Is it time to buy real estate?

[Moemg]

At these prices for so few amenities, I wouldn't buy anything in the Northeast. In Florida, I'd consider buying something toward the end of the 2008. Read Scott Burn's Sliderland article to get a feel.

My So' s son lives in a condo here in Florida that was supposed to be for sale but became a rental unit . Soon the whole building went rental since they could not sell them and that nice pool well it's filled with unsavory characters . So buyers beware if your looking at condos in Florida make sure it's mostly owner occupied .

 

[Orchidflower]

You might pick up this month's Money Magazine as they have their predictions/guesses as to when the market will bottom out in about 100 cities. Some will bottom in '09 and others in '10.
Although, this morning 5/16/08 I heard a financial strategist on Bloomberg saying that NOW is the bottom and feel comfortable buying. Personally, I think (from everything I've studied) he's rushing things overall.

 

[Marquette]

My wife just called the gas company to make sure they know to switch out of our name after next Friday (closing day, yay!). Their first question was if it was a foreclosure or not.

 

[lazygood4nothinbum]

in interviewing potential renters for the inherited house we've been asked if the house is a foreclosure. one had to vacate when the bank took over his last place.

as to time to buy, i would certainly be buying today, if only i could sell first. hopefully real estate market timing will help me a tad. the five square miles around me has a 1.5% foreclosure rate and the inherited house area has only 2 deepwater properties in preforeclosure within a few miles north or south of it.

meanwhile, where i want to buy has preforeclosure rates of 2.5 to 3.5% so i'm hoping my area bottoms before theirs. racing to the bottom as financial strategy, ya gotta love it.

but things could be worse. i just picked zip code 33909 in cape coral by random as i am not familiar with the area. citydata shows about 3600 households in an overwelmingly white area. foreclosures.com shows a scary 1138 preforeclosures. (i ran it twice thinking it must have been a mistake.) 30%* wow. ground zero. hey buns, maybe that's where to shop afterall.

similarly, the brickell area of miami which probably has probably about a 10-13% foreclosure rate**.

*figure over-inflated due to 2000 census on number of households.

**for zip code 33131 (south of downtown miami where most of the new condo's were overdeveloped) foreclosures.com shows 791 properties in preforeclosure & 122 reo's while citydata shows 4082 total households which i'm sure is off by at least 1000-3000 (maybe more) units since the cited 2000 census figure.

 

[inquisitive]

Seems to me that, by definition, whatever you pay for real estate is "market value"...

Let's take an extreme example. Someone who knows nothing about houses walks into an open house of a FSBO in new development where every other house has sold for $200,000. This new house is the exact same size and specifications. This naive buyer seems very interested in the house and the builder says he can have it for $300,000, which he pays. The market value of that house is now $300,000?

Take bidding wars where the price goes up because of emotions and irrationality. The house is not worth that much, it only sold for that amount because of emotional attachments.

If someone purchased a house for $300,000 and now cannot sell it for $270,000, I don't consider $300,000 the market value even though that is what he paid for it. The value might only be $260,000.

 

[lazygood4nothinbum]

um, well, it sort of is the market price in that marketplace at that market time. try arguing that with the county's property appraiser lecturing me all about so-called intrinsic value and that reducing my taxed property value to what i could actually get for it today indicates only that i'd be selling out of desperation and therefore not selling at today's market price, even though that's the price the market will pay today.

by your logic, and that of the property appraiser, market price isn't today's market but the market of some other past reality that perhaps never was or a future reality that might never be. i look forward to finally selling so that i can purchase a lovely ocean villa at its real 1929 market price, assuming the current owner doesn't get too emotional about that.

 

[Marquette]

Let's take an extreme example. Someone who knows nothing about houses walks into an open house of a FSBO in new development where every other house has sold for $200,000. This new house is the exact same size and specifications. This naive buyer seems very interested in the house and the builder says he can have it for $300,000, which he pays. The market value of that house is now $300,000?

Take bidding wars where the price goes up because of emotions and irrationality. The house is not worth that much, it only sold for that amount because of emotional attachments.

If someone purchased a house for $300,000 and now cannot sell it for $270,000, I don't consider $300,000 the market value even though that is what he paid for it. The value might only be $260,000.

"The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.United States v. Cartwright, 411 U. S. 546, 93 S. Ct. 1713, 1716-17, 36 L. Ed. 2d 528, 73-1 U.S. Tax Cas. (CCH) ¶ 12,926 (1973) (quoting from U.S. Treasury regulations relating to Federal estate taxes, at 26 C.F.R. sec. 20.2031-1(b)). "

In other words, if the buyer is not under duress and the seller is not under duress and the seller is not hiding aything from the buyer, then the market value is what both parties agree to pay. Market value does not equal intrinsic value and, if you're not interested in the property, then your intrinsic valuation of it will likely be much lower than someone who is interested in it.

To look at it another way, I bought VTSMX at $36.60, $37.72, and $32.96. Would you say that, at the time, $36.60 was not market value? I couldn't get $36.60 now.

 

[inquisitive]

um, well, it sort of is the market price in that marketplace at that market time. try arguing that with the county's property appraiser lecturing me all about so-called intrinsic value and that reducing my taxed property value to what i could actually get for it today indicates only that i'd be selling out of desperation and therefore not selling at today's market price, even though that's the price the market will pay today.

by your logic, and that of the property appraiser, market price isn't today's market but the market of some other past reality that perhaps never was or a future reality that might never be. i look forward to finally selling so that i can purchase a lovely ocean villa at its real 1929 market price, assuming the current owner doesn't get too emotional about that.

Doesn't the appraiser determine the value for tax purposes? It's widely accepted among realtors that the appraised value could be higher or lower than the market value. If you have to lower your price to get a property to sell, then your original price wasn't market value, it was too high. Of course I don't know the specifics of your situation, so I could be off here, but I think you see what I'm trying to say.

I'm not talking about any past or future values, I am saying there is a value of each property at the current time, which is going to be close to what people are willing to pay for it at the current time, but people make really big mistakes and purchase something for too much, and on the other hand, sometimes someone gets a really good bargain in an otherwise expensive neighborhood. These outliers are not market value.

 

[inquisitive]

"The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.United States v. Cartwright, 411 U. S. 546, 93 S. Ct. 1713, 1716-17, 36 L. Ed. 2d 528, 73-1 U.S. Tax Cas. (CCH) ¶ 12,926 (1973) (quoting from U.S. Treasury regulations relating to Federal estate taxes, at 26 C.F.R. sec. 20.2031-1(b)). "

In other words, if the buyer is not under duress and the seller is not under duress and the seller is not hiding aything from the buyer, then the market value is what both parties agree to pay. Market value does not equal intrinsic value and, if you're not interested in the property, then your intrinsic valuation of it will likely be much lower than someone who is interested in it.

To look at it another way, I bought VTSMX at $36.60, $37.72, and $32.96. Would you say that, at the time, $36.60 was not market value? I couldn't get $36.60 now.

I would say that $36.60 at the time was probably not market value, but I use market value to mean intrinsic value, not the actual current price of the stock. If the market value equaled the stock price then there wouldn't need to be 2 terms/definitions to describe the same thing.

I am not quite sure I see what you are saying in real estate terms, if there is a difference between market value and intrinsic value (I think intrinsic value is what I was trying to describe earlier), then is it the case that market value is exactly what a person paid for a property? What do you do after someone buys a property for $300,000 that appreciated by 10% per year for 2 years? The market value of the property is still $300,000 even when all the other homes in the neighborhood are selling for $363,000?

 

[HFWR]

To use a different analogy, people often tell me I don't "look" 53yo. Sorry, but I look exactly 53 yo...

Like all the magazines which purport to tell you what your antiques or your baseball cards are "worth"; they are only worth what someone will pay you.

 

[Marquette]

I would say that $36.60 at the time was probably not market value, but I use market value to mean intrinsic value, not the actual current price of the stock. If the market value equaled the stock price then there wouldn't need to be 2 terms/definitions to describe the same thing.

I am not quite sure I see what you are saying in real estate terms, if there is a difference between market value and intrinsic value (I think intrinsic value is what I was trying to describe earlier), then is it the case that market value is exactly what a person paid for a property? What do you do after someone buys a property for $300,000 that appreciated by 10% per year for 2 years? The market value of the property is still $300,000 even when all the other homes in the neighborhood are selling for $363,000?

$36.60 was exactly market value. $3k in index funds purchased at NAV. And you can't use market value to mean intrinsic value. Those are two different terms with two different meanings.

First, even in cookie-cutter suburbia, you're not going to find two identical houses that have sold consistantly at the same price. Location and view will be different, features will be different, etc. But, let's say that you did have such a scenario....

Then let's try this again. You buy a house for $300k. The identical house down the street sells two years later for $360k. In terms of market value, so what?

You estimate, based on that sale, that you should also be able to get $360k for your house so you list it for that. Suppose someone offers you your full asking price. Then, if you are not selling under duress, if your buyer is not under duress, and you are not hiding anything that would materially affect the buyer's use of the property, then you have just established the market value for your house at the time of the sale.

Before that, you have an estimate of what you feel market value should be. You very well could be wrong.

Three years ago my wife and I looked at a house that was priced at $480k. Based on many factors, we offered $360k. You could say that $360k reflected our intrinsic valuation of the property. The buyer laughed at our offer. Thus, their intrinsic valuation was likely higher than $360k. The house sat on the market for 13 months and finally sold for $350k. During those 13 months, the buyer's valuation dropped until it came in line with the market value.

We just sold our townhouse. We did not need to sell. We bought the townhouse five years ago for $262k. We added about $18k in "stuff" but that "stuff" carries a low intrinsic value for a buyer ($9k in wool carpet, for instance). We sold for $260k. Regardless of tax assessment, realtor guessing, or offers we refused, $260k is the current market value of our house.

Perhaps the trickier point is that it's rather difficult in buying a house to not let emotion into the picture.

 

[BunsGettingFirm]

To use a different analogy, people often tell me I don't "look" 53yo. Sorry, but I look exactly 53 yo...

Like all the magazines which purport to tell you what your antiques or your baseball cards are "worth"; they are only worth what someone will pay you.

So just out of curiosity, what is the market price for 53 year olds?

On a separate note, Moemg, I know what you say is true. Scott Burns points out the same problem with buying new constructions that are not fully sold. I'm looking at owner-occupied units at list price, and they still look plenty good to me.

 

[HFWR]

So just out of curiosity, what is the market price for 53 year olds?

Free to a good home, goes on the paper, licks himself a lot...

 

[lazygood4nothinbum]

Condo crunch in S. Florida good news for bargain hunters -- -- South Florida Sun-Sentinel.com

At the end of April, almost 41,000 condos were listed for sale in Palm Beach and Broward counties...Based on the current monthly sales pace, it would take roughly five years to sell all those condos if no new units came onto the market...

At the end of the first quarter, there were more than 30,000 unfinished condos in South Florida, 80 percent of them in Miami-Dade County...

Condo prices overall are expected to keep declining...although certain luxury condos are holding their values, real estate agents say...

Units in urban settings with no water views are seeing the biggest price declines...

 

[Meadbh]

Let's take an extreme example. Someone who knows nothing about houses walks into an open house of a FSBO in new development where every other house has sold for $200,000. This new house is the exact same size and specifications. This naive buyer seems very interested in the house and the builder says he can have it for $300,000, which he pays. The market value of that house is now $300,000?

I would say yes, $300K is the market value, but the market is inefficient, because the buyer is at the wrong end of the knowledge gradient.

 

[lazygood4nothinbum]

Palm Beach real estate industry escapes housing bubble

"It's the opposite of a bubble," Evans said. "Demand is increasing while supply is decreasing...

...the median sale price of single-family homes was up $870,000 to $4.67 million in the first quarter of the year...investors recognize the growth potential for Palm Beach real estate and are putting their money there instead of in the stock market or other investments....

guess i'll have to take you guys on a phototour of palm beach one of these days.

 

[inquisitive]

I see what you are saying, Marquette, I was using an incorrect idea of market value.

As a soon-to-be homebuyer, I was trying to figure out how to get a good deal on a house, and I came across erroneous ideas of market value in books and in newspaper articles that factored into my thinking. My plan was to look at the prices of similar houses in the neighborhood that sold within the past 6 months and then buy at less than that, but what about a few years ago when everyone was buying into certain neighborhoods at really high prices which have since come down tremendously? Had I compared myself to the other homebuyers I would have thought I was getting a good deal when in fact I was overpaying. The other thing is that what was market value a year ago has no relationship to what is market value now, so trying to get a house at any percentage less than current "estimated market value" might not even work. There are ebbs and flows in market value, and as someone pointed out, inefficiencies.

It seems to me the best idea is to come up with an idea of what the market value of a particular property will be in a few years and then try to buy at a discount now from that future estimated market value. Since I have no idea how to do this at the current time, I am going to look at listings of houses in my price range and ~20% greater than my price range, which could be significantly discounted from a year ago, as well as look at bank-owned foreclosures, preforeclosures, auctions, and other kinds of bargain areas. Then I can make a comparison of all of these kinds of houses to come up with the best deal.

 

[Marquette]

Inquisitive. Keep in mind, since the definition of market value includes a buyer and seller that aren't under duress, you can generally get a much better deal as a buyer when you're not under duress and the seller is ;-)

I think your approach is solid. Just stay rational and walk away if the deal doesn't get to where you want it to be. We've had several people laugh at our offers only to finally end up selling to someone else for less than we had put on the table.

 

[Abreutime]

Let's take an extreme example. Someone who knows nothing about houses walks into an open house of a FSBO in new development where every other house has sold for $200,000. This new house is the exact same size and specifications. This naive buyer seems very interested in the house and the builder says he can have it for $300,000, which he pays. The market value of that house is now $300,000?

Take bidding wars where the price goes up because of emotions and irrationality. The house is not worth that much, it only sold for that amount because of emotional attachments.

If someone purchased a house for $300,000 and now cannot sell it for $270,000, I don't consider $300,000 the market value even though that is what he paid for it. The value might only be $260,000.

The market value of a house is the amount of money the house could fetch if you were to sell it. So, if someone pays 300K for a house that sells for 200K ordinarily, the market price is whatever the house could be resold for (closer to 200K than 300K). Selling a house for 300K to an uninformed buyer does not mean that the market price is now the new sales price, if it would be impossible to find a new buyer for the 300K.

Bidding wars usually reflect rising market values, but not necessarily whatever definition of intrinsic value you're using (ie. some combination of rent ratios and sales prices).