Sometimes, a little objectivity can be invaluable

18 Ballwood, in Old Greenwich, is a good house on a great street, but when it came on back in October, 2008 asking $4.999 million, I thought its owner/agent was a little too close to her house to price it objectively. The market having spoken, it’s marked down today to $3.250 million, much closer to its assessed value of $2.571 and much closer to reality.

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7 responses to “Sometimes, a little objectivity can be invaluable

  1. Retired IB'er

    I am more and more convinced that 2010 is going to be a bad year for residential real estate.

    Diana Olick has some interesting numbers out of the GSE’s: http://www.cnbc.com/id/35952456

    Quote from the article below. As you read it, keep in mind these poor results are with unprecedented involvement by the Government trying to prop up the housing market; and, year over year numbers are against 2009 when the “world was falling apart”. Maybe the “world” has farther to fall in 2010…
    “Fannie Mae took a big scissors to its forecast for residential investment (mortgage funding) this quarter. A month ago they thought the it would rise 2.8 percent in Q1, but now they’re saying it could drop 17.2 percent. That’s some change.

    On top of that they slashed their forecast for mortgage originations for 2010 to 1.31 trillion from 1.97 trillion in 2009 (a 33 percent plunge!). That forecast is also a drop from their February forecast of 1.34 trillion. “

    • christopherfountain

      IB’R, while I was away, one house (5 Dairy Rd) sold via bidding war in the $4million range, and that’s because it was deliberately set at a bargain level. All the other sales were for houses under a million. I think we’re in for a very interesting year indeed.

  2. xyzzy

    18 Ballwood is interesting because it use to have a nice water view but it no longer does because of the new house built between it and the Sound. Not sure what that makes the land worth but its not worth more than 19 Keofferam.

  3. foobar

    that dairy road was more in the 4.75 range, fyi. good to see some sense coming to OG pricing.

  4. HG

    I’ve been thinking a lot about an earlier exchange moderated by Gideon over the question of whether a buyer or seller can ever have a view of the “right price” apart from prevailing market prices. The great thing about IB’r’s call on 2010 is that it is based on data. But, even if the economy / housing is going to be bad in 2010, the more important question is whether home prices are cheap or not. I’d like to propose the “Fountain Index” which would be a general guage of intrinsic home values in Greenwich.

    I think you will reject the idea but I think it would be possible to construct and also valuable to buyers and sellers if not relied on slavishly. For structures, the value could be a range around [construction costs + a reasonable builder profit]…and would not apply to newly built structures only but to any structure. For land, the object would be to estimate a reasonable price for a typical building lot, perhaps for each general neighborhood in Greenwich without relying only on prevailing current prices as a guide. I would suggest using your vast knowledge of past sales to construct a trend line of prices for the “typical” lot. If a typical backcountry lot sold for $500k in 1990 and $1MM in 2000, these two points (and many more) would create a trendline. You could also use the consumer price index or some other measure of general inflation (or GDP growth, or even an estimated increase in annual compensation over the years for Goldman Sachs employees) to extrapolate the trendline to estimate the “right” price for a lot today. If you wanted to reference current comps these could be included with a 50% weighting or presented alongside the “right price” for comparison.

    With the “Fountain Index” lot value and structure value in hand, the buyer could then make appropriate qualitative adjustments to reflect the fact that every property has unique features. The point being that every house is unique but the “Fountain Index” would give a sense of where the entire market is relative to where it ‘should’ be.

    If nothing else, I believe you could get free media coverage.

  5. HG

    It occurred to me that someone who depends on transaction volume for their living might eventually need to discontinue or downplay such an index in favor of encouraging deals to happen regardless of price, but you have already shown a stubborn desire to help your clients.