How much should I determine the value of a brand new foreclosed home in an older neighborhood?

Asked by Tknguyen, 30092 Mon Feb 15, 2010

Hello, I am interested in a foreclosed home with an asking price of 1.5 mil. I have been researching on Zillow and saw when the home was purchased and later demolished to build a newer one. The Listing Agent told me the offers they have had on the property are above 1 million with the last one being at 1.4 mil. My question is why isn't the house sold (been on the market for 8 months)? Can I ask the listing agent to show me the past offers? Since the house is located in a older neighborhood with value being around 300k-500k and no HOA, how can I determine the value of it besides the surrounding homes are sold for since most of it are older and smaller. The county assessed the taxes value of the home at 1.1million. No equity has been paid on the home since it is new, therefore it is hard to get a good deal on it, however I assume the bank should know that the value of the home has decrease. Also, is buying a new home in an old neighbor a good investment?

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Chuck Green’s answer
Chuck Green, Agent, Norcross, GA
Tue Feb 16, 2010
Tk,

I'm glad this home fits the basic criteria for you and your wife, but now is the time to separate your emotions from this buying decision as it could cost you dearly in the short and long term. If you do not have a Realtor representing you ( I feel that you do not ) get one hired and let them discuss this home with the selling agent (you need to stop talking with her) and get you the data needed to make a buying decision. Sounds like you are being played by a very good sales woman at this point. She will not provide you any documentation to support her statements and you should not expect any. If you do not have a comfort level on pricing when hiring a realtor then, as we have all said to this point get an appraisal on the property either prior to making an offer or as a part of the contengencies within your offer.
Web Reference:  http://chuckgreen.com
0 votes
Michael Hamm…, Agent, Suwanee, GA
Tue Feb 16, 2010
You have received some great advice here for free, Tk. The next question is, will you take any of it? Now is time to belly up to the bar, to use an old maxim. One. Hire an agent. Two. Hire an appraiser. Three. Quit speaking to the seller's agent because every time you do, it likely costs you money. Four. Let your agent and appraiser do their job. Five. Make a business decision based on their findings. Lastly, best wishes, as I am pretty sure how this will play out.
0 votes
Russ Garmon, Other Pro, Norcross, GA
Tue Feb 16, 2010
I think I know the house and location you are talking about, if I am correct.
Take a visit to Riverview Subdivision in the same school district, I know the area well.
We have many style houses here and some in your price range that will appraise and some great buys.
We have people tearing down $600 homes and building new, going on now.
Let me know if I can help.
Russ Garmon
http://www.garmonrealestate.com
http://www.garmonhomeinspection.com
0 votes
Hank Miller, Agent, Alpharetta, GA
Tue Feb 16, 2010
Wow - you definately need to separate the emotional/business relationship here. Again, get a buyer's agent and stop dealing directly with this agent, her loyalties are with the seller and not you. It sounds like she can tell that you're getting emotionally attached and that is not how to buy a home right now - especially given what you're saying about these circumstances. Also, just how many rentals are in this community? That is yet another red flag for me -

She has nothing requiring her to show you anything about the home, she is working you like a salesman should - don't be played. Hire an appraiser and get an idea of value - is 500-600 not worth avoiding a $1M+ money pit?

Hank
0 votes
Tknguyen, Home Buyer, 30092
Tue Feb 16, 2010
Thank you everyone for the helpful inputs. My wife and I really like this home, I know you shouldn't purchase a home based on emotions but it fits the criterias of what we have been looking for. It has a river lot in a well established older neighborhood, great schools, located closer to my work, the end of a cul de sac, and brand new construction, etc... Since I have a rental home in the same neighborhood, I am well aware of its location. Of course due to the risks involved in purchasing such a home I am not willing to pay the asking price.

After talking to the selling agent, I understood that there has been past offers and she suggested I put in something higher than 1.4 mil otherwise it would be wasting her time. In terms of legality and ethics, is it wise for an agent to make such claims without proper documents (past offers) to prove. Do I have a right to verify such claims by requesting their past offers? Because of her comments, I don't want to go through the troubles of getting my paperworks (preapproval) done and spend unnecessary expenses (inspection, appraisals, ect..) to have my offers turn down. My budget in that home is 1.2 million. But then on the other hand, why is the bank holding on a foreclosed home with such risks as forementioned?
0 votes
Hank Miller, Agent, Alpharetta, GA
Tue Feb 16, 2010
Jasmine -

Regression plays a role but it's easier to simply use the principles of substitution and competition - that home is worth what others like it are selling for; that is defined as one that is a reasonable alternative purchase to it. In this case, the builder of this home appears to have bet heavily on the market accepting a tear down "mcmansion" - popular in many areas including Atlanta. Around here it's worked in the last many years and while it's slowed down a lot for obvious reasons, there remain areas in the city where this is still a profitable venture - but nothing like it used to be.

The direct issues here are not only the presence of small, older less valued homes; it's the area - this area is not one in which routinely supports anything close to this value. Assessed values are meaningless - the market dictates value and the market is speaking on this one which is why it sits.

Good call on the regression comment, Tknguyen can likely see that this isn't a good idea - he needs to tread easy and as I said earlier - exploit the terrific advantage he appears to have by getting a skilled agent and letting them kick up opportunities.

Hank
0 votes
J, , San Diego County, CA
Mon Feb 15, 2010
Hello Mr. Nguyen,

The house isn't being sold because of the principle of regression.

Principle of regression: An appraisal term which states that the value of higher-end real estate can be brought down by the proximity of too many lower-end properties. (Source: Foreclosuresmass.com)

In other words, it's better to buy a less expensive house in a high end, desirable neighborhood and never the other way around. The house hasn't been sold because the seller is being punished for building such a beautiful house in an older neighborhood. The values of the older homes are bringing down the property value. This property would not be a good investment. Find a cosmetic fixer upper (just needs new paint and new carpet) in a desirable neighborhood because that way the resale value would be great for you in the future. It's all about location, location, location!

Good luck with your investment property search!
Jasmine Adriano
Real Estate Agent
License # 01875471
Web Reference:  http://foreclosuresmass.com
0 votes
Chuck Green, Agent, Norcross, GA
Mon Feb 15, 2010
Tk,

First thing you need to do is hire an experienced agent to work with you through this process.There are plenty of outstanding opportunities in your price point, but this does not sound like one based upon the info you have provided. New home at three times the going sales in the older neighborhood doesn't work short term or long term...provided the info you are getting from Zillow is even close to being correct. If this is a home you are really interested in you need to get the best factual sales data you can prior to any offer being made and be sure to tie your offer to an appraisal and the use of an appraiser of your chooosing. If I can be of further assistance please call or email me at your earliest convenience.

Chuck Green, Realtor
Keller Williams Realty
chuckgreen@kw.com
770-714-7077
"Serving Atlanta's Realty Needs Since 1984"
Web Reference:  http://chuckgreen.com
0 votes
Hank Miller, Agent, Alpharetta, GA
Mon Feb 15, 2010
You might be walking into a pit - that price point in Norcross is far from the norm. Toss in older neighborhood tear down, the current and anticipate market, diminished pool of potential buyers and it's clear why it's not sold - it's unsupported and overpriced. And that agent telling you that they turned down a 1.4 offer on a 1.5 home - yeah sure - total BS!

There are homes like this sitting in highly desirable areas around Emory, in Brookhaven, Buckhead.....Norcross and 1.5M don't exactly run together. Do two things - first get an experienced agent and second get an appraisal. Put ZERO confidence in Zillow and even less in anything the listing agent tells you.

If you are a legitimate buyer at that price point then you should be exploiting the opportunities that you have. Do things correctly and you will, do them incorrectly and you won't. This is an easy task - straight data analysis. Let me know if you need help.

Hank Miller, SRA, ABR
Associate Broker & Certified Appraiser
Prudential GA Realty
678-428-8276
0 votes
Russ Garmon, Other Pro, Norcross, GA
Mon Feb 15, 2010
I agree with Michael, and always include stipulations that the house must appraise for the contract price.
I have helped several friends over the years save thousands because the house would not appraise and the seller would reduce or have another appraisal and meet in the middle.
I do not like being a high bidder for a house, I would look elsewhere.
Russ Garmon
770-368-8151
http://www.garmonrealestate.com
http://www.garmonhomeinspection.com
0 votes
Michael Hamm…, Agent, Suwanee, GA
Mon Feb 15, 2010
I would rather own one of the least expensive homes in the neighborhood, as opposed to the most expensive, particularly if I was concerned about upside value, Tk. It is very interesting that the listing agent is telling you where the other offers have been, so yes, ask to see them. All you can get is a "No" and you might get more. There could be many reasons why the house hasn't sold, but being priced 3 to 5 times higher than the surrounding homes is likely number one. Please call or email if I may answer any other questions you have or help in any way. Good Luck!

Michael Hammond
SellsRealty@gmail.com
404-538-5499
0 votes
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