1475 Palisade

There are a few locations in the area that, if available, would tempt me to give up the ranchero and move on into something really signature.  Odd numbered addresses on Marsh or Palisade are on the bluff above the Truckee River, and anything there certainly whets my appetite.  So when 1475 Palisade hit the market in January for $479,500 (MLS 80001173) I had to check it out.

The owner bought it in December 2004 for $615,000, using 80/20 financing and the $492,000 first loan was interest only for 2 years.  Previous purchase price was $396,000 in January 03, so the owner didn’t get a "deal", but it wasn’t totally out of line with the run-up going on at the time.  And the run up seemed to keep on going (and going), So the owner decided to take on a little remodeling project….

The house was gutted down to the studs in mid 2006 with permits (permit value of about $110,000, so figure a construction cost of at least double that), all the interior improvements got started, the new entry got framed, the exterior siding was removed, new windows installed, and the lathe for the new cement plaster was installed.  And then a great silence.  The money ran out.  And the house has been sitting there exposed to two winters with only Tyvek and chicken wire for protection.  I’m not certain, but I think the house is still being occupied, with a futon here, a refrigerator over there where there is a live outlet, and maybe a toilet somewhere that still works, based on my nose to the window inspection.

Notice of Default was filed 30 January 2008.  Can you imagine what the bank’s loss mitigation officer will be feeling when they see what their collateral has become?  No friggin’ chance of the proposed short sale happening on this one.  Another case of "what was the agent thinking taking the listing?’.

I suspect that there are a lot more of these decor-flips out there in trouble.  This one is just extreme.

So Allen Murray, can this house be saved?  $250,000 offer after foreclosure?

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About Mike McGonagle

An architect, business owner, and compulsive public records hacker, Mike reads the tea leaves of the local real estate market from a unique perspective.. A former Chicagoan, Mike earned his MArch from Harvard University. Mike can be reached at mike@macassociates.com or 775-345-7435. His continued musings can be found on the REreno.com blog.
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17 Responses to 1475 Palisade

  1. Avatar BanteringBear says:

    Whoever started this project is a complete idiot. The numbers never penciled out from the beginning based on the purchase price alone, not to mention the cost of improvements (which I seriously doubt could “cost” more than $200k (sorry Mike)). Most of these wannabe flippers, developers, etc. were nothing more than posers, enabled by an unhealthy environment of easy credit.

    Historically, home improvements only return pennies on the dollar. One’s better off throwing a coat of paint on the thing and unloading it, than sinking a boatload of money into it. Improvements are for the enjoyment of the long term owner, and should be carefully thought out. The number of over-improved properties out there is staggering. Having never even looked at the property, I would place the true value, prior to it’s destruction, in the $300K-$325k range. Now, it’s anybodies guess.

  2. Avatar Reno Ignoramus says:

    What’s the difference between this house and the one I posted about a few days ago that had been completely stripped down and trashed by the “owner” before he left for North Carolina? Sure, this one is in a nicer part of town, but so?

    Does it really matter if the house is uninhabitable because of stupidity or malice? If the bank on this house is as clueless as the bank is on the one I posted about, it will probably offer to sell it for the 80% first in “as is” condition.

    Do you all love the smell of burning comps in the neighborhoods?

  3. Avatar Allen Murray says:

    Hi Mike, obviously, I cannot comment on the savability of this house without taking a look at it. I have no idea how Bantering Bear can comment on how much the improvements cost, but maybe he’s looked at it and maybe he’s secretly a contractor, haha? As you suggest, permit value is usually much less than actual cost, but it depends on many factors. To give you an example, I’m building a house for a client, and am surprised at how far apart some of the bids are. Our construction costs are around $300K, but we could have easily have hit $400K if we would have taken the high bids. It seems that the subs that are busy are still bidding at 2005 prices, while the subs that are slow can be as much as 1/2 the price. As usual, the free market will prevail, and it is actually nice building in this climate when subs actually call you back, lumber prices are at an all time low, and it doesn’t take 2 weeks advance notice to reserve a concrete truck. The slowdown does make much job much more pleasant.

  4. Avatar Perry says:

    This is so funny that you posted this house. My wife and myself love this house… or we did. We went through it when it was listed with that odd company Capurro & Suizo or whatever it was. Like BB said, the house never penciled. My wife and I actually wanted to live in the house so I figured some fluff for not wanting to sell anytime soon and never could justify the purchase. The location is awesome.

    When I saw that the house was on the market one the sites shows the pre-remodel start condition so I got excited to see it again. Then I found another of it’s current condition and was disappointed. I called and spoke with the listing agent who I think is based out of Tahoe. Anyway, I asked him if he had any contact with the bank whatsoever. He stated that he had not. We spoke a bit further but he really didn’t seem too dialed in on any of the aspects of what lay ahead for him.

    Most of what’s going on these days with houses and such I’m really indifferent to. This home however saddens me as it’s fate doesn’t look good and I think it’s truly unique. How much longer can it exist in its current condition without having to be torn down and starting anew?

  5. Avatar Mike says:

    Perry, so cool you know this house. Thanks for your input – it is really a to-die-for site. I can’t believe the slacker agent hasn’t even contacted the bank on the short sale yet. Where did you find the existing conditions photos? On the MLS, the lead shot was from the Assessor’s site, and the additional shots seem to be from the last listing.

    Allen Murray, I was certain this one would be on your radar. Check it out over the weekend. Tear down or any residual value? You are the go-to guy here on real construction issues right now.

  6. Avatar Perry says:

    Hi Mike,

    I think the agent updated the pictures. There was a time when Dickson had the old pictures but the sites that use the IDX info were current.

    When I looked at the house there was no decking leading down to the ditch that runs behind and the yard wasn’t tore up. Why would you waste money on a deck an ruin the yard when you haven’t even stuccoed the house? I’m not a contractor but some things just don’t add up over there.

  7. Avatar Dave says:

    Mike,

    I spent a week viewing Reno homes and came away with a sense that sellers don’t think the news about falling prices and underwater sales apply in their neighborhood; certainly not to their home.

    Worse, are bank controlled sales. We viewed one house (on a spectacular site) that has been vacant over the winter, unwinterized, utilities inoperable and uncertain, and offered by a bank with no disclosures “as-is” at the price of occupied homes with heat, lights and water.

    The bank issued 2 loans totalling $650,000 so the buyer could buy no money down, and he defaulted 14 months later. Like your example, this house will sit, deteriorate, and depreciate.

    Loans are bundled and sold, who knows whether the decision-maker is in California, Texas or New York? Clearly, banks have a long way to go to mitigate losses because losses continue to accumulate while they try to get a handle on a market disaster of their own making.

  8. Avatar GratefulD_420 says:

    Good news though Dave for those buyers and bad news for the Sellers. As we’ve seen posted here in very informative data is the foreclosure’s are coming. Yes we’ve seen a few.. but now they are coming 168, 178, 200’s per month for the next forseeable months. This means they will really start to effect the percentages on everything from inventory to sales prices. Unless the goverment steps in the sellers will be forced to capitulate on their prices.

    You are correct that alot of the banks need to get their act together. However we will see the action over the next few months. They must move their inventory. Banks are not meant to hold fixed assets on their balance sheets. They do not have the extended leverage abilities of wallstreet, so holding more than a few homes until the market recovers is not a valid strategy. They must find the price that moves the home quickly.

    There are a few that are making positive moves and getting the homes sold within a few weeks. I was involved with one of these REO’s 2 weeks ago. The bank listed the property for $390k, when it was clearly worth more. I went to check it on day 2 and the listing agent informed she already had 2 offers, one at full price. I offered at $400k contingent only on inspection. By the end of week she was saying she had offers above $500k. The bank rejected ALL offers and gave 48 hrs for final offers. I went back with $ 425k. They accepted an offer of $485k wich is pending. I valued the house at $525 to $550k in this market. So the bank created great interest by posting lower and having the buyers set the price. They moved the house in 2 weeks and took 8 to 12% lower price. Probably a great deal for them… since cash is king!

    They now have a $900k house listed for $550k. I’m certain the offers will fly and they will setting somewhere high $700 to low $800k’s. Not certain why this wasn’t sold on the courthouse steps. If I had the cash it was a definate buy.

    The answer to everyone’s question, when will be the bottom? The bottom will occur when these REO’s start to decrease instead of increase. As they come onto the market they will continue to significantly errode the current prices, setting more upside down and progressing the fall. So when this Foreclosure/REO trend stops…the dust and prices settle..then we are in the bottom.

  9. Avatar inclinejj says:

    Mike

    The photos on this property are horrible..Are you sure it has a River view????

  10. Avatar Larry Sabo says:

    I’m glad to see this listing is generating such great activity on this blog. I have been in contact with the bank and have received 2 offers on this property. The bank has given me a list of requirements to submit the offers but I have not been able to obtain the needed requirements from the owner so as the old saying goes you can lead a horse to water but you can’t make him drink.

    My thought process on taking this listing is number one to try and help out a previous client, although he didn’t buy this house through me he became a great client so of course I would try and assist in any way I can.

    There are 2 listings on Marsh for over $900k, take $200k off for good measure and another $200k off for remodel costs and another $100k off for incentive and I came up with a number. Right or wrong it seems to be the number that will generate activity.

    I agree the bank is in for a surprise when they come to realize the condition of this property but I hope that becomes a negotiating tool for me. Thanks for all the comments, they are valuable and appreciated.

    Larry Sabo

  11. Avatar Mike says:

    Larry, thanks for your thoughtful comments on the listing, and for not taking my potshots personally. How to get the bank to buy into a short sale is going to be the wild card, especially with a client who isn’t being responsive providing documentation. A question, if you a free to answer it – do you take a listing like this on a “cost plus” basis with the seller paying marketing costs, or as a standard listing?

    Although many here on the blog (including myself) will disagree with your choice of unsold comps in the asking price equation, it is good to hear what the rationale was. Keep us posted on what’s going on the the listing – it is a fascinating one.

  12. Avatar Allen Murray says:

    Ok, I drove by and checked it out. I think the house would be lucky to be worth the current asking price fixed up. Besides that overbuilt house 2 houses over, almost everything in the neighborhood is worth $350-500k. We know he bought near the peak for $615K. Lets assume a 30% drop since then which is $185K for a current value of $430K if it wasn’t torn apart. Lets assume it will take $150K to fix it up, that makes its current value about $280K. So yes Mike, I think your $250k is pretty darn close, for someone that wants to occupy it. As an investor, I wouldn’t even touch it for that. Also, if his improvements were permitted a few years ago and expired, there may be big problems getting it re-permitted since codes have recently changed to IBC 2006 I believe. I believe the City allows one or two 6 month extensions on permit renewals.

  13. Avatar Diane Cohn says:

    Larry, thanks for being the first local Realtor to have the nerve and the verve to comment on this blog. Keep up the great work, and good luck with this listing!

    Diane

  14. Avatar inclinejj says:

    Just think..Wall Street wanted to get the hooks into the Social Security Money also

    Bear Stearns had to be bailed out today..

    Most realtors are still in shock and awe how far and how fast everything turned to Chit..

  15. Avatar Larry Sabo says:

    Mike I did take this as a regular listing, the current owner is partners with a client I met in the middle of the bubble. I made “some” money with them but not a whole lot because I met up with them towards the end of the buying spree. They were not happy with any of the agents they had dealt with and I made them some good money in the Tahoe area so they and I became loyal to each other. Anyway that’s the personal story behind it.

    I have to agree that the price is probably shy of $300k and that is where the offers are coming in at. Convincing the bank is going to be another task. Todays presentation could be useful and certainly quite informative. My job is simple, keep lowering the price until it generates activity then convince the bank to accept something that will net them less of a loss than if they don’t take it. Sometimes the banks are stupidly stubborn but many times if you present them with an offer they can’t refuse backed by lots of data they can make sense of the job gets much easier. In the end it’s all just a lot of work but that’s been my answer to success all along. It’s not rocket science but if you’re willing to bust butt there is a dollar that can be made.

  16. Avatar Larry Sabo says:

    So I had an offer on the table at $290k and Countrywide denied it saying their BPO’s (broker price opinion) came it too much higher.

    I submitted a narrative explaining that their BPO’s could only have been done by a drive by since I hold the key and nobody contacted me to get in. Since the insides were torn out to the studs I documented cost of construction and time value of their money they could obtain showing them they would do much better to accept the $290k now.

    They verbally said they would extend the trustee’s sale to take a closer look at it but 3 days before the sale they changed their mind and went forward with the sale.

    I then got a call from the new listing agent asking me a few questions and he agreed with me that they should have taken the $290k offer. Strange thing is I told him the buyer was still interested and to call me when he got the listing. I then notice it went on the market and sold the same day to another agent in his office for $213k?

    Well good for them I guess we don’t owe banks the same fiduciary responsibility as we do an individual. This is the typical scenario I have dealt with on short sales and particularly with Countrywide. I was speaking to one of the guys at Countrywide on another deal who said to me “you know all the bad news you see in the press, from my end it’s even worse!”

    I don’t think anything more could have been done in this case from my end since we had an all cash offer on the table and all the owner documentation submitted for review along with a narrative documenting market conditions and trends for them to review. If you take the time value of the $290k offer I figure their net was at least $100k less than if they would have taken it. It probably got a serious review since nobody seemed to really look at the data provided, I guess they got what they deserved.

    Larry

  17. Avatar Larry Sabo says:

    Correction above “it probably Didn’t get a serious review”

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