VOL. 37 | NO. 39 | Friday, September 27, 2013
Putting the squeeze on unsuspecting sellers
Real estate transactions are not fair, not even close to equitable. For the most part, sellers are not forced to sell, at least not here, not now, Nashville being the “It City” and all.
With all of the sales and all of the records falling, it’s surprising to find there exists a sect of disgruntled sellers.
Those sellers are the owners of houses that need work, be it an addition, renovation, demolition or reconstruction. Their houses are enigmatic inasmuch as that any of the aforementioned acts may or may not result in an acceptable return, if any, on the investment.
Some houses need renovation, but that comes at extreme expense and aggravation. Furthermore, the renovation may not match the market. If a house is a tear-down, why fix anything? After all, the buyers are reducing the house to mere rubble.
Here’s where the inequity prevails. In a number of sales across the city, buyers purchase houses that are in need of TLC, elbow grease, sweat equity, perhaps even an architect or contractor. That being the case, the houses are usually listed for less than the market with the realization that they need work.
Along come the buyers, who offer considerably less than the already low list price due to the condition of the house and the fact that the houses have languished on the market for an exorbitant number of lengthy, lonely days and lonely nights.
The sellers are excited to hear that offers are forthcoming and dreadfully disappointed in the prices offered. Yet, they must negotiate, as there are no other buyers in sight. In the end, they must accept a lower price than the reduced list price.
At this point the inspector appears and cites all of the shortcomings that haunt the property, many of which were reasons for the lower list price and the barely acceptable contract price.
The buyers, having developed convenient cases of amnesia, insist upon repairs or money in lieu of the work apparently forgetting the reason for the remarkably low price that the sellers accepted.
The extorted sellers succumb and forfeit their money while gaining new disdain for the buyers. When the buyers take the money, or even worse, insist upon repairs, only to bulldoze the structure, the sellers are sickened. In their minds they envision the treads of Sherman tanks rolling over the recently soldered, brand new copper pipes beneath the porcelain bowl in the granite vanity top beside the recently installed GFCI outlets.
They sift through the rubble after the roars of the bulldozers’ engines subside. As they pilfer through the debris, they locate the prized belongings, such as the skull of one of their daughter’s dolls. “Alas, poor Barbie! I knew her, Horatio.”
The house in need of improvement provides challenges for sellers and their Realtors in other ways. The reason for this is that when most buyers search for properties on any of the various websites, they look for the most that they can afford.
And there is the rub.
Buyers are prepared to spend, for example, $450,000. They enter a house in a $700,000 neighborhood in hopes of participating in the real estate investor’s dream – purchasing the lowest-priced house on the street. And, it is.
Of course it is in the worst condition of any house on the street, ergo the price.
Let’s assume this house requires $250,000 in order to achieve perfection. The numbers work as the list price of $450,000 plus the renovations of $250,000 would leave the owner with the best $700,000 – maybe even $800,000 – house on the street.
Unfortunately, for this seller, the $700,000 buyers are looking at $700,000 houses, not $450,000 homes.
Even if buyers were hoping to find a diamond in the sky, or rough, or wherever, they’d be hard-pressed to find a lender to play along.
They would need money, a whole lotta money. For, as it stands, most lenders require at least five percent down, often more, and then they will loan 95% or so of the value of the house as it sits, not what it could be.
So, sadly, the island of misfit houses awaits its Rudolph until such time as the grinches will have their way. And, remember, only 89 shopping days until Christmas.
Sale of the Week
The Tennessee Titans and their future Hall of Fame quarterback Jake, not the snake, Locker pulled off the first of his soon-to-be ho-hum come-from-behind victories, snapping a 21-year losing streak to the San Diego Chargers.
The Tennessee team, once known for its consistency and ability to sustain long drives and miraculous plays, had fallen onto difficult times.
It is virtually impossible for all who witnessed, tuned into Mike and Frank, or read of the victory to fail to recall the same resurgence of the Brookside community that is located off of White Bridge Road near Target.
Beginning in the 1970s, the late and highly regarded Nelson Andrews gained control of all of the streets such a Kendall, Knob, Alden, Stoneway and Vine Ridge and converted scores of 1,444-square-foot duplexes into 1,444-square-foot single family homes, all with three bedrooms and two baths, plus fireplaces, a rarity in an affordable home in that area with Hillwood in its backyard.
They sold like crazy then and never stopped, almost never. Their proximity to St. Thomas Hospital, I-40 and Vanderbilt Hospital lured medical residents to the area, earning it the nickname Resident’s Row.
Houses appreciated 10 percent a year with the efficiency of a healthy Al Del Greco and as steady as Eddie George and Frank Wychek. You could set your calendar by it, $10,000 per year for eons. Then, it happened. The Great Recession.
In 2010, the 1,444s sold from $207,000 to $275,000 after having plummeted to the $160,000s about the time the Titans were experiencing similar results.
This week, Jack Miller, a veteran real estate all-star, put the community of Brookside on his back and drove it the length of the field to an all-time high of $315,000 with his sale of 5608 Kendall.
Since there are no goalposts nearby, neighbors might tear down the WSMV tower in celebration of Miller’s Herculean accomplishment.
Richard Courtney is a partner with Christianson, Patterson, Courtney, and Associates and can be reached at firstname.lastname@example.org.