The recap: Nice single-family home in Noe Valley. Purchased for $2,265,000 seventeen months ago (10/31/2006), listed for $2,249,000 one month ago, pending after 12 days.
The result: 480 Duncan closed escrow on 4/3/08 with a reported contract price of $2,200,000 (2.2% under asking and 2.9% under its last sale in 2006).
∙ Another Single-Family Apple On The Noe Valley Tree: 480 Duncan [SocketSite]
Thank you very much for following up on this and other properties covered on SocketSite.
This sort of long range attention to the details is one of the things that makes SocketSite so valuable. The RE market is so slow moving that you need to join details like this together to see the real trends. Otherwise it is all just hype (from both the bears and the bulls).
What about 2679 California? 120K more than its last sale at the near purported peak market of September/October 2005?
[Editor’s Note: Patience is a virtue.]
Oh, wow, they made out on the purchase and sale of this property!
“They” being the realtors, mortgage brokers, etc.
The homeowner, spent over $750 per day, every day, for 17 months, to live there.
It doesn’t even look like they got to paint their walls or even move any walls. Such a pity.
And what an education for the rest of us. Pending almost instantly at UNDER the asking price. I guess when I see people circling a property almost instantly, that it doesn’t mean they are going to offer over asking, or even *at* asking! It’s a whole new world!
Tipster, what about the Ross Levy 30th street property ? Or the item I just posted ?
Infer this. Buying and then selling, with no improvements made, inside of three years is a crap shoot.
2.2% under asking is hell of a far cry from the 20%-30% decline in prices that most on this site tend to rally around.
All things considered, I’d say these people made out pretty good – obviously they were serious about selling it quickly, and even though they took a minor hit in the scheme of things, there was no fire sale on this house, that’s for sure.
flug – I think your math may be a tad off re: $750 per day…
How did you get $750/day?
Yeah, this is awesome. They hardly lost any money here. SFRE is fine.
“All things considered, I’d say these people made out pretty good.”
If that doesn’t say a lot about the market, I don’t know what does. The only way to make out “pretty good” by taking an almost $200K hit (which is definitely not minor) is to avoid taking an even bigger hit later.
It was tipster, not fluj, that was quick to pull out his handy calculator and let us know how much these people paid to live in their house on a daily basis.
Foolio, I think you are just jealous.
@ Tom – I think it’s time to get a new calculator. $200,000 hit? How did you come up with that figure? Please share.
Tipster –
There’s a fundamental and fatal flaw in your oft-repeated tirades: that you alone have the ability to time the market and will purchase a given asset at its absolute nadir.
This, of course, is pure and utter horseshit.
Speaking of horses, one that’s been beaten to death in these parts is the question of buying and holding vs. buying and selling. Flipping is a high-risk speculative game, and it’s easy to get burned. No big deal for non-flippers. No tears are cried for flippers who get burned (they are the new day traders, after all).
Sometimes people have good reasons to move. I have two sets of friends who’ve recently moved out of the city to take much bigger and better jobs in New York and London, respectively. They sold their homes as a result. One purchased in 99, the other in 04.
Without fail, you would no doubt swoop in and declare that these people are: a) unemployed, b) indigent, c) stupid, d) huge money losers, e) suckers (your favorite word). This, of course, is more of your horseshit. You assume bad circumstances, and you’re off to the races.
Of course, in the one case where you actually (sort of) knew the people involved, you wrote a stirring (if exploitative) elegy about the poor kids. So when a stranger has a bad experience with real estate, you scream “HA HA! SUCKER!”. But when they’re even a passing acquaintance of yours, they’re suddenly Ali McGraw in Love Story.
These people to whom I refer above have incredibly diverse portfolios and a great deal of liquidity (they don’t share their particulars, but when you know people well… you just know). If their home had to be sold at a net loss when factoring in buy vs. rent, it is unfortunate but hardly the end of the world. It will also be made up later, I might add.
As for the painted walls comment (in reference to my previous post), you’re taking it out of context and you know it. But it suits your one-dimensional faux superiority, so whatever makes you happy. My love of my striking home is unrelated to your happiness in your new apartment.
If one just looks at the prices, 2.265m less 2.2m is $65k.
30 days in a month multiplied by 17 months is 510 days.
65000 divided by 510 is around $127 per day.
Am I missing something, or is tipster off by a factor of almost 6?
$65k drop in value + $132k in fees = $197k
that’s assuming no mortgage, taxes or upkeep.
with 6% money they were probably out of pocket an extra $9k a month.
you can rent a lot of house for $9k a month.
You guys forget commissions. They paid $2.265MM, sold for $2.200MM. Assuming a 5% commission, they netted $2.090MM on the sale. $2.265 – $2.090 equals a rougly $175K loss. Close to the $200K Tom threw out.
Purchased 17 months ago. Average 30 days/month x 17 months equals 510 days they lived there. $175K loss divided by 510 equals $343/day they spent living there. Close to tipster’s $250/day.
Oh, wait. PropertyShark says the ’06 purchase had 2 loans, one for $978,500 and another for $1,060,000. Total financing of $2,038,500. So they put 10% down. While their return on this deal was -2.9%, their cash-on-cash return was actually -77.5%.
Recent ORH buyer — you’re neglecting to take into account (1) mortgage interest, (2) property taxes, (3) selling costs/fees, (4) time value of down payment. All those are real costs. As you note, just the decline in value alone was $127/day for 17 months. That’s no small sum. And they bought before prices really started to decline in SF — around Spring 2007, and accelelerating from the Fall through today. Those who bought in 2007 have been hit worse.
Sorry, small typo in my above comment. “Their” loss should be “Genentech’s loss.”
It is kind of funny how fluj goes from crowing “Straight to pending status after 12 days, apples to apples fans.” to “Buying and then selling, with no improvements made, inside of three years is a crap shoot.” when it comes in at under asking.
Let me guess, next year it will be “inside of four years is a crap shoot”. The year after that “inside of five years is a crap shoot”…
In any “normal” real estate market, one cannot expect anything but a net loss when selling a property purchased a mere 17 months prior, when including the costs of sale and real estate commissions.
Clearly these sellers had a compelling reason to sell and were motivated (for whatever reason) to accept the first offer that came along. That an offer came along almost instantly, at only 2.2% under asking price – and said asking price being basically the same as what the property was purchased for 17 months ago – seems to be a strong validation of the relative strength of the SF market. Basically, the property sold for what it sold for 18 months ago (I don’t consider the 2% difference particularly significant.)
Given the large drops in value elsewhere in the Bay Area and the state and nation, it would seem (based solely on this one property, but other comparisons show similar results) that the SF market has done exactly what it’s done during previous market downturns – it’s plateaued. Which is why I’m happy I own here and not in Antioch.
No no no, this is all wrong. Case-Shiller says San Francisco is down 15%, not 2%. Editor, please correct your numbers. (I’m surprised tipster didn’t catch your error.)
wow – thanks for the great follow up.
this sort of apples to apples comp is irrefutable on many different grounds. the simplest is this: if you were savvy (or lucky) enough to acumulate the net worth to buy this property, and then decided to unload it at a loss, and as quickly as possible (50k (the under asking bit) is still real money last I checked), it is probably because the market dictated this price.
I have no doubt that the buyer is happy, and that 4 years ago, this property would have gone up in value by 10-20% during the 17 months.
And oh by the way, this is a house in an excellent, coveted neighborhood.
I’m not a bull or a bear, but a realist homewoner. Prices are down, maybe not dropping as far or as fast as some would like (and others would hope), but the trend is real and unmistakable.
wow – thanks for the great follow up.
this sort of apples to apples comp is irrefutable on many different grounds. the simplest is this: if you were savvy (or lucky) enough to acumulate the net worth to buy this property, and then decided to unload it at a loss, and as quickly as possible (50k (the under asking bit) is still real money last I checked), it is probably because the market dictated this price.
I have no doubt that the buyer is happy, and that 4 years ago, this property would have gone up in value by 10-20% during the 17 months.
And oh by the way, this is a house in an excellent, coveted neighborhood.
I’m not a bull or a bear, but a realist homeowner. Prices are down, maybe not dropping as far or as fast as some would like (and others would hope), but the trend is real and unmistakable.
sorry for the double post.
great site.
terrible server.
Dude,
Valid points by yourself and others, but tipster called it $750 per day, not $250. Even using a $175k loss is $343 per day is still half of the $750 that tipster claimed. Either way, I agree that it’s not a small sum. However, it’s still a far cry from the 20% attrition that the ‘short selling experts’ are calling for.
I concur with amused – I have no sympathy for flippers either, and some may get hurt in this market … as most daytraders got badly burned from 2000-2002.
Misterplow, Case Shiller says that the top tier SF MSA properties (SFRs) are down 3.5% in the last year — nearly all of that in the last few months (and accelerating). The market for all tiers is down 13.2%. This single data point indicates that SF is trending downward right along with its immediate neighbors — which, of course, is what one would expect.
I don’t care what the short-term owners made or lost on this. This $2.2m sale represents about $865 per square foot. That is good news for Noe Valley homeowners (except perhaps those who bought to flip it 1-2 years).
@ Michael. Did you not think it reasonable to expect an overbid after a mere 12 days? Most would. I did. Just like I think most of us are expecting the 30th street property to go for over asking.
I have never advised anyone to bet on static appreciation. Nor, for that matter, have I ever even casually said as much in a BBS. It is completely against my philosophy. If you want be assured of making money you must improve the property. Period.
Your constant sardonic attitude has not gone unnoticed. Did that make you feel special? Feel free to not address me any more if you have no regard for my opinions. OK?
There have been 68 $2M and $2m+ SFR sales in Noe Valley. Sixty-one of them have come after 1/1/04. And again, only two $3M sales ever.
@movingback:
Jealous? Hardly. Amused at the contortions RE supporters go through to spin the market? Absolutely.
Guess what, fellas? If a house is no longer a good “investment” but rather just a place to live, it’s a whole new ballgame in SF.
Here is the $750.00 cost per day laid out nice and simple:
$175000 capital cost including commission. Worked out over 17 months it comes to $343/day.
$2265000 financed at 6.5% plus 1.135% local taxes equals $13K per month in interest and $443/day. (How it was financed is irrelevant. We are looking for a ballpark cost of ownership so any down payment needs to reflect the opportunity cost.)
$343 + $443= $786 per day (ballpark number for cost of ownership)
From another perspective this house costs society in the neighborhood of $15000 per month (interest plus tax plus depreciation). Is this sustainable? How many people can we support to live like that? It’s a nice house, in a nice neighborhood but not a mansion. One needs to bring in about $500K per year to afford that house. That is a very small percentage of Americans for what is basically an unremarkable house. Unless some very rich space aliens begin to buy real estate I just don’t see how the value of this house could increase any faster than GDP.
The total pre-tax “ownership” costs for the 525 days:
Interest on the entire purchase price: $2.265M @, say, 6% = $372 per day (born by owner + DNA)
Property Tax: $86 per day
Insurance: $25 per day
Capital Loss: $65K = $124 per day
Commission: $110K = $209 per day
Other Closing Costs: $10K = $27 per day
Total = $843 per day (+/-)
I think that this sale shows that Noe Valley is still quite strong. Maybe plateauing – but stronger than I had predicted at this point in 2008. It also shows how expensive it is to live in a $2M house that may be slowly declining in value. It helps to be a top executive at DNA to be able to afford it.
How’d I get 750? I’m one of those people who can just eyeball things and get pretty close. Let’s see how well I did:
Loss (65K)+ commission (100K) + mortgage origination fees and points on two mortgages + closing costs (1 point for $2Mil on loans is 20K), about 195K total, or about 11.5K per month. It might be a little high, but they probably paid buyers’ closing costs and maybe staged it or fixed it up a bit before they sold it, so it may be a little low.
You can’t deduct mortgage interest above 1.1M, and so they got two mortgages: and you don’t get a second mortgage for 6%! They had $5K per month (interest only @6%) to pay on the first, probably at 8%, around $6500 on the second. Only the first is tax deductible: so after 50% tax on the first one, they pay 9K per month.
Property Taxes: 2.2K per month.
Insurance and minor maintenance on the yard and other minor repairs about $600 per month (insurance will be about 300).
PG&E/Water/Garbage, $350 per month. (Didja forget this is part of the cost of living there?)
200K down at 1.2% after tax interest is $200 they lost on their downpayment
Total is just a shade under $24K per month.
$24K/30 days = $800.
I just eyeballed it and said $750. You are right, my math *was* off. I was a little low. I’m sure some of my numbers are off enough to bring me back down to 750, maybe even a couple of bucks lower. It sure as heck isn’t off by a factor of 6.
Freakin’ wow! I could have had a lot more fun for $750 per day. Of course, I wouldn’t have had the opportunity to move any walls, and I hear that’s a real barnburner of a good time.
Dodd – I hadn’t read your post while I was posting mine, but obviously I’m in complete agreement with you. Good point about this house being basically unremarkable – and yet look at the resources and income level it takes to afford it.
None of you bears figured in tax deductions. Why is that?
These cost of ownership calculations need to subtract what it would cost to rent a similar home. Taking tipster’s $24,000/month estimate and assuming you could rent a similar house for $4000/month, that still leaves a large $20,000/month cost to own.
This is an abnormally short ownership period, so the broker’s commission is amortized across few months. That’s probably the biggest effect in this case.
The appreciation trend is the most important lesson from this apple. (Damn teaching/talking apples gonna haunt me again tonight 🙂
Please fluj – what are the real deductions to the tax?
Might it lower the cost down to a miniscule ~$700/day?
I don’t know. Assuming AMT means no property tax deduction, but they could have very well deducted property tax. A house like this probably costs 6 or 7K a month to rent, so that’s like 18K a month in cost not 24. There’s the interest deduction up to $1M. I don’t really feel like doing the math. I just wondered why those guys didn’t.
The deductions aren’t going to make this (or any) lousy investment into a winner.
That whole tax deduction argument is basically a crock — and what’s more, the mortgage interest tax deduction is a regressive tax that serves to put extra money into the pockets of people who can afford huge $1M mortgages, at the expense of those who can’t.
Guys,
You have forgotten to minus the cost of renting, and I’m guessing a house valued at $2.2m probably costs between 8-10K to rent. Didn’t we see a $6m home in Russian Hill here asking $33k per month just last week on SS? I know it’s not an exact analogy, but $4k for this calibre home is way too low. In addition, whatever mortage interest is paid probably results in a net 40% tax deduction, at least for the first $1.1m.
I agree, there is still a spread, but it’s not nearly the chasm that is claimed here. Then again, this is the same crowd who see 20-30% price attrition, yet have never owned a home. Of course, they are the bright ones, but somehow still haven’t come up with a downpayment.
Fluj — yet another reason why I respect your input on all this. You are certainly right that the tax deduction needs to be factored in. And you honestly recognize that with AMT and the $1M cap, the tax deduction for owning this place is not a hugely significant factor. I have had a dozen realtors try to convince me that — in all circumstances — the mortgage interest deduction alone “always” makes buying financially superior to renting. Untrue, of course, but a very common sales pitch.
I’m not calling it a “good investment.” And I’m not talking macro economics. On the contrary.
I’m wondering WHY, when some of you take the pains to talk VERY VERY MICRO and in fact take the pains to break the cost down into PER DIEM, that the deductions were not included.
Oh, it’s 803. No it’s 750. No, it’s 843. Fluj: What about deductions?
All bears — get real Fluj. Deductions aren’t even worth talking about.
The seller is a relocation company and is not interested in getting the highest price-just a quick sale.
I’d say the (or more likely the company shouldering the loss for the relocation) got off pretty lucky. This is a good Noe Apple and it shows a very real price decrease on a high end home. High end homes are still in demand. let’s not forget that this is a pretty awesome house and that there are lots of buyers looking to pounce. Nevertheless, the market is declining. I’m sure whoever bought this home will plan on being there for a while and are not concerned with the ~2% annual loss. I’m sure this was an auction and the winners probably were surprised they won since they bid under. I’d LOVE to be the broker with all of the offers. That would be telling for sure!
“this is the same crowd who see 20-30% price attrition, yet have never owned a home. Of course, they are the bright ones, but somehow still haven’t come up with a downpayment.”
And you base that on what, Recent ORH Buyer? Clairvoyance? Or just felt the need to make an ignorant and uninformed statement?
Fluj, I figured in the tax effects, and left out AMT. The other posters who tried to recreate my analysis didn’t include the tax effects, but they didn’t include all of the costs of ownership either. So in the end, it’s over $750 per day, for a not very remarkable house that didn’t drop by very much. I did forget to deduct the property tax, but if I had, it’s still over $750 per day, even with that factored in.
Any of us could find we are down a couple of percent from what we bought at, and this is an important lesson that even that relatively favorable situation can cost a lot. Hard to argue with my numbers: they spent a small fortune every day to live in a very unremarkable house in a very average neighborhood.
As for deducting the costs of rental, No. We were trying to find out what this home cost them. It cost them 750+ per day. The fact that they could have rented it for less is material, but you don’t subtract out anything to identify what something cost you. You might COMPARE it to the cost of the rental, but whether rentals cost 4K, 6K or 10K, is not material in terms of what it cost THEM. Just look at the money flying out of their hands and add it all up.
As for the seller being not interested in getting the highest price, oh contraire. Businesspeople are usually much more calculating. I suspect they did an analysis of what they thought they’d get, got more than that, figured if they waited in a declining market, they wouldn’t get even that, and so they took what they thought was a more than fair offer.
Fluj-
You’re completely right. You get the brunt of it many times. The analysis should factor in deductions.
And the portion about opportunity costs – I think that’s a little bit questionable too. Sure it exists, but is someone guaranteeing me 6.5% (CAGR)? – if so, I want you as my money manager since you’re guaranteeing me that kind of return after only 2-3 years in the investment.
I suspect you get the brunt of it because many times you give platitudes such as “I haven’t seen a downturn personally, and I’m on the street everyday”. Well, that’s the equivalent of taking your ball and going home. How can someone refute what you’re saying? Ummm….. OK?
I do feel for you though – you’re fighting the good fight for your cause. And you take a lot of beating for it.
@Fluj
Your first comment here is that anyone looking to sell a house within 3 years of buying is rolling the dice. That is a little different than anything I have heard you say here before, but can you name a single property bought in 2003 that sold in 2006 for less? You seem to scour the MLS for all this data, I would be surprised if you could find one. So, maybe, just maybe, doesn’t that mean that those were bubble times, and now is no longer? Maybe I am missing something, but the whole thing that drove this bubble is that everybody won for 4-5 years in a row in the flipping game, and now it is starting to flop, this being one minor piece of direct evidence. Were you telling clients in 2004 that they need to hold their place for 5 years or else they probably won’t make money on it, or at least were at risk for not making money?
@ Dude 1:50 pm
Please explain the Genentech comment!
RC75 – in the previous thread on this property, I think somebody mentioned the sellers were Genentech execs. And PropertyShark actually lists the 2nd mortgage holder as Genentech. So my guess is it was part of a relo package and the company ate the loss.
Ah – so all the previous speculation about the seller’s loss is null. They would accept the first offer close to asking and not worry about small losses – $65,000 is less than one patient’s worth of Avastin to Genentech!
Why not add in the tax deduction? As Fluj pointed out there isn’t likely to be one.
There are also plenty of things we could add in the other direction – depreciation for example but I suspect that over 17 months this was not a factor.
Sure we could make it very complex but this is not finance class. At the end of the day it’s pretty hard to argue that this house did not cost around $750.00 per day. That’s why we call it a ballpark number.
Treeman, Can you get a guarantee of 6.5% CAGR? Sure from the same person that guarantees your house will appreciate every year. 6.5% spread over the 2.65M is merely a mechanism that gives us a number to work with. Feel free to come up with a better number.
How can you be sure that Genentech ate the loss? The seller put down 10% in cash. Perhaps they ate the loss and Genentech opted to get all their money back from the sale.
But, the Bunk, how is it “flipping” if you don’t improve the property materially? It’s not.
Honestly, I have said that many, many times on here. I do not believe in appreciation by itself. I don’t think anybody who is in real estate for a living should, for that matter. 2003 to 2006 happened. Sure. Lots of people made money by doing nothing. Betting on it to happen again is another matter, it amounts to timing the market.
Lots of people in SF are still doing just fine right now “flipping” — people who know what they are doing. I honestly can say that I have ever told a client to sit tight and just let the waves of appreciation come. That isn’t what I do. I’ve told people condo conversion will gain equity. I’ve found many, many distressed properties for “flipping” investors. I’ve gotten patient clients sub-market deals on mismarketed and off-market or even craigslist properties, and have earned buyers instant equity, in my opinion. But just telling folks to sit back and let the appreciation come, short term? No. I don’t believe in that.
I have friends, a couple. The wife was transferred to SF from NYC. They bought a house. After a year, they decided they preferred living in NYC, and the wife arranged to transfer back. The company sold their house for them, guaranteeing at least their money back.
I would guess that this is not an unusual arrangement for sought-after executives.
Cash deal, that is the word on the street.
Why not also factor in the depreciation on the property? Were this a company asset, then a PPE 30 year schedule would offer up about $107,000 in depreciation against the ’06 purchase price over 17 mos. I could argue for a shorter schedule, given the lifetimes of kitchen and laundry appliances, boilers and and etc. and increase the depreciation.
Likewise, if a family owned it and didn’t invest in its maintenance, then they too would be consuming a similar value as their home sits in the fog and rain, ages its appliances, suffers the wear and tear of trampling little feet and rots its way into oblivion.
I think real property has a 27-year depreciation life… and why not use double-declining method? That way your first-year writeoff is really huge!
“This $2.2m sale represents about $865 per square foot. That is good news for Noe Valley homeowners (except perhaps those who bought to flip it 1-2 years).”
That is incorrect. The correct statement would be: “That is good news for Noe Valley homeowners who never plan to upgrade houses.”
High prices only help homeowners that never plan to upgrade houses but instead plan to cash out and move to a much cheaper area. That is it. For everyone else, homeowner or not, they are a negative thing.
“That is good news for Noe Valley homeowners who never plan to upgrade houses.”
Huh? How would this help anyone who never plan to upgrade?
BTW, it won’t help anyone who never plan to buy either (like a lot of people on SS).
John – to clarify what anonm stated:
Price appreciation only helps homeowners that never plan to upgrade houses (ie people planning to stay put, downgrade, or exit the market).
Homeowners that aspire for a more expensive house are better off if the housing market depreciates across the board. Do you need a numerical example?
As for renters like me, of course depreciation is a benefit!
@blaise5000,
How would price appreciation benefit people who plan to stay put?
2.2% loss doesn’t sound like a lot of money. But it does when it’s a $2 million dollar house as opposed to a $500k house.
According to past historic trends, San Francisco will be hit by more depreciation at a faster downward pace starting in about 9-12 months.
Remember, a house is only worth what somebody else is willing to pay for it.
John –
The post says, and I quote, “High prices only help homeowners that never plan to upgrade houses but instead plan to cash out and move to a much cheaper area.” Is it unclear why these people are helped?
As for homeowners “who plan to stay put” – well, if they plan to stay put forever, then price appreciation in their neighborhood will help them in that their descendants (who probably do not live in the same neighborhood) will get more cash when they inherit and sell the house. This probably wouldn’t be enough benefit to offset the cost of higher property taxes, except that in California property taxes are kept below market rates.
“I’m not calling it a “good investment.” And I’m not talking macro economics. On the contrary.”
Wow. Macro Economics. I am impressed. Greenspan must be attending a lot of open houses these days. Never too late to pick up a few catch phrases to impress your clients. How bout throwing in some French? That would top it all of Flujy!
@anonm,
So, how does more appreciation even help the descendents? They pay more taxes (death tax, and property tax) – I believe the property tax is re-calculated when the property is inherited.
John, “death tax”? There is no such thing unless one is extremely wealthy.
Property taxes are not reassessed when you die and leave your home to your kids — prop 13 assessment stays the same. You’re probably thinking of the stepped up basis for property and investments upon death — but it has the opposite effect you ascribe. For capital gains purposes, the basis (or purchase price) is “stepped up” on death — meaning it’s treated as if your kids bought the place for market value at the time of death, not at the real purchase price decades earlier. Because capital gains are paid on the difference between selling price and basis, this is a huge tax advantage (and add the 250/500k exemption on top of that if they leave in the place for 2 years).
So appreciation is very good for one’s heirs. Of course, it is also very good for the owner during life as it provides equity against which one can borrow from many sources.
Yay. “Mean anon” strikes @ der flujmeister. Thanks bruh. So now let me ask you something. How about you hold an opinion that’s anything more or less than conventional wisdom and express it in a non-snide manner? Naah, forget it. Keep them coming. I don’t even get bothered in the slightest any more.