August 26, 2010

With an Amazing Curve Apreal

This listing was sent in by burbed reader sonarrat.  Here’s what sonarrat had to say about this absolutely sparkling home:  “Sparkling isn’t really the first thing I think of when I look at this house.  More like manufactured home.”

1039 Alderbrook Ln, San Jose, CA 95129
$988,888

image

Beds: 3
Baths: 2
Sq. Ft.: 1,330
$/Sq. Ft.: $744
Lot Size: 7,313 Sq. Ft.
Property Type: Detached Single Family
Style: Ranch
Stories: 1
View: Neighborhood
Year Built: 1957
Community: Cupertino
County: Santa Clara
MLS#: 81039029
Source: MLSListings
Status: Pending With Release 
On Redfin: 17 days

This absolutely sparkling home uplifts you the moment you lay your eyes on it. How often you get inspired by a home? With an amazing curve apreal, you will feel right at home. This home is warm & inviting. Newer roof, new crown molding, hardwood flooring, fresh paint, Huge Corner, New window and Front Patio ect. Top cupertino schools!

How often do you get inspired by a home?  Plenty of homes on burbed have been inspiring, as in leading to some incredibly snide copy and even better reader reactions.  Usually they have something notable about them, such as being insanely expensive, or having a lousy location, or not bearing much resemblance to a residential structure.  This one?  I am having a reaction all right, but uplifting doesn’t describe it.image  It’s closer to ennui crossed with sticker shock.

Yawn.  Another million dollar crackerbox with Cupertino schools, San Jose services, and five 8s in the asking price.  And it’s pending after only two and a half weeks.  Must have been that amazing curve apreal or the Huge Corner.  I’m kind of amazed that it sold so fast when they only put in one New window.

Wait, 7300 square feet is a Huge Corner?  Maybe it is compared to the zero lot line of a manufactured home.  This picture provided by the agent certainly seems inspired by the trailer park.

What do you think?  Is this house absolutely sparkling?  Are you uplifted?

Comments (42) -- Posted by: madhaus @ 5:01 am

42 Responses to “With an Amazing Curve Apreal”

  1. maryjane Says:

    Curve Apreal – kind of like Street Presents.

  2. A. Lewis Says:

    A future short sale!

  3. nomadic Says:

    Might already be one, A. What’s with this odd reporting on the last sale?

    Apr 02, 2007 … Sold (MLS)… $1,020,000
    Mar 29, 2007 … Sold (Public Records) … $995,000

    They’re both the same sale, but why the difference in price?

  4. Gallileo Says:

    nomadic@3:

    One very slimy trick the realtors sometimes use is to have the buyer pay the commission directly to the agent. This makes the publicly reported sale price–and therefore your tax basis–lower than the actual cost of the transaction. Only buyers with a fair amount of cash can do it this way, because you can’t roll the commission into the loan.

    The agent then updates MLS with the full price including commission–because he wants the comps to reflect the actual transaction price.

    Given that there is almost exactly a three percent difference between the two prices above, my money says that this is what happened.

    Actually, as a matter of policy, I support breaking out the commission versus the actual price. It is more reflective of what the home actually cost versus the transaction overhead.

    But if the commission went directly to the agent instead of via escrow as part of the house, then it isn’t comparable and tough luck to all the other comps.

  5. SEA Says:

    The difference of ~2.5% is small enough not to worry about.

    Nomadic- By the way this is a nice example to discuss that REALTOR commission.

    For simplicity, let’s assume the lower $995k (Public Record) is correct. Also for simplicity let’s assume that the $989k is close to the final sale price. Finally, let’s assume the buyers put 10% down and 6% selling expenses.

    $995k Purchase Price
    $99.5k Down payment
    $895.5 Financed (Interest Only for simplicity)

    $989k Sale Price to buyer
    $60k Sales Commissions and Fees (6% rounded up)
    $929k Cash before loan is paid
    $895.5k Less:Principal Balance (from above)
    $33.5k Cash to seller at sale.

    So the seller will walk with $33.5k in cash, but the profit, after selling expenses, is actually a loss of $66k, or approximately the amount of the selling expenses.

    But what kills the seller’s cash balance is the fact that the commission is charged on the amount owed in addition to the equity. This was not a problem when values were increasing at a high rate.

    For so many years people concentrated on Return on Equity (ROE) (book value). You know the game. I’m sure you’ve heard it before, “I put $1 down, and 5 years later I walked away with $250,000. That’s right, I turned $1 into $250,000 in just 5 years.”

    Heavy leverage can go the other way, but instead of saying, “I took $1 and lost $250,000,” the chants are more like, “It’s a national disaster,” or, “We need a bailout,” or, “We did the ‘right’ things, but we got tucked between the sheets.”

    But then there is the other issue. Let’s work on the margin.

    For every $10k the home goes down in value, but remains above the principal balance on the loan, the seller’s cash goes down by $9,400 but the individual agent’s cash goes down by $150. Now I must justify these numbers.

    I hope it is 100% that the seller is working on 94%, and since we are above the principal balance, the seller realizes (or gives up) 94% of $10k, or $9,400.

    The other 6% is the sales fees and expenses. It should be 100% obvious that the individual agent cannot realize or give up more than $600 of the $10k. The $600 needs to be divided among the various parties-brokers, agents. For simplicity, I’ve divided the 6% equally into 4 parts of 1.5% each (4 parties, each ‘earning’ 1.5%–listing agent, listing agent broker, buyer’s agent, buyer’s agent broker).

    Finally, and while I know this is obvious to most people here, there is at least one person that this concept is difficult: The lower the price the quicker the place will sell.

    Ok, now that I have the basic structure laid out, albeit not rigorously, we can move forward to your complaint about REALTOR commissions.

    Now there is one more problem. That’s the issue of discount rates. The ‘owner’ will always be paid (keeping to the assumption that the place will sell for more than the principal balance). If it takes 2 years and 4 agents, the seller will be paid. Yes, this needs a discount rate, but we also have housing price appreciation also–simply assume the two are equal, so we have a NPV difference between selling today and in the future of $0. The listing agent, however, only gets paid if he or she is the final listing agent. In other words, of the 4 listing agents over the two year period, 3 are paid nothing (at least as listing agents).

    Now the game is clear. If you are a listing agent, you must say you will sell the property for a high enough amount of cash to convince the seller to list with you, but at the same time, you need to reduce the price for a quick sale, giving up $150 for each $10,000 in price reduction. If the place doesn’t sell, the listing agent ‘earns’ nothing.

    Yes, we really need to establish the listing agent’s discount rate versus the seller’s discount rate, but the risk of the listing agent losing the listing is often the greatest concern for the listing agent–the seller/owner doesn’t really care, he or she just wants the place sold.

    Gallileo- “Actually, as a matter of policy, I support breaking out the commission versus the actual price. It is more reflective of what the home actually cost versus the transaction overhead.”

    Isn’t the “actual price” what the buyer paid, regardless of how the cash is divided after the sale?

  6. sonarrat Says:

    I thought the seller always paid commmission to both buyer’s and seller’s agents.

  7. Gallileo Says:

    What I mean by “actual price” is what was paid the cost of the home itself. When the commission is rolled into the “actual price”, that hides discounts and kickbacks negotiated between the seller and the agent, particularly in a declining market, where agents do cut their commissions.

    The following analysis needs “all else being equal” added in a bunch of places. Feel free to mentally add it.

    Break the cost of buying a home into two parts: the agent’s commission and what the seller walks away with. The two are independent.

    If I sell a house for $1,000,000 and pay the listing agent the standard 6% commission (3% for him and 3% to the buyer’s agent), then the reported sale price is $1,006,000.

    Instead, say I’m wiser and use a discount broker who only charges 4%. If I walk away with $1M, then the reported home-price will be $1.004M. The transaction cost changed, but I walked out with the same amount of money.

    The problem here is that the market gets poor price discovery, and it allows agents to hide their actual costs. The buyer gets a tax basis that for some crazy reason includes the inability or unwillingness of the seller to negotiate a better deal with the agent and the tax-man also gets to charge the buyer for the choice of an expensive agent. That’s crazy.

  8. SEA Says:

    “If I sell a house for $1,000,000 and pay the listing agent the standard 6% commission (3% for him and 3% to the buyer’s agent), then the reported sale price is $1,006,000.”

    Uh, there are some basic math problems there.

    If the final sale price is $1M, and there is 6% in commissions, then the amount of cash available to the seller is $940,000. On the other hand, maybe you are suggesting that the home sold for $1,063,830, so you, as the seller, realized $1,000,000? I don’t know.

    But note how the “6% commission” is 6.4% of the amount the seller walks with.

    That said, let’s take some extreme examples to make a point.

    $1M home, $1 sales commission.
    $1M home, $999,999 sales commission.

    What difference does it make, it’s still a $1M to the buyer.

  9. nomadic Says:

    I can kind of see Gallileo’s point though – in some areas of the country it isn’t unusual for the seller to “give back” a portion of the purchase price to go toward closing costs or to pay for a needed repair. The “comp” value should be the net amount paid by the buyer. IMO this would, however, include sales commissions paid by the seller.

  10. nomadic Says:

    hey, how does Redfin’s cash back to buyers figure into this discussion? :-) Should it lower the comp?

  11. Gallileo Says:

    I was trying to keep the numbers simple. And my point still stands, even if my exact numbers are off.

    You are right that to the buyer it is the same amount of money either way. However, a deal is only made when both the seller and the buyer agree on the final price.

    The commission paid by the seller means that the home is worth less to him than it is to the buyer. In particular, for a normal sale:

    “value of home to seller” + “cost of agent” = “value of home to buyer”

    When a transaction structured in this way is reported on MLS or to the government, the value reported is “value to buyer”.

    However, if I am a savvy buyer with a lot of cash, I can convince the transaction to be reported to the government as “value to seller”, which is, of course, is a lower amount, and is really a more accurate view of the value of the house itself, because it doesn’t include the price of something that isn’t the house itself.

    And that non-house cost in the transaction is often completely independent of the value it adds to the transaction. If you have ever heard someone complain that it costs $6,000 to sell a house for a hundred-thousand dollars, and $60,000 to sell a house for one million dollars, but the amount of work involved and value added isn’t ten times more–that is the reason right there.

  12. SEA Says:

    “You paid more for shipping than the item cost.”

    I once hear that from a guy. Many years ago, when the Internet was not so popular, I purchased an item online that I valued at about $100. I purchased it for $5 plus $10 shipping. I’m sure you can see that I was very happy.

    I paid a total of $15. I realized $100 in personal value.

    Is the $10 in shipping part of the value of the item?

  13. SEA Says:

    “In particular, for a normal sale:

    “value of home to seller” + “cost of agent” = “value of home to buyer””

    Why would any seller use an agent?

  14. Gallileo Says:

    And all of this is really just to explain why sometimes the MLS sale says one thing and the government says another–because the deal is structured in such a way to tax advantage the buyer.

    Of course, sometimes its just a mistake in MLS or the public records, or both.

  15. Gallileo Says:

    SEA asks, “Why would any seller use an agent?”

    Because they can more efficiently liquidate the house with an agent than they could if they did it themselves?

    If for some reason the seller believes he can do it more efficiently than the agent, then he won’t use an agent–but that doesn’t mean that he is willing to walk away with less money for the house. It’s the bottom line that matters to both the seller and the buyer. They just happen to be different bottom lines.

    SEA also asks:

    Is the value of the shipping part of the value of the item?

    Shipping is quite similar to sales taxes, in that to the buyer it is, because the buyer must value the item at least at cost + shipping + taxes. To the seller it is not, he only values it at cost.

  16. SEA Says:

    Why not value the home at the maximum price the buyer was willing to pay, which is always equal to or more than what the buyer paid?

    As far as agents go, the net proceeds to the seller should be more, but at the same time you are suggesting that the salesman didn’t add value to the product.

    Basically does sales and marketing have value, and if so, how does one measure the value of such?

  17. Gallileo Says:

    16:

    If one assumes that the seller is a profit-maximizer and the buyer is a cost minimizer (definitely a reasonable first-approximation), then we have found both the maximum the buyer is willing to pay and the minimum the seller is willing to take.

    But those are two different numbers, and the question is simply which one are we going to tell people was the final value of the house.

    And of course advertising and marketing add value. What they don’t do is add value in lock step with a 6% commission on the house, and we shouldn’t report the transaction as if it did.

  18. nomadic Says:

    Why not value the home at the maximum price the buyer was willing to pay, which is always equal to or more than what the buyer paid?

    Only in the RBA.

  19. Gallileo Says:

    More precisely (since SEA wants nothing less :-), in regard to the maximum amount a buyer is willing to pay vs the minimum amount a seller is willing to take:

    We have found the maximum that the second highest bidder is willing to pay.

    Actually, in a competitive blind offer situation like real estate in the Bay Area, we know even more than that: We have know the amount that the highest bidder *thinks* was the maximum the second highest bidder was willing to pay.

    In a non commodity market, it’s much harder to discover the minimum the seller is willing to accept.

  20. SEA Says:

    Gallileo- “We have found the maximum that the second highest bidder is willing to pay.”

    Perfect! Thus the property is valued at the second highest bidder’s valuation (including those selling fees, etc.), or at least what the first bidder thinks is the second highest bidders valuation, as you correctly point out:

    “We have know the amount that the highest bidder *thinks* was the maximum the second highest bidder was willing to pay.”

    The problem, if I can call it a problem, is that buyers were thinking that other buyers would forever pay more, Real Estater style.

    Similar to the ramen and PB&J story, I had one peak buyer suggest, “I thought I was only giving up a little time by paying more.”

  21. Gallileo Says:

    SEA,

    That is indeed how it is valued today by the government and MLS. The policy question is, “Should it be?”

    I don’t see why a buyer with a lot of cash should be able to make the house valued differently to the government when the size of the check he writes is identical to the one that the bank writes.

    Especially, when the size of the check that the seller takes home is identical in both cases. It is deceptive, and one can tell it is deceptive because the agent is trying to game the comps by entering a different value into MLS.

    I would be happy to have it reported as “Buyer wrote a check for X”, and “Seller got a check for Y”. The ability of the agents to hide their cost in the transaction is one thing that keeps the cost high.

  22. nomadic Says:

    I don’t see why a buyer with a lot of cash should be able to make the house valued differently to the government…

    I agree. For the sake of argument though, how does the equation change if, say, the house had a foundation problem that would cost $25,000 to repair? Then the “public records/tax” price is based on the actual value of the house at the time of sale. The contract could have been for the higher price with cash back to the buyers for the cost of repairs. IF (potentially big “if”) the buyers complete the repairs, then the house would comp higher.

    Just a thought.

  23. SEA Says:

    “I don’t see why a buyer with a lot of cash should be able to make the house valued differently to the government when the size of the check he writes is identical to the one that the bank writes.”

    Seems like a high risk game to the buyer’s agent, unless, of course, there was some other connection.

    “I would be happy to have it reported as “Buyer wrote a check for X”, and “Seller got a check for Y”. The ability of the agents to hide their cost in the transaction is one thing that keeps the cost high.”

    There is no price fixing in the industry, so this is absurd. If you think there should be price fixing, then that’s another issue. Really I fail to see, on a policy basis, what’s wrong with “buyer wrote check for X.” I really don’t see why the seller’s expenses would ever come into play.

    What other products are the marketing expenses for an individual sale separated out?

    Next time I buy a car, maybe I should ask, how much of the sales price is marketing, as if it would matter, and as if there is some accounting standard that we could all agree. Thanksgiving isn’t that far away. When I’m buying a turkey for 25 cents per pound, I’ll be wondering, how much lower would the cost have been had the ad not been placed in the newspaper.

    Certainly I understand the frustration that a seller has that an good salesman actually adds value to the property–the seller wants that extra value for free.

    I hear the same thing with cars–If you buy this car at the dealer, you’d pay $X more than private party. Does the dealer add value to the car? Provide valuable services? Lower the risk?

  24. SEA Says:

    Oh, and it just hit me, the buyer’s price did not change, but rather the record sale price changed. This is, in part, the problem of accounting standards. Right now banks are carrying loans at high values, even though we all know the value is much lower.

    So, in part, you are talking about a problem with the true value of the home being recorded. Maybe we can agree going this way: The value being recorded should be uniform for all buyers. If part of the purchase price is hidden, then that’s a problem. With some transactions, this is easy to determine, since the recorded value is significantly lower than going rates. When the amount is 2-3%, it’s going to be very difficult to know that the buyer really gave up 2-3% more.

    In the end, if this is an issue of truth regarding recorded prices–I basically agree, even without developing the accounting standards. At the same time, we always have tax evasion versus tax avoidance.

  25. DreamT Says:

    “Really I fail to see, on a policy basis, what’s wrong with “buyer wrote check for X.”
    For one thing it’s usually a combination of cash + mortgage and part of “the check” go towards transaction costs as opposed to intrinsic value of what’s being purchased.
    And second, I’d argue that what the seller receives (after commission & other expenses) is more representative of the perceived value of the house. This is the reason why a seller will accept to sell at a lower price if no agent’s involved, and consider this: if I accept a $500k full-cash offer over a $550k 80%-financed offer which I’m not sure will managed to go through, is the property value considered to be $500k or $550k?

  26. SEA Says:

    DreamT- A seller seeks profit maximization. If the seller’s opinion is that accepting the risk on a higher offer is not worth it, then the value is not there.

    As far as the “buyer wrote the check for X,” I am including the loaned funds.

  27. DreamT Says:

    SEA – You’re stating that the perceived value is in the seller’s eyes (“seller’s opinion), not the buyer’s – so it would seem that you agree that the value is best determined by what the seller receives, not what the buyer pays.
    Which of course is the opposite of how things are today.

  28. SEA Says:

    DreamT- I’m suggesting that the value is what the seller receives = what the buyer pays.

  29. DreamT Says:

    P.S SEA, sorry if I’m beating a dead horse, but from the day you started posting, I can never tell if you agree with what you’re responding to, and restate just for the sake of it, or if you disagree. Too many generalities. I might as well start my post with “The sun rose today. The earth is not square. If I walk straight, I end up somewhere else.” Nothing you would disagree with, but nothing enlightening either.

    Regarding #28, you lost me. The seller receives less than what the buyer (selected by the seller) pays. Sorry for hoping on your plate, I’ll clear out now and leave you to discuss with agreeable minds.

  30. SEA Says:

    Accounting standard, semantics–we have a problem in here somewhere.

    Buyer pays $1.0M to seller.
    Seller receives $1.0M.

    If $900k is owed on the property, yes, from the $1.0M that the seller receives, he’s going to pay that. If the seller hires an attorney, and the agreement was to be paid after the sale, the seller owes the money, and hopefully the seller will pay him too. If the seller agreed to pay other agents, yes that must be paid too. And so on and so forth.

    Actually lenders do not care where money comes from. In other words, if the seller pays all fees, sales expenses, loans, whatever before the actual sale, the seller will walk with the same amount the buyer puts into the sale.

  31. SEA Says:

    Maybe I should say the gross sales proceeds = what the buyer pays = what seller receives.

  32. Gallileo Says:

    @23 “There is no price fixing in the industry, so this is absurd.”

    Are you saying that nearly every real estate market in the US isn’t dominated by a local cartel?

    @22

    After repairs, the home’s value does increase by the amount of the repairs. But it makes very little sense to both the buyer and the seller to structure the transaction as cash-back for repairs. It would be beyond me why people do it that way except that it is a perfect arrangement for the agent, who gets money based on the top line, and has to do less work in resetting the terms of the contract.

    Paying the extra commission is disadvantageous to the seller. Worse, the cost of the repair counts as part of the buyer’s tax basis, and he will be taxed on that for as long as he owns the house.

    This is also why, all else being equal, the redfin money back deal isn’t as good as a straight lower-commission. That rebate money counts against your tax basis.

  33. DreamT Says:

    In my opinion, a property’s value is what it is professionally, objectively and independently appraised at, because it takes into account what the market asks and bears, as opposed to the one offer the seller decided to accept, possibly undervalued to mitigate risks or due to personal circumstances, and as opposed to the one offer the winning buyer made, possibly overvalued because he didn’t have a clue as to what repairs and other local comps entail (esp. if inventory’s very low and it’s a first time buyer or an unseasoned buyer with no agent).
    My point about seller’s check vs buyer’s check was purely rhetorical. Odds are that the market and a local appraisers are more accurate about a property’s value, than the actual transaction that took place in it.
    This is why I’m actually the wrong person to interject in the middle of the above conversation.

  34. SEA Says:

    “Are you saying that nearly every real estate market in the US isn’t dominated by a local cartel?”

    I am saying that there is no evidence of price fixing.

    DreamT-

    Those “professional, objective and independent appraisals” are part of what lead to the housing bubble.

    Beyond that, how do you get an independent appraisal? Independent of who or what? Basically you’ll have someone with no connection to the sale dictate what it’s worth? A governmental body, maybe?

  35. DreamT Says:

    You can hardly call lender-commanditted appraisals independent and objective. It all depends on who pays them. Prospective buyer should commission his/her own independent appraisal. Have you done this yourself or are you simply repeating inaccurate bubble generalities?

  36. nomadic Says:

    What other products are the marketing expenses for an individual sale separated out?

    How about buying & selling securities? That’s more a commission than marketing expenses, but basically the same. 12b-1 fees for mutual funds are for marketing and disclosed separately (but included in their price).

    #32, Gallileo – it’s sometimes done when a seller doesn’t want to take the time and/or risk to do a large repair and would prefer the new owner to do it… and the buyers don’t have the cash to do it. (To me, that means the buyers shouldn’t be buying a house if they’re strapped for cash, but just look at all of the dipshits during the bubble putting nearly nothing down.)

  37. Petsmart groomer Says:

    > What other products are the marketing expenses for an individual sale separated out?

    Marriage.

  38. SEA Says:

    “Prospective buyer should commission his/her own independent appraisal”

    When a friend was complaining that the bank appraisal came in too low, I suggest to run, not walk, away. Yet my friend was upset.

    In any event, I also recommend the same to sellers. I know of a gal who gloated about how much her home sold for, until I was looking at similar units in the same neighborhood while she was gloating. I pulled up one that was very similar, but $100k more. Oh, the only difference was about 2 weeks and $100k. Yes, that’s right, her same unit sold for $100k more two weeks later, yet she was very happy it sold so fast and for so much, until she realized she could have waited two weeks for another $100k. Talk about an instant change in attitude.

    So, yes, I recommend that the value be determined by every buyer and seller.

  39. anon Says:

    Good news!

    “People” are beginning to realize that housing is no longer a way to build wealth!

    http://www.nytimes.com/2010/08/23/business/economy/23decline.html?_r=2&hp

  40. nomadic Says:

    You’re late, debbie downer (anon):
    http://www.burbed.com/2010/08/22/nobody-move-bay-area-home-sales-seize-up-july-insider-report/#comment-63198

    If housing appreciates with inflation, I’d argue that isn’t too bad. Leverage would work in one’s favor over the mid-term, and well, you have a place to live over the longer term. The house you live in shouldn’t be considered primarily as an investment anyway – unless you can add value and flip them.

  41. anon Says:

    Debbie downer? Come on now, a little dose of reality never hurt anyone. A large dose is even better. :)

    Sorry for the repost… I don’t usually read sea’s posts all that carefully.

  42. SEA Says:

    “Self-reported home values are widely used as a measure of housing wealth by researchers
    employing a variety of data sets and studying a number of different individual and household level
    decisions. The accuracy of this measure is an open empirical question, and requires some
    type of market assessment of the values reported. In this study, we examine the predictive power
    of self-reported housing wealth when estimating housing prices, utilizing the portion of the
    University of Michigan’s Health and Retirement Study covering 1992–2006. We find that
    homeowners, on average, overestimate the value of their properties by between 5% and 10%.
    More importantly, we are the first to establish a strong correlation between accuracy and the
    economic conditions at the time of the property’s purchase. While most individuals overestimate
    the value of their property, those who buy during more difficult economic times tend to be more
    accurate, in some cases even underestimating the value of their house. We find a surprisingly
    strong, likely permanent, and in many cases long-lived effect of the initial conditions
    surrounding the purchase of properties, and on how individuals value them. This cyclicality of
    the overestimation of house prices provides some explanation for the difficulties currently faced
    by many homeowners, who were expecting large appreciations in home value to rescue them in
    case of increases in interest rates, which could jeopardize their ability to live up to their financial
    commitments.”

    http://www.levyinstitute.org/pubs/wp_571.pdf


Leave a Reply

Please be nice. No name calling, no personal attacks, no racist stuff, no baiting, etc. Let's be nice to each other in the true Bay Area spirit! (Comments may be edited/removed without notice.)