Sunday, September 11, 2005

A House in My Neighborhood

Today, I went to check out a house ( MLS ID#: MC5308496) for sale in my neighborhood. No, don't worry I am not actually considering buying this house.



It is located in Silver Spring, MD which is an inner suburb of Washington, DC. Previously it was listed at 519,00 but had not sold for a month. Now it is listed at 489,000., which represents about a 6% price reduction. The house is located on a quite street in a desirable neighborhood. The schools are pretty decent, it is 1 mile from the Beltway and 4 blocks from the train station ( metro). It is the cheapest single family house (SFH) in the neighborhood. It features:
  • "Charming Exterior and Interior""
  • "Three Bedrooms"
  • "One Bath (room for more)
  • "Quiet Neighborhood"
  • "Three level living"
  • "Central Air Conditioning"
  • "Original six panel wood doors interior"
The interior of the house is not "charming," in fact the walls are badly painted, the hardwood floor is damaged, the kitchen is outdated ( not granite), and the upstairs bedroom looks terrible.

So will it sell at this reduced price in a reasonable time frame? Possibly.

I ended up chatting with the realtor.

Conversation 1:

Me: "Well at 489,000 your monthly payments on a fixed 30yr loan would be about 3,000 a month."

Realtor: "A bit less maybe 2,800. Or you could take out a crazy ARM."

Conversation 2:

A Women "We have a friend who is looking to buy but is concerned that when she may sell in five years the price won't be good because of the bubble"

Realtor: "She'll do just fine if she holds for five years."

Conversation 3:

Realtor: "This house is cheap. I might make an offer on the house if it doesn't sell soon"

Me: "What would you do with it?"

Realtor: "Rent it out for a while"

Me: "But the rent would not cover the mortgage."

Realtor: "How much do you think I could rent it out for?"

Me: "About 1800 a month."

Realtor: "More. It used to be rent out at 1850 a month about 1.5 years ago."

Me: "Okay you could rent it out at 2000 a month. That still does not cover the mortgage, taxes and maintenance costs. You would be losing hundreds of dollars a month hoping for future price appreciation"

Realtor: "There are ways to make it work."

Me: "Like what?"

Realtor: "I could split it into two and rent out the basement."

Me: "Is that even legal?"

Realtor: "I probably could get a permit. Or perhaps I could get one of those 1% ARM loans."

Me: "But then it would be a negative amortization loan."

Realtor: "Perhaps. Maybe I could renovate it and sell it for more."

Me: "Well it does need major work."

We chatted about other things as well. A pleasant individual. Many potential buyers walked through, but there was very little interest in the house due to the high price for a house in a poor condition.

13 comments:

  1. That house is a POS. I can't believe it is even more than 250K.

    ReplyDelete
  2. Using the historically standard 28% of income for housing costs this small, outdated POS would require a household income of almost TRIPLE the national average....It will never cease to amaze me, what are people thinking.

    ReplyDelete
  3. I'd have to agree with both posters - half a million bucks for that house is unreal!

    As a matter of interest, what would you consider a realistic price of this house to be, bearing in mind its location from the Beltway, etc.

    Enjoy reading your blog, David. I like your writing style, creativity and flair.

    ReplyDelete
  4. There have been a lot of houses in that area of the neighborhood purchased by contractors and had new larger homes built on the plots of land and were sold even with the asking prices of 600K or more.

    That will probably happen to this house, whenever the price drops low enough - not that I know what that price is. The land is worth a lot since it is so close to DC, Metro, 495, etc. and the area is flurishing with new fancy stores. With the right kind of house built on the land a contractor can recoup the money spent and make a profit.

    ReplyDelete
  5. Thanks for the compliment. Anon is right, an investor may very well come in and buy the house. Put in 70K of work and then try and sell it for 650K. It might work.

    A realistic price would be 440K. If they lower the price to that amount they should be able to sell the house relatively shortly.

    ReplyDelete
  6. That house for just under 500K is sadly to say a dump-looks like it was built in the early 50s. Up the coast in my area of greater Hartford CT it would sell for about 170K- and they say there is no bubble? Please.

    ReplyDelete
  7. skytrekker,

    Not far off. "Year Built: 1943"

    ReplyDelete
  8. This comment has been removed by a blog administrator.

    ReplyDelete
  9. A bit off topic...After my hard drive crashed last month, because of Spyware- and after I installed a new one- the assault continued- despite have an anti virus and two spyware programs running. I decided to give the FIREFOX browser a try- and thus far have picked up ZERO spy/adware.
    Wow! I also before using this browser installed a Firewall- seems that when using a MSFT product these days you have to learn security procedures or die. FIREFOX reminds me of the first browser I used nearly 9 years ago NETSCAPE- anyway give it a try....

    ReplyDelete
  10. David.

    A house like the one pictured couldn't sell in the area I live in, South Texas (Rio Grande Valley), for over $125,000, and that would be only if had a huge yard. Here, for a list price of $500,000, you could get a 5,000 sf, 5 bed, 5 bath mansion with a 3-car garage, on 1/4 acre with a perimeter fence and a pool.

    I can't believe the conversation you had with the realtor. No, on the other hand, I can. I know realtors who are that stupid. (Perhaps this explains why 90% of the people who get real estate licenses quit the business in two years.) I know dozens of realtors in our board who only want to work 8:00-5:00 M-F (even though most buyers want to look at houses in the evening or on weekends or holidays, when they don't have to work) and who have never been to a closing. To me the latter is the most stupid thing I can imagine. I've been to every closing for every house I've ever sold. The realtor is supposed to be there to check the closing documents and correct any mistakes (and there are almost always mistakes, like double charging for the taxes). If for whatever reason the buyer doesn't sign the closing documents (maybe they don't understand them) and gets up and walks out, the whole deal falls apart and the realtor doesn't get paid! But as stupid as I think that is, here is an actual conversation I had with a prospective buyer yesterday, and I'm not kidding.

    "Mrs. Aguilera gave me your name and told me to call you. My husband and I are looking for a house that we can buy and live in for three months, then re-sell at a profit."

    "There is no such house."

    "Well, we're planning on building a house and we want something to live in until it's finished."

    "What kind of financing do you have?"

    "We've been pre-approved for 100% financing." [What this means is that the lender is probably going to loan them, say, $108,000 to buy a $100,000 house. They pay $108,000 for the house, and the seller pays the buyer's closing costs, $8,000.]

    "You realize that with that kind of financing, you're going to overpay for a house, and it will be several years before you have enough equity to sell it and break even." [Equity = Market Value ($100,000) - Principal Owed (after one year, $107,700) = -7,700.]

    "Oh, well, maybe we can rent it."

    "There are a lot of rent houses on the market right now and rent prices have been decreasing. You might not be able to find someone who is willing to rent it for what you're paying for it."

    "Oh, well, we're just looking for something we can live in for a few months while our house is being built."

    "You do realize that a lender is going to take into account the mortgage on the house you buy before approving a loan to build a new one."

    "Oh, no, I never thought of that."

    "Have you considered renting a house or an apartment while your house is being built?"

    "Oh, no, we don't want to rent. We don't want to waste our money."

    "Well, I don't think you're going to be able to find a house for sale like you're looking for. You really should consider renting."

    "Oh, well, okay, but we don't want to do that. Thank you very much."

    I really don't know what to make of all this, but it seems to me that over the last few years real estate has driven everyone completely mad.

    ReplyDelete
  11. That is a great story. Thanks so much for sharing.

    ReplyDelete
  12. I'm guessing that back when I was house shopping in 1999, that house would have gone for <$150,000. (hard to tell since "Silver Spring=every part of Montgomery County that's not somewhere else.

    ReplyDelete
  13. I pulled the listing, and sadly, there is no virtual tour so I can't see the crappy interior for myself.

    The original price, per the listing, is $545,000 which means it's reduced just over 10%.

    ReplyDelete