March 26, 2008
Going Once, Going Twice...“Sold” For $700,000 (41 Federal #42)
With around sixty people in the room, but only a few active bidders, the high bid at today’s auction for 41 Federal #42 was $700,000 (and apparently it wasn’t “outbid”). As a plugged-in ex SF-er correctly surmised, however, the bank now has seven days to decide whether or not to accept the bid (which we’d be surprised if they didn’t).
A recorded sale at $700,000 would represent a drop of $180,000 (20.5%) from the original purchase price in December of 2006, and would also establish a new building “comp” at $760 per square foot.
That being said, keep in mind that the unit looked like it had never been occupied, and the reported sale price of $880,000 in 2006 was $5,000 over the original list price of $875,000 which had subsequently been reduced down to $825,000 prior to going into contract (i.e., something’s not quite right with respect to the original sale).
And tip of the hat to ex SF-er ("I think this sells for $700k+ or not at all"), Lance ("$685K"), and Nicole ("$679,000") who were all on record with their pre-auction predictions and within 3% of the highest bid (as well as to FSBO for filling in a few holes with respect to #42's official MLS history).
First Published: March 26, 2008 5:53 PM
Comments from "Plugged In" Readers
Depends big time on what bank is involved. If the bank rejects this offer - crazy.
Posted by: Michael L at March 26, 2008 6:24 PM
I attended the auction...wow what a trip. Standing inside #42 for a second time (when it was listed at 939K was the first) with a couple out of town auctioneers (they did not know what a 'transfer tax' was). The actual auction took less than a minute, and one excited women wrote a check for 35K (deposit)and everyone else streamed out with broken dreams.
Cheers to her. It is impossible to time the market and hit the absolute bottom, an interesting new 'comp' at 760 p sq foot.
Posted by: bidder remorse at March 26, 2008 6:30 PM
Dollars to donuts they accept it!
Posted by: chuckie at March 26, 2008 6:32 PM
Oh they'll take it. Cash is king right now. Nobody wants distressed assets that *might* be worth more later on down the line. The cost of carry is painful if things don't turn around quickly. This sucker was REO and the RE wants cash, not a hope and a dream.
Posted by: scurvy at March 26, 2008 6:47 PM
Was a 'buyer's premium' payable to the auctioneer? If not, who compensates him/them? If yes, the $700K bid price needs to be adjusted.
Posted by: TrailerTrash at March 26, 2008 6:50 PM
bidder remorse, glad you could make it. Do you think most people (broken dreams)thought the $700k was too high? What do you think most people valued the property at? Just curious.
Posted by: viewlover at March 26, 2008 6:54 PM
What evidence do you have that prices are falling? In this area, or any beside 10 and parts of 3? You guys are annoying. You know why? You assume too much. You assume post popular media consumption.
Those immortal words,
spoken by fluj,
a mere 3 months ago,
January 5, at 9:39am,
regarding this very property,
will live on.
Posted by: tipster at March 26, 2008 6:56 PM
I think 700k is still too much for this property. I guess I'm just cheap.
Posted by: S&S at March 26, 2008 7:01 PM
I think a lot of people were shocked at that price. I saw a few flippers and agents who hoped to cash in on this unit. They didn't even have a chance to even blink before the price jumped to $700k.
That said it was a nice unit. Price? Maybe it went a little higher than people expected but the new owner looked so excited and hopefully she'll live in it and love it. If that is the case, today was priceless. She got the cheapest unit in a nice building that has a great location.
Hate to say it, but for $700k, I'd rather have a treetop unit at the Infinty. (no sales plug, but the truth)
BTW, who was the lady who tried to explain the transfer rate? Thought it was hillarious. She even gave a breakdown on the way out of the pros and cons of the winner's purchase. Sounded like a new agent trying to show her new knowledge. Anybody have her card. I might need representation.
Posted by: um at March 26, 2008 7:07 PM
When I was looking up the actual sale price compared against the high bid price, the properties that sold had exactly the same price.
At least the ones I looked at had NO buyer's premium.
FYI, a buyers premium is a percentage amount added to the high bid to essentially pay the auctioneer. Not all auctions have them. If you win an item for a 700 bid, and there is a 10% buyers premium, you would actually pay 770. But as I said, I didn't see a buyers premium when I looked at the actual sale prices for properties they auction, and the web site didn't mention one either.
Posted by: tipster at March 26, 2008 7:09 PM
Buyer has to pay $3k at closing for the auction fees.
Posted by: um at March 26, 2008 7:15 PM
I just want to add:
my guess was "$700k plus"
now lets see if seller accepts the sale (I think they will)
Posted by: ex SF-er at March 26, 2008 7:39 PM
"I think 700k is still too much for this property. I guess I'm just cheap."
If you thought $880K was too much for this property last year you were right. You think $700K is too much for this property this year? Trust your gut.
This property is not a loft, it's not in the 'hood and it dropped in value by 20% in one year. One year!
Posted by: Michael at March 26, 2008 9:03 PM
I think there are units out there like this and lofts as well as certain buildings like bridgeview which at the time were "new" and cool. Now, if someone wants a one bedroom they have an option of a luxury unit at the Infinity for 700k or so, or a less expensive option like Mission Bay. Fact is, if you bought into a building you have to consider what the competition is now.
Posted by: DJ at March 26, 2008 9:17 PM
a 20% decline, seems SF is matching the rest of CA.
"The California Association of Realtors reports median prices fell 27.2% from year-ago levels in the hard-hit Inland Empire east of Los Angeles, 30.9% in Sacramento, and 39.1% in Santa Barbara County."
I was shocked by the Santa Barbara drop, they haven't had any new development.
Posted by: Snafu at March 26, 2008 9:20 PM
Wow, pretty much everyone underbid quite significantly!
Posted by: pwb at March 26, 2008 10:06 PM
"Wow, pretty much everyone underbid quite significantly!"
Either that or exactly one person overbid quite significantly.
Posted by: tipster at March 26, 2008 10:12 PM
Not to be nitpicky but let's just clarify the use of the word "comp" here. This sale is not a "comp" in the appraisal sense of the word. Appraisers are supposed to use comparables sales that are 1) arms-length transactions, 2) marketed to the general public through MLS, and 3) sold under normal circumstances with typical financing arrangements for the buyer. As an appraiser I would toss this comparable out on at least one of these three criteria and search for more reliable indicators of value in the area.
Posted by: quakey b at March 26, 2008 10:35 PM
Seems to me a well attended, well marketed auction is the best means for establishing a market price and setting general comps for the building.
Posted by: SmartKid at March 26, 2008 10:57 PM
marketed to the general public through MLS
are you sure about this point?
in the height of the RE boom, there were many many FSBOs being sold. I know that appraisers were using these as comps, even though they weren't in the MLS.
how would an appraiser even know after the fact if the property was sold on the MLS or not?
I agree, one must take foreclosures with a grain of salt, but I doubt an appraisor could ignore this data point.
for instance: are you saying that if a similar unit opened in this building you would completely toss out a sale in the building for $700k?
what about places like Las Vegas and parts of SoCal, where 40% of sales are foreclosures? do appraisers ignore 40% of the market?
Posted by: ex SF-er at March 27, 2008 5:27 AM
I think these auctions speak more of the real "pent up demand" in the SF market than sales in Noe, Bernal or portrero. People want lower prices.
The fact that no one outbid 700K is very telling. The more such sales happen, more people want lower prices even in the best neighborhoods.
Posted by: akrosdabay at March 27, 2008 7:42 AM
I'm an appraiser with over 10 years of experience, so here's my take on whether this is a comp or not...kinda yes, but mostly no. First - auctions are very rare here in San Francisco, and the bidding mechanism where you have to produce a large check on the spot is very different from the way most homes are marketed and bought. And the previous poster is right that one of the parts of an arms length sale is that it is properly exposed to the market. Typically around here for resale SFRs and condos, that means the MLS, but a FSBO or a new development that is widely marketed but not on MLS also fits that description. Secondly, an REO sale is an overly motivated seller so it does not fit the test of an arms length transaction. So this fails on two main tests of a market rate transaction. Most importantly, though, these REO auction sales are unusual and make up a small part of the SF market volume now. When REO's and auctions make up a significantly larger part of the market and influence market value more you can use them as comps if there are not similar "cleaner" sales to use. Also, if you are doing an appraisal in that particular building, you'd likely have to mention it at the very least until there are other market rate sales in its place. So kinda yes, but mostly no.
Posted by: Anon at March 27, 2008 8:36 AM
In fairness to fluj, in the same thread that you linked to he also said:
"800K for a 1 BR with obstructed views seems quite expensive to probably just about everyone. It does to me."
Posted by: Outer Sunset at March 27, 2008 8:55 AM
i wonder if the above appraisers would be more willing to consider this sale a 'comp' in an up market where the property gets overbid to above other comps.
Posted by: condoshopper at March 27, 2008 8:56 AM
"An REO sale is an overly motivated seller so it does not fit the test of an arms length transaction"
And two years ago, when the buyers were bidding the same day the property hit the market with no contingency, backed by a option arm loan they didn't have to, and couldn't, pay back, how many of those transactions did you discount as being made by an "overly motivated buyer"?
Was the bank in this case in danger of failing if this transaction, which they have 7 days to approve, doesn't go through? So how is a bank in this circumstance overly motivated or not dealing at arms length? They have a week to approve it and they will suffer no real adverse consequences if they don't sell it.
It sat on the MLS for 97K more and failed to sell. How exactly is this not at least very close to a market price?
And did you discount bidding wars when they were new and not a significant part of the market? Option arm loans? No money down? No doc?
Why would you be so eager to come up with reasons to discount this sale when those same reasons seemed so irrelevant on the way up?
Posted by: tipster at March 27, 2008 9:08 AM
To anon 8:36 -- your insights are useful to an extent, but this auction was pretty widely known to anyone in the market. And it's really no different than setting an offer date for a property that has lots of market interest. Places priced right in SF sell FAST. There are lots of buyers out there and the agents are sophisticated. So all this did was test the low-end of the supply / demand equation where there was no artificial price set by an agent and no dis-incentive to turn down a 'reasonable' offer. My guess is that if a Realtor priced this place on the MLS at $650k it would have sold for roughly the same amount as it did yesterday.
This is a comp. No question about it.
Unless the bank decides to turn the offer down -- you have your new PSF comp for the building and anyone that pays more should have bought this place.
Posted by: eddy at March 27, 2008 9:19 AM
I was just sharing some tidbits about the appraiser methodology (I've been a licensed appraiser for 5 years). Love it or hate it, it is what we follow.
The reason appraising is somewhat of an artform is because with experience you develop somewhat of a sixth sense for knowing what are "typical" market situations. In Stockton, CA, a foreclosure or REO auction is "typical", and therefore a sale like this could be used as a comp.
In San Francisco, however, a foreclosure or REO Auction is NOT "typical", and therefore I would not use it as a comp. There are other reasons to throw this comp out and search for other data, but this is the main one.
Does that mean we ignore the data? No. But it does mean that we wouldn't use it as one of the 3, 4, or 5 comps in our appraisal report. We could mention it but it would not be used in the Sales Comparison Approach.
So, like the other poster said, kinda yes, but mainly no. Glad to know other appraisers are on here. Feel free to drop questions.
Posted by: quakey b at March 27, 2008 9:39 AM
Well, still seems like a lot to me too, but maybe I'm another cheapskate. S&S, do you wring out and re-use your paper towels too? ;-)
Posted by: Foolio at March 27, 2008 10:09 AM
First off, an arm's-length transaction is one in which the parties have no relation. The method of sale is irrelevant. The important factor is that each party is motivated to look after their own economic interest as best they are able. This acution certainly qualifies as arm's-length.
Second, I think (hopefully without shooting the messenger, because all insight is helpful) that this demonstrates the motivation of appraisers, mortgage brokers, and various other components of the real estate industry throughout the bubble period. The focus is not on "real" data, but on justifying pre-ordained prices, the higher the better.
So, while we all know that "ignoring" an auction sale price is just silly, we can all understand "why" it is typically done.
Posted by: Tom at March 27, 2008 10:10 AM
Lol, Foolio. Matter of fact, I do ... to wipe up messes, then toss. ;)
I would say the high price (my opinion and seemingly many others feel the same as well) that this place went for is atypical. Seems to me it was just an overzealous bidder, likely caught up in the excitement of the whole idea of a "foreclosure auction" (that it's a great bargain) and a sense of "victory" at winning the bid, much like stalking an item on eBay and putting in the last bid 10 seconds before the item expires. I'm almost certain the bid gets accepted (the bank would be foolish not to), and I bet there's going to be bidder remorse later this year ... if not already.
Posted by: S&S at March 27, 2008 10:49 AM
Outer Sunset - The entire SF housing market seems quite expensive to probably just about everyone in the country, with the possible exception of Manhattan residents. So by that line of argument fluj should be predicting large declines across all of SF. To my knowledge he is not.
For the record, I have no idea why people were predicting a 30+% decline. Has Stockton even declined 30% from peak yet? The RE market doesn't adjust overnight...it's sticky. I wouldn't pay $700k for this place, but a 20% decline adjustment is more than I would have predicted. No doubt more declines are in store, but it will take time.
Posted by: mike at March 27, 2008 11:23 AM
Well, I wasn't at the auction last night, but from the folks that were it certainly sounds like the "winner" may have surprised people with how high she went...but hey, all it takes is one, right?
That's why I don't even bother looking at places until they're at least 14-21 DOM...
Posted by: Foolio at March 27, 2008 11:28 AM
Mike asks, "Has Stockton even declined 30% from peak yet?"
Sure has. Look up Stockton trends on Trulia. 4 bedroom homes are selling for under $300K now after peaking at around $450K, from the chart they provide. Down over 30% and still falling.
Anyway, question to the appraisers here: if this property were in Bayview, Excelsior, or V-Valley, would it be suitable for use as a comp then? Because those areas have a ton of foreclosures and short sales.
Posted by: Dude at March 27, 2008 1:21 PM
Every sale represents a valid data point. I commend the appraisers for explaining their methodology (at least partially), but I agree that some bias has been revealed that may lead to higher prices. How can any true sale be ignored? This auction just produced a valid data point (even if it is not accepted by the bank). I can't believe that the appraisers discount it because it stemmed from an "overly motivated seller". Tipster's retort that purchases by "overly motivated buyers" should therefore also be discounted was brilliant.
Posted by: FSBO at March 27, 2008 3:08 PM
Interesting that a bidding situation is discounted and not a valid data point.
I would argue that auctions are the MOST relevant data points. Econ 101 - Auctions get rid of all buyer surplus.
Posted by: Treeman at March 27, 2008 4:36 PM
The first liquidation phase is now underway. SF Bay is going to give back 100% of the price rise from 2001. All of it.
Posted by: SurveyKid at March 27, 2008 5:30 PM
Wow, you appraisers might want to rethink your positions.
If the ORH or Infinity buyers sued you guys, and I were on the jury, I would suspect the real reason for those comments from the Appraisers above is that if any of those Appraisers accepted this as a data point, and the market right near Infinity/ORH has dropped twenty percent since ORH and Infinity went into contract, NONE of the unclosed ORH and infinity units would close, so they were thinking of any reason they can to toss out that sale or lose a fortune in ORH/Infinity appraisal work.
If I were on a jury, I wouldn't find any of those reasons even remotely believable. I'd find for the plaintiffs and have you reimburse them for their losses. It's not the only comp, but if it wasn't listed as one of them, boy I'd find those reasons a tad too flimsy. Maybe I'd be off my rocker, and the rest of the jury wouldn't agree, and those are perfectly valid reasons to just toss a comp completely out, but wow I think a clever plaintiff's attorney could make those reasons sound awfully fishy.
Posted by: tipster at March 27, 2008 11:40 PM
I find it beyond unbelievable that tipster is now giving advice to appriasers on how to do an appraisal.
Posted by: movingback at March 28, 2008 12:12 AM
"Appraisers accepted this as a data point, and the market right near Infinity/ORH has dropped twenty percent since ORH and Infinity went into contract, NONE of the unclosed ORH and infinity units would close".
As another 'data point', our 2/2 ORH purchase [on a low double digit floor with appealing south and west views] was purchased at $725 per sq. ft, a price that includes $17K worth of upgrades. This reflects the prices when units were first offered to the public in 2006. So, while prices may drop throughout the year and debates will continue to rage as to the extent of the drop, our price point is actually still below the $760 'comp' of this sale. We love where we live, love the views and feel comfortable about where prices will be in 3-5 years.
Posted by: Recent ORH buyer at March 28, 2008 12:02 PM