Real Estate: bottom yet, else how far from bottom?

MotoSook · 08:23 PM

So I'm looking at a property and just wondering how far from bottom we are.

Say I am looking at a large property that I think may be worth 2x its current market value when the market goes back to being healthy.

A 2500 sf home <10 yrs old on a 1/4 acres in a development in the area right now probably sells for 230K to 275K. The property I'm looking at is less than 2 miles for the nearest development, but it's what one would consider rural due to the fact that developments have encroached into the rural area.

The property is 15 acres plus and has a 4 bdrm house with indoor pool. It has a 60'x100' steel barn with a cement floor and pond. There's plenty of space for anything.

Comps in the area are difficult to find because it is unique. But I think the place is worth at least twice that of one of the homes in the nearest development.

I can't think of any reason why the property would be worth less than 500K at anytime with the amount of land and its proximity to the latest developments. Some of the developments within 5 miles are 500-1000K homes.

The house on the property is 25 rs old, but it's not run down and has seen some updates throughout the yrs. It's definitely not an old farm house. Someone built their dream house out in the sticks 25 years ago.

I think it would make a good purchase, and if the property loses value in the next 1-2 yrs it'll be less than 100k of value.

But I think we're pretty close to bottom and the property may be pretty safe since it's so much property.

Anyone see something I'm missing? The place is 10 minutes from where we are now!

nineball · 09-10-2010, 09:28 PM

proximity to another residential development has little, if any, impact on value as the amenities/improvements are completely different (sewers, sidewalks, street lights, etc). none of the properties in any development would be good comparables. in most markets usually anything over 1-2 acres on a residential property is considered above normal and the law of diminishing returns tells us that the "extra" 13 acres are most likely worth less than the first two (from a mortgage loan appraisal perspective). same thing applies to the barn - no residential property "needs" a 6000sqft outbuilding or multiple acres, which only require even more time, effort and money to maintain. the indoor pool is actually a negative unless that is the norm for that area and it will greatly reduce the number of potential buyers (cost to maintain, higher insurance rates, potential for mold/mildew problems, etc).

with all that being said it sounds like this is property will have a hard time being marketed due to the large number of unusual items (pool, barn, land). think of it like an early 911 - sure everyone would like to have it if you gave it to them but how many people are actually willing to shell out the money for it? i have no idea where the house is nor what it's market is like but just because there are $500k-1m houses in the area does not mean it increases the value of a home that is not comparable. your opinion may be that it is worth twice the value of a house in a res. dev. but another buyer may look at it as being worth less. beauty, and potential value, are in the eye of the beholder.

as far as values, we have not seen the bottom yet. things are starting to level out now but for the most part they are still dropping. the economy has not gotten any better nor has the unemployment rate. intrest rates are at all-time lows yet it is harder than ever to qualify for a loan. the push of first time home buyers due to the $8k government deal is going to contribute to another wave of foreclosures as well. a lot of those people have no idea what owning a home really costs - taxes, pmi, interior and exterior maintenance and more all cost you as a home owner. when the hot water tank breaks and floods the basement you can't call the landlord to get it fixed anymore. someone has to pay for it, and we already learned that just because someone can qualify for a $200k loan does not mean they can afford it. banks still have a large number of foreclosed homes that are not on the market. they are being held to help offset the bottom line for earnings as the year is drawing to a close.

it is a good time to buy, if you can, but there is a very good chance that the values will still be dropping.

red-beard · red-beard's Garage

1st, where is this?

MotoSook · 09-11-2010, 05:10 AM

Some good points about he property, 9ball. I've been on the lookout for a property like this for some time and the prices vary widely as you would expect. This one seems to make more sense than others I've seen as far as what's already on the property. Something like this can be had for a couple hundred housand less. But then it would be 1-2 hours further west. The fact that this property is within a 15-20 minute drive of nearly all the services and whatnot that we've come to expect when living in the suburbs makes it very attractive. I would love it if it had city sewer and water, but a large place like this with city services is non-existent.

James - it's in Kendall County IL.

turbo6bar · 09-11-2010, 05:12 AM

+1 to crystalballer.

Look at property values 10 years ago. How does this house compare to its value then?

Beware 15 acres. It looks nice now, but can become a maintenance headache.

Can you buy it well under build cost + land value?

What would it cost to build exactly what you want? How does this property compare you your "dream home."

The point I'm getting at is don't think about what this property is worth when things are "normal." What is the property worth to you? Would you feel comfortable living here for the next decade or so? Does it have everything you want/need, or will you need to meld it into your ideal homestead?
jurgen

Macroni · Macroni's Garage

Feeling amongst industry experts is that residential / retail has bottomed. Commercial is approaching the bottom.

turbo6bar · 09-11-2010, 05:36 AM

Quote:

Originally Posted by Macroni

Feeling amongst industry experts is that residential / retail has bottomed. Commercial is approaching the bottom.

These "experts"-- they are from National Association of Realtors?

They might be right, but the statistics are not supporting the notion.

MotoSook · 09-11-2010, 06:10 AM

I wanted initial opinion without these fact, but with the market being favorable to buyers the wife and I have been looking to buy a second home near us in which we would put my aging parents. They have a house now, but it is in an old and not so safe neighborhood. My mom provides daycare to our two youngest right now, and she will continue to do so for another 5 years. So with the above in mind, we could build a guess house on the property and my parents could live there without feeling like we're on top of each other. The wife is onboard with his idea.

The idea of spending our retirement years here is not out of the question. The idea of going to another state at retirement has been kicked around a bit and we've come to the conclusion that we probably wouldn't be happy somewhere else (out of this area that is). So basically, we are looking to make this our permanant home.

It's pretty close to my dream property to be honest. The maintenance on a large property doesn't phase me, and it currently does not need improvements. So it'll just be a lot of mowing.

The property is currently under contract, but I sense the people may be having problems getting the money together. All this may be for naught, but if I approach the sellers with an offer at current asking price it may be enough to make thing wiggle out of the current contract if they are having problems. Crappy of me?

MotoSook · 09-11-2010, 06:13 AM

I really feel like the market is bouncing at the bottom in this area. I was surprised to see a house sell within a month of listing in the subdivision behind us.

nineball · 09-11-2010, 06:54 AM

be sure to call the local government and find out the zoning laws. you may not be able to build a second house on the same parcel, even with the large acreage. local government can be very strange.

it never hurts to submit an offer, even when one is already on the table. if you really want to appeal to the sellers be sure to have all your financing lined up already. knowing that the cash is available immediately is far more appealing than a full asking price offer that may not qualify.

MotoSook · 09-11-2010, 06:58 AM

It's currently zoned agricultural, but yes we would want to check on zoning allowance or atleast the feasibility of a variance.

1990C4S · 09-11-2010, 07:05 AM

Quote:

Originally Posted by Soukus

Comps in the area are difficult to find because it is unique. But I think the place is worth at least twice that of one of the homes in the nearest development.

I would never buy the most expensive house in any area. Just the opposite.

nineball · 09-11-2010, 07:06 AM

in that case you have a tough road ahead of you and all of your costs will be greater. you cannot get a "normal" (residential) loan on an agricultural parcel.

MotoSook · 09-11-2010, 07:07 AM

I don't see the need for a real estate agent to represent us at this point. Obviously we would perform inspection, etc, but adding a second agent would mean the seller will have to give a percentage. So without a second agent, it would be another point to leverage the offer, yes?

MotoSook · 09-11-2010, 07:10 AM

Quote:

Originally Posted by nineball

in that case you have a tough road ahead of you and all of your costs will be greater. you cannot get a "normal" (residential) loan on an agricultural parcel.

It is "rural residential" and has a home on it. So it wouldn't need a home built not other improvements. Does that still fall into the agricultural parcel realm? The place is not farmed and it is currently groomed grass or prairie grass and timber.

nineball · 07:15 AM

that depends on what the listing agent and the seller have agreed to already in their contract. a home inspection usually isn't worth the cost, especially if you know what to look for yourself. not sure how things work in IL but in ohio a home inspector is onlt libel for the cost of the inspection, usually around $250-500. i have seen several cases where the inspection came back fine but lots of problems were found later. similarly it only takes a 5 day course in ohio to become a home inspector and they are not regulated by the state.

-edit-
there is no such thing as rural residential, it is a false term. if it is zoned agricultural it is agricultural. also be sure to do your correspondence with the local government by email. just because the clerk on the phone tells you it is ok to build a second house does not mean it will pass. keep a paper trail of everything. even with that the board may still turn you down.

MotoSook · 09-11-2010, 07:19 AM

Thanks nineball!

The termite inspection is probably the only thing required, but being in the midwest it's likely not a problem, but the bank will likely require it. A regular inspection, I can handle that. I'm a mechanical engineer with familiarity of the NEC and BOCA codes. I've gone through home purchases a couple of times and the inspectors usually don't discover anymore than I do except for particular instances of code violation. I've since had plenty of dealings with our local building inspectors during the construction of my shop and feel confortable with identifying those issues. On the other hand, the last inspector I used is a lead inspector for the next largest municipal and was very competent for his $250 fee. It's a negilible amount.

john70t · 09-11-2010, 07:50 AM

Me, I've give a nut for another 20 feet of yard and 5 feet of garage.
That sounds like a dream property to live in for a long time, but purchase RE with the head not the heart. $250 for a competant second opinion would be worth it IMO.

The pluses:
+Having parents nearbye would save long commutes to attend to their needs later.
+Some people have spent $300-$800K just for a condo to be in their location.
+Later you might subdivide, and/or could rezone only the living portion of it as residential and keep the rest failed agricultural, and/or rent it to the national parks on a 100 year no-build lease to reduce your tax footprint.
+Greenhouse and chicken coup/goats for many food requirements

The minuses:
-Your parents might want something warmer, you/wifey might get offers for a dream job elsewhere, kids might require schooling opportunities, etc. Life is dynamic.
-Bigger place, bigger expenses. Little things add up like lawnmover gas and driveway maintinance. If you can't pay workers, you'll be doing a lot of physical labor yourself.
-You may run into zoning problems/etc. trying to add an in-law.
-(no politics pls)The state of Ill is close to bankruptcy from what I've heard, and it's a guessing game who they will eventually have to squeeze. Florida nationalized their homeowner insurance but a few big ones could be the proverbial straw.

McLovin · 09-11-2010, 10:17 AM

Quote:

Originally Posted by macroni

feeling amongst industry experts is that residential / retail has bottomed. Commercial is approaching the bottom.

lol.

notfarnow · 09-11-2010, 10:46 AM

Quote:

Originally Posted by Soukus

I don't see the need for a real estate agent to represent us at this point. Obviously we would perform inspection, etc, but adding a second agent would mean the seller will have to give a percentage. So without a second agent, it would be another point to leverage the offer, yes?

Not necessarily. The agent will likely be getting the full commission (5, 6 percent?) But may have negotiated a reduced rate if he double-ends the deal. Sure, he will be VERY motivated to make it work, but who will he be representing when it comes to negotiating?

Because of his dual agency role, he likely won't be able to advise on comps, market value or negotiating strategies.

I don't think there's a single good reason to NOT get a buyer's agent involved. It won't cost you anything (a selling commission has already been factored in. If you are talking full asking or close to it, it's not like you need a lot of "leverage" anyway. What you do need is someone who will make sure the proper protocols are used for writing a backup offer, and getting it presented. Who knows what kind of interest the listing agent may have with the existing offer.