Apples To Apples

22 Marks Road, Riverside section of Greenwich

(Gideon Fountain writing for Christopher Fountain)

Despite the title of this piece,  the recent re-sale of 22 Marks Road probably isn’t a true apples-to-apples comparison, first because I believe that to be nearly impossible, second, because there was some renovation done.  Nevertheless, I like this example because of the short time frame;  it sold $3,241,040 on April 21, 2008 and sold again, today, this time for $2,768,750.  That represents a $472,290 loss (plus costs of renovations) for the seller, about a 14.5% decline.

So does that settle the question, how far are we down since the high’s of early 2008?  Answer: 14.5%?  No.  This house showed very well the last time it sold but it actually showed better this time.   So you can make the case that it might have sold for even less if it had looked exactly the same as before.  Ah ha!  So we’re really down 20%?  Not sure.

Real estate is always going to be tough to be exact about.  The exact same house can sell for hundreds of  thousands more one year to the next simply because it is beautifully decorated, not necessarily expensively decorated, but just using carefully chosen colors and materials that make the place seem more inviting.  

Appraisers produce nice, scientific-looking “reports” that are professionally bound,  run multi-pages, and often have impressive charts and examples. Those reports represent the appraiser’s best guess.  Like the art-experts at Sotheby’s Auction House, who estimated the value  of Giacometti’s “Walking Man” at between $18 million and $24 million, only to have it bid up to $104.3 million, an expert’s guess, while an educated one,  is still a guess.  The market, made up of human beings clutching their checkbooks, ultimately tell us what something’s “worth”. 

The only thing I can say with any certainty about real estate is this:  If you’re grossly over-priced, you will get no bids.  That turns out to be true every single time.


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19 responses to “Apples To Apples

  1. HG

    The market tells you the clearing price, but the “worth” of the structure is more a function of construction cost to replace it. The “worth” of the land is more uncertain, which is one reason people were prone to participate in the bubble (although plain stupidity was also a factor, as when people paid $100,000+ more for a home because it had nice appliances). This blog is at its best when it acknowledges that there is an actual, correct value for a home rather than simply something that is in line with current market prices, which as we have seen, are often grossly wrong.

    • christopherfountain

      (Gideon responding for Chris)
      No, I disagree, and I won’t accept the notion of a “correct value”. I have been selling houses for 24 years and before that I sold newspapers, greeting cards, seeds, and magazine subscriptions (as a callow youth). First and foremost, I have learned to respect the market’s judgement. Throughout my career I have seen cases where a well-meaning appraiser sinks a real estate deal by “proving” a house isn’t “worth” the contracted price only to have the house sell for that exact amount a few weeks later to someone else. We real estate experts do ourselves no good if we stamp our penny loafers on the floor and shout “But it’s not worth that price!” If there are five couples standing in the front yard who are ready, willing, and able to pay $3,000,000 for a house then dammit, THAT’S what it’s worth. Will there be occasional asset bubbles in real estate and elsewhere? Yes. Should politicians interfere in order to “protect” us? No. Leave the market alone and it will always sort itself out.

  2. Anonymous

    Many buyers of Greenwich RE value (and place numerous bets long/short) on public securities in their day jobs

    Such active financiers should be able to appreciate how valuation of any asset (esp an emotional one like primary shelter) is an inexact art, despite much pseudo-quantification, pseudo-precision and fancy modeling/comparables analyses

  3. RR

    Gideon, I agree with you. How do you feel about buying a house on the same block as a short sale some 20%+ higher in price? Do the appraisers put much weight in such sales?

  4. Glug Glug in Greenwich

    $473,000 ‘loss’
    $130,000 renovs ( i know)
    $180,000 re/legal/convey fees
    $783,000 out of pocket

    nice house, no usable yard, back lot…

    2 yrs in Riverside, priceless

  5. HG

    My experience with markets is they are not “occasionally” wrong but often wrong, and not just in bubbles but in busts. The stock market is the classic case, where companies with stable, non-cyclical businesses and no debt were selling 30-40% cheaper a year ago than they are today, for no good reason.

    The fascinating thing about your market is that while stocks, or farmland, produce cash flows, residential land does not and therefore an intrinsic value approach is very difficult. An intrinsic value approach to the house itself is very easy, since you can figure out what it would cost to build instead of buy. Just as there are smart and dumb buyers / sellers of stocks, bonds and commercial real estate, I would suggest there are smart and dumb buyers / sellers of residential real estate. I would think an experienced real estate agent, for example, not only knows when a house is a bargain relative to prevailing prices but in his gut knows when prevailing prices represent an intrinsic value bargain.

    The most obvious signal of a bargain in residential real estate would be when prevailing prices for homes (structure and land) are at or below the cost of construction for the structure alone…i.e., getting the land for free. Obviously in this “land for free” market, no new homes will be produced by builders, so you are likely to be able to buy and live in a nice house and also experience excess returns simply because demand will revert to some normal level while new supply will be many years away and when produced will be priced at a rational level. I believe this “land for free” situation exists in parts of the country, although perhaps it never will exist in a market like Greenwich where the land comprises a greater proportion of the overall home’s value. Still, even in Greenwich one can and should compare the price of a home (structure + land) to the alternative of buying land at prevailing prices and building the home yourself. This is probably the simplest way–without years of experience–of getting a sense for what is going on in the market. No doubt some would be unwilling to build themselves but the data point is valuable. If prevailing prices for homes are way above replacement cost (construction cost + prevailing prices for land), you know you are in a rampant boom where builders will create supply until, as we have seen recently, everything ends badly. During this boom people will say that land is scarce in places like Greenwich and Manhattan, that these places are special, that it is all about location, location, location…but will ignore the evidence of their own eyes as they ride past four-story tenements in NYC or vacant lots / teardowns in Greenwich that represent huge untapped supply of land. More specifically, that “way above replacement cost” data point would tell you on its face that buyers are behaving irrationally.

    So the argument against your respect for the market’s judgment is simply that–at a moment in time or over a week the free market may find the “right” price for a home because information flows freely and an underpriced home will attract multiple bidders, etc, but there is nothing about that process that suggests the house will hold its $3 million price or provide good returns over time. In fact, as we have seen, the market process itself is just as capable of blowing you up on your “right price” home purchase.

    In many brokerage professions, like stock brokerage, it is almost necessary for survival to disclaim a view about whether the market is too high or too low, but of course this is the single most valuable piece of information to a buyer in markets that fluctuate wildly (until recently, this did not seem to include residential real estate). A residential real estate broker can provide value other ways, but I think 2008-10 is a once-in-a-lifetime opportunity to pound the table and say “buy.”

    Of course, where I agree with you is that the only thing dumber than the market is the government.

    • christopherfountain

      (Gideon responding for Chris)
      Say, are you putting together a book? Me, too! Anyway, where I notice the “financial types” go wrong sometimes, is over-analyzing when it comes to real estate. As you say, “residential land produces no cash flow, yet I have been the frequent recipient of spread-sheet analizations from guys who want to prove to me, using the customary tools of their trade, what a particular property is worth.
      If someone hopes to show what Greenwich real estate “should” sell for, based on an exhaustive review of per-square-foot data from previous sales, he will fail in his quest. Houses and art are not sold by the pound.

      Two other points:
      A value that is usually overlooked by these little “market-studies” that guys like to do is the value of TIME. Rich people will sometimes pay ridiculous amounts for a place simply because it’s DONE; no worries about landscaping, decorating, even furnishing. For these folks, saving two years of trouble can be worth millions.
      Lastly, on broker-open-house days, when a group of experienced brokers are walking back to their cars after looking at something new, they all KNOW whether the house they just looked at is priced right or not. They may not be able to predict the final selling price but all of them just “know” whether it’s over-priced, under-priced, or just right.

  6. Tots TV for adults

    Thought that Chris would like a hot tip for TV viewing on his return.

    “The error occurred on the Kids On Demand and Kids Preschool On Demand channels where clips from Playboy TV appeared in the top right hand corner.
    Although a menu of available children’s programming was listed on the left side of the screen, previews showing nude women engaged in explicit conversations were shown where previews of children’s shows normally would appear.”

  7. G'wich Transplant


    A very good summation of why the best thing to do in this market, the best way to ensure value, is to buy land and build. In effect, you’re “double dipping” on the value side — land prices are in the toilet and construction costs are maybe 70% of where they were 3 years ago. These two levels of savings create a low cost basis so if prices of completed homes plummet further, you have created some downside protection, and if prices rise from here, your reward is magnified.

  8. out looking in

    unlike your overvaluation of American labor, you are spot-on concerning your last post Gideon

  9. anon

    so…according to hg, the south bronx and bridgeport are a helluva buy, long south bronx, short greenwich…..

  10. Anonymous

    I think Gideon is spot-on

    Residential real estate (esp luxury housing) is fraught with many emotions affecting valuation, including buyer’s desire for status/visibility, marital dynamics, any aversion to used houses, specific quality/quantity of new house build desired, time value of consumption, etc etc

    I can appreciate the patience and judgment needed by a competent RE agent to assess all these emotional subtleties in advising buyer or seller re: likely valuation by Mr. and Mrs. Market

    All not unlike the many qualitative, judgment-oriented skills a talented M&A banker employs in advising often similarly economically irrational and/or conflicted corporate CEOs, Boards and major shareholders re: valuation

    • christopherfountain

      (Gideon responding for Chris)
      Yer kidding? I’ll admit it had not occurred to me that you Mergers & Acquisitions types deal with the same challenge, namely people who are, as you say, “economically irrational and/or conflicted [corporate CEOs, Boards and major shareholders] re: valuation”. I thought all that crap was reserved for residential real estate!

  11. G'wich Transplant

    One more quick point:

    Although theoretically the “worth” of a house may be the value of the land plus the cost to build the structure, the market (even in this environment) does not seem to work this way. Buyers still place a significant premium on a finished house versus what it cost to build (my guess is 20% or more). This may be because of the time buyers don’t want to spend building a house as Gideon mentioned above or, more likely in my view, because buyers have no idea how cheap it is to build quality construction these days. The low cost of construction, coupled with buyer willingness to pay significant premiums for well constructed homes has created a terrific buy vs. build arbitrage opportunity in Greenwich real estate.

  12. Stanwich

    Hey GF, Has the storm completely shut down residential real estate this week in town? What are you doing to fill the time?

    • christopherfountain

      (Gideon responding for Chris)

      Yes and no, regarding the effects of the power-outage. I have found myself extremely busy going around evaluating what I hope will be my future listings but there is no question that showing activity has been temporarily slowed.

  13. Short comment

    The land is free??????????????
    Take any house in stamford on 1 acre
    put in in greenwich on 1 acre
    Same PRICE?

    • christopherfountain

      (Gideon responding for Chris)
      I don’t quite follow…Stamford can be as low as half the price of Greenwich for the same house. Is that your point?