The date of the sales contact is the key date, not the actual sale date for new construction.
– So the base line high mark is actually in mid 2004. But now builder’s have inventories, not wait lists, and are willing to slash profits to maintain market share and stock prices.
– Pulte Mortgage financed a lot of the deals going bad in their own developments. Not a good sign to investors.
I would love to be there when the Rescue couple talk about the market at their next barbeque!
DERRICK
well certainly not everyone was so lucky during the RE boom as you pointed out so well. but not everyone failed. 600k profit in less than 6 years? needless to say most of my money has been invested into my portfolio, along with some bonds and cd’s. with times like this in RE and the current economy CASH IS KING.
On a side note. How hard is it for people to obtain a loan now that standards have been tightened? well how about someone I know that has a net worth of about 5-6 million (RE,STOCkS,BONDS,PEP FUNDS) applied for a 650k loan. reason you ask why in the world would they even need a loan? they are waiting for their southern california house to sell and ofcourse will pay off the principle of the loan when it does. anyways the bank wanted so much proof from this couple it was unbelievable. tax statements, bank accounts,portfolio holdings, the list goes on and on believe me. In the end ofcourse they were approved but the hoops that they had to jump through almost made them decided not too. makes me wonder if its that much of a trouble for someone with 5 million +/- to get a loan how in the world does joe smith making 50k a year get a loan?
Reno Ignoramus
Superb comment GreenNV. When the lender on Roanoke takes $500,000 to move the REO, that will be a 23% decline in value and a $145,000 drop. However, because the sale will be to the upside of the median,it will contribute to a so-called “rising” median, and the market cheerleaders will point to the “rising” median as evidence that the bottom has been hit. When we look at the drop in price/sq.ft., however, we see the market falling significantly. Only an idiot will deny that $500,000 today buys one a whole hell of a lot nicer nice than it did in 2005.
This is happening all over town. And with competent realtors like Guy and Diane advising serious sellers to price BELOW recent sales, not just competing listings, it seems apparent to anybody willing to look objectively that values are going down.
We have 8% of listings with an offer. We have YEARS of inventory in all but the bottom price segment. In some neighborhoods, like Somersett, one-half of the houses for sale are empty. The developers are stockpiling inventory like Wal-Mart. It will be a long while to the bottom.
$500,000 in 2009 will buy one a whole hell of a lot nicer house than it will today.