Saturday, July 11, 2009

What's wrong with this ad?

I was reading a realtor's newsletter today. Under a picture of a fourplex was this paragraph, which I copy verbatim in spite of wincing at the "it's":

In 2001 this property sold for $395,000. In 2006, it was refinanced and appraised for $790,000 ($398,000 increase in 4 years; almost $100,000/year increase). It is now listed for $799,000 so it has maintained it's value during the last 3 slow real estate years. It will increase in value as the economy further recovers and surpass the $799,000 value.

Do you think this is a good deal? We do! It's an opportunity staring you right in the face.

There's an outrageous claim being made there. Readers, restore my faith in human intelligence and tell me what it is!


Heather said...

The math errors! They burn!

The increase from 2001 to 2006 was $395k in five years, not $398k in four years! That's an average increase of $79k a year.

Also, listing a house for $799k doesn't mean it's actually worth $799k; it just means you're rather optimistic. ;-)

And if this house is such a gold mine, why are the owners who refi'd in 2006 so eager to drop it? More likely that "refi" was someone new buying the property at the peak of the market in '06 (who would be stupid enough to do such a thing? *cough*) and now they're trying to offload it without taking a loss by listing it for $799. Good luck with that!

I can list my condo for a million bucks. Doesn't mean it's worth it!

Rachel Gray said...

THANK YOU for recognizing the stupidity of claiming a property is worth whatever you list it for. :) I was so entranced by the realtor's audacity that I completely missed the math errors you point out!

I'd bet it really was a refinance in 2006. Lots of owners did that, to cash out their ephemeral profits and live the high life. Let's hope these owners at least have a yacht or a kid's college education to show for it, because some people cashed out just to buy more real estate, doubling their risk in what turned out to be a bad year for it (bummer....) Bad enough to be upside down on *one* fourplex!

Warren said...

Refinanced means that the person took a loan from the bank, and improved the home. This was incredibly common post bubble bursting. For a home to increase even in the opinion of a real-estate agent listing the home, there must have been some improvements to the property.

If you had a run-down home in a good location, and you improve the inside, this kind of increase is not uncommon. There are people who will spend over a million dollars renovating a single bedroom apartment in downtown New York, Paris, or London England, only to flip the property for a profit.

Expecting a property like this to hold its value in the current real-estate market is an absurdity however, so this real-estate agent is probably acting as-per his clients instructions, and probably has zero hope that it will sell. But if your client says list, and gives you the price, you go with it. Or you walk away, and a real estate agent never walks away from listing, even if the real plan is wait for the seller's expectations to come down to earth, or wait for the seller to be desperate, and sacrifice the property for something like what it's really worth. :-)


JimAroo said...

1st Point: Since the property advertised is a fourplex, any potential buyer would have the smarts to see through such puffery.

2nd Point :Quoting Waren: "Refinanced means that the person took a loan from the bank, and improved the home." Not always true. There are many reasons to refinance a property, eg lower interest rate with no cash out, take cash out for college or medical expenses, take cash out for other investments.

3rd Point: You are right, Warren, that weak real estate agents never walk away from a listing. Only the good ones do because it isn't productive to inventory listings that won't sell.

4th Point: To quote Heather: "More likely that "refi" was someone new buying the property at the peak of the market...." The term refi is not a purchase money loan for a new owner. It is, by definition,
a refinancing of an old loan with a new one for the same owner.

I don't know if there were more errors in the original advertisement or in the comments...

You will notice that I never ever comment about sea know why? Because I don't know a
thing about them. What do you think, sound like a good rule?

Rachel Gray said...

Jim, I've NEVER agreed with the notion that you shouldn't discuss something you don't know much about. Even the people who say that don't always follow their own rule, nor should they. How could we converse on any but the most limited subjects if we had to be certain that all of our statements were completely right? Just for starters, nearly all conversations about politics and religion would have to be curtailed-- in some cases a good thing, but generally I think the uninformed need to discuss these things more, not less. That way there's an opportunity to learn. Consider-- you wouldn't have shared all that knowledge in your last comment if we hadn't commented on the subject ourselves first, and so revealed to you where we were in error.

Heather and I did know what a refinance is, though. She put it in quotes because she was saying she thought there might not have been a refinance at all; she thought that might be one more inaccuracy in the listing, and I understood what she meant.

Maybe you only meant folks shouldn't pretend to be authoritative on a subject if they're not. I agree with that, but I don't think commenting on a blog qualifies as claiming to be expert. It should be understood in comboxes that each person is only saying what he believes to be true.