Daily Archives: April 23, 2009

We’re bailing these people out?

Reader OG writes:

I just found out my house is worth what I paid for it in 1998! I paid $500K for, did a $500K renovation for an all in cost of ONE MILLION DOLLARS (added a master suite, tripled the size of the kitchen, moved some walls around, all new Marvin windows, siding, new bathrooms, etc)! Similar houses in my neighborhood have sold for $2-2.6mm range a couple of years ago (these same houses sold for $1.3mm when I bought my fixer-upper in ’98). Today I got a letter from Chase telling me that my $500K home equity line of credit has been reduced to a $232K line because my estimated home value is only $1,021,000 using a “proven valuation method”. Thankfully, I have never drawn on this line of credit, and honestly don’t even need it. But I am a bit shocked to think their appraisal is so low? They must be wrong. We are talking about 3900 sq ft in OG in a good location.

This is laughable because it was these same “proven valuation methods” that the banks used to get themselves (and us) in the mess we’re in now. I spent much of the day with a builder friend today and in our conversation I asked him how, say, 5 Meadow Wood, could have received a $5 million mortgage when it was a horrible piece of junk with the I-95 sound barrier as its backyard. “7,000 sq. ft. right?” he asked, “then easy: they appraised new construction in Greenwich at $1,000 a square foot and passed out money on that basis. So $7 million, less 20% and you’re at $5.”

This house, now in foreclosure, will never sell for more than $2 million and I’d be astonished it it fetched half that sum. But the town is littered with failed spec houses all with money loaned at a value that was achieved in only a handful of sales, ever. So now, burned, the banks are going the other way. Picture a pilot in one of those WWII movies with his engine shot up and his windshield covered with oil, blinding him as he spins to earth, doomed. The banks are those pilots.

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Welcome to 2003

556 Riversville Road is reported as under contract today, after it dropped from $5.295 million to $3.695 – I assume the contract price was lower, which is interesting, because in 2003 the sellers paid $3.5 million for the place and then poured in lots of money renovating it. If this price is typical of today’s market, and I think it is, then when pricing your renovated house, forget anything you spent on it and figure out what it was worth in 2002 – 2003 and there’s your price.

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Someone got religion

97 Lockwood Rd
97 Lockwood Rd

This Riverside house was first listed for $2.025 million in 2006 which, even in those heady days, proved more than the market would bear. It was pulled from the market and returned in January ’09 for $1.795 and today was marked down to $1.2 million. It’s now in the hands of a relocation company, which would explain the snow-bound photograph – those guys hate to waste money on photographers – but at this price, it probably will be gone by next winter.

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