June 25, 2008
Below Some Expectations (But Not If You’re Dan): 1635 Castro Closes
First on the market for $1,595,000 but quickly reduced to $1,495,000 (at which point a few expected it to fly), and then to $1,400,000 (“The deal of the year!”), 1635 Castro Street closed escrow yesterday with a reported contract price of $1,350,000.
Hats off to Dan who was on the record a month ago with his plugged-in prediction: “I'll say it goes for $1.35M.” And that it did.
First Published: June 25, 2008 12:15 PM
Comments from "Plugged In" Readers
Nice job, Dan! Although I maintain what *I* said in the previous thread:
"Even when this one does eventually close, I have a feeling the "purchase price" will include some NRCCs/cashback."
Posted by: Foolio at June 25, 2008 1:28 PM
Nice dan! Your prize, of course, is not owning the house :)
Can anyone else with *lots* of RE sales experience (e.g., fluj) shed some light on this cashback stuff? It doesn't seem right this isn't reported somewhere, somehow. Otherwise, how can we trust stated sales prices at all?
If they are legal, then why not understate sales prices to short the property-tax man?
I hear about these things all the time but I want to know if this is actually common, or more of a "bitter renter's" tale.
[Editor's Note: A $110,000 real world example: Can Bank Owned Comps Kill (Values)? 246 2nd Street #502 Returns.]
Posted by: dub dub at June 25, 2008 1:47 PM
NRCCs happen, but they can't be exorbitant without raising red flags. Usually they're like "buyer to pay transfer tax" or "seller to pay escrow fees." Things of that nature. Red flags are raised when the dollar figures get too high. And I'm sorry but I don't know the triggering points. I know that when 3rd parties get involved everything gets scrutinized.
As for why Foolio would say that he has a feeling the purchase price would include NRCCs, I don't know. I think it was just a gut feeling he had. The property sold rather quickly after it was reduced down to a pricepoint closer to the $psqft median.
Posted by: fluj at June 25, 2008 1:54 PM
Between $50k and $100k on a place at this price wouldn't be out of the question, and this isn't just an urban legend. It happens, more than you'd think, even on places that go "above asking."
That said, I have no specific information on this property, although it wouldn't surprise me if that were the case. The fact that this place "sold quickly" after being reduced multiple times notwithstanding.
Posted by: Foolio at June 25, 2008 2:38 PM
"Between $50k and $100k on a place at this price wouldn't be out of the question,"
And can we get an escrow officer to refute this? My understanding is that this is fraud, and that 50 to 100K NRCCs is simply not happening on properties like this one these days.
There were rampant abuses in NRCCs a few years ago. This is something that has been cleaned up.
Think about it. Why would a lender loan on something that costs $1.35M and needs a 100K credit back these days? They wouldn't.
Posted by: fluj at June 25, 2008 2:47 PM
I know for a fact that as recently as last year, that an NRCC of $50k on a place which sold under $1M was possible.
Posted by: Foolio at June 25, 2008 2:52 PM
And Foolio, you said, " 'sold quickly' after being reduced multiple times."
I said, "sold rather quickly after being reduced down to a pricepoint closer to the $psqft median."
Please don't take what I post out of context. OK?
Once it got down to ~850 - ~875 , it sold. Dismiss that if you want to. I will readily admit it failed miserably to sell when it was nearly 1000 a foot.
Posted by: fluj at June 25, 2008 2:52 PM
50K on $1M ? When? I'm telling you certainly not after early August last year. And the winds were changing well before that.
And by the way, you said 50 - 100 wouldn't be out of the question for this property. I'm saying 100K would be impossible, and I highly doubt 50K would fly.
Still waiting for an escrow officer to set us straight.
Posted by: fluj at June 25, 2008 2:56 PM
"If they are legal, then why not understate sales prices to short the property-tax man?"
Given the relatively static nature of property taxes to an owner I don;t understand why dub dub's suggestion is not frequently acted upon. Can anyone explain that? or perhaps I am wrong and it does happen....
Posted by: Dodd at June 25, 2008 3:16 PM
Actually, it makes way more financial sense to understate the price to lower the tax bill....that can be done by "buyer pays the closing cost".
Posted by: John at June 25, 2008 4:13 PM
Cashback can be a perfectly legal part of a deal. It gets shady when it's not reported to the lender and creates the impression that the borrower is putting down more of their own money than they actually are.
Posted by: diemos at June 25, 2008 4:17 PM
Doesn't the lender get a copy of the contract and all the amendments?
So, I don't see how this can be hidden from the lender.
Posted by: John at June 25, 2008 4:49 PM
Those who are really interested in this should look up the Paladin Reports site and the posts Paladin made on the Housing Bubble Blog. In the frenzy lenders were looking the other way and very large cash back amounts became common. Circumstances vary, but a lot of this is outright fraud. Paladin collected data regarding a large number of blatant examples and went to great trouble to rub the FBI's nose in the mess. There have been a number of results including aggressive FBI investigations and a reward posted by the FBI for information leading to conviction of this kind of fraud. If you know of this kind of thing going on or having gone on, then let the FBI know and you could get monetary rewards in return.
Posted by: Mole Man at June 25, 2008 5:21 PM
Yawn. I wish I would've tuned into this house for the episode about glass block. Much more fun IMO.
Posted by: kaya at June 25, 2008 5:47 PM
Credits in connection with the closing of just about every mortgage used for the purchase of a 1-4 family residential property have to be disclosed on the HUD-1 form.
In the ancient times (before, say, 2001) often some minor credit would be negotiated, usually as a result of the building inspection(e.g. $500 toward the cost of replacing the water heater). It was a perfectly acceptable buyer's tactic to chisel a few bucks off the purchase price in the pre-bubble market.
Over time lenders started requiring that credits, whatever the purpose, be described as a credit for NRCC; it simplified the underwriting process and did away with awkward questions such as "what's this credit for asbestos removal?".* Some lenders actually went through the effort to divvy up the credit against each NRCC, while others simply required the credit to be shown as a lump sum on pg. 1 of the HUD. Usually the amounts were so small the effect on the borrower's debt/equity ratio and the seller's taxable gain, if any, was miniscule.
Now we come to the modern era (2001-2006). Greed and bubble mania set in --lenders started making 80/10/10,, 95%, i/o, neg am, etc. mortgages. Lenders threw d/e ratos out the window and with the aid of mortgage brokers and real estate sales people, encouraged the parties to bump up the stated purchase price (with a corresponding bump in the mortgage amount and costs), and buyers could use the credit for NRCC to get "a little extra money in their pockets" for those things they absolutely needed at Home Depot. Buyers, of course, tried to avoid admitting that they essentially financed their closing costs at revolving-credit rates.
The point of of all this is that credits for NRCC weren't used to "hide" true prices but were part of the "creative mortgage" toolbox.** Regarding this sale, my completely uninformed guess is that the bank didn't give any substantial credit to the buyer, simply because REO departments like nice, clean, quick & straightforward deals. Hope this was not too boring.
*As an aside, there is a proposed law in Washington to do away with this practice.
**I know soemone will ask, "what about developers incentives on new construction, like HOA payments, cars, trips to Hawaii, gym memberships, etc.? Don't they have to be disclosed?". I don't know, and fortunately I never had to deal with the issue.
Posted by: Animo at June 25, 2008 6:16 PM
No, it wasn't too boring... sorry for being flip, I was trying to make a joke. I don't understand the genesis of all these acronyms, so it's nice when people take the time to explain and I learn something.
SS Editor: when are you going to e-mail Satchel and ask him to come back? :)
Posted by: kaya at June 25, 2008 6:45 PM
Kaya, my boring comment was not directed at you but was a caveat regarding my writing style.
I also made a mistake to referring to the property as a REO sale; I punched in the wrong address. I'm glad I'm not filling in HUD forms anymore. That being said, I'm not up on current practices enough to know whether the buyer could find a lender today to allow a closing credit on the order of 6%, but I would doubt it.
Posted by: Animo at June 25, 2008 6:57 PM
"Can anyone else with *lots* of RE sales experience (e.g., fluj) shed some light on this cashback stuff?"
Ha, ha, ha. Good one. I bet he never sold a single property in his life. He's just BIG on socketsite.
Posted by: anon at June 26, 2008 12:18 AM
For a guy who "never sold a single property in his life", fluj pretty much nailed the price on this one when he said if they dropped to [1.330], they'd have offers quickly.
Posted by: tipster at June 26, 2008 7:24 AM
Regarding NRCCs, lenders will typically not allow anything over 2-3% of purchase price. That is a very, very basic way to calculate, but something that might simplify your analytics.
Posted by: alex at June 26, 2008 9:14 AM
"Ha, ha, ha. Good one. I bet he never sold a single property in his life. He's just BIG on socketsite."
Thanks, Socketsite. Thanks for not editing that one out.
Good luck getting agents perspectives if and when I leave.
To recap, I nailed this pricepoint.
Then, somebody says, "I have a gut feeling that there was an enormous credit back to the tune of 50 to 100K."
I say, "No, lenders don't go for that any longer" and attempt to explain why.
(that same guy also took my words out of context to try to make it seem like I was ignoring the variious price reductions this property has seen.)
Others with experience, concur. Indeed, lenders don't allow 50 to 100K any more.
Then I get dissed by an anonymous, brings nothing to the table, cynical shmuck. Probably the same guy who wondered why I didn't tell all and sundry how fantastic a deal this was in the first place.
You know? When I said it was overpriced. And then called the pricepoint it would work at.
So thanks Socketsite. Thanks a lot!
[Editor's Note: Wow. While we actually considered removing the comment, we thought tipster's response handled it quite well (and we're honestly surprised that you wouldn't agree).]
Posted by: fluj at June 26, 2008 10:05 AM
I'll side with fluj on that one and I'm a bear. He did say it was overpriced and called the right price. Luck or market insight? I'll say 30-70.
Posted by: San FronziScheme at June 26, 2008 10:17 AM
You can see I.P. addresses, man.
I'm trying to not be sour. There's a lot of good information on this site.
In both threads tied to this property I've been freakin HOUNDED. It's pretty lame. Whether your readers disagree with me or not, I bring a lot more to the table than most posters around here. It's getting very tiresome. Very tiresome indeed.
Posted by: fluj at June 26, 2008 10:18 AM
Fluj - You're the last person that I would have thought would run crying to Uncle Socketsite to defend you. For what its worth, I dismissed the comment that inflamed you as some of the standard reactionary RE agent bashing that sometimes goes on here. Whoever posted that comment was obviously being a jerk.
Sometimes you just have to let people discredit themselves. Editing those comments out doesn't really help.
Posted by: The Milkshake of Despair at June 26, 2008 10:20 AM
right on fluj!
my comments get edited when i point out some of the usual suspects' usual stupidity. kind of feels like being censored for not following the party line. meanwhile,for the bearish sycophants its carte blanche.
i guess that goes with the territory if you want to play at socket site...
[Editor's Note: Once again, had tipster not already responded with actual logic (rather than an equally lame “you’re an idiot”) we would have removed the comment. And as fluj very well knows, it wouldn’t have been the first time. And now back to the 1635 Castro…]
Posted by: paco at June 26, 2008 10:23 AM
Please keep posting! I really enjoy your contributions!
Posted by: 94114 at June 26, 2008 10:27 AM
"Sometimes you just have to let people discredit themselves. Editing those comments out doesn't really help."
Yeah, OK. Easy for some to say. I mean you have people like Tipster who are always contrary to me but unfailingly polite. Then you have people like akrosdabay or foolio or insert any one of a dozen posters here who are also generally contrary and generally polite but tend to cross the line into a bit of vitriol from time to time (same as I do.) Next you have people who post wildly incorrect information on a regular basis. They shall remain nameless.
Put it all together and I'm generally embattled on here. So then, couple that with at least one or two unrepentant and mean-spirited fluj flamers? It gets old.
Posted by: fluj at June 26, 2008 10:32 AM
I always appreciate fluj's insights into the current market even if we radically disagree about it's future.
Posted by: diemos at June 26, 2008 10:46 AM
To prevent being dissed and bullied, I'd humbly suggest fluj to keep to the raw data he knows so well to dissect and to moderate the comments. If the numbers speak for themselves (and they often do), there's no need to byte anybody's head off. Once the bashing starts it can get very nasty and the hate will build up and build up with no end. Then you get 2 camps and the communication stops.
For example Yahoo pulled its Message Boards on all news items a few years ago. Some popular issues had ballooned to a huge hate-fest with no real relevance. It suffered from its own success: the flow of message was so high that it was really hard to post anything and get a relevant reply. In this environment, the crazier the title, the more reactions you'd get. These were not proper discussions or debates, just bashing contests. I'd hate to see this happen to SS even though I do bash some once in a while.
SocketSite has great inside info and a lot of relevant comments. I learn a lot every day and I admit this is the main reason I hang out here.
Posted by: San fronziScheme at June 26, 2008 10:48 AM
.... and speaking of Satchel coming back (I miss his posts too), did anybody else notice that 414 Foerster closed? For 528K. If that can't induce him to come out of the woodwork, nothing will.
Posted by: fluj at June 26, 2008 11:02 AM
Holy lost shirt Batman, last sale of 414 Foerster was $770K !
I guess the previous seller really cashed in on a buyer willing to overpay, speculate, be stupid, or whatever to fork over $770K on this property. Either that or this is another mortgage fraud case.
Posted by: The Milkshake of Despair at June 26, 2008 11:36 AM
Posted by: Dan at June 26, 2008 12:58 PM
Correction, last sale was $607K, but Sachel stated that it sold for $770K before.
Last sale info is from Zillow which has this particular Nov 07 sale marked as "fishy".
Posted by: The Milkshake of Despair at June 26, 2008 1:42 PM
$607K looks like the foreclosure since it occurs about a year after the $770K sale and is about 80% of the price.
Posted by: diemos at June 26, 2008 1:53 PM
I did a tax search for the Foerster property and I saw no evidence of a 770K sale, only the 607K sale. Anybody have evidence to the contrary? I used a title company's tax records search service.
Posted by: fluj at June 26, 2008 2:31 PM
Thanks for looking that up Fluj. My apologies for posting information as hearsay. Too bad Satchel isn't around to back where he saw $770K as a recent sales price on 414.
Still $607k down to $528k is a pretty bad hit. Foerster is not a bad street but I guess this particular house is not very desirable.
Posted by: The Milkshake of Despair at June 26, 2008 2:52 PM
I don't think it's a bad house. I think that the lower rooms probably feel very basement like, and there is a concrete parking pad in front with no garage. And yeah, the last buyer took a pretty bad hit. The new buyer probably did pretty well at 400 a foot, tho.
Posted by: fluj at June 26, 2008 2:56 PM
I see a $770K sale on 6/22/2006 on Property Shark and on the MLS tax record link. (Looked like 100% financing with a $577.5K conventional and $192.5K second.) SF property tax site shows a tax value of $785.4K with taxes paid - but a supplemental bill issued? (They should be issuing a credit.) Just a 32% decline in 2 years.
Posted by: FSBO at June 26, 2008 3:08 PM
I third the Satchel comeback request.
Posted by: Publius at June 26, 2008 6:45 PM
"Just a 32% decline in 2 years."
Posted by: Foolio at June 27, 2008 4:33 PM
""Just a 32% decline in 2 years."
Yeah, wow. That's a lot. Call it what it really is tho. Everybody (either Zillow or Redfin included) thinks this was fraud along the lines of a nonrecurring cash out that you mentioned above for the other property.
Want proof? There are only two other garageless properties that sold between 500 and 770K in the last three years in Sunnyside. One of them is the property that famously collapsed down the hill when the buyer tried to put his own foundation in. This lender was asleep at the wheel. The property was only ever worth ~550K in the first place.
Posted by: fluj at June 27, 2008 5:53 PM
""Just a 32% decline in 2 years."
Yeah, wow. That's a lot. Call it what it really is tho. Everybody (either Zillow or Redfin included) thinks this was fraud along the lines of a nonrecurring cash out that you mentioned above for the other property.
Want proof? There are only two other garageless properties that sold between 0 and 770K in the last three years in Sunnyside. And they were all three under 550K. One of them is the property that famously collapsed down the hill when the buyer tried to put his own foundation in. This lender was asleep at the wheel. The property was only ever worth ~550K in the first place.
Posted by: fluj at June 27, 2008 5:54 PM
"Everybody (either Zillow or Redfin included) thinks this was fraud along the lines of a nonrecurring cash out that you mentioned above for the other property."
Fluj, can you clarify? When I look this up on Zillow it tags the $607K foreclosure as not an arms length transaction but I don't see what would be indicating that the $770K purchase is fraudulent. As far as I can tell it could just as easily be an overenthusiastic amateur investor who didn't know what they were doing and overpaid.
Posted by: diemos at June 27, 2008 6:15 PM
I don't really recall. I remember specificly that this came up the last go round with Satchel. And as The Milkshake of Despair says, Zillow tagged the 770K sale as "fishy."
Hey, maybe it was an amateur investor. I really cannot say. But to be off by 220K or more?
A few years ago there were individuals who would 100% finance properties and then have the "buyers" do a third party NRCC credit to them in escrow. The buyers would then be left with a property that they couldn't afford. Often they didn't care, I think, as the third party guys would pay them a tidy sum. It amounted to exhausting someone's credit to make a quick 100 or 200K. That's sure what this looks like to me. But again, I could be wrong.
Posted by: fluj at June 27, 2008 6:34 PM
And again, "decline" connotes that the property was ever worth the 770K amount in the first place. Clearly it wasn't. There's no comp. Plus properties so far this year are selling at the same $psqft that they were in 2006. 2007 was higher for some reason.
Posted by: fluj at June 27, 2008 6:44 PM
Oh fluj, you torment me. I just can't resist teasing you. ;)
"And again, "decline" connotes that the property was ever worth the 770K amount in the first place. Clearly it wasn't. There's no comp."
When this place sold for $770K everybody (except for a few of us bears crying out in the wilderness) said, "SF real estate is a can't miss investment. Buy now or be priced out forever. Pay whatever it takes but just get into something before it's too late." Don't you remember 2006? Buyers having to write essays about why a seller should pick them. Having to promise to feed the squirrels in perpetuity. How soon we forget.
"Plus properties so far this year are selling at the same $psqft that they were in 2006. 2007 was higher for some reason."
Hmmm ... let me speculate wildly for a moment ... perhaps 2007 was the peak of a multi-generational real estate bubble and now the market is correcting. Just a hypothesis.
Posted by: diemos at June 27, 2008 7:06 PM
A couple things. What was the property being marketed for previously? Nowhere near 770K. It wasn't even in the MLS. Second, spring 2006 was the peak of the market in terms of volume + median and that's an undeniable fact.
Regardless, we already had this 414 Foerster discussion once. Or at least I did with others. I've said my piece. This looks like a bit of fraud to me. I showed evidence why it looks that way. If I torment you so be it. Let the knowers know. Let the wishers wish (it down).
Posted by: fluj at June 27, 2008 10:14 PM
Buyers may negoitate a credit for for non-recurring closing costs -NRCC- one time only costs associated with buying a home, from the seller.
Lenders have limits on how much credit can be attributed to NRCC.
This amount can not exceed actual total closing costs.
If the purchase is for a primary residence, most lenders will generally allow a credit up to 3% of the purchase price -provided that does not exceed the actual closing costs.
In certain circumstances, the lender may allow a higher credit, if the buyes down payment is greater than 20%.
The fundemental reasoning behind these limits, from the lenders point of view, is the make sure the buyer is in a strong financial position to maintain the loan for the life of the loan.
That the lender is actually lending on the true value of the home, not an inflated value, with credits given back torepair problems. or to free up the buyers cash to qualify for the home loan.
That is why the limit maxs out at the total amount of closing costs.
Any additional credit may be seen by the lender as a gift to help the buyer purchase, or an inflation of the actual value of the home to acquire a larger loan.
Inflating the value of a home for a loan and then giving back part of at value in credits from the seller may be defrauding the lender.
Not a good idea.
Posted by: kathleen at June 28, 2008 10:16 AM
"When this place sold for $770K everybody (except for a few of us bears crying out in the wilderness) said, "SF real estate is a can't miss investment. Buy now or be priced out forever. Pay whatever it takes but just get into something before it's too late.""
No you didn't. You didn't say a thing about this particular property and neither did I. But I would have. Do you even know where Foerster street is? 770K in Sunnyside for a small lot and no garage is overpaying by about half.
Posted by: fluj at June 28, 2008 3:41 PM
Sure I did. As I've said before and now I'll say it again. Everyone who purchased an SF property between Jan 2005 and Jan 2008 overpaid by a factor of two.
I base this on the observation that in SF the price/rent and price/income ratios peaked at double their long term averages.
Exactly how bad or good any particular purchase of any particular property was I shall leave to your superior knowledge of the micro markets. But on average it's a factor of two.
Based on those same ratios, the timing of the coming reset wave, and the fact that we can already see 50% off sales in other california markets, I predict Case-Schiller below 110 and everything in the city 50% off peak values by 2011.
As I have also said before.
Posted by: diemos at June 28, 2008 4:49 PM
Yeah well clearly each property is different and with its own set of circumstances. I'll wager you knew little of values in Sunnyside two years ago, values that have stood up since, surprisingly. Seizing upon one little house for the sake of your very much not in tune with market vagaries stance is your prerogative. But uour stance is duly noted.
Posted by: fluj at June 28, 2008 6:00 PM
I pay no particular heed to any individual sale. My thesis will not be proven or disproven for a couple of years.
You're right. Values have held up longer than I would have expected. It's only since January that some of the southern neighborhoods (Bayview, Vistacion, Crocker-amazon) have begun a noticeable decline. And of course, my favorite "canary in the coal mine" OceanView Terrace which is a nest of short sales and dropping prices.
Luckily for me I'm in no hurry and it's all academic to me.
Posted by: diemos at June 28, 2008 6:20 PM
This is the funniest thing about socketsite to me. I don't wish to be rude, OK? But I find it funny that the bears want us to believe that they're on the fence. "Everything in the city 50% off peak values by 2011." -- that isn't on the fence. That isn't not being in a particular hurry. That is a willful decision to never buy. Why bother with r.e. blogs, then?
Posted by: fluj at June 28, 2008 8:26 PM
diemos, you also talked at length about the "carnage" that would happen when 50-75% of ORH units fell out of closing. (Which hasn't even come close to happening) When's the return to depression-era days again?
Posted by: anon at June 28, 2008 9:19 PM
Not at all fluj. Economics is a hobby of mine. I watch r.e., finance, commodities, all sorts of things. It's endlessly fascinating watching this stuff play out.
You're right though. As this thing has progressed it's become clear that even at 50% off I'm not going to be buying anything in SF. Livermore maybe, but not SF. Now it's all about how many years of living expenses do I have in liquid assets for when I lose my job and have to join the rest of the okies heading back to oklahoma. ;)
Yup. I thought the psychology in SF would have turned by now but the r.e. faithful have not wavered. To save face I'll claim that the delay in Tower II inventory coming on-line threw off my prediction. ;)
When's the depression? As Madge used to say, "You're soaking in it." The florida r.e. bubble popped in 1925, stocks in 1929 which bottomed out by 1932 and we got the first of the "new deal" in 1933. Our r.e. bubble only popped in 2006. Patience. When will you see sepia-toned men in trench coats selling apples on the street corner for 5 cents while the joads drive by in their jalopy? Probably never. When will you see increasing lay-offs, deteriorating bank balance sheets, declining asset prices, declining business profits? Today.
But for the moment life is still good and the city is loads of fun. When I go out tonight perhaps I can find a couple of flappers to dance the charleston with me and we can party like it's 1929.
Posted by: diemos at June 29, 2008 7:53 AM
"But for the moment life is still good and the city is loads of fun. When I go out tonight perhaps I can find a couple of flappers to dance the charleston with me and we can party like it's 1929"
Awesome. Diemos you're the man. I may disagree with every opinion you have, but you can sure write well.
Posted by: fluj at June 30, 2008 10:50 AM
"I can find a couple of flappers to dance the charleston with me and we can party like it's 1929"
@diemos -- Tuesday night, Verdi club. Have fun! :)
Posted by: dub dub at June 30, 2008 11:01 AM