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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13 responses to “We’re bailing these people out?

  1. pulled up in OG

    Single engine planes have crashed into quite a few houses lately.

  2. Anon

    I’m so sorry (but not really) for Real Estate Agents who have to work so hard now.

    Maybe the zillions of you who are part of the Greenwich Multiple Listing Service will whittle down to the serious and talented few (and there are indeed a few out there, including, in my opinion, the host of this blog). For too long, too many made easy money based on a high school diploma and college “attendance” record, plus a requisite pulse.

    I’m so sorry those days are over. Suck it up like the rest of America. Selling real estate can be an art. But I don’t think your profession has really reflected that in the last 10 years with the glut of divorcees with no education influx. Shock and awe back at you…your value was never really worth 5% anyway.

    • christopherfountain

      Well anon, now we also know that investment bankers weren’t worth $5 million a year, either. It’s a time of discovery for all of us. And, just to point out something, if I negotiate a deal and get you a house for $2 million less than someoneone else might advise you to pay, or steer you away from buying a house, or price your house so that you sell it in 30 days rather than 2 years, at a discount, I consider my (2.5%) well earned. Or do it yourself and save that commission. Free country, and all that.

  3. anonymous

    Anyone w/a basic sense of valuation (or risk models) knows it’s a game of garbage assumptions in~garbage valuation out (GIGO) among the ill-informed/irresponsible

    One’s liquid net worth (esp post-Bubble) reveals much as to who best understands valuation, risk, liquidity and leverage…not paper net worth during Bubbles, when many monkeys are self-proclaimed “billionaires”

  4. Cos Cobber


    Is it possible that Chase isn’t aware of the renovation? Was it permitted and therefore accounted for in the RE Tax assesment?

  5. Anonymous

    Sounds a bit on the small side if you ask me. I reckon you should bail out quick. Let Chris have the listing and he may find a buyer looking to pay over valuation, at say $1,022,000. Owner part financing of say $500,000 may seal the deal. Save me having to sell those shares at half their “value”, eh Chris?

  6. Walt

    Well read this my friend. As I have always said, old Uncle Walt won’t need to be bailed out. The Madoff weasels are singing, but the got nothing on me!!!!
    Your Pal,

  7. Anon E. Moose

    Shameful waste of a fine aircraft. Right tool, right job, and all that…

  8. Peg

    Instead of aiming for accuracy, diligence and integrity – they’re simply doing what they did before in the opposite direction. And yes; with our tax dollars, we are encouraging incompetency.

    We must look at the bright side, though. Much more of this by our government, and we’ll have fewer and fewer tax dollars left to subsidize idiocy! Arghhhhhh.

  9. Wally

    I have a friend in Riverside who had the exact same thing happen last week. This must be something that Chase is doing across the board.

  10. anonymous

    Any good realtor or M&A banker more than earns his fees in any deal…for value of useful advice

    Most realtors (or M&A bankers) are inept…and overpaid by morons who can’t figure out which advisors are competent…or what is value of their own time

  11. Riverside Dog Walker

    This has nothing to do with the value of the individual house. There have been recent articles about banks pulling the unused portion of HELOC’s to both reduce their real estate exposure and to extract more favorable interest rates on new HELOC’s that they write. This is justified by saying “the real estate market went down, so your house declined in value, so we can no longer allow a HELOC at the level you have.”

    I got one of these letters about a year ago. I followed their instructions and got a real estate friend to give me three comps showing that my house had not declined in value (glad I don’t have to ask for comps today). To my surprise, the bank reinstated the full line of credit, which I promptly drew down.

    Like many small business owners, I use my HELOC at prime minus 99 basis points as an inexpensive way to fund my working capital needs. Having the excess sit in the bank is a nominal cost for the flexibility it gives.

  12. pulled up in OG

    Since when did $500K of renovation get full credit in the market?