The housing bubble enriched some and wiped out others. In our ongoing deflation, some are taking advantage of our bear rally to start flipping again. Will they hit the jackpot?
Asking Price: $550,000
Address: 14811 Groveview Ln Irvine, CA 92604
{book2}
You never take advice, someday youll pay the price, I know
Ive seen it before, it happens all the time Youre closing the door, you leave the world behind Youre digging for gold, youre throwing away A fortune in feelings, but someday youll pay
People are flipping properties again. They won’t take my advice, and someday they’ll pay the price, I know. I’ve see it before, it used to happen all the time. They’re closing the deal, they leave reality behind. Digging for gold, they’re throwing away a fortune in equity, but someday they’ll pay.
The low inventory and low interest rates are serving to keep the bubble inflated here in Irvine. The conditions are ripe for flippers to come back to the market. Today’s featured property was purchased for $417,500 on 8/12/2009. It didn’t take her long to turn it around for resale.
IMO, it takes ice water in your veins to attempt a flip in this environment — or ignorance laced with kool aid.
Mirror, mirror on the wall, who’s the greatest flipper of all?
Beds 3 Baths 1 full 1 part baths Size 1,112 sq ft ($486 / sq ft) Lot Size 4,966 sq ft Year Built 1971 Days on Market 1 Listing Updated 10/1/2009 MLS Number S591169 Property Type Single Family, Residential Community El Camino Real Tract Wl
LOVELY SINGLE STORY FAMILY HOME IN GOOD IRVINE COMMUNITY. NO MELLO ROOS, NO HOMEOWNER’S ASSOCIATION DUES. WALK TO A DISTINGUISHED ELEMENTARY SCHOOL, BLUE RIBBON MIDDLE SCHOOL, IRVINE HIGH SCHOOL AND NEARBY COMMUNITY PARK WITH BASKETBALL COURT. UPGRADED KITCHEN WITH STAINLESS STEEL APPLIANCES. PARQUET/PERGO FLOORING THROUGHOUT. CENTRAL AIR-CONDITIONING AND HEATING. FENCED FRONT & BACKYARD, LIGHT AND BRIGHT. THIS HOME HAS BEEN UPGRADED, A MUST SEE.
ALL CAPS
Do you like the icicle holiday lights? I guess taking down the decorations is a low priority task when you go into default.
With the purchase price, the flipper has room to negotiate.
If this property sells for its current asking price, and if a 6%
commission is paid, the flipper stands to make $99,500. Do you think
she bought it 32% under market?
Of course, the story for the lender is a bit different. When this
property sold for $417,500, the lender lost $262,500 after a 6%
commission. It looks as if this was a short sale, so a full commission
was likely paid.
22 Rockwren is having another open house this weekend. It was the focus of last weekend’s open thread. We performed an IHB analysis on the property this week (22_Rockwren_Woodbridge_Irvine.pdf). We are of the opinion that this property will sell for significantly over its current asking price.
And so concludes another week at the Irvine Housing Blog, chronicling the Irvine home market since September of 2006.
Irvine and Laguna Beach are very close, and although the lifestyles are very different, the housing markets draw from the same buyer pool. Pricing in one community impacts the other.
Some of the high-end properties in Irvine and Orange County are really groovy. With the wild and unpredictable pricing in our markets, the attachment of people to their properties can become a love-hate relationship.
In a housing market crash like we are witnessing now, no neighborhood is immune. The most desirable neighborhoods crash last, and they come back the soonest, but they too must walk through the valley of the shadow of death (Psalm 23:4). Right now, they fear no evil.
Despite the fact that they fall last and come back first, it does not mean that these neighborhoods crash least. Due to The Immunity Syndrome, some of these neighborhoods will crash the hardest. The prices in these neighborhoods was not pushed up so high by cash buyers, and although cash buyers can float things for a time, the lack of financing creates a vacuum that sucks the air out of the housing bubble.
For now, buyers with substantial cash positions dominate the market in Irvine. Large financing amounts will not be common any time soon as the loan programs of the bubble are dead. Will cash buyers sustain the market forever? No.
‘WOW’ Owner Upgraded more than $300,000 for 7′ Crown Molding
throughout, Security Systems, Built in Speaker Systems, Chandelier
lighting System throughtout House, Custom made curtains, 20X20
Travertine tiles throughtout downstairs, All Upgraded Viking
Applicances, Cabinets, Counter Tops, Door Knobs, Built in Media Center
and Wall units, Built in Walk in Closet, Custom Paint Throughout with
designer Wall Paper in dining area, Powder Room and Master Bedroom,
Built in BBQ, Water Falls (X2), Large Built in Fire pit, Fruit trees(
Jujube, Peach, Persimmon and Avocado), and much more… Cul-de-sac
Location, Back to private Views and Trees, Very Quiet,
If they spent $300,000 on upgrades, we know where the WTF asking price comes from.
Back to private Views and Trees, Very Quiet? I call BS on that one. This property backs to the intersection where all the traffic in the subdivision comes and goes, and it sides on to a collector street.
What is that staged on the couch?
The owners of this property do have a mortgage over the deduction limit, but even if they had to reduce price, this would not be a short sale. I still think they will fall underwater, but that is not today’s market.
If this property sells for its current asking price and a 6% commission is paid (it will probably only be 5%), the late 2005 buyer and current owner will make $164,620. Perhaps there was no bubble?
The Substitution Effect
People searching for a $2,000,000 property are generally going to look at all the lifestyles available to them. If nearby cities have superior properties and lower prices, people and money will flow there.
$$$ MONSTER 1/4 Million dollar Price Reduction!$$$ (7/25) Now priced
WELL below the average SOLD price per s/f~ Enjoy remarkable Ocean,
Catalina Island, canyon, and city light views from this stunning true 5
bedroom, 3,697 square foot, three story Laguna Beach home. Each day
brings a new sunset to view from multiple levels of balconies, DUAL
master suites, and a hot tub in the yard to soak up the many views.
Enjoy morning coffee on the patio adjacent to formal living and dining
rooms, or unwind in the family room with corner windows framing in the
stunning landscape. Located on a private cul-de-sac with a two-car
garage, this spacious home resembles the feeling of being in a resort
while in the comfort of your own home. Close to dining, Resorts, John
Wayne Airport and Laguna Canyon.
I guess that $$$ MONSTER price reduction did not close the deal because another one followed. Perhaps their WTF starting price was part of the problem.
Date
Event
Price
Aug 20, 2009
Price Changed
$1,999,000
Jul 25, 2009
Price Changed
$2,095,000
Jul 17, 2009
Price Changed
$2,240,000
Feb 10, 2009
Price Changed
$2,350,000
Jan 02, 2009
Listed
$2,450,000
Take a good look at both of these $2,000,000 properties. In your opinion, is the Irvine property as nice as the Laguna Beach one? Personally, I think the views and proximity to the water make the Laguna Beach property far superior, but some may favor the Irvine home for its convenient location.
Competing properties in neighboring communities have an impact on property values. All high-end communities in Orange County equally immune to price declines? If one crashes, with the substitution effect bring them all down? It should.
{book5}
The substitution effect also down the housing ladder within the same communities. As prices on properties like the one featured below continue to decline, that will apply pressure on the better properties in the area.
PRISTINE ARBOREL PLAN 3 – 3 BEDROOMS + DEN/OFFICE, 2.5 BATHS.
CUSTOMIZED & UPGRADED THROUGHOUT WITH HARDWOOD FLOORS, CROWN
MOLDING, PLANTATION SHUTTERS, CUSTOM PAINT, RECESSED LIGHTING, BUILT-IN
SPEAKERS, FIREPLACE AND MORE. GOURMET KITCHEN WITH STAINLESS STEEL
APPLIANCES, GRANITE COUNTERTOPS, CUSTOM CENTER ISLAND & WALK-IN
PANTRY. REAR YARD WITH BUILT-IN BARBECUE, STONE PATIO & GRASSY
AREA. IMMACULATE MOVE-IN CONDITION. DEN/OFFICE CURRENTLY USED AS
PLAYROOM, COULD BE CONVERTED TO FORMAL DINING ROOM. LOW TAX RATE OF
1.04%, LOW MELLO ROOS APPROX. $2930/YEAR.
ALL CAPS
LOW TAX RATE OF
1.04%? Low compared to what? Isn’t every house taxed at 1% (plus a few miscellaneous fees) because of Proposition 13?
The second property looks suspiciously like a flip gone bad. Our flipper knife catcher paid $817,000 in 2008 for a property that sold for $903,500 in 2005. I imagine they figured they were getting a bargain. It hasn’t worked out in their favor.
The current asking price is 3% over the price they paid. If one of the owners is a realtor, they probably have listed it with a 3% markup to cover the cost of the buyer’s broker. At least that is their thought process. I wonder if comps or the declining market figured into their calculations. It doesn’t look like it.
People’s fantasies about their property’s value can be contagious. A few weeks ago, I profiled The Crooked House, Del Italia, Westpark, Irvine. The owner of the house was kind enough to stop by and join in the comments. At $679,900, we all thought his property was a bit overpriced, but he later lowered his price to $649,000 and is now in escrow.
It appears that his neighbor wanted to cash in a lottery ticket of their own, so today we have 2 Del Italia being offered for $698,000 after the flipper paid $552,000 about a month ago. Good luck with that.
Apparently the $552,000 foreclosure did not phase the buyer at 4 Del Italia. Either the comp was not considered for financing, or the buyer stepped up with cash. A $649,000 price is doing very well for them.
Can the flipper get $50,000 more?
It doesn’t seem likely that a bank is going to loan 80% of $698,000 to make the deal happen, so a buyer is probably going to need to put 30% or more down to get the property. Since many have speculated that foreign cash buyers are buying all the inventory, perhaps this flipper is not living in a fantasy world after all. Will someone pay his price for this little piece of Irvine?
A Must SEE. Must SEE. Very private & Quiet Home in Westpark. Large
living room, Open floor plan, Excellent property condition, Large back
yard. Additional parking space for guest, Cul-De-Sac end private house.
Super Clean & Bright and Excellent School District. Spacious
Kitchen space and Walking distance to Community Pool&Spa. Must See.
Move in Condition NOW.
L@@K A Must SEE. Must SEE. L@@K
Must See.
Move in Condition NOW. I will wait until LATER.
The previous owner of this property paid $750,000 on 8/19/2005. She used a $600,000 first mortgage, a $150,000 second mortgage, and a $0 downpayment.
Foreclosure Record Recording Date: 04/16/2009 Document Type: Notice of Sale (aka Notice of Trustee’s Sale) Document #: 2009000186164
Foreclosure Record Recording Date: 01/13/2009 Document Type: Notice of Default Document #: 2009000013961
The lender lost about $231,120 at the time of sale.
The property was purchased by its current flipper on 6/18/2009. If it sells for its current asking price, and if a 6% commission is paid, the total gain to the flipper will be $104,120.
Will this flip succeed? or it is just a fantasy?
{book2}
Since the title of today’s post was “Fantasy,” I wanted to share with you some excellent fantasy writing on TV. I was looking for a show I could watch with my son, and what I found got me hooked. I have always been a science fiction fan (I know way too much about Star Trek), and I recently discovered the Star Wars Clone Wars cartoon series. George Lucas has created these cartoons set in the time period of the Clone Wars between the second and third Star Wars movies (actually the 5th and 6th movies, but that is another story). Lucas does a very good job; I particularly enjoyed Episode 1: Ambush and Episode 10: The Lair of General Grevious.
An insiders view on the pricing policies and inner workings of the Irvine Company. This post is from multiple sources, but I claim no first-hand knowledge of what is written. I think you will find it interesting.
Whether you’re a brother or whether you’re a mother, You’re stayin’ alive, stayin’ alive. Feel the city breakin’ and everybody shakin’, people, Stayin’ alive, stayin’ alive.
Have you ever wondered how prices on The Irvine Ranch evolved? Why are they higher than other Orange County communities? I have recently had long conversations with a few people familiar with the process, and today I am going to share it with you. Much of what is written below came from former company insiders who declined to be named for this post.
First, it may we worth reviewing Land Value 101 to provide a conceptual framework for how land is valued. Some of the concepts in this post build on the foundation of that one.
Land planning is a process whereby the elements of community are woven together in a framework that maximizes land value based on proximity to major sources of jobs. On the Ranch, The Irvine Company defines the lot sizes/density, product type, approximate price range, buyer profile, number of homes, etc. for each planning area (and parks, schools, etc.). Efforts are made to try to position the product array such that builders are not competing with each other head to head. That is part of the process of good land planning.
The Irvine Company selects a few builders to develop a line of floorplans, exteriors, financial proforma, etc. to be presented to TIC — at the builders expense. TIC project managers have a number in their mind as to what that financial proforma causes the price of the land to be and they work toward that end. It’s an easy formula that takes into consideration all the elements necessary, including builder’s overhead, their cost of financing, building materials, profit, etc. (see Land Value 101).
It’s no coincidence that the builders who present financial proformas with the highest residual land values are the ones selected. Rarely does design, style, excellence of architecture — except as a function of density — win out over high cost of land. Architectural competition becomes a race for higher density, not excellence in floorplan. But all the builders know if they don’t play the game, they won’t be invited to the party again, so they get creative with features such as bonus rooms, garage space conversions, spec levels, and other techniques. For more detailed information on this process, please visit our Architecture Forum.
Builder profits on the Ranch were often in the 4-6% range, if that (builders usually make 12% in a stable market). Building costs were a bit high, even early in the bubble, with the amenity level in homes on the Ranch, those costs were closer to $125-$145/sq.ft instead of the $85 found elsewhere. Sales staff (except for the custom lots) varied from builder to builder, but were either a flat rate (“box rate”) with small commissions for selling options ($50 for Air Conditioning, etc.) or up to.05%. The higher the sales price, the lower the commission. Sales managers were salaried (so came out of overhead) with bonuses. But even small builders rarely got anything close to 6% and that had to cover on-site people compensation (often without a draw), some level of management oversight, some level of advertising/marketing/sales training.
Back to the process…. Once the builders are selected, they close escrow on the land. In Woodbury, land prices got up to $5M/acre (see Land Value 101). A single family home on a 50 x 90 lot yields about 5 homes per acre when you take out streets, etc. So you begin with land cost of $1M, add overhead, materials, etc. to arrive at a final selling price.
Then, (it may be 2 years until they are ready to open for actual sales) before they can offer anything for sale, the builders must first present their individual lot prices (base prices and lot premiums) to TIC for review. The reason for this is that TIC, in addition to the price already garnered for the land, also participates in the builder’s profit when the home closes escrow with Joe Lunchbox/original consumer. Thus, in a rising market, TIC actually gets more for the land they sold 2 years ago.
In a declining market, the builders often make little or no profit, but they will be invited to The Irvine Company’s party again. Often builder’s profit levels are less than what they could achieve if the same money was invested in simple CD’s. To make the most of their investment in Irvine, they bought much less expensive land in Riverside, San Bernardino, Temecula, Arizona, etc. and used the same floorplans again, and again. But they were convinced that they needed a presence on the Ranch.
The builders did this because being on the Ranch brought in bus loads of developers from other companies and other states/countries and enhanced their image. Like in retailing — a loss leader — something you sell cheap hoping to make it up later. All those same builders built projects in Rancho Santa Margarita, Los Flores, Ladera Ranch, etc. Many of those projects debuted in Irvine.
Occasionally, the sequence was reversed; new product debuted in RSM, came into Westpark II at 12% higher prices. With all the same players; Standard Pacific, William Lyon, Brookfield, Richmond American, RGC, Baywood, K.Hovnanian, Taylor Woodrow…on and on. Same products, community specific themed exteriors, advertising, etc. We looked at community specific pricing and compared them — Irvine always came out on top — access to jobs locations was key (and still is). The theory was that a mid-level manager who worked in Irvine would travel a bit of a distance to buy what he perceived as a home nearly as nice as his boss who lived in Irvine. Therefore, price discounts were defined.
IMO, this process is a brilliant example of a powerful landowner leveraging their power to extract maximum profit out of the deal. The demand for housing puts pricing at a certain level, and The Irvine Company wants to extract whatever profit it can out of that demand. I wish I could set up a system whereby every new resident of Irvine gives me $400,000 cash profit (at least at the peak). That’s how you get a net worth of $12,000,000,000.
PRIME WOODBRIDGE PROPERTY , WALK IN DISTANT TO BEAUTYFUL LAKE AND
SHOPPING CENTER , SCHOOLS, RESTAURANT, MASTER BEDROOM IS ON MAIN FLOOR
,OWNER HAS A R/E LICENSE
This property was purchased by a relocation company then deeded to the current owners. The owners put 20% down, so this does not look like it will be a short sale. Of course, they are asking for enough to make a profit, but I rather doubt this property has appreciated over the last two years.
I have profiled a number of properties on this street: in May of 2009 I featured 14 Desert Willow in Desert Willow Did Not Fall, on April 30 of 2009 I featured 30 Desert Willow in Nine Months as REO, and in July of 2007 I featured 28 Desert Willow in Weeping Desert Willow. Today we are moving one more house down the street and featuring 26 Desert Willow.
Columbus Grove was the first Irvine neighborhood to see a collapse in its mid to high end pricing. There are many theories as to why this happened, and many readers who believe it is because the neighborhood is not desirable. I believe it was something else.
Lennar starting building and selling in this community near the peak. Since these properties were new, they sold at WTF price levels. Since Lennar did not want to try waiting out the market, they continued to build and sell during the early stages of the credit crunch. Their continued production of must-sell inventory drove prices down quickly.
One can argue that prices would not have dropped as much if the neighborhood was more desirable, but even in desirable neighborhoods, they are still subject to short-term fluctuations of supply and demand. Columbus Grove is a classic example of what happens to any neighborhood when large amounts of must-sell inventory is dumped on the market. This will be the fate of all mid- to high-end neighborhoods as the defaults continue and the REO piles up.
Highly desirable Plan 3, the largest Alexandria model within the
Columbus Grove community in Irvine. This spacious Tudor home features 5
bedrooms plus a Den , 4 bathrooms & $$$$$$ in upgrades! Open floor
plan including: High volume celling,Dining room,Butler’s Pantry,Euro
Style Kitchen w/ a huge center island, Great Room with fire place and
Media Niche, covered patios,Master Bedroom with Retreat, and gas
burning fireplace . Upgrades include:European Medallion, granite slab
counters,S.S.GE Monogram appliances,wrought iron stair rails,
Travertine floors on 1st level, built-in media Niche, Multi-zone
speakers,8-jet,jacuzzi tub,Crown & Base Molding
throughout,plantation shutters,Built-in Closet system & custom
paintings, cherry-wood cabinets, French doors, recessed lighting,
garage cabinets, 2 Bay Garage w/epoxy floors, maintenance free lawn
hardscape front &back yard,fire pit w/bench, spectacular water
feature and built-in BBQ island. Ideally located with parks &
Tustin District nearby.
Highly desirable? Do I need to be told this? Is anyone going to go see a listing because the realtor says it is highly desirable?
$$$$$$ in upgrades! Poor saps wasted their money.
Someone paid $1,349,000 for this property on 4/28/2006.
Sometimes when I see these peak prices, I am dumbfounded.
Three years later almost to the day, the property was purchased at auction by a flipper for $742,500…. Does anyone else feel a schadenfreude dose coming?
If this flipper can manage to sell for asking price, and if a 6% commission is paid, the total profit will be $149,560. Good luck with that. Do you think he will get it?
I hope you have enjoyed this week at the Irvine Housing Blog. Come back next week as we
continue chronicling ‘the seventh circle of real estate hell.’ Have a great weekend.
Highly desirable Plan 3, the largest Alexandria model within the
