In a falling market, there are always those who believe the correction is temporary. In trading it is called “buying the dip.” In a market rally, it is a good strategy. In a market decline, it is a sure way to become a bagholder and lose a great deal of money. Lately, I have been feeling a certain satisfaction from finding flips like these because I know the fate that awaits them. I suppose each one helps empty my Reservoir of Schadenfreude.
Today’s seller has had a visit from the Kool-Aid Man. To believe you can flip a property for a $200,000 profit in this market you either have to be crazy or intoxicated with kool aid.
Asking Price: $814,900
Purchase Price: $615,526
Purchase Date: 2/2/2007
Address: 5 Bottle Tree, Irvine, CA 92618
Beds: 4
Baths: 2.5
Sq. Ft.: 2,018
$/Sq. Ft.: $404
Lot Size: –
Year Built: 2000
Stories: 2
Type: Condominium
County: Orange
Neighborhood: Oak Creek
MLS#: P564630
Status: Active
On Redfin: 123 days
Unsold in 90+ days
From Redfin, “Nice open floor plan in prime Cul De Sac location of Cypress/ Oak Creek. 4 bedrooms, 2.5 baths. Open kitchen overlooks family room with fireplace and backyard. Freshly painted and and new carpet make this home a pleasure.”
A concise description with no typos: I am speechless.
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I can’t give this seller a WTF award as this is merely a wishing price. The $404 SF price is near enough the current market to be plausible; although, after 123 days on the market, it clearly is above the market. I will give this flipper credit for finding a good buy (you make money in real estate when you buy, when you sell you merely convert to cash), but this property needs updating, and this flipper is going to have to reduce his price to sell this place.
Since this flipper’s purchase helped set the neighborhood comps at $305 SF for similar properties, the two underwater neighbors who are holding out for $400 SF can’t be too pleased.
Asking Price: $959,000
Purchase Price: $960,000
Purchase Date: 3/30/2006
Address: 45 Commonwealth, Irvine, CA 92618
Beds: 3
Baths: 2.5
Sq. Ft.: 2,400
$/Sq. Ft.: $400
Lot Size: –
Year Built: 2001
Stories: 2
Type: Single Family Residence
View: Hills
County: Orange
Neighborhood: Oak Creek
MLS#: C101239
Status: Active
On Redfin: 25 days
From Redfin, “Premium Cul-De-Sac location home in Oak Creek. 3 large bedrooms with 4th room used as master retreat/office upgrades includes: Travertine floors, designer carpet, custom paint, crown molding, base molding, plantation shutters, stainless steel appliances call owner to show.”
This makes two reasonably well-written MLS descriptions. Do you think we are shaming realtors into checking their copy?
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Another seller holding out for a breakeven price. Of course they will still lose about $58,540 after commissions, but there is a psychological aspect to trying to get out at breakeven. Too bad it probably won’t happen.
They are doing better than a nearby rollback…
Asking Price: $700,000
Purchase Price: $725,000
Purchase Date: 10/7/2005
Address: 2 Pearleaf, Irvine, CA 92618
Beds: 3
Baths: 3
Sq. Ft.: 1,750
$/Sq. Ft.: $400
Lot Size: –
Year Built: 2000
Stories: 3
Type: Condominium
County: Orange
Neighborhood: Oak Creek
MLS#: S485590
Status: Active
On Redfin: 72 days
From Redfin, “Spacious 3 bd/3ba DETACHED Home w/ Private Backyard in Gated Oak Creek! Elegant Upgrades include Cherry Wood Laminate Flooring * Upgraded Carpet * Custom Built-Ins * Designer Paint * California Closests in all Bedrooms * Recessed Lighting Package * Security System & Integrated Surround Sound Speakers throughout the entire Home! Gourmet Kitchen has Granite Counters & Stainless Steel Appliances! Enjoy the beautiful Resort Style Amenties of Oak Creek!”
Two misspellings and several exclamation points: that is more like it.
I can’t help thinking this seller overpaid when he bought back in 2005, but why not? Real estate only goes up, right? This property is also going to have to cut price significantly to find a buyer, but if they were to get asking price, they would lose $67,000 after a 6% commission.
You can clearly see the behavior of a commodities market at work here (and Houses Should Not Be a Commodity). First we have a “dip buyer” gambling that the recent price decline is temporary. The final two properties are your classic “weak hands” who are the first to dump their holdings as they go underwater. As the weakest holders are wiped out and forced to sell, it drives prices down further. At some point, our intrepid flipper realizes he was wrong and adds another property to the falling market: which, of course, pushes it down even more. The downward spiral becomes obvious, predictable and inevitable.
I hope you are enjoying the show.
