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Hawaii home-buyer's mortgage math
Old 01-08-2008, 12:21 AM   #1
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Hawaii home-buyer's mortgage math

The tide is beginning to turn in the core of the Hawaii real estate market.

Two years ago a Hawaii realtor's attitude could best be expressed by Lily Tomlin's Ernestine the Operator: "We don't care. We don't have to." The first Sunday open house would usually incite a bidding war if the place hadn't already sold on the Wednesday realtor's preview. Crowds of buyers rushed from one listing to another in a frenzy not seen since the Japanese land-rush of the late 1980s.

Today it's a bit different. This 3BR/2.5BA listing (Hawaii Real Estate Central - Honolulu Board of REALTORS) went on the market about six months ago at $710K. It's slipped through $690K to $645K and now it's showing vacant. The neighborhood is middle/upper-class in a great planned bedroom community between Schofield Army Barracks & Pearl Harbor including top-ranked schools within walking distance, easy highway access, and fantastic mountain views. 1600 sq ft homes and 6900 sq ft lots are bigger than the Central Oahu average and the home is less than 20 years old. It's in good shape with no special features.

The scary interesting thing about this listing is that it marks the return of the open-house mortgage broker. The guy sat at the dining room table, equipped with the attached spreadsheet to show potential buyers just how easy it can be to make a $655K purchase (since reduced to $645K). Hawaii land is so expensive that jumbo mortgages don't kick in until $625K so this is a range of "regular" mortgage payments between $3800-$3125/month. Can't handle the mortgage math or comprehend the fine-print disclaimers? No problem, he'd give you quite an education!

Apparently the five-year interest-only ARM is not yet dead...

Don't rush in. It may be even cheaper in a few more months.
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Old 01-08-2008, 01:19 AM   #2
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Theres not much to say. I guess they are desperate now to sell anything they can. Until there is some oversight on those tactics they will keep using them.
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Old 01-08-2008, 05:51 AM   #3
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What was the original selling price?

19 YO. If we had a 4% appreciation rate over that time does it equate with what the listing price is today? Or are we still 100+ K too high?
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Old 01-08-2008, 06:57 AM   #4
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Those numbers scare me. I suspect I would be living in a tent. Do salarys support these kinds of payments? Seems like pressure downward is the only way to go.
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Old 01-08-2008, 09:48 AM   #5
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What was the original selling price?

19 YO. If we had a 4% appreciation rate over that time does it equate with what the listing price is today? Or are we still 100+ K too high?
Subject property sold 7/16/2001 for $325,000. It's assessed at $637,900.
It has appreciated at 10% per year if it sells at asking price. My thirty year history of Honolulu ownership has resulted in 9% annual appreciation. I would bet it sells slightly over or under $600,000.

Although it's only about 20 miles from downtown Honolulu the commute has to be close to an hour.

Waikiki and Diamond Head prices are holding firm. I offered market price recently on a place in Waikiki and was countered at roughly 10% more. I anticipate a 5-10% decrease in market value in the near future and am not willing to be 20% in the hole so I passed. I told the realtor I'd offer any value she could support but she said my offer was market!! Looks like it got sold but don't know the price yet. I'm sure they used my offer to get someone to slightly overpay.

The property met my parameters for purchasing and I own another unit in the same building but it is not irreplaceable. I believe I can find another property that meets or exceeds my needs. Since I hold long term I would have slightly overpaid if I thought I could not find a reasonable alternative at market price.
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Old 01-08-2008, 09:57 AM   #6
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Humm...Nords, are you in the market for a new house? Or are you thinking about getting into the real estate business?
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Old 01-08-2008, 10:05 AM   #7
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Looks like commercial property is still strong in Honolulu.
$307 a square foot land value. At that price the average 5,000 sf home lot would be priced at over $1.5 million.


KGMB Kapiolani site sold for $12M - Pacific Business News (Honolulu):
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Old 01-08-2008, 10:23 AM   #8
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this is a range of "regular" mortgage payments between $3800-$3125/month.
Want does a comparable unit rent for ? My guess is any "investor" is still accepting a large MONTHLY negative cashflow for the pleasure of being able to say they own.

As I've said, if I want to subsidize a strangers housing ... I'll donate to a homeless shelter.
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Old 01-08-2008, 10:31 AM   #9
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Those numbers scare me. I suspect I would be living in a tent. Do salarys support these kinds of payments? Seems like pressure downward is the only way to go.
Median Oahu condo prices are around $300K and median home prices are about $600K. The bell curve is broad & fat and varies extensively by neighborhood and homeowner neglect home condition. Prices tend to move in a band about 3-5x median income but prices are peaking above that these days. Hence the return of the "mortgage assistant".

There are cheaper neighborhoods (and plenty of beach-camping homeless) but this neighborhood is desirable due to location and layout/amenities. 20-somethings tend to buy condos and trade up later, use ohana housing to save a down payment, or work on the Mainland until they can afford repatriation. Others rent until the resale market collapses every 10-20 years. Hawaii's climate doesn't really penalize homeowners for neglect as much as Mainland winters (homes commonly go unpainted for 10 or even 20 years) so occasionally a watchful/patient buyer can scoop up a real sweat-equity bargain out of an estate probate.

Over the last couple years one of the most popular reasons for selling was "to move closer to town" (work). In homes with school-age kids it was usually to be closer to big downtown private schools. People had nice homes but were spending 2-3 hours/day commuting a 40-mile round trip. They'd cash out their equity for an expensive upgrade but the lower mortgage rates kept the payments pretty much the same.

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Humm...Nords, are you in the market for a new house? Or are you thinking about getting into the real estate business?
Good grief, I hope not. Spouse and I enjoy open houses for their info and remodel/decor ideas. We probably do 2-3 open houses a month and enjoy talking with knowledgable realtors. They're also a great way to keep an eye on the market and to learn about issues. I could easily spend the rest of my life in our current "dream home", although its perpetual yardwork may ensure that's exactly what happens. Spouse & I value the quiet & privacy and I think that'd be hard to duplicate in a smaller place (without yardwork). But her open-house habit is what found this refuge in the first place.

We have our rental home back (formerly occupied by parents-in-law) and I'm ready to sell but ironically the tenants are among the best we've ever had. There's a huge lifestyle contrast between us, he'll be chasing a paycheck for the rest of his life, and I don't think they'll ever give up their consumerism or expanding family to save a down payment. Unless they move to Thailand.

One of the reasons I put up this thread is because I haven't seen "mortgage assistant guy" in nearly a decade. I can remember when the numbers of home-selling-helpers at the open houses outnumbered the potential buyers. So this seems like an important harbinger.

The other reason? It's hard to tell from this occasional post, but I get a ton of PMs & e-mails from E-R.org readers asking about Hawaii real estate. This thread has the tools to get started on that research.
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Old 01-08-2008, 10:49 AM   #10
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Good grief, I hope not. Spouse and I enjoy open houses for their info and remodel/decor ideas. We probably do 2-3 open houses a month and enjoy talking with knowledgable realtors.
Yep. That's how it started. Looking at other, nicer homes just out of curiosity. I never saw it coming. Hope you're right, because it sounds like a change in your neighborhood could be an expensive upgrade. Remember, men hunt, women nest.
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Old 01-08-2008, 10:55 AM   #11
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As I've said, if I want to subsidize a strangers housing ... I'll donate to a homeless shelter.
Uh.. did you miss the almost $300,000 TAX FREE capital gain?

More like the strange renters subsidizing YOUR wealth growing plan. Gotta love them renters.

Speaking of renters. This past month one of my Waikiki renters called on the first and left a message with a sad story of their credit card company double charging them and that they could not pay the rent til the seventh! Of course they said they would include the late charge. I emailed back that I was OK with that and since they had ALWAYS paid on the first that I would waive the late charge. On the 7th I was checking online close to bank closing (all my tenants deposit rent into my bank account) and did not see "the rent". Since it was a Friday I wanted to insure the payment so I made the call to the tenant. "Yep Honobob, we're in line at the Bank. We are so embarrassed and have the late fee. No we missed your email. No late charge! Thanks! This will never happen again" Within 5 minutes the deposit was shown online! Jan rent was made on the 1st!

Diamond Head tenant emailed mid December that they would make the January rent payment on the 19th of December!!! because they were coming to San Fran. I told her she could deposit here in CA into my BOA account if she wanted to and gave her the account number. She replied that it was easier to just deposit 12 days early!

Both of these properties were purchased within the last 5 years and have appreciated a total of close to $400,000. Today's a good day to buy real estate!.....in Honolulu, San Fran, and certain parts and types of property in Las Vegas...Check your local market....YMMV .
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Old 01-08-2008, 11:23 AM   #12
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Uh.. did you miss the almost $300,000 TAX FREE capital gain?

More like the strange renters subsidizing YOUR wealth growing plan. Gotta love them renters.

Speaking of renters. This past month one of my Waikiki renters called on the first and left a message with a sad story of their credit card company double charging them and that they could not pay the rent til the seventh! Of course they said they would include the late charge. I emailed back that I was OK with that and since they had ALWAYS paid on the first that I would waive the late charge. On the 7th I was checking online close to bank closing (all my tenants deposit rent into my bank account) and did not see "the rent". Since it was a Friday I wanted to insure the payment so I made the call to the tenant. "Yep Honobob, we're in line at the Bank. We are so embarrassed and have the late fee. No we missed your email. No late charge! Thanks! This will never happen again" Within 5 minutes the deposit was shown online! Jan rent was made on the 1st!

Diamond Head tenant emailed mid December that they would make the January rent payment on the 19th of December!!! because they were coming to San Fran. I told her she could deposit here in CA into my BOA account if she wanted to and gave her the account number. She replied that it was easier to just deposit 12 days early!

Both of these properties were purchased within the last 5 years and have appreciated a total of close to $400,000. Today's a good day to buy real estate!.....in Honolulu, San Fran, and certain parts and types of property in Las Vegas...Check your local market....YMMV .
Different ends of the market: I got a call from my bank after doing the deposit - they adjusted my deposit because two of the hundreds were counterfeit. First counterfeit bills i'm aware of recieving. I co-mingle the cash, so the bills could have been from several different people - can't prove they were from the new tenant i suspect they were from. We bought a bill checking pen and took it down to the bank - no help, turns out these bills had been "washed", that is, someone stripped the ink from a $1 and reprinted it as a $100.
Eh - like losing two weeks rent. On the good side, a day of inexpensive apartment rent vacancy doesn't hurt as much as a day of spendy Hawaii rent. We all make choices, and there are positives and negatives that go with the choices made.
Castle and Cooke Realty - used to grow mushrooms for them and they were, probably are, massive pineapple growers. Looks like maybe the fields are becoming worth more for growing houses than produce.
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Old 01-08-2008, 12:33 PM   #13
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Wow that sucks! Every now and then I'm tempted to take the cash, especially when it's the deposit since there's no history, but my record keeping is so poor that I need that deposit in/withdrawal out bank record plus the laws against writing bad checks give me some false comfort.

So, if you turn the guy in you lose a tenant and if you don't you might have the MAN following you around. Hey, if they make a quick arrest you keep the deposit. They must have asked you where you got it and figure you're using the real estate as a front for your funny money business.

Next month I'd collect the rent and ask him to put it in a sealed envelope he signs and open it at the bank with witnesses!
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Old 01-08-2008, 01:26 PM   #14
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Spouse and I enjoy open houses for their info and remodel/decor ideas. We probably do 2-3 open houses a month and enjoy talking with knowledgable realtors. They're also a great way to keep an eye on the market and to learn about issues.
Nords, love your post about real estate back in Hawaii. I miss the Islands, but even the present prices are too lofty for me.

I'd love to go to some open houses (in Missouri), but I haven't and I'm a little timid about doing so. I am intrigued by the fact that you go to them anyway. If I'm not really planning to buy for a couple of years, would it be considered sort of nosy for me to go look through someone's home? And do the realtors "hit on you" and pressure you for information so they can start calling you at home and showing you houses you don't really want to see? What do you say when they ask you what you are looking for, and so on?

Just curious. I have only been to a couple of open houses and that was back in 1979, when my ex and I were actually beginning to look for a house but before we had a realtor.
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Old 01-08-2008, 02:38 PM   #15
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Wow that sucks! Every now and then I'm tempted to take the cash, especially when it's the deposit since there's no history, but my record keeping is so poor that I need that deposit in/withdrawal out bank record plus the laws against writing bad checks give me some false comfort.

So, if you turn the guy in you lose a tenant and if you don't you might have the MAN following you around. Hey, if they make a quick arrest you keep the deposit. They must have asked you where you got it and figure you're using the real estate as a front for your funny money business.

Next month I'd collect the rent and ask him to put it in a sealed envelope he signs and open it at the bank with witnesses!
I anticipate a call from the Feds - be nice if they do take this seriously, but if they are like credit card companies they'll probably just say it's not worth an agent's time for $200. Already told the tenant i think passed the money to me that he might expect a visit from the forces for good. Only fair to get that kind of heads up - if he's innocent he deserves a bit of advance notice, if guilty he can let that eat on him. Really doubt he passes me any more funny money (assuming he's the culprit). Probably half a dozen or more tenants pay cash every month - keeping the amounts segregated for each unit would be a logistic nightmare. I'm into simplicity
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Old 01-08-2008, 02:47 PM   #16
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Castle and Cooke Realty - used to grow mushrooms for them and they were, probably are, massive pineapple growers. Looks like maybe the fields are becoming worth more for growing houses than produce.
The Hawaii pineapple industry, except for the "Maui Gold" flavor and a few research acres, is dead. Most of the pineapple in America comes from Thailand & Malaysia.

The problem with turning pineapple fields into bedroom communities is that pineapples don't need as much water, sewage, schools, or traffic access. C&C is notorious for being the 800-pound gorilla who builds and then abandons the residents without adequate roads, schools, or even landscaped yards. Their "good-hearted" 1990s offer to exchange land with the state to build Central Oahu Regional Park was complicated by pesticide-contaminated groundwater of which they claimed "ignorance".

After 40 years of construction and 15,000 homes, C&C will finish building out Mililani this year. (Newer residents are already complaining about having Schofield Barrack's wargames in their back yards.) C&C is about three years behind on their next plan to build "Koa Ridge", about 7000+ homes around H-2 between Mililani & Waipio Gentry. Their first EIS was finally turned down by the authorities after public outcry & litigation over the above problems. No doubt C&C will try more bribes again after the elections. In the meantime the Koa Ridge cane/pineapple fields are being leased to farmers who are growing marijuana corn & papaya, but whose irregular plantings have allowed much of the topsoil to wash off the ridge down into Kipapa Gulch's stream and out to the ocean. So I'm expecting more controversy, litigation, & "Not in my back yard!" delay before any more new neighborhoods get built around here.

Ewa Beach & Kapolei are still growing strong, and in about 20 years Kapolei will finally achieve its 1980s "Second City" status as the other urban center to work/live besides Honolulu. Some of the city govt has already moved out there to reduce the commuter crush.

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I'd love to go to some open houses (in Missouri), but I haven't and I'm a little timid about doing so. I am intrigued by the fact that you go to them anyway. If I'm not really planning to buy for a couple of years, would it be considered sort of nosy for me to go look through someone's home? And do the realtors "hit on you" and pressure you for information so they can start calling you at home and showing you houses you don't really want to see? What do you say when they ask you what you are looking for, and so on?
The realtors are stuck at open houses anyway for the afternoon, so they'll sell to anyone who comes through their door. The more experienced ones understand and are happy to see you but the inexperienced ones might not get it. You're no burden to them-- if they're busy they'll leave you alone while they take care of the more needy customers. If it's slow then they'll answer your questions and even teach you about the market.

We're upfront about it-- we tell them where we're from and that we're always looking at open houses. We've developed a good relationship with a couple realtors (even got a few property-management/handyman offers). I love it when we find someone who's been in the business for 20-30 years and knows the history of the neighborhood. Again some realtors are more aggressive than others but the best just focus on building name recognition, nurturing a relationship, and waiting for referrals on the day that you're ready to buy. If they're running a sign-in sheet (as most do) then we give them our real names & home phone and let our answering machine screen the calls.

When a realtor answers your general questions about the house & neighborhood, it's just free marketing. However if you engage them to give you specific listings on what's coming on the market or to show you a home, then they'll consider that you've entered into a realtor/buyer relationship and they may feel entitled to compensation if you buy a house that they directed you to. So don't engage until you really want their help and are willing to pay for it.

Other big advantages of open houses are learning local custom (who pays what closing costs & what fees are charged), learning what neighborhood issues exist, learning what realtors are good or not so good, and determining your home preferences. After a couple hundred open houses you can recognize your "dream home" within the first minute of the walkthrough.

FSBOs are another story. Many for-sale-by-owners are emotionally attached to their property and don't know how to sell. They'll follow you around chatterering incessantly or (even worse) give tours and distract you with irrelevance. They're easily offended by material deficiencies or bad design/decor or they just won't leave you the heck alone to talk & take notes. Frequently they don't know how to stage (or even clean). So if you're just starting your open-house habit then I'd be careful of (or even avoid) FSBOs until you're comfortable.

IMO the worst of the FSBOs, though, are the realtors who are the owners. Because of that I always ask whoever's showing the house if they're the owner. I learned to do that when one realtor (who didn't say she was the owner) was passing off her remodeled kitchen as brand-new. Unfortunately it was actually over a decade old. I thought she'd been hoodwinked by a homeowner so I showed her the old cabinet hardware & plumbing that meant it couldn't be new. I did so in front of the other people walking through, not realizing that I'd just proved her a liar, so she asked us to leave. Once I understood the situation I got her name so that we never go to any of her listings ever again.
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Old 01-08-2008, 03:22 PM   #17
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Fascinating!!! Right now I must run, but thanks. Now I can hardly wait to try a few open houses too!
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Old 01-08-2008, 03:56 PM   #18
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pardon the small but related threadjack:

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However if you engage them to give you specific listings on what's coming on the market or to show you a home, then they'll consider that you've entered into a realtor/buyer relationship and they may feel entitled to compensation if you buy a house that they directed you to.
is almost a year since inherited house has been for sale, no buyers. want to dump the realtor, try buy owner for a while or maybe an auction. existing realtor's contract was up four months into it and has been on a verbal month to month ever since. his ad for us still runs on realtor.com.

how do i make sure that when i dump him that there is no presumed realtor/seller relationship?

also, per honobob's
Quote:
Subject property sold 7/16/2001 for $325,000. It's assessed at $637,900. It has appreciated at 10% per year if it sells at asking price. My thirty year history of Honolulu ownership has resulted in 9% annual appreciation. I would bet it sells slightly over or under $600,000.
my folks bought their deepwaterfront house in high end area (dock boat & walk to beach) of south florida in 1980 for $165,000 when there were still many vacant lots. now there are zero vacant lots, older houses are being torn down and newer 5,000 plus sq fters going in. this house is one of three on this canal just off the icw which has not been upsized. what would you suppose would be a fair appreciation rate?
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Old 01-08-2008, 05:02 PM   #19
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pardon the small but related threadjack:

also, per honobob's

what would you suppose would be a fair appreciation rate?
MARKET! And I don't know your market.

LG4NB, It looks like you were going for a 7.5% annual appreciation from $165,000 in 1985 to $1,000,000 2005 if I remember right. But can you say that was true over the years or was it more like 4% from 1985 to 2000 and then jumped to 20% a year over 5 years because of the nationwide real estate speculation? My appreciation has never been linear but some years I'm over my anticipated appreciation and sometimes under. In 1985 was the property worth around $237K? how about 1990, $340K or 1995 $488K, 2000, $701K? If you match up a couple of those times I'd say 7.5% is your appreciation rate. A good realtor would be able to give you this information, for your type of property, from comparable sales or their own experience if they've been in the market for awhile.

Why do you think the property has not sold? Is the property perceived to be in too good of condition to tear down. Is it the worst location in the neighborhood? Are waterfront properties suffering from all the natural disasters recently? If you can't come up with a reason then maybe it's just that you're on the high end of your market in a perceived slow market and you either sell in a low market or wait til the market improves or maybe just until the one buyer you need gets around to you.

On the butinsky side, why sell now? Rent yours, move in and turn it into the Florida hot spot. You like to boat...Craigslist.."Hot Berth looking for ships passing in the night!" Use it to home/room swap your way across the world! In a couple of years you may get your price or the city may buy you out just so the neighbors don't have to blush when they tell people the street they live on.

Either way I would talk to three active Realtors in your area and ask them to prepare a marketing plan and ask specific questions about the good and the bad they see in the property.

Good luck!
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Old 01-08-2008, 05:34 PM   #20
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its actually in one of the very nicest neighborhoods of one of the nicest towns around. identical property (though with a slightly better view) two houses down sold just after peak for $1,350,000 (already torn down with new minimansion almost done). i figure the drop here is about 30% (bet the new neighbor ain't happy). very expensive to keep this thing. taxes alone are $17k add insurance, pool, lawn, yuck. don't want to live there, too many memories; it's too sad. i want it gone. problem is no one is paying for premium now. just bottom feeders looking for foreclosures which are going for 50% off peak prices. only no foreclosures in our area so other areas are selling, not ours. this sucks.
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