Yesterday, I tried to get my Agent ( not the listing Agent ) to present an offer of 83.5% of the listing price. My Agent told me that "the Seller would probably ignore it and not even counter. I would be negotiating with myself". The Agent stop short of refusing to present the offer but made it very clear that I would be wasting my time and the Agent's. The home is South of 30-A in an area where the Sales price versus List Price ratio is in the 88-90% range ( I think ). I've worked long and hard with this Agent to find this property and have a good working relationship, but frankly I'm flabbergasted at this attitude.
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Beach FanaticAuthor
Thanks again to all the inputs. From a buyer/consumer perspective, while Cork's view of equity may be definitional correct, the homeowner's gut feeling about their net worth and and equity is aligned with Fisher. I think that's why Buyers are expecting to buy property at at least 10% less than the asking price even if the asking price is very close to an appraised fair market value. Buyers aren't trying to get instant equity, they are trying to buy some protection from continued decreases in value and the instant "depreciation" they buy in the form of a future sales commission. I think that an almost instant way to clear the inventory of foreclosures would be to eliminate all capital gains tax on properties bought in foreclosures. What do you think?
Banned
Thanks again to all the inputs. From a buyer/consumer perspective, while Cork's view of equity may be definitional correct, the homeowner's gut feeling about their net worth and and equity is aligned with Fisher. I think that's why Buyers are expecting to buy property at at least 10% less than the asking price even if the asking price is very close to an appraised fair market value. Buyers aren't trying to get instant equity, they are trying to buy some protection from continued decreases in value and the instant "depreciation" they buy in the form of a future sales commission. I think that an almost instant way to clear the inventory of foreclosures would be to eliminate all capital gains tax on properties bought in foreclosures. What do you think?
That would make those properties whose owners walk away from properties and let them go into foreclosure have a competitive advantage over people who keep their properties out of foreclosure. It would act as another shifting of burden, and when looked at closely, would give the lenders (who probably helped create this ) an advantage as well.
Beach Fanatic
Kick your "agent" to the curb like the flaming fudgebag that they are and get yourself another--problem solved.Another flaming fudgebag solves the problem? Hmm.
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Beach Fanatic
I've been thinking about your answer for a few while I was reading mail and posts. Isn't it instant equity if a person buys a home, there bank appraises it at 150,000 more than the purchase and someone offers to purchase it for 50,000 above their purchase price?The classical, financial definition of equity is difference between an assets booked value and its liabilities, it displays the interest of the asset owner in accounting terms. Equity can be + or -.
Is it only instant equity if you sell it to someone else? I'm not sure it would be called equity if you don't own it anymore. I think equity is when you own something and it is encumbered for less than it's worth. That difference is equity. I think what you were describing as equity is actually called profit.
What do you think?
Profit (in home ownership) would include the investment cost of the Owner's $$ in the deal. What is he losing by having his $$$ in an illiquid asset. V.S. putting it in the bank at CD rates, for instance. From this assessment comes the use of the present and future values of money computed at a discount (interest) rate. Profit is also an accounting term with realization.
Equity is a booked value; profit is a realized value. Neither have anything much to do with "sheepables". Sheepables is what Ram can spend on hookers and plasma TVs.
:shock:
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directionally challenged
I think that an almost instant way to clear the inventory of foreclosures would be to eliminate all capital gains tax on properties bought in foreclosures. What do you think?
That would make those properties whose owners walk away from properties and let them go into foreclosure have a competitive advantage over people who keep their properties out of foreclosure. It would act as another shifting of burden, and when looked at closely, would give the lenders (who probably helped create this ) an advantage as well.
Yeah, I have to agree with AAbsolute here. While I am no fan of paying taxes and think its so sad that people who lose their homes get slammed by the IRS, I know of people that have no business asking for short sales trying to dump it back on the lender only because they can buy the same product much cheaper than what they owe. I'm talking about strong rental units that are not behind in payments. I actually had one client where the house is owned in the wife's name and they wanted to sell it as a short sale to the husband?
I think that the forgiveness of capital gains on homestead property is the only way to go.In Florida we have a hotline at the Florida Bar where homeowners can get free legal help to save their primary residence only. In case anyone needs it:
Florida Legal Services and the Florida Bar Association have partnered in establishing a toll-free hotline – (866) 607-2187 – that consumers can call. They’ll be asked a few initial questions about their situation to ensure accurate placement, and then be sent to a free attorney. The attorney will then negotiate with the lender on behalf of the client to keep the home from being foreclosed.
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SoWal Insider
Well I don't have a crystal ball so I can't say if it's headed up or down and some areas are stronger than others. I've plotted the average sq ft price of sales in seacrest beach for the past 2 years and it appears that prices have stopped dropping and may be headed upward. We'll know a little better towards the end of the year but many people are watching this data very closely to buy before prices go up. I'm working on additional community trends and will continue to closely watch the market.
Seacrest Beach is a fascinating case study in all this. I've generated the same graph and have been watching the pp/sf there as well. 200-225 might be a floor, assuming the number of reo doesn't get any worse. There's about 2 years of inventory overhang in that community alone though and sales have tapered off. It'll come down to how long the current owners can tread water.
Banned
I'm adding to Cork on the Ocean's post about the short sale bull. I know of at least 1 owner who can't pay his bills , but is trying to buy his own property out of short sale with a front man for a partner.
SoWal Expert
Can you sic the law on him? Buttheads like that trying to work the system are part of the reason we're in this mess for a long time! :angry:
directionally challenged
Seacrest Beach is a fascinating case study in all this. I've generated the same graph and have been watching the pp/sf there as well. 200-225 might be a floor, assuming the number of reo doesn't get any worse. There's about 2 years of inventory overhang in that community alone though and sales have tapered off. It'll come down to how long the current owners can tread water.
I feel the same. I'm thinking we may be at the floor too. I'm sure there will be some isolated cases still, especially since we're moving into the off season. I'm thinking if we can get through till February without another drop, that it will start inching up again. Who knows, maybe it's headed there now. It's just too early to tell. It will be interesting to chart other groups. I'm thinking beachfront condos, rosemary, watercolor. It will also be interesting to watch some condo complexes in PCB.
I'm adding to Cork on the Ocean's post about the short sale bull. I know of at least 1 owner who can't pay his bills , but is trying to buy his own property out of short sale with a front man for a partner.
Perhaps the solution is for lenders to adjust loan interest rates or something. It's the interest and late charges that are putting so many people into forclosure that might otherwise be able to hang on. I understand they're in business to make money but when lenders forclose, they not only lose their profit but often lose their investment so why not forget the greed right now, forgive interest for a year or so and let people that qualify pay only principal and escrow. I'm not a financial analyst but wouldn't this be a better scenario than billions in bad debts they've got right now?
Beach Fanatic
Perhaps the solution is for lenders to adjust loan interest rates or something. It's the interest and late charges that are putting so many people into forclosure that might otherwise be able to hang on. I understand they're in business to make money but when lenders forclose, they not only lose their profit but often lose their investment so why not forget the greed right now, forgive interest for a year or so and let people that qualify pay only principal and escrow. I'm not a financial analyst but wouldn't this be a better scenario than billions in bad debts they've got right now?Lender write-offs are often waaaaaaaay more financially advantageous than slow, low or non-perfomring loins, er, loans. Accounting rulez.
SoWal Expert
IMO a lot of the problems the banks are having they created - it isn't that rates readjusted or a fee is hurting folks, there are a lot of people who flat out couldn't afford to make the payments, but still got the loans.
Then the banks did a little financial razzle dazzle and guaranteed all those bad loans and plugged them into the economy. :angry:
Then the banks did a little financial razzle dazzle and guaranteed all those bad loans and plugged them into the economy. :angry:
Beach Fanatic
I've been thinking about your answer for a few while I was reading mail and posts. Isn't it instant equity if a person buys a home, there bank appraises it at 150,000 more than the purchase and someone offers to purchase it for 50,000 above their purchase price?
Is it only instant equity if you sell it to someone else? I'm not sure it would be called equity if you don't own it anymore. I think equity is when you own something and it is encumbered for less than it's worth. That difference is equity. I think what you were describing as equity is actually called profit.
What do you think?
The definition of equity is as you describe above.
What I am saying is that I don't believe in instant equity in real estate (outside the frenzy years where some folks really walked away with some nice change, BUT in many cases left the next buyer with a major dog on their hands). Equity becomes real money when you cash in on it. I believe the paper equity/paper gain/instant increase in market value you and Cork are talking about does not exist in a normal real estate market. Saying you have an appraisal for more than the recent purchase price in your home does not imply to me that you have any real equity in the asset. Appraisals are even worth the paper they are written on--they are useful, if prepared properly, for banks to determine how much to lend on a property. But, why do you think banks require a pretty big down payment and you pay PMI on loans of greater than 80% LTV? Because the bank isn't going to lend on 100% of an appraisal because the appraisal is only an educated guess at the real market value of a property.
With a stock, I pretty much know how much equity I have at any given time. Stocks trade 24 hours a day. With real estate, you don't really know what your home is worth until you sell it, and RE is not a liquid asset contrary to the opinion of many investors that bought during the frenzy.
In a falling market like the one we are now experiencing, I don't believe any buyer is buying below market (or walking into "significant" instant equity).
Hope that explained what I was getting at in rebutting the instant equity theory.
Beach Fanatic
Seacrest Beach is a fascinating case study in all this. I've generated the same graph and have been watching the pp/sf there as well. 200-225 might be a floor, assuming the number of reo doesn't get any worse. There's about 2 years of inventory overhang in that community alone though and sales have tapered off. It'll come down to how long the current owners can tread water.
Can you also graph the number of homes sold each month? The sample size is likely very, very small on a month to month basis making it very difficult to draw any conclusions regarding trends.
Also, does your graph include all sales including foreclosure sales, short sales, etc?
It would be interesting to see the same graph for all of walton county and one for sowal from inlet beach to sandestin. Larger sample size lending a bit more credibility to looking at trends.
Finally, I get skewered by folks (especially Joe) anytime I speak to price per square foot. Not sure why he isn't jumping on you??
Banned
Can you sic the law on him? Buttheads like that trying to work the system are part of the reason we're in this mess for a long time! :angry:
I really will do so if I see it happen and it's a property of interest to me so I'll be watching.
Another case study: We had a customer a while back get a loan with a built in interest reserve to make the payments for 6 months or so. The interest reserve runs out and the customer decides to make no payments with his own cash. Meanwhile we continue construction with no word from anyone of the impending default. We obtain the C.O. and submit for our final draw and the lender tells us, "Sorry that mortgage is in default, because the borrower has made no payments." further "We can't fund a loan that is in default."
Faced with this we put the lien, which is behind a huge first mortgage. It turns out it is better for us to make all the back payments for the borrower and bring the mortgage out of default. Than we purchase homeowners insurance as well for the borrower to finalize good standing with his lender.
In the end we get our payment, the lender quickly packages and portfolios the loan which is sold off to a fund securitized by mortgages. Of course it returns to default and eventual foreclosure. Now it seems the government is going to perform a bail out and we again pay the bill.
Beach Fanatic
I'm assuming that you realize that the buyer pays for the appraisal and it's not public knowledge but I've asked the selling agent to see if she can get the appraised price on our most recent sale in Carillon. The sale price was $860 Cash. I know that the appraiser told her that the sales price was well below what it will come in at and that a comparable property just appraised at $895 and didn't have a pool which our sale did.
Oh, I see, the instant equity is based on an appraisal. Whew, glad you cleared that one up for me.
I think appraisals serve a very valid purpose and appraisers do a great service for banks, etc. However, to think you have instant equity based on the educated guess of one individual is a bit of a stretch, especially given the real estate experience of the last two to three years.The only way to truly know if you have ANY equity whatsoever, is to sell the asset.
Edited
directionally challenged
Oh, I see, the instant equity is based on an appraisal. Whew, glad you cleared that one up for me.
The only way to truly know if you have ANY equity whatsoever, is to sell the asset.
I think we're all in agreement regarding and "instant" equity. What we saw between 2003 and 2005 is not normal activity. I don't think any of us would disagree that real estate is a long term investment.
I was the one who did the graph Fisher. Yes, it does include short sales and foreclosures. I have the number of sales in the database and they have increasing a lot this year for Seacrest Beach. I'm working on Rosemary Beach but would be happy to do all of 30A. In creating it, I knew that some areas are performing better than others and I wanted to get a feel for the areas that are leveling out and the ones that are still dropping but for a feel on the overall status of the emerald coast area, certainly all of 30A would be appropriate.
In my opinion, sq ft calculations are the best way to account for the different size homes in a community such as Seacrest. In looking at Rosemary Beach, I've separated North of 30A homes from South of 30A homes because there's a significant difference in square foot prices and since the drop in the market, we've had proportionately more south side homes selling than normal because they've become more affordable. There's lots of ways to review the info and I do it to get a "general" feel for where the market's going which is all we really can do. I try to get a chart done on all DSF on 30A and create both the number of sales trend and the price per square foot.
Banned
Cork and Fisher, I am pretty sure that you can research and calculate till you have carpal tunnel and you'll come to the same conclusion I have found. Values will bottom at the rate that a home can cash flow off rental income. They won't go lower, but you can't be safe with a mortgage that deviates substantially from this standard. Look to recent rental rates for the true answer.
Beach Fanatic
Cork and Fisher, I am pretty sure that you can research and calculate till you have carpal tunnel and you'll come to the same conclusion I have found. Values will bottom at the rate that a home can cash flow off rental income. They won't go lower, but you can't be safe with a mortgage that deviates substantially from this standard. Look to recent rental rates for the true answer.
AA -- Please further explain your definition of this value bottom / safe standard you speak of. Do you mean that the rental income covers ALL costs + some (mortgage, maintenance, tax, insurance, etc.)?
If so... in 15 years of owning/living in SoWal, I've only ever heard of "cash flow off rental income" actually occurring on those little studio condos north of 30-A in Seagrove... and then, only IF they were purchased prior to 1995 for under $60.0.
Is that the kind of bottom you're talking about?
Banned
When talking about a bottom only, I don't see how it's possible for properties to be valued for less than their rental cash flow potential.
On the other hand, generally speaking, I've always believed that a property should be worth the sum of:
1. Put 20% down.
2. Determine its 80% mortgage payment. ( No tax or insurance )
3. Can you regain that payment through aggressive rental program?
4. The negotiation range for final sale price is your thoughtful consideration of whether the values of homes in the community will adjust up or down over the immediate following 3 to 4 years.
I know my thinking is not common. It's my simple guide. It is conservative and gets me in trouble with my neighbors and peers all the time. I just don't feel comfortable deviating from it. I have seen properties that met this criteria a number of times. I have bought and sold about 35 times as a business, but don't consider my business a flipper. I don't have the guts for that.
On the other hand, generally speaking, I've always believed that a property should be worth the sum of:
1. Put 20% down.
2. Determine its 80% mortgage payment. ( No tax or insurance )
3. Can you regain that payment through aggressive rental program?
4. The negotiation range for final sale price is your thoughtful consideration of whether the values of homes in the community will adjust up or down over the immediate following 3 to 4 years.
I know my thinking is not common. It's my simple guide. It is conservative and gets me in trouble with my neighbors and peers all the time. I just don't feel comfortable deviating from it. I have seen properties that met this criteria a number of times. I have bought and sold about 35 times as a business, but don't consider my business a flipper. I don't have the guts for that.
Edited
Beach Fanatic
Oh, I see, the instant equity is based on an appraisal. Whew, glad you cleared that one up for me.
Or until recently, what your lender would offer you through a HELOC. Those days are over, at least for the foreseeable future.
Banned
AA -- Please further explain your definition of this value bottom / safe standard you speak of. Do you mean that the rental income covers ALL costs + some (mortgage, maintenance, tax, insurance, etc.)?
If so... in 15 years of owning/living in SoWal, I've only ever heard of "cash flow off rental income" actually occurring on those little studio condos north of 30-A in Seagrove... and then, only IF they were purchased prior to 1995 for under $60.0.
Is that the kind of bottom you're talking about?
Rosemary Beach was founded in 1995. (13 years ago) Do you think any of the first 50 properties in there were capable of the cash flow equation I spoke of? I'd bet they would nearly double their cash flow.
Seacrest Beach was selling property in 1999. (9 years ago) We were selling 4 bed homes in the 300's. Do you think any of the first 40 in there were capable of the cash flow equation I spoke of? I think they would nearly double their cash flow.
100' bayfront lots were selling for 115,000 in 1999. (9 years ago) with a 300,000 build out someone could do pretty good. I think they'd get 40% over their monthly expense.
There are a builders who will rent back homes they sell for a monthly payment equal to the mortgage too. Remember Sweet Homebuilders Models?
SoWal Insider
I feel the same. I'm thinking we may be at the floor too. I'm sure there will be some isolated cases still, especially since we're moving into the off season. I'm thinking if we can get through till February without another drop, that it will start inching up again. Who knows, maybe it's headed there now. It's just too early to tell. It will be interesting to chart other groups. I'm thinking beachfront condos, rosemary, watercolor. It will also be interesting to watch some condo complexes in PCB.
I think that's being too optimistic. We'll reach a floor then tread sideways and slightly down for at least another year. The inventory is just to large to support any upward movement.
SoWal Insider
Can you also graph the number of homes sold each month? The sample size is likely very, very small on a month to month basis making it very difficult to draw any conclusions regarding trends.
I have that but Walton's site has been so out of date lately it's hard to tell if it's accurate. Sales experienced a pop in the spring, as to be expected, but have now tapered off again. The majority of sales in Seacrest over the last couple months have been shorts and reos.
Also, does your graph include all sales including foreclosure sales, short sales, etc?
Everything that walton has that's qualified. Although it seems some reos don't go in as qualified so there may be an error that pushes the ppsf up. Cork might be dealing with more accurate data from ECAR, maybe he/she can answer that.
It would be interesting to see the same graph for all of walton county and one for sowal from inlet beach to sandestin. Larger sample size lending a bit more credibility to looking at trends.
All I have is sales, not ppsf for walton. That number varies so much across different areas I think it's pretty worthless except to see general trends. Maybe Josh would be willing to add that to his ECAR tables so we can graphit out?
SoWal Insider
I was the one who did the graph Fisher. Yes, it does include short sales and foreclosures.
Cork, is that based on ECAR or Walton? Just curious.
Beach Fanatic
AA -- Please further explain your definition of this value bottom / safe standard you speak of. Do you mean that the rental income covers ALL costs + some (mortgage, maintenance, tax, insurance, etc.)?
If so... in 15 years of owning/living in SoWal, I've only ever heard of "cash flow off rental income" actually occurring on those little studio condos north of 30-A in Seagrove... and then, only IF they were purchased prior to 1995 for under $60.0.
Is that the kind of bottom you're talking about?
I suspect that a lot of people are easily covering just the mortgage payments on short term rental, but that the other carrying costs (HOAs, insurance, wear and tear and shrinkage issues) end up leaving them actually in the red. When you've got properties with $1,000/month in HOA fees alone, those extra costs add up very quickly.
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