Tag Archives: spec houses

Hey – you never know

24 Morningside

24 Morningside

I wrote about this area off of Field Point  Indian Field Road awhile ago and I thought, given the number of spec and almost-new houses for sale in it, that sales would suffer. Wrong. I hear that one house there has an accepted offer and this one, while it was reduced in price today, was reduced from $2.195 million to $2.175. A $20,000 price reduction indicates a confidence that I wouldn’t have shared a few weeks ago but obviously I underestimated this area’s appeal. Live and learn.

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Contract

48 Parsonage Road

48 Parsonage Road

This house was built on land purchased for $2.440 million in May, 2007. The house was listed for sale in May 2008 at $7.850 and reduced about a million to $6.895 in January. It’s reported as under contract today by an “out of town broker”. If it’s going for anywhere close to its final asking price, that’s encouraging news for builders. After all, what’s a million dollar shaving from an imaginary list price?

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Real estate can be tough

1-butternut1 Butternut Hollow Road has a tortured history. Listed as land for $2.4 million back in August 2003 the frustrated seller raised his price to $2.65 that November after no one would buy it at the lower price. That didn’t work, for some reason, so he eventually dropped all the way to an even $2 million in June ’04 and, naturally, a bidding war erupted and the current builder/owner bought it for $2.050 two weeks later. The existing property was razed and this one took its place, priced at $5.895 million in April 2005. it’s been begging for a buyer ever since. The builder dropped it 8 times without success so in November 2007 he raised its price, forgetting how well that had worked for the previous seller, from $4.450 to $4.650. This daring approach also failed so it was back to price dropping and the place ended up at $4.350 in June, 2008. Today it was withdrawn. Is the builder moving in himself? Turning the keys over to a lender? I don’t know, but the poor guy’s been carrying this place for almost five years and has yet to see a dime on his investment. I doubt he ever will.

UPDATE: This should read 1 Butternut Hollow (it does now, thanks to an alert reader) not 186. Don’t know how those last two digits crept in, but isn’t to “86” something to toss it into the deep? Maybe that’s it. And brother Gideon informs me that the builder did see a few dimes from this place in 2006 when he rented it for almost $20,000 a month. That probably explains his price raise in 2007. After it had been lived in for a year and was broken in, it was worth more. Maybe he’s withdrawn it today in order to try renting it again. Unfortunately, rents have followed house prices down, but it will still generate some cash. Just not as much as before.

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A spec house sells!

My brother Gideon alerted me to a contract that was reported late yesterday afternoon – we both missed it. Jordan Saper’s spec house at 80 Perkins Road, listed at $7.995, has found a buyer (Herb Erlich was the buyer’s rep – good for you, Herb). No report on price yet but builders everywhere should take heart from this unless, of course, it sold for 5 bucks. I’ll bet it didn’t. Jordan Saper builds houses that are not to my personal taste but he clearly knows what buyers want because his projects sell. I’ll dig up pictures tomorrow and see what I can find out about the selling price.

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What’s a builder to do?

Go belly up, I think, or at least, many of them will. Of the 549 single family houses currently listed for sale in Greenwich, 113 of them were built in 2005 or later (104 of those were built after 2005). While a few of these have sold once and are now back on the market, even more new houses are hiding behind their builders having moved into them or rented them out for less than their carrying costs.

So let’s assume that 113 is a rough figure of unsold spec houses for sale. Their prices range from $25 million to $1.350 million and, while I won’t say that I’ve seen every single one, those I have seen are, without exception, suffering under handicaps like poor location, poor land, crazy prices, etc. I don’t expect any of them to sell for their current price. Many of these houses probably still have some profit built into their prices; many do not. Some builders have the financial strength to take a big hit; many more do not.

This happens every cycle – builders get wiped out and are replaced with a new generation of optimists. I think we’re going to see more of that this year, however, than we ever have before.

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How does a homebuilder compete with foreclosed houses?

The upcoming problem for Greenwich will be sellers watching the prices of their neighbors’ competing houses drop level with theirs and then continue a free fall towards the bottom. Foreclosed competitors are not a major problem now and I hope they won’t be – sellers have enough trouble.

But in other areas of the country homebuilders, if they want to stay in business, have to convince buyers to buy their new product rather than the brand – new, never-lived in foreclosed tract house down the street. What to do? One big builder, KB, will today introduce its foreclosure buster – a smaller house, priced just 5%-10% above foreclosed ones. 

KB in response recently launched in California’s foreclosure-burdened Inland Empire a new strategy of building 1,200-square-foot homes priced about 5% to 10% above local foreclosures. KB plans to expand to other regions.

It is too early to tell “how profitable this model will be, and I’m not sure how much we’ll get” on the conference call, says David Goldberg, a UBS Securities analyst. But “it’s a big part of what we’re looking at in coming quarters.”

KB’s hurdle: that glut of foreclosed homes that, in some cases are barely lived in, if lived in at all. At the end of the day, says S&P analyst Kenneth Leon, home builders like KB may be looking at a painfully slow recovery in home prices.

This seems to make sense; I’d think a buyer would rather buy from a going concern and take advantage of existing warranty laws and avoid the uncertainty that comes with a mystery house that’s sat empty and unattended for a long period. But the KB houses will be smaller than their competitors and neither KB nor analysts is sure of its success. It will be interesting to watch what happens.

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A contract! $2 million!

helmsleyNo, not the house pictured – that’s Leona’s place which, despite a $30 million write-down is still for sale. I wonder when Ogilvy or Leona’s heirs will mark that to market? In any event, 8 Hillcrest Park Road in Old Greenwich did go to contract yesterday. This house was built new in 2000, put up for sale in 2003 for $2.650 and eventually sold in June, 2004 for $2.4 million. The buyers returned it to the market in May of this year at $2.750 and when that didn’t work chopped its price until on November 21 it hit $2.495, which has flushed a buyer from the bushes. I would assume that the winning price was less than the asking price so someone lost money here.

And speaking of losing money, two new houses were listed in New Canaan yesterday for $6.775 and $6.895, respectively. They’re both part of the same subdivision on 2 acres each and are sized at 9,500 sf and 10,900 sf. I don’t pretend to know the New Canaan market but these prices, and maybe these sizes, seem out of whack.

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Here’s a poser

5-meadow-wood-drive5 Meadow Wood Drive is a relatively new renovation on a back lot in Belle Haven. Unfortunately for its developer, that back lot backs all the way up to I-95 and the backyard is pretty much a green, pressure-treated wall of sound barrier. That no doubt contributed to its failure to reach its asking price of $7.950 million when it came up for sale in September 2006 and in the months since.

It’s been withdrawn as a sale and is now offered for rent, originally $25,000 per month ($300,000 per year, if your calculator isn’t handy) and, as of today, $15,000 ($180,000). That still seems stiff to me.

So here’s the question, or two questions: is it not offered for sale any longer because more is owed on the place than can reasonably be expected to be produced by a sale?; and how large is that building loan, and what does it cost to service it every month? I don’t know the answers but this house does seem to be one of the ill-advised projects begun in the go-go years and now coming back to haunt the participants.

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Drive a bargain home?

It’s starting to look like a good time for it, maybe. There’s a lis pendens filed against 14 South Baldwin for something like $6 million, for instance, and I assume that foreclosure is on the way. This house will never sell for its hoped for $9 and I’m pretty sure the builder would be glad to accept an offer that would allow it to walk away. The complication here is that maybe the house isn’t worth $6 million. The front yard’s a swamp, the back yard’s tiny and the house, while nice enough, isn’t finished. Empty elevator shafts are just awful things to discover late at night, just to cite one example. How do you get the builder and, more important, the lender, to take a haircut? I’m not sure, but it’s probably worth the effort to try, at the right price.

The builder of 11 Lindsay Drive is, so far as I know, under no such financial pressure and certainly he hasn’t dropped his price much since April 2007 when he first offered it for sale at $13,750,000. It’s down to $12.9 million, not a price that will excite many buyers but probably not an unfair one – this is a huge, expensive project. What do you do with the knowledge, though, that the same builder has another project for sale on Ridge Street for $7.450 million? The builder and his agent will disagree vehemently but I don’t see how a view of the Honda dealership’s parking lot, no matter how luxurious the house hosting that view is, will support a price of $7 1/2 million. Do you, can you, use that opinion against the price of the house on Lindsay? I’d certainly try, especially because there is no lender threatening foreclosure. That relieves some of the pressure to sell but it also should make negotiations simpler. Even in this market,  though, you may just tick the seller off and poison the well; then again, it might work. And if it doesn’t, there are going to be a lot of other projects to try your method on.

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Filed under Buying/Selling Greenwich Real Estate, current market conditions, Foreclosure

What are these builders going to do?

I was showing some properties to a buyer and neither of us liked what we saw, at least at the price the builder was asking – $1.5ish. Two decent houses, side-by-side, one a renovated older home the other brand new but both overlooked the Cos Cob Foot  Food Mart parking lot which is not nearly as attractive as, say, a view of the ocean. These houses are by far the most expensive on the street and that sends a cautionary note as well.

The builder, if memory serves, paid $1.3 for the two lots, so he’s got $650 into each one. A sale for much less than $1.4 million is almost certain to cause him to lose money and that’s assuming he built the houses for $680,000 or less – I doubt he did.

But I don’t think he will get $1.4 million for these. If I’m right, he’s going to be losing money sooner or later; the question is, when will he acknowledge that?

Maybe I’m wrong, and perhaps there are buyers out there willing and able to pay the asking price. My point is, even if these two work out, there are a lot of houses currently for sale that aren’t going to. Their builders paid too much for marginal building lots back in the land rush, spent too much on building and now are going to have to take a bath. I’m seeing a lot of price cuts but, so far, few deep enough to move undesired houses. I think that’s going to change soon but, for now, it’s keeping a lot of buyers on the ssidelines, waiting. It occurs to me that the builder who cuts his losses now and gets out from under a failed project will be far ahead of his competitors when their building loans come due in February.

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Filed under Buying/Selling Greenwich Real Estate, Cos Cob, current market conditions, pricing, spec houses

Cos Cob and Greenwich spec houses

As long as I was looking up eastern Greenwich projects I thought I’d also check in on the other two districts. Ouch. Cos Cob has 14 spec houses on the market, from $1.495 to $6.795 million. The latter is on Cognewaugh and at the risk of offending my Cognewaugh reader again, I think its builder will be incredibly lucky to land a buyer in that price range on that street.

Greenwich proper? Oh gosh, who were the bankers who loaned on all these? There are 73 spec jobs listed, from $999 (after it didn’t sell at $1.495) to $25 million for that monster at 253 Round Hill Road. Monstrous in size, I hasten to add – I’m sure it’s a very nice house inside, even if it does lack something in the way of coziness. A few of these houses haven’t been built yet and probably never will be but I also know of still more houses that are being built that haven’t been listed  so 73-75 seems like a supportable number. Looking for a bargain? I’d skip Old Greenwich and focus on this group of disappointed contractors. I suspect that, just as in cycles past, we’re going to see a good number of local builders disappear from the scene. I’ll be sorry to see them go but if experience is a guide they’ll be replaced by a new batch. There’s always someone who slaps his hands together and says, “I hear there’s money to be made in Greenwich”. And indeed there is, until there isn’t.

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Vulture patrol

A number of us agents and our buyers are waiting out the builders of spec homes and I think that spells trouble for owners of older homes unless things get better fast. Here’s why: right now, new construction is probably the cheapest it’s been in a long while because builders with existing houses are stretched thin and willing to forego any profit if they can get out from under their projects. Not every builder, of course, but enough that there are some attractive deals to be had.

And things may get better, for buyers. Word is, there are a lot of notes and construction loans coming due in the next few months and no lenders are willing to step forward with new financing. That will put builders in an even tougher place than they’re in now. My personal opinion is that we’re going to see a lot of good builders disappear in this cycle and not return, so they won’t be building any new houses in Greenwich, ever. The ones they’ve already built, however, are available, and for far less than they would have cost last year. Buyers and their larcenous agents are eyeing $8 million houses and thinking, “how soon before a $4 million offer looks good?” And we’re waiting until it does.

Why is this bad news for owners of existing houses? Because they aren’t under the same pressure to sell and therefore their prices aren’t as attractive. Those prices may eventually fall in order to compete with new housing selling at half-off: they’ll have to, if they’re ever going to sell, but so far at least, they haven’t. And therefore few people are interested in even looking at them. Maybe when the last of the failed spec projects moves off the market buyers will return to the older stock but for now it reminds me of a bluefish feeding frenzy, and the blues are ignoring the fish on the fringes. It’s a grand time to be a buyer (with cash) and a rotten time to be a seller.

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Pricing

I saw a house today which, because I don’t want to embarrass  the owner I won’t identify, that was recently built on spec and put up for sale in the $7-$8 million range. The house is very nicely built: antique brick, leaded copper gutters, beautiful trim work inside, but as I walked around and concluded that it wasn’t worth showing to my client I wondered, who will buy this place? It’s on a very busy street, and close to it at that; its backyard is okay, except where it drops off into a swamp and, now that the leaves are down, you can see the neighbors looming on each side. Just to round out the picture, the yard backs up to a house on another street that looks (the house, not the street) as though it were built in the late 60’s or early 70’s. You know the type: a pseudo-colonial, shingled and possibly  split-level. Not exactly a house that you want yours adjacent to if your house just cost you a bundle.

So okay; no one’s likely to buy this house at its current price – what price will move it? I suppose it would be a heck of a deal at $4.5 million, although even then I know my own client wouldn’t touch it, but what about closer to its asking price. What about, say, $6.5? $5.5? It’s a lot of money for a lot of house in on a crappy lot, and I’m not sure there’s a market for that combination. Certainly a lot of spec builders and their lenders thought there was, judging from what’s on the market now and about to come on but I wonder if a sign of an imploding bubble is people making very unwise decisions about value. If so, we all should have seen this coming when lots like this were selling 2-3 years ago at prices that guaranteed the resulting houses would be priced in the stratosphere.

I’ll be interested to see where this house ends up.

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Hey, guess what? Spec homes aren’t selling!

antares-houseI was out of town when the October 24th edition of the New York Times came out and I missed this article on spec homes in Greenwich and New Canaan. Turns out, we have a whole bunch of them, all unsold. I don’t disagree with Russ Pruner, Chief Honcho of Surf & Turf Realty here in Riverside:

For the most part, conspicuously large reductions don’t represent discounts so much as they do reality adjustments, agents say. ‘We’ve had owners and Realtors who have been willing to put houses on at any price,’ Mr. Pruner said. ‘When they’re marked down, it’s not necessarily true that buyers are getting a deep discount. The properties were just priced incorrectly.’

But that said, I know of several houses for sale at prices that will guarantee a loss for their builders. These houses should never have been built, perhaps, and a loss for the seller does not necessarily mean a bargain for the buyer, but we’re getting there.

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