The wisdom of never paying full asking price

99 Richmond Hill

99 Richmond Hill

This cozy little beauty, 12,000 square feet and lots of amenities, was originally listed at $11.9 million in February 2005. It took a year and several price drops but it finally sold for $8 million in January ’06. Today it’s back up for sale, asking $6.995. That must be painful for its owner, especially since there is no guarantee that he’ll get even that price, but think how much more he would hurt if he’d paid that $12 million? Ow.

UPDATE: There are five houses for sale on tiny Richmond Hill Road, ranging in price from $3.495, $5.995, $6.500, $6.995 and $9.950 (this last remains just a gleam in the eye of its builder, I believe). Plus two land parcels of 4 and 5 acres each, in case you want to build your own, and an expired listing for a new house built right next door to 99 (85 Richmond Hill) that was priced somewhere in the $7s or 8s, if memory serves. That will probably come back on, although its absent owner may experience a Rip Van Winkle moment when he discovers what’s happened to prices here. I don’t remember a house on Richmond selling in the past year or so, so the market for this location have always been a bit thin. With this much choice, I would think that some serious negotiation might be profitable – for a buyer.

4 Comments

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4 responses to “The wisdom of never paying full asking price

  1. anonymous

    Sure, much room for negotiation w/so many sellers and so few buyers…but lots of false “bargains” out there

    Suspect flight to quality and premium location will make more sense for value-seeking buyer (and eventual seller) in a more sober economy….esp as prices everywhere, incl Belle Haven waterfront, are down and illiquid these days

  2. Inagua

    Still much better than the stock market over that time frame.

  3. Anonymous

    Inagua:

    Not really better than the stock market. Let’s assume the guy sells it for 5% off of his current $7m ask, plus pay the brokerage commission. He’s looking at a net of around $6.3m (lost $1.7m of off $8m)

    Assume he put 20% down on the original $8m purchase, so around $1.6m down payment. Effectively he lost about 100% of his investment from Jan. 2008 to now. So no, not better than the stock market.

    Real estate is high leverage – it works great on the way up but it’s a killer on the way down.

  4. Anonymous

    Excellent point! I know several people who invest in real estate and also realtors who have said “at least we didn’t lose 50% like we would have in the stock market!” But, as you point out, the leverage that helps on the way up equally hurts on the way down. For most people, a 20% reduction in home prices represents a >100% loss on their equity. And it doesn’t take 2 years and a 6% commission to sell a stock.

    I knew that things could stagnate, but I personally never expected real estate prices to take such a hit, especially in the most desirable communities and locations such as Greenwich. But, like many others, I have learned my lesson the hard way.

    It’s not your own financial situation that matters, it’s the financial situation of your next door neighbor who got in over their heads or had something bad happen.

    When that happens and they get upside down, your investment instantly becomes worth what they have to sell for. For example, there is a situation in Deer Valley, UT where a beautful ski in, ski out 4BR townhome can be bought for $2.5MM. The last one that sold in that same development went for 4.5MM 12 months ago. If the last buyer put down 20%, then they would lose 200% of their money if they had to sell now. Or, I guess they could walk and lose just 100% and ruin their credit rating.

    I never knew how many of my next door neighbors got so close to the edge and now cannot afford their homes even at values from 5 years ago!