December 28th, 2008
How to Be Happy in this Economy
Economics is the study of choice.
A Professor studied sets of 4 college students completing a group
assignment. In some groups he planted an actor with a negative attitude. The
assignment scores for the group with the actor were lower than the others,
proving that one bad apple can spoil the whole bunch. Do you have any bad
apples in your life? Choosing avoidance is not always practical. So how do
you insulate your self from a negative environment and choose to be happy?
Think of yourself in a boat and our current Minnesota real estate market is
a lake you need to cross. You are in this economy, and since its global,
choosing a different lake may not work this time. So you are on this lake,
but if the water (the bad apples of the world) comes into your boat, you
sink. How can you choose to be in the economy without letting it sink you?
The answer is in my new favorite opera, Thais by Massenet.
Thais is a high priced courtesan in Greece. This Christian Monk is convinced
Thais is the source of sin in the town and sets out to rescue her from her
lifestyle choices. The Monk gets a private audience with Thais and she tries
to seduce him (he is a very hunky monk). He runs out and says he'll meet her
in the morning. Thais, who is in high demand, rarely has time alone for
contemplation. So left alone, she realizes that once her beauty fades she
has nothing. So she agrees to burn her home and all her stuff and go with
the Hunky Monk. After an exhausting desert trek, he dumps her at the convent
and goes back to his monk buddies. After three months of praying, fasting
and whipping himself, he realizes he made a huge mistake. This total
contemplative life doesn't work: he is in love with Thais. So he goes back
to the convent to declare his love for her. Meanwhile, she has totally taken
to the nun thing. As the Hunky Monk declares his earthly love for Thais and
tries to persuade her to leave the convent with him, Thais sees a vision of
God in heaven and dies.
Great story-what does it have to do with Minnesota real estate? What I took
from this story is that you can't be at peace in extremes-being totally in
the world all the time, like Thais, or in alone in the desert all the time,
like the monk. To be happy you need both the world and contemplation.
The answer to making the right choices and thriving in our current economy
is found in the most famous music from Thais: a beautiful violin solo called
"Meditation".
Meditation teaches you how to be in the world without the world being in
you. How to avoid taking on water that sinks your ship.
The ultimate purpose of Meditation is to achieve bliss. But there are many
other benefits:
* Reduces your health care costs. Meditation has been proven to lower blood
pressure and improve digestion. And headaches melt away like ice cream in
July.
*Meditation helps to turn down your emotional reactions and increase your
powers of concentration and efficiency.
*Meditation helps see past the negative news and recognize the opportunities
in our economy.
*Meditation does not eliminate all of life's problem, but it allows us to
view them from a the right perspective, not get overwhelmed by them.
Even my cat meditates with me-and Brewster used to be an irritating hyper
kitty but now he's calm and happy. The simple method I study works with all
religions and you don't need to sit like a pretzel. But you do need a
teacher/coach. My teacher offers FREE meditation classes in Eagan,
Minneapolis and Maple Grove. Let me know if you want his contact info.
Economics is the study of choice. Meditation helps you make better choices.
Choose to be happy in 2009.
Tuesday, December 29, 2009
New I-94 Interchange NOT a "Stones Throw" away
November 5th, 2007
New I-94 Interchange NOT a "Stones Throw" away
You may recall in February that Beard Group, who are proposing "Stone's
Throw", a 634 acre mixed use development in Hassan Township, led the way to
lobby for a new TIF district and interchange at I-94 and Brockton Lane
between Maple Grove and Rogers. While the State Legislature turned it down,
the Cities of Dayton and Rogers, Hassan Township and The Beard Group funded
a transportation study for the interchange.
The study was not all favorable to the new interchange, as it found a new
ramp would likely INCREASE traffic on I-94 with more short local trips.
Back in February the Beard Group said they have secured $2 million in
funding for the intersection IF a new Tax Increment Financing (TIF) district
is approved by the Minnesota Legislature
Eight months later, when asked to put even more money towards moving forward
with the interchange, the Beard Group representative said "To be honest with
you, as the developer we put $350,000 into this so far. Our lenders cut off
our spending of any kind of studies but transportation. We're in bad shape
here. The reality is we're in a situation where we may not be able to go
forward with this project. We've been working on this for two years. We
can't get our plat approved or assurance to actually do all the
abstractions."
The Stones Throw project has never made sense to me. It was been advertised
and promoted like the plat was a done deal, including a series of articles
by the developer in Real Estate Journal with the theme "this is the right
way to get a major development approved." 183 acres are being promoted by
their commercial real estate broker as Commercial land, like someone would
built a "HassonDale" at that location. Even IF they were successful at
getting the new interchange built, what realtors would build stores in
"HassonDale" that aren't already in nearby Maple Grove, including the newest
shopping center by the new Hospital, less than 2 miles from Stones Throw. To
the west of the site new strip centers sit vacant in Rogers for small
stores, and for Big Boxes Rogers already has Target, Kohls, Cub, Best Buy
and Cabelas.
What about residential? The idea of Stones Throw calls for 1,361 units of
life cycle housing, consisting of starter homes to high end custom homes. As
far as schools, Stones Throw is just a couple miles from both Maple Grove
and Rogers High School. Problem is, most of Stones Throw is in the Buffalo
School District. While Buffalo schools are well regarded, its a long drive
for Johnny's hockey practice-about 1/2 hour each way. However, at the right
price housing could work there. Not Maple Grove prices, St. Michael/Otsego
prices.
When the Beard Group said " we're in bad shape here" he was probably
thinking of his debt service. Because they have already closed on 365 acres
of the land to the tune of $31 million dollars. At the aggregate number of
$85,000 an acre for a corn field that seems high but not stupid high-even
the site had an approved plat. And some of it was commercial in the comp
plan, but its all Residential. But you need to look beyond the aggregate
numbers to each of the 4 parcel purchases.
Parcel #1 as 21.07 acres closed in July 2006 for $1,700,000 or $80,600/acre.
This is in the Hassan Comp plan as residential, 2001-2005 sewer phasing. A
nearby parcel sold for around $75,000 an acre in 2006 that has been platted
and has houses on it now.
Parcel #2 is 253 acres in the 2016-2020 phasing plan for $16 million or
$64,000/acre closed in April of 2006.
Parcel #3 is 38 acres in th e 2001-2005 phasing plan that sold for $5
million in April of 2006.
Parcel #4 closed in April of 2006 was nearly $8 million for 52 acres for
$153,144. Here's where it really gets stupid. No frontage on I-94,
residential land use-and most of this phasing plan 2016-2020! Without an
approved plat I would need to appraise this AS IS. And the highest
comparable sale I'm aware of in the area is 35 acres purchased in 2005 in
St. Michael for $38,000/acre that is 2012+ in the phasing plan. I don't
understand how this land appraised!
New I-94 Interchange NOT a "Stones Throw" away
You may recall in February that Beard Group, who are proposing "Stone's
Throw", a 634 acre mixed use development in Hassan Township, led the way to
lobby for a new TIF district and interchange at I-94 and Brockton Lane
between Maple Grove and Rogers. While the State Legislature turned it down,
the Cities of Dayton and Rogers, Hassan Township and The Beard Group funded
a transportation study for the interchange.
The study was not all favorable to the new interchange, as it found a new
ramp would likely INCREASE traffic on I-94 with more short local trips.
Back in February the Beard Group said they have secured $2 million in
funding for the intersection IF a new Tax Increment Financing (TIF) district
is approved by the Minnesota Legislature
Eight months later, when asked to put even more money towards moving forward
with the interchange, the Beard Group representative said "To be honest with
you, as the developer we put $350,000 into this so far. Our lenders cut off
our spending of any kind of studies but transportation. We're in bad shape
here. The reality is we're in a situation where we may not be able to go
forward with this project. We've been working on this for two years. We
can't get our plat approved or assurance to actually do all the
abstractions."
The Stones Throw project has never made sense to me. It was been advertised
and promoted like the plat was a done deal, including a series of articles
by the developer in Real Estate Journal with the theme "this is the right
way to get a major development approved." 183 acres are being promoted by
their commercial real estate broker as Commercial land, like someone would
built a "HassonDale" at that location. Even IF they were successful at
getting the new interchange built, what realtors would build stores in
"HassonDale" that aren't already in nearby Maple Grove, including the newest
shopping center by the new Hospital, less than 2 miles from Stones Throw. To
the west of the site new strip centers sit vacant in Rogers for small
stores, and for Big Boxes Rogers already has Target, Kohls, Cub, Best Buy
and Cabelas.
What about residential? The idea of Stones Throw calls for 1,361 units of
life cycle housing, consisting of starter homes to high end custom homes. As
far as schools, Stones Throw is just a couple miles from both Maple Grove
and Rogers High School. Problem is, most of Stones Throw is in the Buffalo
School District. While Buffalo schools are well regarded, its a long drive
for Johnny's hockey practice-about 1/2 hour each way. However, at the right
price housing could work there. Not Maple Grove prices, St. Michael/Otsego
prices.
When the Beard Group said " we're in bad shape here" he was probably
thinking of his debt service. Because they have already closed on 365 acres
of the land to the tune of $31 million dollars. At the aggregate number of
$85,000 an acre for a corn field that seems high but not stupid high-even
the site had an approved plat. And some of it was commercial in the comp
plan, but its all Residential. But you need to look beyond the aggregate
numbers to each of the 4 parcel purchases.
Parcel #1 as 21.07 acres closed in July 2006 for $1,700,000 or $80,600/acre.
This is in the Hassan Comp plan as residential, 2001-2005 sewer phasing. A
nearby parcel sold for around $75,000 an acre in 2006 that has been platted
and has houses on it now.
Parcel #2 is 253 acres in the 2016-2020 phasing plan for $16 million or
$64,000/acre closed in April of 2006.
Parcel #3 is 38 acres in th e 2001-2005 phasing plan that sold for $5
million in April of 2006.
Parcel #4 closed in April of 2006 was nearly $8 million for 52 acres for
$153,144. Here's where it really gets stupid. No frontage on I-94,
residential land use-and most of this phasing plan 2016-2020! Without an
approved plat I would need to appraise this AS IS. And the highest
comparable sale I'm aware of in the area is 35 acres purchased in 2005 in
St. Michael for $38,000/acre that is 2012+ in the phasing plan. I don't
understand how this land appraised!
Opposing Forces in Water Quality
October 25th, 2007
Opposing Forces in Water Quality
Water Quality is one of the most complex issues facing not only developers
but our society as a whole. Some examples:
1) Farmers versus Developers
While many farming practices are a known source of water pollution the
strong farming lobbies have resulted in little regulation on farmers so more
is put on developers.
2) The Minnesota Pollution Control Agency (MPCA) versus the Minnesota DNR
Shallow water lakes, defined as 15' deep or less, have a lower standard to
meet for water clarity than deeper water lakes, as defined by the MPCA.
However, the DNR imposes much stricter development standards on
Environmental Lakes, which tend to be shallow water, versus recreational
lakes, which tend to be deeper water. Yet both agencies must be satisfied.
3) Biological Functions versus Recreation. Clarity in Shallow water is
unhealthy for the lakes. While many homeowners on Shallow water lakes seek
clairity, fish and motor boats, these are unhealthy and unnatural for
shallow lakes. A weed kill, much like natural forest fires, are essential
for the health of shallow lakes, fish don't thrive well, and motor boats
stir up the weeds that are needed to keep the lake functioning properly in
the whole system.
4) Flood Control versus Clean Water. Shingle Creek, for example, was
designed 100 years ago for flood control and functions well in that role, as
do ditches for agriculture to move water away and prevent flooding. Now the
MPCA is proposing standards to make Shingle Creek las clear as an
undisturbed stream in northern Minnesota. How would this impact its role in
flood control?
5) Aesthetics versus Function. In constructed storm water ponds many
neighbors want fountains. Yet fountains disturb the sentiment that the ponds
are designed to settle.
6) Snow Removal versus Healthy Waters. It was common practice to put a
sand/salt mix on the roads in winter weather. Then it was determined that
the sand clogged the stormwater ponds when it washed off the roads. But then
the salt rusted the cars. So phosphorus, which has been banned from
fertilizer (though its still legal to buy it-you just can't use it on your
lawn) was added to the salt which works its way into the lakes anyway.
7) Cost versus Benefit. The estimated cost to clean up just the lakes in the
Shingle Creek Water Shed is $40 to $50 million dollars. With all of the
other needs, such as transportation and education, is the benefit worth the
costs? Should all water be treated equally in clean up efforts?
Confused? Join the crowd.
Opposing Forces in Water Quality
Water Quality is one of the most complex issues facing not only developers
but our society as a whole. Some examples:
1) Farmers versus Developers
While many farming practices are a known source of water pollution the
strong farming lobbies have resulted in little regulation on farmers so more
is put on developers.
2) The Minnesota Pollution Control Agency (MPCA) versus the Minnesota DNR
Shallow water lakes, defined as 15' deep or less, have a lower standard to
meet for water clarity than deeper water lakes, as defined by the MPCA.
However, the DNR imposes much stricter development standards on
Environmental Lakes, which tend to be shallow water, versus recreational
lakes, which tend to be deeper water. Yet both agencies must be satisfied.
3) Biological Functions versus Recreation. Clarity in Shallow water is
unhealthy for the lakes. While many homeowners on Shallow water lakes seek
clairity, fish and motor boats, these are unhealthy and unnatural for
shallow lakes. A weed kill, much like natural forest fires, are essential
for the health of shallow lakes, fish don't thrive well, and motor boats
stir up the weeds that are needed to keep the lake functioning properly in
the whole system.
4) Flood Control versus Clean Water. Shingle Creek, for example, was
designed 100 years ago for flood control and functions well in that role, as
do ditches for agriculture to move water away and prevent flooding. Now the
MPCA is proposing standards to make Shingle Creek las clear as an
undisturbed stream in northern Minnesota. How would this impact its role in
flood control?
5) Aesthetics versus Function. In constructed storm water ponds many
neighbors want fountains. Yet fountains disturb the sentiment that the ponds
are designed to settle.
6) Snow Removal versus Healthy Waters. It was common practice to put a
sand/salt mix on the roads in winter weather. Then it was determined that
the sand clogged the stormwater ponds when it washed off the roads. But then
the salt rusted the cars. So phosphorus, which has been banned from
fertilizer (though its still legal to buy it-you just can't use it on your
lawn) was added to the salt which works its way into the lakes anyway.
7) Cost versus Benefit. The estimated cost to clean up just the lakes in the
Shingle Creek Water Shed is $40 to $50 million dollars. With all of the
other needs, such as transportation and education, is the benefit worth the
costs? Should all water be treated equally in clean up efforts?
Confused? Join the crowd.
Tales of a Mortgage Fraud Investigator
October 16th, 2007
Tales of a Mortgage Fraud Investigator
The Story of the Greedy Widow
A woman shows up the the closing of an upper end house. Says her husband,
who is the designated buyer, cannot attend the closing. She presents a power
of attorney to the closer from the title company.
Legally, that power of attorney should have been signed by the HUSBAND
giving the power of attorney to his much younger wife. But the WIFE signed
the power of attorney for the husband and the closer accepted the document.
The closing proceeded and the wife walked out with a buyer refund check of
$20,000 and the keys to a beautiful new house in her husband's name. That
was six months ago and the husband has never made one payment on the house.
The husband could not have signed the power of attorney or made the payments
because he died the day before the closing.
So much of the rampant foreclosure crises could have been prevented if
someone was paying attention along the way.
Another common problem seen by this mortgage fraud investigator is stated
income totally out of line with a given profession. Range of incomes for
professions, say beauticians for example, are readily available on websites.
Plus, when an underwriter reviews thousands of applications with income tax
forms you would think that they would build a knowledge base that, say,
beauticians make X and if all the sudden a beautician is making 4X maybe
there's a problem?
The investigator also studies the appraisals in every one of her files. She
has noted in neighborhoods throughout the country where there has clearly
been a decline in value she has NEVER seen even one appraiser check the box
for "neighborhood is in decline".
Based on this investigator, one of the most significant causes of the
increase in mortgage foreclosure is inertia in those underwriters,
appraisers and closers that should have caught the problems before the deals
closed.
Tales of a Mortgage Fraud Investigator
The Story of the Greedy Widow
A woman shows up the the closing of an upper end house. Says her husband,
who is the designated buyer, cannot attend the closing. She presents a power
of attorney to the closer from the title company.
Legally, that power of attorney should have been signed by the HUSBAND
giving the power of attorney to his much younger wife. But the WIFE signed
the power of attorney for the husband and the closer accepted the document.
The closing proceeded and the wife walked out with a buyer refund check of
$20,000 and the keys to a beautiful new house in her husband's name. That
was six months ago and the husband has never made one payment on the house.
The husband could not have signed the power of attorney or made the payments
because he died the day before the closing.
So much of the rampant foreclosure crises could have been prevented if
someone was paying attention along the way.
Another common problem seen by this mortgage fraud investigator is stated
income totally out of line with a given profession. Range of incomes for
professions, say beauticians for example, are readily available on websites.
Plus, when an underwriter reviews thousands of applications with income tax
forms you would think that they would build a knowledge base that, say,
beauticians make X and if all the sudden a beautician is making 4X maybe
there's a problem?
The investigator also studies the appraisals in every one of her files. She
has noted in neighborhoods throughout the country where there has clearly
been a decline in value she has NEVER seen even one appraiser check the box
for "neighborhood is in decline".
Based on this investigator, one of the most significant causes of the
increase in mortgage foreclosure is inertia in those underwriters,
appraisers and closers that should have caught the problems before the deals
closed.
What Can Go Wrong with a Contract For Deed?
July 28th, 2007
What Can Go Wrong with a Contract For Deed?
A Contract for Deed is when the Seller finances the sale yet retains title
to the property until the contract is paid in full. As mortgage lending
standards tighten I believe Contract for Deeds will become more popular.
What are the risks to the Seller? I speak from experience.
1) The Buyer stops making payments. That's a simple remedy, you just cancel
the contract, which typically takes 60 days and no court action. You, as the
Seller, keep the down payment and whatever funds you have received from the
Buyer. Then you still own the property to sell to someone else. All in all,
a good deal.
2) The Buyer stops making payments and leaves a huge houseboat on your land
that got there by trespassing on the neighbors land, who has since built a
fence. Cost to Seller: $2,000 to have someone saw the boat in pieces and
haul to the landfill. Then resold the land to someone else at a higher
price. Still ahead of the game.
3) The Buyer stops making payments and incurred mechanics liens on your
property. Your contract for deed may specify the Buyer doesn't have the
right to do this, but it happens. And if the lien happened to improve your
property than no big deal.
4) The Buyer gave you a nice down payment, pays well for 18 months, then you
start getting notice they missed the homeowners insurance payment-which you
quickly pay because its still your house if it burns down. Then they stop
making payments. Then you get a notice that the Buyer has declared
bankruptcy. The 60 notice cancellation no longer cuts it-time to find a
lawyer well versed in both real estate and bankruptcy-harder than I thought
it would be, but I found one. Bankruptcy Court lifted the stay on
foreclosure and I got the house back.
5) Market Risk-see above-market had slowed and it took a while to resell the
house-still came out ahead with the prior Buyers down payment and 18 months
of interest, taxes and insurance.
6) Buyer trashes your property. Not much risk on land-and I've never had
that happen to a house as I've been very careful about selecting buyers. Its
been my experience that if the Buyer really wants to own that home they will
take care of it..
What risk is there in a Contract for Deed for the BUYER?
I always believed the only risk to the Buyer was if they didn't have the
money to be current on the contract they would have lost all the funds
previously paid and lost the right to buy the property.
Until I got an appraisal job with an interesting story.
The Seller had a larger farm on a highway and intended to break the farm
into several lots. The Buyer buys the first lot with highway frontage in the
middle of the property. He purchased this on a Contract For Deed which he
paid off over 20 years. Then the Seller refused to give the Buyer the deed.
This should be a simple case of Specific Performance. But it gets worse.
The legal description for his "lot" was a metes and bounds description.
Problem is, none of the other lots were sold and the Seller never divided
the property. So the buyer has a paid for interest in a parcel that does not
have a property ID number, making it difficult to pass title.
More time goes buy, the Seller still refusing to sign over the deed to the
land the buyer has paid for.
Meanwhile, the community has grown around the parcel, zoning rules have
changed, and the highway frontage on the buyers property is not permitted as
an access. Essentially the buyer has a landlocked parcel and the seller
needs to plat the property and build a road to this parcel.
So now you have much more than a Specific Performance case, as the City must
be involved in any legal action as they must approve how to subdivide and
access the property.
And the Seller still refuses to do anything to remedy the situation.
So, what can go wrong with a Contract for Deed? Let me know your stories.
What Can Go Wrong with a Contract For Deed?
A Contract for Deed is when the Seller finances the sale yet retains title
to the property until the contract is paid in full. As mortgage lending
standards tighten I believe Contract for Deeds will become more popular.
What are the risks to the Seller? I speak from experience.
1) The Buyer stops making payments. That's a simple remedy, you just cancel
the contract, which typically takes 60 days and no court action. You, as the
Seller, keep the down payment and whatever funds you have received from the
Buyer. Then you still own the property to sell to someone else. All in all,
a good deal.
2) The Buyer stops making payments and leaves a huge houseboat on your land
that got there by trespassing on the neighbors land, who has since built a
fence. Cost to Seller: $2,000 to have someone saw the boat in pieces and
haul to the landfill. Then resold the land to someone else at a higher
price. Still ahead of the game.
3) The Buyer stops making payments and incurred mechanics liens on your
property. Your contract for deed may specify the Buyer doesn't have the
right to do this, but it happens. And if the lien happened to improve your
property than no big deal.
4) The Buyer gave you a nice down payment, pays well for 18 months, then you
start getting notice they missed the homeowners insurance payment-which you
quickly pay because its still your house if it burns down. Then they stop
making payments. Then you get a notice that the Buyer has declared
bankruptcy. The 60 notice cancellation no longer cuts it-time to find a
lawyer well versed in both real estate and bankruptcy-harder than I thought
it would be, but I found one. Bankruptcy Court lifted the stay on
foreclosure and I got the house back.
5) Market Risk-see above-market had slowed and it took a while to resell the
house-still came out ahead with the prior Buyers down payment and 18 months
of interest, taxes and insurance.
6) Buyer trashes your property. Not much risk on land-and I've never had
that happen to a house as I've been very careful about selecting buyers. Its
been my experience that if the Buyer really wants to own that home they will
take care of it..
What risk is there in a Contract for Deed for the BUYER?
I always believed the only risk to the Buyer was if they didn't have the
money to be current on the contract they would have lost all the funds
previously paid and lost the right to buy the property.
Until I got an appraisal job with an interesting story.
The Seller had a larger farm on a highway and intended to break the farm
into several lots. The Buyer buys the first lot with highway frontage in the
middle of the property. He purchased this on a Contract For Deed which he
paid off over 20 years. Then the Seller refused to give the Buyer the deed.
This should be a simple case of Specific Performance. But it gets worse.
The legal description for his "lot" was a metes and bounds description.
Problem is, none of the other lots were sold and the Seller never divided
the property. So the buyer has a paid for interest in a parcel that does not
have a property ID number, making it difficult to pass title.
More time goes buy, the Seller still refusing to sign over the deed to the
land the buyer has paid for.
Meanwhile, the community has grown around the parcel, zoning rules have
changed, and the highway frontage on the buyers property is not permitted as
an access. Essentially the buyer has a landlocked parcel and the seller
needs to plat the property and build a road to this parcel.
So now you have much more than a Specific Performance case, as the City must
be involved in any legal action as they must approve how to subdivide and
access the property.
And the Seller still refuses to do anything to remedy the situation.
So, what can go wrong with a Contract for Deed? Let me know your stories.
Are Appraisers Responsible for the Recent Land Foreclosures?
July 5th, 2007
Are Appraisers Responsible for the Recent Land Foreclosures?
A banker told me about a large group of finished townhome lots that he had
recently foreclosed on. I asked him about the initial appraisal when they
did the loan in 2005.
Townhome lots are one of the toughest properties to appraise because many of
the townhome builders develop the land themselves and build the townhomes.
So when an appraiser goes to find sales of other townhome lots they can't
any, which was the case for these foreclosed townhome lots.
So the appraiser only used the Cost Approach. The Cost Approach to
appraising is typically reserved for unique properties that there are no
comparable sales-like a baseball stadium.
The Cost Approach is used in new construction as a reality check on the
costs provided by the borrower. Are these costs in line with the market or
are they higher, perhaps indicating the borrower is lining his pocket with
the difference?
The problem with this method is that COST does NOT always equal VALUE.
If it cost you $1,000,000 to build a house in a neighborhood of $200,000
houses would someone else pay you $1,000,000 for that house? If the
appraiser had only used the cost approach without asking this question the
lender is at a much higher risk in taking on the loan.
Back to the foreclosed townhome lots: how could the appraiser have done a
better job at estimating the value when there were no other finished
townhome lots sold in the community?
Lots of things. To name a few:
1) Ask what the sale price will be for the finished townhomes. How does this
compare with the other finished townhome sales in the community? If your
project is priced higher than what's on the market now, why will the buyer
pay more for yours? The developer better have solid answers to this
question.
2) Ask the builder/developers of the other finished townhome projects that
their lots costs are.
3) Look up the land sale for the other similar townhome projects and compute
the price per unit, add in your development costs from your cost approach
and see how they compare.
4) Ask the most important question, the question that I suspect was not
asked in the bulk of the lot foreclosures that we're seeing right now:
Who's going to be these homes?
How old are they? Where to they live now? What is their income? Are they
first time homebuyers or do they need to sell a backup home?
How many of these buyers exist? How many choices do they have (supply
analysis)? And what percent of these buyers do I need to make my project
successful?
So, Are Appraisers Responsible for the Recent Land Foreclosures? Yes, as are
the bankers that accepted appraisals that only included the cost approach
and omitted the analysis outlined above.
Are Appraisers Responsible for the Recent Land Foreclosures?
A banker told me about a large group of finished townhome lots that he had
recently foreclosed on. I asked him about the initial appraisal when they
did the loan in 2005.
Townhome lots are one of the toughest properties to appraise because many of
the townhome builders develop the land themselves and build the townhomes.
So when an appraiser goes to find sales of other townhome lots they can't
any, which was the case for these foreclosed townhome lots.
So the appraiser only used the Cost Approach. The Cost Approach to
appraising is typically reserved for unique properties that there are no
comparable sales-like a baseball stadium.
The Cost Approach is used in new construction as a reality check on the
costs provided by the borrower. Are these costs in line with the market or
are they higher, perhaps indicating the borrower is lining his pocket with
the difference?
The problem with this method is that COST does NOT always equal VALUE.
If it cost you $1,000,000 to build a house in a neighborhood of $200,000
houses would someone else pay you $1,000,000 for that house? If the
appraiser had only used the cost approach without asking this question the
lender is at a much higher risk in taking on the loan.
Back to the foreclosed townhome lots: how could the appraiser have done a
better job at estimating the value when there were no other finished
townhome lots sold in the community?
Lots of things. To name a few:
1) Ask what the sale price will be for the finished townhomes. How does this
compare with the other finished townhome sales in the community? If your
project is priced higher than what's on the market now, why will the buyer
pay more for yours? The developer better have solid answers to this
question.
2) Ask the builder/developers of the other finished townhome projects that
their lots costs are.
3) Look up the land sale for the other similar townhome projects and compute
the price per unit, add in your development costs from your cost approach
and see how they compare.
4) Ask the most important question, the question that I suspect was not
asked in the bulk of the lot foreclosures that we're seeing right now:
Who's going to be these homes?
How old are they? Where to they live now? What is their income? Are they
first time homebuyers or do they need to sell a backup home?
How many of these buyers exist? How many choices do they have (supply
analysis)? And what percent of these buyers do I need to make my project
successful?
So, Are Appraisers Responsible for the Recent Land Foreclosures? Yes, as are
the bankers that accepted appraisals that only included the cost approach
and omitted the analysis outlined above.
A Tale of Two Otsegos
June 16th, 2007
A Tale of Two Otsegos
Otsego is located northwest of the Twin Cities on the I-94 Corridor in
Wright County. But there are really TWO Otsegos.
EAST Otsego is accessed by 101 just north of Rogers, south of Elk River.
This is a great corridor. Yet another Target is being built in Otsego (plus
the Target in Rogers and Elk River). Lots of other retail between Rogers and
Elk River. And by next year 101 will be a full freeway with stop lights
eliminated from Rogers to Elk River.
There is so little lot inventory left in East Otsego that two major builders
are bringing on new projects this summer: Rottlund Homes with the 254 unit
Wildflower Meadows, just east of 101. And Boulder Creek by Hans Hagen Homes
with 183 units.
West Otsego is a different story. Access is tough, having to navigate the
maze by the Albertville Outlot mall to even get to West Otsego. Developments
under or around $200,000 are doing well. Over $250,000 hardly any activity
at all.
Two developments in West Otsego SEEMED like they were booming: Otsego
Preserve and Sunray Farms. SEEMED like is the operative word.
I was engaged by a client to do a new housing inventory study in Otsego. So
a got a list of active subdivisions and then examined the tax records for
each one to determine the sales. I tossed out sales to builders because
these lots are still out there in inventory. I also tossed out any sales to
builder finance companies because these aren't true sales either.
I considered a property "sold" when the completed home was sold to the
family that would live there.
When you buy a house and go to a closing the closing agent always asks you
"What address do you want your property tax statements to go to?" If its
your residence you're going to tell them the address of the house you just
bought. If you're buying the house for investment you tell the closer your
business or home address for the tax statements.
So that's the data I examine to determine if a house is really "sold". I did
see some sales in West Otsego to investors and saw some of these houses show
up in a website of Homes For Rent. The advertised rents were $1,300-$1,700
per month. I question the viability of the market supporting over a hundred
rental houses in Otsego in this rent range. I believe almost all of these
sales will be either resold or foreclosed and then resold. Especially when I
saw multiple sales by the same buyers. So these sales I excluded from my
"sold" count.
Two developments by the same developer in West Otsego really caught my eye:
Sunray Farms had 65 recorded homes sales from November 2004 to now. I could
only confirm that 52 were actual home buyers.
The real shocker was Otsego Preserve! 70 recorded home sales from April 27th
, 2005 till now in the $300,000 range. Way outperforming similar
developments in this price range in West Otsego.
Otsego Preserve must be a lonely neighborhood to live in:
I could only confirm 5 sales of the 70 were actual residents.
A Tale of Two Otsegos
Otsego is located northwest of the Twin Cities on the I-94 Corridor in
Wright County. But there are really TWO Otsegos.
EAST Otsego is accessed by 101 just north of Rogers, south of Elk River.
This is a great corridor. Yet another Target is being built in Otsego (plus
the Target in Rogers and Elk River). Lots of other retail between Rogers and
Elk River. And by next year 101 will be a full freeway with stop lights
eliminated from Rogers to Elk River.
There is so little lot inventory left in East Otsego that two major builders
are bringing on new projects this summer: Rottlund Homes with the 254 unit
Wildflower Meadows, just east of 101. And Boulder Creek by Hans Hagen Homes
with 183 units.
West Otsego is a different story. Access is tough, having to navigate the
maze by the Albertville Outlot mall to even get to West Otsego. Developments
under or around $200,000 are doing well. Over $250,000 hardly any activity
at all.
Two developments in West Otsego SEEMED like they were booming: Otsego
Preserve and Sunray Farms. SEEMED like is the operative word.
I was engaged by a client to do a new housing inventory study in Otsego. So
a got a list of active subdivisions and then examined the tax records for
each one to determine the sales. I tossed out sales to builders because
these lots are still out there in inventory. I also tossed out any sales to
builder finance companies because these aren't true sales either.
I considered a property "sold" when the completed home was sold to the
family that would live there.
When you buy a house and go to a closing the closing agent always asks you
"What address do you want your property tax statements to go to?" If its
your residence you're going to tell them the address of the house you just
bought. If you're buying the house for investment you tell the closer your
business or home address for the tax statements.
So that's the data I examine to determine if a house is really "sold". I did
see some sales in West Otsego to investors and saw some of these houses show
up in a website of Homes For Rent. The advertised rents were $1,300-$1,700
per month. I question the viability of the market supporting over a hundred
rental houses in Otsego in this rent range. I believe almost all of these
sales will be either resold or foreclosed and then resold. Especially when I
saw multiple sales by the same buyers. So these sales I excluded from my
"sold" count.
Two developments by the same developer in West Otsego really caught my eye:
Sunray Farms had 65 recorded homes sales from November 2004 to now. I could
only confirm that 52 were actual home buyers.
The real shocker was Otsego Preserve! 70 recorded home sales from April 27th
, 2005 till now in the $300,000 range. Way outperforming similar
developments in this price range in West Otsego.
Otsego Preserve must be a lonely neighborhood to live in:
I could only confirm 5 sales of the 70 were actual residents.
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