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Thursday, August 26, 2010
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56 comments:
let's assume my RE crystal ball says local housing prices stay flat for the next 10 years - would you buy
1) a smaller house then trade up on year 11; or
2) a big enough house so trading up is not needed
, all else being equal?
tks!
MM-
Ok I'll bite - my answer is "B", or #2 or all of the above !!!
What else can one answer int hsi crazy RE market?
But I'm older than most on this Blog!
A smaller house now, so that I have more money in my pocket for savings, retirement, etc....
Although it depends on what "small" and "big enough" mean. Big enough to last through those 10 years, but small enough to be saving a significant amount of money.
spunky,
Yeah I guess my answer is sort of half way between 1 and 2, in that the point is to buy something such that "trading up" is never "needed". Just optional if these 10 years are more flush than I'm planning for. So its sort of as small as you can get away with...
I would go with #2.
For your amusement:
Original asking price = $2,250,000
Assessed value = $1,264,200
Upgrades = what upgrades?
Final net selling price = $1,148,000
lessons learned? priceless
MM-
I would go for 2 as long as you can easily afford it. Trading houses is very expensive both actually and emotionally. In addition to paying 6% to agents you will spend another 10+K for additional closing costs, taxes and moving expenses. In addition to that if you have kids it really is nice being able to grow up in the same neighborhood for most/all of your life. Moving and having to make friends is never a fun process.
On the other hand if you have any worries about being able to afford house 2 you should go with house 1, because you never know in a terrible economy if something bad will happen over the next 10 years.
Ace-
Wood panels and wall paper don't count as upgrades to you :-p
MM,
If you're assuming RE will be flat for 10 years then doesn't it make the most sense to rent the smaller house until you need the big one? You can save even more than if you bought the small house, and not have the transaction cost of selling/buying in year 11.
Ace,
the backyard and driveway and garage appeared to be in top shape...
Jeremy-
That would be assuming that rent/buy ratio is well in favor renting and that rents do not increase much over the next 10 years. Also if you assume that there will not be many good investments over the next 10 years having a mortgage could be a nice way to get a ~4.5% return on any additional money you want to invest. Obviously this is not high by historical standards, but who knows going forward this might be good.
Jeremy,
Or at the very least rent the smaller house until you are in a position to afford number 2. In other words a totally flat market is the ideal market for families/buyers because it allows every buyer to buy when the time is right for them, rather than trying to fight/time the market.
Ace -
I like that there are no pictures of the kitchen. I guess the agent was too embarrassed to show the 1955 kitchen.
I bought a house in Haymarket recently. My HUD-1 stmt has the settlement date which is tomorrow 8.27.10. From what I can tell about filing for the homebuyer credit all I have to attach for required documentation is the HUD-1. I know the settlement date has been extended to 9.30.10 so I qualify there but how do they know if I was under contract by 4.30.10?
Grumman,
Doesn't your original contract have dates on the signature page?
Just curious-what took so long to settle? April to end of August seems like a really long time to me.
Ace, that realtor gets tons of Arlington listings. I wonder if she buys them all like that? Her pricing was insanely off.
Does approximately 4 months seem like a very long time to build a house? Just wondering if that's unreasonable. From what I can tell from the IRS.gov site you just provide the HUD-1 which in my case I think only shows the settlement date of 8.27.10 and not the contract date. So it makes me wonder how they ascertain if you were under contract by 4.30.10.
tks all for your input...
what about go with option 1) then add a 15x20 1st flr master br on yr 11?
i think some said the cost is $300-$400 per sf. so total is $90K-$120K.
Grunmann,
You could always call the IRS helpline... I'm surprised they haven't updated it given the extension to close. Because otherwise they're going to have to audit a heck of a lot of people... Maybe they think everyone will be lazy and not file until the 2010 tax season...
I'm renting the big enough house and might buy it in a couple of years.
I've avoided buying the smaller house because I don't want to be locked in.
Oh, I'm sorry. I didn't realize it was a brand-new house. So you signed the contract before April 30?
Anon
"Sounds to me like this argument above is "dont buy at 300K because it will set comps and you can get another one later at 270". "
sounds wrong.
if you avoid the bidding war at 350 and property A goes for 300K
then you can bid property B at 300K
and it will appraise, comp out and the price point will be stable.
with all respect to frank who is a kind and generous man, realtors profit off of bidding wars in fact they do better in bidding wars.
less showing, higher income, more flips.
if realtors got flat rate compensation? $1000 to list $500 for price analysis, $1000 for open house, they would so totally push prices down....
and i don't consider myself a huckster victim i have a nice 2 BR apt in a nice part of arlington for $1035/month. condos in 2004 were
nuts, $2800/month for equivalent property.
so i am happy.
my fiancee is happyy.
we want a place so we can do serious mods, energy, gardens, solar, etc.we hate our carbon footprint.
Well in my scenario let's just say the person wansn't under contract by 4.30.10 but they settled on 8.27.10 and the HUD-1 verifies that fact. How does the IRS know that the person was or wasn't under contract by 4.30.10? Just a theoretical question I've come across.
Grunmann,
Best case scenario:
If they can't verify that the person was under contract by 4.30.10 then they (a) probably won't give out the money until they have verified the qualifying contract date.
Someone on here, can't remember whom, filed a 1040X for theirs and didn't recieve the funds for over 9 months?
Worst case scenario:
they give you the money and then audit you and find you guilty of tax fraud.
Grumman...wouldn't a deposit check have a date even a a new build earnest money has to be deposited in an interest bearing account or money market fund.
Pat-
We backed out of a Bidding War just today on a Short
Listing Agent tried every trick in the book - said he was going to now "start calling his investors as this home was now such a GREAT price" and had to have our answer (go up 30K)in a few hours.!!
I told them to get busy dialing........;)& withdrew our offer
sense of urgency my butt - there's a million more coming in NoVA..
Re Bidding Wars,
If it's something you want there's nothing wrong with escalating your offer. I had an escalation clause in my contract and still got the home for less than the asking price. Do your homework, know what you want, and be rational. There's no need for blanket statements saying XYZ is the wrong way to go...
My $0.02
you're correct about the deposit check date. i'm just curious how they prove that someone was under contract by 4.30.10 when all that's required for documentation is the HUD-1 which only has the settlement date not the contract date. the only way i see it is if it's audited and they then require something with a contract date.
I haven't looked at this area much, so I don't know what the right value for this house is, but the tax assessment seems really low to me. house
I would love to be able to buy that house for 320K, seeing that its 2400 sq.ft. decently updated, has a two car garage, and is in a great school district. I wonder how/why it ended up being assessed that low.
I found this..there is more documentation required than the Hud-1.
The National Association of Realtors estimates that this new extension will help about 180,000 to 200,000 homebuyers who already signed purchase agreements and were likely to miss the June 30th deadline.
The IRS has also released more details on the approved extension and required documentation (detailed in previous updates below). To avoid refund delays, those who entered into a purchase contract on or before April 30, but closed after that date, should attach to their return a copy of the pages from the signed contract showing all parties’ names and signatures if required by local law, the property address, the purchase price, and the date of the contract.
well at least they don't require notarized agreements.
look Realtors profit from bidding wars.
I've seen realtors tell me demand is hotter the n ever and yet the stats are showing slowdowns in volume.
realtors are lying scum.
hb,
that is a decent house. It would be so convenient to have the fridge in the dining room, too. Just reach over and grab more milk or whatever ;).
Meshell-
I hadn't even noticed that. I don't really find the house exciting at all at the current price, but I would like it at the tax assessment :) Something tells me it got assessed that low because a couple of shorts/foreclosures in really bad shape sold for that range.
"Pat said...
if you avoid the bidding war at 350 and property A goes for 300K
then you can bid property B at 300K
and it will appraise, comp out and the price point will be stable."
Ok so house B comes along and thanks to house A, I think B will sell for 300K and I am willing to buy it for 300K.
If some other buyer comes along and bids first at 275K, can I engage in a (gasp) bidding war and offer 285K, or under your NEVER enter into a bidding war philosophy do I just have to say "im out" and walk away?
Now sure, if the bidding war goes over 300K, I then would of course say "im out" and wait til the next one comes along. But still, if I won the bidding war at 285K instead of the 300K I was willing to pay, how is that a bad thing?
Id hate to think that under the "Never enter a bidding war" philosophy you are destined to pay full price on underpriced property. If its underpriced, and even at the end of the bidding war, less than what you would have been willing to pay, whats the harm?
Regarding the bidding war issue, I think an example of what happened to me is insightful.
In 2001 bidding wars in certain areas were pretty common. I had to fight like hell to get my place, outprice all my competition, even write this demeaning "your house is so great" letter to the seller.
I made 4 escalating bids, ended up paying 17K over list, 10K more than what I thought it was worth, and over 400K in total (remember this was alot of money back then :)
Still, I figured it was worth it because (a) I could afford it (b) I was going to be there several years and (c) I thought I could withstand a softening of prices (which I thought was imminent at the time).
If I withdrew and decided to wait for another place to become available, it would have been 6 months. That place ended up going for 55K over what I paid for my place.
If I refused to participate in any bidding war, I likely would not seen any place that fit that criteria until 2005, and by then I would be paying at least 700K. Even today, nine years later, places near me that sell for 650K or so often attract a bidding war or two.
Now, am I suggesting that if you dont engage in a bidding war, this will happen to you? Of course not - its a far different environment than it was back in 2001. Still, I can only imagine how much more it would have cost me if I adhered to a hard and fast rule about no bidding wars.
Anon
Heres one to shove at your Cow of a wife.
http://franklymls.com/DC7413250
Sold in 2007 for 511K now U/C at 299K
So I'm a huckster,here, you should have bought in this area and you could be 200K underwater.
Instead of carping at us, you should get your family life under control.
http://calculatedriskimages.blogspot.com/2010/08/corelogic-negative-equity-q2-2010.html
1:5 DC homeowners underwater, 1:4 virginia homeowners also.
how many of these drowning homeowners will walk and add to the market?
how many ?
http://www.calculatedriskblog.com/2010/08/corelogic-11-million-us-properties-with.html
download the Excel file, 35% of DC/nova properties are underwater.
housebuyer said...
... I don't really find the house exciting at all at the current price, but I would like it at the tax assessment
I think most every open house I've been to where we actually liked the house we gladly would have paid the tax assessment for. Every home I've bookmarked on Frankly is listed for 100-275k over tax assessment.
Here's what happens when you indulge your grand vision in building a house while ignoring even the most basic buyer needs and wants for a house half the price.
Such as: a functional kitchen with reasonable cabinet space; a small, usable back garden (at least), rather than an oversized garage that you cannot maneuver a car to park in; a house well-proportioned to the lot size; room space rather than hall space; a master closet that is large enough for at least one person's clothes, etc.
could have been great AX green house
What a shame. This house could have been great.
Ace,
it's gorgeous! but all $1MM+ houses are, i guess. i think the odd garage/backyard killed it for most 'green' buyers. they should just take it down.
or if they want to show that garage is functioning they could 'stage' a MINI in there that conveys.
Jeremy-
I agree most nice houses are going for more than tax assessment, but I am used to seeing something like 20% over assessment. This house was ~50% over assessment this is obviously a huge difference.
MM, they could, but to anyone who visits the house, it is immediately apparent that nothing but a mini could get to the garage, and backing even a tiny out would be a challenge. They also put many of the house systems in the garage rather than in the basement, which has plenty of space for it; they were probably thinking that most people would prefer the extra basement living space rather than even the tiniest of back yards, which is a mistake. (Maybe some could have even been built into an attic.)
So in addition to the tear down costs for the garage, there would be the cost of moving all of the systems into the house, which I am sure wouldn't be cheap (along with more $ to add at least upper cabinets in kitchen, reconfigure some other rooms, etc.).
Truly unbelievably inept planning on the architect's part.
hb,
That tax assessment is just plain off. My neighborhood had plenty of REOs, but this house is in a more expensive neighborhood has 500 more above ground square feet (1878) and it's now assessed well below my house. Our TA stayed constant from 2009 to 2010, there's moved from $402k to $332k. So, all I can figure is that they didn't have enough "real" sales or flipped sales in their neighborhood last year to counteract the REOs. Such that while ours looked like it was on the mend, there's looked like it was about to see "another leg down". Which is B.S. Fairfax City has way more cachet than Springfield. People from Fairfax City talk just like people from Vienna about how great it is. (I actually am really partial to the colonial era downtown).
In other words, I would take the $402k seriously but not the 2010 assessment.
contrarian,
For those who don't want to download the excel file here's the full content for the DC MSA:
CBSA Name
Washington-Arlington-Alexandria DC-VA-MD-WV
Mortgages 992,909
Negative Equity Mortgages 292,890
Near** Negative Equity Mortgages51,896
Negative Equity Share 29.5%Near** Negative Equity Share 5.2%
Total Property Value 380,172,780,403
Mortgage Debt Outstanding 276,146,344,938
Net Homeowner Equity 104,026,435,465
Loan-to-Value Ratio 73%
If you sort by Negative Equity share we are 43rd worst out of 167 MSAs.
By LTV ratio we are 73rd worst. (but there's a heck of lot of MSA's in the 70's.)
Cara-
Thanks for the update. I assumed the assessment was garbage, I guess that is the problem with the current market. It is really hard for the county to figure out what assessments should be, because so many sales are distressed and the county doesn't have the time to really determine the breakdown of sales.
Cara-
I would interpret the DC numbers to be saying that a lot of people are underwater because we were one of the bubbliest areas and had a big crash. So anyone who bought or HELOCed at the top is underwater. Although our LTV is still pretty decent because we up the most of any metro area over the last decade so people who are long term owners and did not use their home as an ATM have tons of equity
hb,
Yup the combination of 34.7% at or near underwater and 73% aggragate LTV is clearly a case of the have's and have nots. (by housing timing not necessarily income).
If say the 34.7% have an average LTV of 110%, then the other 65.3% would need to average 53% LTV to make up for it. And 110% seems pretty conservative. (whereas 53% LTV with prices doubling in the decade seems about reasonable).
"Anon
Heres one to shove at your Cow of a wife.
http://franklymls.com/DC7413250
Sold in 2007 for 511K now U/C at 299K
So I'm a huckster,here, you should have bought in this area and you could be 200K underwater.
Instead of carping at us, you should get your family life under control."
Pat -- While its well known that I have on occasion taken a swipe at certain people here, it is very very rare I can ever succeed in getting under someones skin to this degree! Originally, I was looking to only make a serious point. However after seeing how you respond -- seeing how you emotionally lash out like this... Well, lets just say I cant tell you how much I enjoy watching this!
Nevertheless, the serious point remains. Its clear now that there are indeed SOME cases where bidding wars are appropriate. I think nearly everyone on this blog sees this now, and many have weighed in to reiterate the same.
I dont expect you to admit this. Like so many, you follow rule #1 of the blogs -- never ever ever admit you were wrong -- ever. Yours was a throw away comment "never enter a bidding war". You had very little invested in this. It would have been very easy to say up front, "you know what, I hadnt thought about it clearly, but yeah I guess there are some cases where bidding wars make sense", and that would have been the end of it.
You didnt do that. Instead, you followed rule #2 which says when you are trapped, do anything you can not to admit you were wrong. Change the subject, go silent, or do what you did, which was emotionally lash out at your opponents. Its so predictable, but yet so entertaining at the same time.
So what will you do now? Will you continue to dig in deeper? Will you again respond in anger? Or will you now choose to go silent. I dont know, but I do want to say, thank you so much for entertaining me like this!
HB, don't forget that a lot of recent buyers may have also put down a large downpayment (move up/down buyers). They may be underwater with respect to their total investment in the properties but wouldn't be underwater with respect to their current mortgages.
Ace-
Good point I should have said either people who are new to the housing market or HELOCed.
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