Tuesday, November 21, 2006
The $800,000 House? (Revisited)
(I recently posted this piece on my Active Rain Blog and received several interesting comments from other markets so I'm reposting it again here.)
Over the past year or so I discovered an interesting Real Estate wrinkle I call "The $800,000 House Phenomenon." I didn't recognize it at first because I think it used to be called "The $600,000 House Phenomenon" but as the housing market changed, so did the phenomenon. And although I personally find it unique to the Northeast Side and North Shores of Chicago, its probably present in every market in any city at some pricepoint or another. It lays out something like this:
A client, or more accurately a young couple, decides to buy their first big single family home. If they are North Shore buyers then they have visions of a white, Center Entry Colonial built in the 1940s-50s on a 'Father of the Bride', 'Home Alone' or any John Hughes movie setting type of street. If they wish to reside in the city proper (in this case Chicago) then its a beautifully rehabbed brick and lead glass expanded cottage or carriage house, walking distance to the lake, zoo and parks. This is their housing vision. They live in nice, tricked-out condos now but they want 'The House.' And again, this phenomenon is very neighborhood specific. Its a 'location' thing.
The fact that "The $800,000 House" is obviously under a million dollars makes it appear 'do-able' from a financing point of view--after all, who really wants to spend a million bucks on a house when you're still in your early to mid thirties? Anyway, every week or so I get a request to assist in the search of just such a home..."around the $800,000 range...in a great neighborhood..." And here is the reality:
Two-thirds of the houses I find in this price range are either overpriced by a hundred thousand or so already (sometimes more) or just poorly remodeled little things with low ceilings, average to bad bathrooms and kitchens that if priced more correctly, would already be torn down. And needless to say, you can pretty much forget New Construction. Across the board, my clients are generally a little discouraged by what I send them in this price range because what used to be the $800,000 neighborhood is now the nesting ground of the soon to be built 2.5 to 3 million dollar 6.000+ square foot New Construction House. Its still an $800,000 Neighborhood--it just doesnt include the actual HOUSE. This all has to do with a Real Estate term called 'The Highest And Best Use" of a property which I think is pretty self-explanatory. And I dont think its a bad thing either. I sell a lot of New Construction that serve higher and better uses than what previously stood on the site.
But it is a little sobering when you actually come face to face with what's on the market (housewise, that is) for under a million in Chicago. Simply navigate around our search engine linked at Chicagohomeestates.com and you'll see that many of the homes dont look enticing enough from the MLS picture to even request a showing. And most, if not all of my clients' condos from which they are moving have better finishes and appointments. Again, I find that these properties comprise about two-thirds of what's out there. One must keep in mind that the 'Location' rules and if the 'Location' happens to have a ho-hum building on it with a bulldozer parked in the driveway, so be it. The truth of the matter is the million dollar plus housing market expands and ticks up every month leaving the $800,000 House that someone might actually move into a little further behind in almost every way. But this too, is a good thing. You gotta have 'appreciation' and on a personal level it makes my job more interesting, more challenging, and more rewarding when I do connect with the perfect house. And they do exist. Read on.
Most of the remaining third of inventory are correctly priced at land value only and WILL be torn down if they dont fall down on their own waiting to close. The remainder of the remainder--those few rare gems that boast curb appeal, livability and attractive pricing--are what I'm talking about. Now we're in 'the zone' and the scenario plays out like this:
On a weekly basis, a handful (maybe less) of homes in the $800,000 range appear on the market and by "market" I mean a good portion of the Northeast Side of Chicago and almost all of the desirable "upper-end" North Shore communities within an hour drive of the Hancock Building. Many have had new and sometimes drastic price reductions because the now increasingly discouraged owners who originally felt their homes were worth "a million" realized the Buying side of "the market" wasn't responding. This is usually attributed to a combination of timing and simple Incorrect Pricing and is a topic I have addressed at length in a previous archived blog. These homes are too nice to tear down and while not without a few obvious flaws; dated baths and kitchens, small closets, no central air, odd shaped or irregular sized lots---they are still, all things equal, solid properties with decent curb appeal worth maybe in the mid to upper 700s as of this writing. Many of these may be a little overpriced but are still able to command a negotiated offer that is acceptable to both the Buyer and Seller. I negotiate more than my fair share of these as well.
And finally, what's left of the above handful are the cream of the housing crop--new on the market with significantly better renovations and curb appeal, on the prettiest streets in the most desired neighborhoods with the highest rated public schools. These go into multiple offers the first day or so on the market with few or no contingencies and virtually No Negotiation. These are the true $800,000 Homes. These are homes that more than one Buying entity likes (loves) (desires) enough to write a contract on the spot and close in 30 days. These are the ones that WILL be worth a million in short order. They are generally priced right for a timely sell as the house is already flush with Equity and the Owner needs to move on NOW--no fooling around, no testing the market. As I mentioned earlier, I have at least one person a week asking me if I know of any of these. And what do I do?
Bubble notwithstanding (ha,ha)...I put them in the car immediately and tell them without hesitation about this "$800,000 House Phenomenon" I discovered.