Killer Views and Dog Poop – Short Sale

Given prices in the Seattle Area have not dropped to the extent of  most of the Country, people wonder why there are some deep discount short sales here.  Mostly those that have a deep discount are in worse shape than when the current owner purchased them.

Remodels gone bad…very, very bad.  If you know the house below, please don’t mention where it is or the address in the comments.  I can’t “advertise” another agent’s listing, but wanted to give you an idea of what a house looks like that will likely sell for $200,000 -$300,000 less than what is currently owed on it.

Often the work being done is substandard, in this case likely because of all of the beer being consumed while doing the work.

Often you will see a lot of new materials, like the travertine above, but partial and poor installation.  I think there were more broken pieces of travertine strewn about than there were full tiles laid.

Still, the view considerations suggest it may be a worthwhile project for someone, especially an owner occupant, if it sells close enough to lot value.

But rarely does anyone but an investor want the house with Killer Views and piles of dog poop.

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ARDELL is a Managing Broker with Better Properties METRO King County. ARDELL was named one of the Most Influential Real Estate Bloggers in the U.S. by Inman News and has 33+ years experience in Real Estate up and down both Coasts, representing both buyers and sellers of homes in Seattle and on The Eastside. email: cell: 206-910-1000

56 thoughts on “Killer Views and Dog Poop – Short Sale

  1. Gross!

    With that much money at stake, I’m wondering if the bank would be better off foreclosing, cleaning the place up and selling it afterwards for less of a loss than accepting a short sale offer.

    Better yet, go full judicial foreclosure and pursue the a deficiency judgement against the people who walked away from this mess.

    Ahh but the banks probably have more of these than they have time and resources to pursue.

    Like I have been saying for many months now….foreclosures will continue to rise here in the greater Puget Sound region for a long time.

  2. Ardell wrote: “Often the work being done is substandard, in this case likely because of all of the beer being consumed while doing the work.”

    Rather obviously you don’t subscribe to Beer and Power Tools Monthly. It’s my bible. 😀

  3. You can’t tell the extent of the damage from the pictures, but pretty much the entire house would have to be trashed to justify knocking $200-300,000 off. This sounds like a job for one of these investor/renovation contractors, who are short on cash and short on work these days. Probably $100,000, $150,000 max would have that place in pristine condition, as long as it’s not 5000 sqft, and/or totally trashed from one end to the other, inside and out

    Homer D. Poe strikes again…

  4. “Probably $100,000, $150,000 max would have that place in pristine condition,”

    The odd thing about these places is you can see a ton of money paid for stuff peaking out from the mess. New kitchen cabinets. Piles of new travertine. Wood floors like the ones you see in street of dreams. It’s like seeing a new car trashed to see all of these recently purchased materials just broken or improperly installed or buried under paint splatter and saw dust.

    I don’t see a lot of short sales. All of the ones I have seen look like this. Partly remodeled.

    I think the original loan was padded to include cost of improvements, and the improvements were purchased and wasted. That is why they sell for so much less than the original loan. The original loan seems to have been inflated to cover the cost of improvements, so they can’t sell in this condition at the same price as the loan. Even if the market appreciated generally, these would still be short sales.

  5. Welcome th the world of investing. Most people don’t realize the kind of condition that properties are left in when a distraught homeowner finally gives up and abandons the property or loses it to a trustees sale.

    Larry, if that was an $800,000 property which was discounted $250,000 off the finished price, and it took $150,000 to fix it up the investor would not be making a wise investment. Consider the costs;
    Purchase Price $550,000
    Closing Costs $15,000 3% higher with short term financing
    Repair costs $150,000 Doesn’t incluse suprises or 20% buffer
    Carrying costs $25,000 Interest only 6 month term financing
    Closing costs sale $72,000 @ 9%
    Total $812,000
    The numbers get worse if the property price is higher. There are indeed some opportunities for the ambitious buyer, but it is not for the faint of heart. The sad part is, judging by the photos, this may have been an investor that started off with some cash, good credit , and dreams and was sold into an investment that was doomed to fail from the beginning. Left with destroyed credit, drained bank accounts and demoralized, these type of investors are as much victims in this market as the first time homeowners who were sold option ARMs.

  6. Or in other words, one more example of LO malfeasance biting the bank, when the loan turned out to not be what it seemed.

    And btw, people do this to cars, too. Lots of “custom” vehicles with tons of money into them going for well below book value for an equivalent stock vehicle.

    If you have a clever idea, and you’re not a professional, it’s probably going to lose big money. There’s a reason why people hire architects and contractors.

  7. Larry,

    On these failed projects it seems that they hired themselves from the mortgage proceeds, and lived off of a salary paid to themselves while making the “improvements” and camping out at the project day and night. Not sure how that can happen, but I see it.

    I love the way after they broke a pile of travertine trying to cut it, they reverted to only laying the tiles that could be glued down as whole pieces without a cut. Looks like someone was playing hopscotch.

    In a previous one that was similar, the owner/fixer upper got cancer and used the money for medical bills. Still I don’t understand how the cash out refi can be used for something other than upgrades to the property. I guess they just get a higher appraisal and the cash out has no restrictions as to use of funds?

  8. So it would appear. And then people wonder why so many banks are writing down so much bad debt. They were buying horses without looking to see if they had teeth. Everyone involved seemed to think that you didn’t need to check anything, because prices were going to appreciate 10 and 15% a year forever.

    Makes you wonder how much econ these high-rolling whiz kids at the banks took.

  9. Ken, unfortunately what I’ve seen is investors who never budgeted for interest, because a couple years ago, the appreciation would more than cover that. And some of these people who made good money doing that two and three years ago can’t figure out why their formula doesn’t work any more. Back then the trick was finding houses like that. If you did, making money was as easy as falling off a log. Nowadays, it’s almost impossible to make money, even with the huge selection of heavily discounted houses out there.

    Times like this separate the businesspeople from the wannabees.

  10. “They were buying horses without looking to see if they had teeth.”


    I wish I could tell you those days were behind us, but on the last two transactions when I called to find out why the appraiser hadn’t been through the property yet, the answer was “the lender is not requiring the appraiser to go inside the property”.

  11. We will see more of these failed projects because they were started during loose lending, and then their means to make improvements by a series of refis dried up. Some had lines of credit to cover the improvements, but then got letters without warning saying that their line of credit had been reduced dramatically. In those cases, the banks shot themselves in the foot, and deserve the unfinished project back.

    Because the line of credit was rescinded, the buyer had to let the qualified contractors go and started trying to do the work themselves, even though that was not their original intention.

  12. Larry,
    In the previous market investing was great fodder for the cocktail partys and most investors made a few bucks. If you actualy analyze their investments the majority of profits were made on the appreciated price of the property and not by creating or enhancing equity.

    Real investors never count on appreciation since it cannot be controlled. It is great when you get it but one bad deal can ruin years of dilligence and hard work, your credit score, your home life….etc.

  13. Right. In a case like this, it would depend on whether finishing would be $100 or $150k. Even at $100k, it’s not clear that the risk is warranted. But an investor would have to go in and do a detailed estimate, and not waive his hands and pull $100k out of where the dog poop came from. A good estimator, a day’s work, and you’d know within 10k what it’s going to cost. Then you go to the bank, and tell them how horrible it is, and get them to come down enough to make it worth your while. If they don’t, walk away.

  14. I wouldn’t go for more than lot value. Sometimes it’s better to tear it down and build a whole new house on it. The cost of doing it right and building it from scratch may not be that different, and the resale value would get a huge boost if it were new construction.

  15. Our eyeball estimate to do it right comes in at $200,000. They should have moved a couple of walls and expanded one of the balconies to capture the better view.

  16. I’m guessing the beer may be from also from teens getting into the property and finding it a good squatter house for their after hours parties?

    I agree with you though, Ardell, that this is a common way or state of grossness in which we find foreclosure properties as we go out to look at them with, or preview for, clients.

  17. I don’t think they are teens breaking in. From what I’ve seen these are bought by people who say they are going to do the work, and talk someone else into getting the financing. Then the “sweat equity” guys hang out for free rent, do some work, but aren’t as capable as they thought. They spend a lot of money on supplies, but never quite get the job done and leave it in a big mess. The person on title who fronted the mortgage is left holding the bag.

  18. Actually, Ardell, you will find that these are mostly middle class people who are trying to better their lives through real estate investment. Unfortunatly few people understand all of the risks, skills and nuances of real estate investing. What starts out as an ambition or dream turns into something else when mistakes in the purchase, financing , budgeting or planning surface. By that time it is too late. Once your name is on the title the property is yours, for better or worse. After running out of time and moeny these partially finished property are the result.

    I do hear what you are saying about the unscrupulous scam artists getting a schill to finance the property and then bailing out with the money. I have a customer that was swindled on 3 properties with that sceme. However the majority are honest, ambitious, hard working individuals that have learned the hard way that there’s allot more to real estate investing than most people realize.

  19. Thanks Ken. Yes, I’ve seen both. There have been a lot of painful lessons learned over the last few years. More will surface, as Jillayne points out. The fallout of all of this has really just begun.

  20. Sometimes I wonder if Kary’s predictions will come to pass: That the Distressed Property Law will result in more homebuyers and investors making a conscious decision to avoid making an offer on a short sale.

  21. Home buyers and investors ARE avoiding making offers on short sale properties. While the Distressed Property Law has created new reasons to avoid them the primary reason is lenders ineptitude in their dealing with these properties. Buyers and their agents face a long arduous process in which the lenders make arbitrary decissions, contrary to common sense, create conflicts and standoffs as a part of their negotiating techniques, and reverse positions without warning. The process is distressing at the very least for any buyer or their agent. The worst part is that a buyer will likely not know whether they will get the property at the agreed price until months after the offer and acceptance of buyer the buyer and seller.

    This aspect of the short sale process reduces the number of both agents and buyers willing to work with them and thus reduces demand. The banks, in fact, are causing themselves greater losses as a result of their bad behavior to the extent their actions are causing home buyers to avoid properties in short sale.

  22. Jillayne, what Ken said after you (which I agree with and have said similar things myself) is why I don’t make predictions as to price. But while I won’t make predictions, I will say things like higher interest rates will make prices lower than what they would have otherwise been (but not necessarily lower than what they are now).

    So, as to foreclosures, I won’t predict they’ll be higher (although that seems like a safe bet). I will say that the distressed property law will cause some people to be foreclosed that otherwise wouldn’t. Just has higher interest rates will result in prices that are lower than what they would otherwise have been, the distressed property law will result in foreclosures that wouldn’t otherwise be foreclosures. But many other things can affect the number of foreclosures.

    I’m looking at this at a more personal level, however. If I were late on mortgage payments and facing foreclosure, I’d be very upset what the legislature did. I’d also be very upset that the Governor hasn’t called for a special session to repeal the problem as called for by the Attorney General (he called for the repeal, not the special session). In DC the politicians can get together and act quickly to help the housing market and the stock market. Foreclosures are a cancer on the market, and we should be getting the same quick action locally, but we’re not. And some people are going to lose their homes as a result. To the extent that’s a direct result of government action, the government should act promptly to fix it. January is not prompt.

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