The Brannan

As we reported in August:

From the listing when 229 Brannan Street #9J sold for $1,230,000 in September 2006: “Wrapped in luxury, this 2bed, 2 bath unit is a sanctuary in the sky…This is San Francisco living at its finest!”

As plugged-in people know, the 1,412 square foot unit at The Brannan was taken back by the bank a year ago with $1,113,492 owed.

This weekend the two-bedroom returned to the market listed for $919,000. In 2004 the “Unbelievable” unit (per its listing at the time) sold for $980,000. Believe it.

The resale of 229 Brannan Street #9J has closed escrow with a reported contract price of $919,000 ($651 per square foot). Call it 25 percent ($311,000) under its 2006 sale or 6 percent ($61,000) under 2004.

At the same time, 229 Brannan #7J (“Best of the Best 2 Bedrooms at The Brannan”) has closed escrow with a reported contract price of $1,050,000 ($661 per square foot). Keep in mind #7J is 177 square feet and a half-bath larger than #9J.

And no, The Brannan isn’t located on Lombard.

57 thoughts on “Believe It (At The Brannan)”
  1. $750,000 was spent overall on commissions, the mortgage, property tax and the loss. Over $100,000 blown per year. That’s more than the average retirement savings of most Americans. Up in smoke.
    Yet, the realtors made money on both ends. Not the people I would go to for advice. Sure there are honest ones, but the bias is enormously lop sided.

  2. Interesting about the pricing between the two. 9J, an REO, went for 651/sf. 7J, not an REO, went for 661/sf but includes an extra half-bath. So from this example, it looks like the “REO discount” is pretty much non-existent.

  3. What’s up with socketsite failing to mention this is an REO? Nothing but spin lately.
    [Editor’s Note: As is pretty clearly written above: “As plugged-in people know, the 1,412 square foot unit at The Brannan was taken back by the bank a year ago with $1,113,492 owed.” Nothing but spin indeed.]

  4. Tipster, it is pretty obscene the amount of $s made on this one. I always worried about the skybox units losing value…money has been made on some units(and not just by the agents) but I never had the stomach for it.
    Was there ever a REO discount? I am familiar with a short sale discount, and an on the courthouse steps discount, but not the REO discount. So the bank is the seller, how does that impact the buyers? The price has already been set (different than short sale process), and buyer can get a loan secured by the property if one is desired.

  5. Of course there should be an REO discount, whether it happened in this particular instance or not. Just off the top of my head:
    • The buyer knows that the foreclosure process has extinguished all subordinate loans and will bid accordingly
    • The buyer knows that damage could have been done to the place by the foreclosed-upon previous owner on their way out and will bid accordingly
    • buying from a lender involves all kinds of overhead, slow response to routine inquiries and slow-walking of paperwork, etc. which should tend to lower bids to compensate the new buyer for the negative utility
    I’m pretty sure there’s a bit of research literature on this, although I can’t cite anything off hand.

  6. Brahma,
    The first two are for all sales, not just REO. Title insurance ensures you have clear title free from previous leins. If there is damage to property from a previous owner, you offer accordingly-REO or FSBO. I have not found the third one to be the case. I am a believer in the new construction premium, bad location discount, golden gate bridge view premium, but still not on board for the REO discount.

  7. my point about Lombard was not to explain away the reduced sales price of those other condos but simply to note that you couldn’t pay me enough to live on Lombard.
    I love South Beach so the Brannan is a totally different story (in my mind).

  8. more tipster nonsense. who lost $100k per year? the ’06 buyer looks like they put almost 100% down. looks like they made out pretty good.
    the ’04 buyer made money
    and your $750k number? where on earth does that come from? i love how no one questions you – throw a horrifying number out there – state “commissions” first, and insult realtors at the end….. it all ties together to support myths you like to repeat

  9. REO sales, in my past experience (not sure if it’s generally true still), are “as is”. Meaning no contingencies, no pre-sale inspections (ie termites), no homebuyer warranties, no disclosures (ie death on property), no recourse (since it’s clearly sold “as is” there’s little liability without a lot of expense when something is found awry soon after purchase). By my book that definitely qualifies for a discount.

  10. Avg Joe – what you describe is usually how a court house step auction sale works. But once it makes it to the MLS you can inspect before you put in an offer, after, etc. You won’t get warranties and certain disclosures, but you can ask for credits, etc. The lender can agree or decline like a normal seller.
    you’ll often hear (pardon the pun) the average joe talk about “foreclosures” and after listening will discover that they might be talking about trying to buy a “foreclosure” from an owner in default, or it might be a court house step sale, it might also be “wholesale” or directly with the Loss Mitt dept at a lender with no Realtor involved, and the 4th kind is the MLS sale.

  11. REO sales, in my past experience (not sure if it’s generally true still), are “as is”. Meaning no contingencies, no pre-sale inspections (ie termites), no homebuyer warranties, no disclosures (ie death on property), no recourse (since it’s clearly sold “as is” there’s little liability without a lot of expense when something is found awry soon after purchase).
    WRONG. REO sales have never been like you suggest.
    You are allowed inspections and contingencies, home warranties, there is full disclosure of death and “as is” does not release the seller from liability.

  12. Correct me if I am wrong but I believe even on an as-is sale you still have to disclose any known defects or problems?
    I don’t know too much about how y’all do it in CA but that is how it works in NV
    On the courthouse steps it is pretty much, what you see is what you get? I have seen properties in move in condition, others that are thrashed beyond repair. You just never know.
    These days if you do enough homework you can pretty much figure what kind of condition the house you want to bid on is in.

  13. tipster generally has his facts right, but I’m having trouble coming up with the $750k here too.
    and it seems like the only ones who lost any money in these transactions was the bank.
    2004 buyer made $250k.
    the 2006 buyer got foreclosed on but didn’t have much of a down payment at risk anyway and probably lived rent free for a year or two.
    the 7j seller got in early and cashed out late for a nice return too.

  14. I eyeballed it at 6% interest, about the going rate in 2006.
    1230*0.06/12*.85(income tax adjustment)+1(after tax property taxes)+1(HOA)=8K/mo
    Outlay for 60 months: 8*60=480K
    Comissions, transfer tax=50K
    Probably refinanced, so dropped it to $750K. A lot to pay for 5 years in a condo with an ugly view that could have been rented for 4K a month, or about 1/3.
    My eyeballing might be off, probably not by much.
    Obviously, the bank ate much of this. You and I won’t be so lucky.
    Half a mil discount for renting. I could have a pretty decent time with half a mil. Maybe that’s just me and owning was more fun than I could have had with that much cash.

  15. fancy r – all i ever see is tipster lying, while he calls realtors liars. this $750k is another whopper.
    the truth –
    ’06 owner got foreclosed on 14 months before this REO sale – 7/10 REO sale date. For that to happen the owner had to stop paying his mortgage for AT LEAST 6 month prior (avg is apparently 1 year) so instead of 60 months of paying he only paid btwn 30 and 40 months.
    Meanwhile in past threads over the years Tipster likes to assume buyers got cash back when they bought – but not here. And that buyers get neg am or interest only loans. His assumptions here appear to be for a 30-yr fixed.
    So the foreclosed owner paid at least $200k less than tipster assumes and probably $250k to $300k less. He also didn’t pay the commissions on either sale.
    of course the foreclosed on owner would have had to pay rent had he not bought. And since he appears to have put nothing down when he bought, and stopped paying well before he got foreclosed on his real losses instead of “more than the average retirement savings of most Americans. Up in smoke.” appear to be nothing more than his credit score and future borrowing ability.
    The “up in smoke” money is entirely on the lenders. And there were 2 lenders. The 2nd got wiped out in the foreclosure sale – $350k loss for “National City Mtg”. The 1st lender appears to have lost the commission they paid on the sale plus 1 year of carrying costs before it sold.
    Truth just isn’t as interesting as conspiracy theories and crying that realtors are making a killing by lying. Many on past threads defend tipsters outlandish claims instead of looking critically at them. But hey, that is America these days. Lie while calling other liars. If this were politics I’d now be called unAmerican for questioning the all powerful all knowing tipster.

  16. yes, as I noted the bank ate much of it. They lost the opportunity to loan to someone who would have paid them back. Doubt they’ll make the same mistake again.

  17. OK, so the lesson is IF you could get a bank to lend you 100% of the purchase price, and IF you were comfortable breaking your contract and withholding payments for about 2 years, and IF you don’t mind that your lender and the taxpayers take a hit for a few hundred thousand dollars, then you’d only end up paying about 150% what it would cost to rent.
    Fortunately for all the would-be buyers who would still leap at that bargain, that offer is no longer available.

  18. Yes tipster’s numbers can be off by a large margin. hangemhi might be right but there’s nothing much to be proud of.
    An overpriced property was sold with 0% down to a Ponzi risk-free player who said “heads I win, tails you lose”. Banks (aka taxpayers) eat many 100s of Ks in pure losses. Other buyers at the same time relied on this sale (and many others like this) as a comp and got skewered of their life savings.
    Joe 2011Taxpayer gets hit with the bill. Joe Honest2006housebuyer sees his down payment going down the drain but still pays his mortgage.
    In the mean time, mortgage brokers, bankers and realtors get to keep their commissions on the bubble prices.
    Nice transfer of wealth. Nothing to gloat about loudly.

  19. “Yes tipster’s numbers can be off by a large margin. hangemhi might be right but there’s nothing much to be proud of.”
    I don’t see the controversy here. Any interest payments not made by the owner are a loss to the bank. Additionally the bank had to pay the commissions and probably some amount of legal and administrative fees. What part of tipsters post was a lie?

  20. ^^^
    “Half a mil discount for renting.”
    “as I noted the bank ate much of it.”
    tipster does go over the top sometimes. The risk-free Ponzi player didn’t lose a lot on this deal. He probably saved over renting the same unit. But there’s nothing like a good line to move the masses.
    What counts in all of this is that recklessness was rewarded at every level. The middle class lost a good chunk of its hard-earned nest egg and now have to pay the debt that was transferred to the USofA credit card. Medicare, SS, gov services, overall quality of government, plus the inevitable taxes that will be coming our way once the 2012 dust has settled. In the mean time, the whole class of privateers who have ransacked the US economy have cashed out and are giving lessons of government responsibility from the top of their money pile.

  21. And not every 2006 buyer put nothing down. If you bought a similar place with a 20% down payment, and made the payments, the entire $750K expense was yours.
    If you rented, it wasn’t.

  22. yes, the prudent 2006 buyers have probably lost their 20% down for now. From hard cash to paper loss. Maybe they’ll get it back in the current decade, who knows.

  23. I wonder how many hours a realtor has to work before closing a sale. Say 2 hours a weekend for open house tour and for 10 weekends, that’s 20 hours. For a $1M home, the hourly rate comes to 25000/20 = $1250 an hour.
    Can someone enlighten me as to exactly what they do to deserve that rate?

  24. ^
    2-3 a weekend, then another 2 on Tuesday, and then private showings, so call it 40 hours. Then they do the inspections and the contracts etc, for another 5 hours.
    So they spend 45 hours on a sale.
    They spend for the website, the print ads and the flyers, pay for a few reports. I don’t know $1K?
    On $1,000,000 the agent gets about $17,500. The rest goes to the broker.
    So if they get $16,500 and spend 45 hours, that’s $389/hr. Still pretty awesome when you have a listing but you don’t always have a listing. Also, if they are kicking in for staging it goes way down.

  25. HC – Please stop. I’ve read some truly ignorant things on this blog, but that just takes the cake. Do you honestly believe all a realtor does is hold a few open houses to sell a $1M home?
    I’m amazed you’ve made it this far on the internet.

  26. It’s true that most realtors are overpaid.
    However the time involved is much more than just holding open houses for properties. Some short sales may take over a year to close, during which you are on the phone with the bank 2-3 hours every morning (imagine trying to reason with Comcast every morning for 2-3 hours). I myself, basically work every day of the week 80-100 hours a week.
    5000 min a month on the phone. Probably 25-40 phone calls a day and 100+ emails a day.
    Also I think you are underestimating the budget for advertising. I’m $10k+ a month (including print, internet and staff).
    That being said, should I be paid more than a teacher or fire fighter? No, their contribution to society is much more valuable in my opinion.
    Then I think it is a question for society, because we are capitalists and speak with our dollars.

  27. Hey, you forgot to list all the winners from the 2006 sale:
    1) The realtor, who made $19k or so.
    2) The mortgage broker, who should have made about a $10k commission.
    3) Their bosses, who probably both got fat bonuses that year for exceeding their sales quotas.
    4) David A. Daberko, the CEO of National City Mortgage, who walked away with $46M in 2007 after running his company into the ground.
    5) All the other execs at National City Mortgage, who undoubtedly got major bonuses during the boom years for approving all those risky mortgages.

  28. Don’t forget the Tan Man; he helped facilitate the original purchase. But the buyer, being oh so fickle, refinanced into the arms of National City one month later. I know, I know — don’t believe everything you read on the county recorder’s site.

  29. Excellent response, Paul Hwang!
    Re the 2006 sale, of course, the seller is the one who did it just right – bought in 2004 as the bubble was really ramping up and then sold right about at the peak. That’s the way to do it. The poor souls who bought during those years but neglected to get out are the ones suffering the most. Even those – like the 2006 buyer here – who managed to pass the bulk of the direct loss to the banks have seen a massive credit hit which will cause pain in many aspects of life for years to come, from job-hunting to insurance rates.

  30. sparky-b, Paul Hwang,
    Your points are well taken. I’m sure for short-sales where the banks are involved, a lot more time is needed. But for regular sales, does 40 hours of showing seem the average? Most listings I’ve seen over the last year held only 2 or 3 open houses, and only for 2 hours on Sundays. And they didn’t even need to do private viewings after leaving a lock box at the premise. Sure, some listed at too high a price and had to hold open houses for 10 weekends and still wouldn’t get a sale, but they are the exceptions.
    And to Fishchum: What is the “internet”? Does it have anything to do with “the cake” that you mentioned?

  31. HC – 40 hrs a listing is about right if it isn’t a time-sink listing. Unfortunately in a town where prices support 2x to 5x the agents than most other places you’re spending a disproportionate amount of time and money trying to get that one listing. So it would be great if you could carry 4 listings at a time and close one a week, at 40 hours per for a normal full time job, but that doesn’t happen.
    There are about 4,000 SFAR agents and 4,500 sales per year, so just over 1 listing on average per agent. Granted there are many hangers on, part-timers, etc. But most productive agents are only doing 8 to 12 deals per year. Those doing 20+ usually have staff or teams. And there are maybe 3 to 5 agents in town who do 40-ish deals a year. They definitely have staff.
    No one is just picking up a $1M listing a week and working 40 hours on each of them. And even if they did, after marketing and overhead you’re looking at $400 an hour. Most productive agents are probably making $40 to $100 per hour in any given year.

  32. Geez, you’d think whoever was willing to take 2% instead of 2.5% could make more than that up on volume.
    Agree completely. Why isn’t that what happens? Makes zero sense to me.

  33. The local redfin agents (refund 50% of the commission) seem to do considerably more volume than this, per the stats they give on the site. So this model appears to work well.

  34. the time to negotiate commission was ’04 – all listings sold with multiple offers. buyer’s agents were desparate to get ANY offer accepted since you have a 1 in 30 chance of “winning” when there are 30 offers. listing agents could get away with all kinds of mistakes and still earn their clients top dollar. but sellers were too busy counting their profits.
    now a good agent is not only working 2x to 3x harder, the better negotiators are finally getting a chance to impress their clients.
    The few times i’ve dealt with Redfin agents they’ve done no favors for their clients. You have to be the negotiator if you use them, and you have to do all of the home work if you use them. they’d dispute that of course, but they don’t know what they don’t know.

  35. “The few times i’ve dealt with Redfin agents they’ve done no favors for their clients.”
    There’s not much evidence that any agents actually do well for their clients price wise. Rather that they try to reduce the above mentioned time spent working on a listing.
    “Our central finding is that a seller’s use of a broker reduces the selling price of the typical home by 5.9 to 7.7 percent, which is consistent with the presence of a fairly severe principal-agent problem. Those estimates are statistically significant, and are obtained from specifications that include home fixed effects; some also allow for the possibility that prices may have changed over time at different rates in different market segments (e.g., that the prices of high-end homes, which are more frequently sold through brokers, may have risen or fallen relative to those of low-end homes). We find no evidence that the lower prices received by sellers who use brokers are attributable to correlations with unobserved household characteristics such as preferences or negotiation skills. Our analysis also suggests somewhat more tentatively that a seller’s use of a broker may reduce the initial asking price and accelerate the sale. ”

  36. a 2 minute scan of that study and it is just another case of lies, damn lies and statistics.
    first – study and entire population of agents and the end result is a study of mediocrity. i don’t get the point
    second – studying ’07 and ’08 nationwide during active price declines in most markets – odd data set. same study in ’04 and ’05 might find the exact opposite
    personally i’ve got 20+ years of sales, negotiation and marketing experience under my belt. i’ve probably read 20 books on sales and negotiation over the years. i worked at a best in class company in another industry for a number of years – they did EXTENSIVE sales training – tough, brutal training that made a number of the trainees cry. i’ve since trained people on sales and negotiation skills. trust me when i tell you that redfin and non-redfin agents alike who haven’t gone thru what i’ve gone haven’t the slightest idea what they are missing.
    the lesson – interview agents until you find one who will beat the odds, and really does give a crap about the last $10k or $50k they might be able to negotiate on your behalf if they try.
    the good news – the study is true – bad agents abound, and a good agent is worth their weight in….. well, commission

  37. “first – study and entire population of agents and the end result is a study of mediocrity. i don’t get the point
    second – studying ’07 and ’08 nationwide during active price declines in most markets – odd data set. same study in ’04 and ’05 might find the exact opposite

    One of the earlier studies looking into what effect brokers had on prices vs FSBO compared agents selling their own homes vs those of clients. Thereby accounting for your first point. Also the data from that study was pre ’05.

  38. freakonomics wrote up the wired example – more flaws. funny that freakonomics did EXTENSIVE research before throwing teachers under the bus, but took one stat and one interview and came to their conclusion.
    what else could be the cause of agents selling their homes for more? maybe they bought the superior home in the first place – same block, same floor plan, and one might be backed up to a park and another to another house – just one example of many
    agents listen to their own advice too – they stage, they paint, they declutter, and they hold as many open houses as is necessary. when a seller is living in their own home they are fed up with open houses and private appts about 1 week in. to the point they will start turning down apptmnts. agents live there, keep it tidy, know the score, and it is open 24/7 if it means making an extra $10k
    flaws, flaws and more flaws
    btw – hardly a good study, but i spent 5 minutes looking up the #1 redfin agent in SF. 100% buyer’s agent and his deals were at about 99.5% of listing price. same time period – picked a wide data set of all deals and found purchases were 98.5%. so hire a redfin agent and pay 1% more for your 1.5% savings – do all of the work yourself, etc.
    the bottom line – a top quality agent who cares will trump all of this nonsense.

  39. I’m sure ’04 was a great time to negotiate commission – if you were a seller – because all listings sold with multiple offers so the seller’s realtor didn’t have to do any work.
    Same is true now if you are a buyer – few competitors out there, so you just have to find a place you like, negotiate the price and any improvements, and it’s yours with not much work for the buyer’s realtor. Not like the 30 offers they needed to make in ’04 before finally getting a place.

  40. Those are all good points. In the end everyone is a value guy. In the end all that matters is results. In the end no one wants to hear why “such and such” happened or failed to happen to the client’s detriment.
    People that are spending $1 million for a condo in San Francisco are in general not stupid. Most of my clients are far smarter than me; they know they can go to a discount brokerage and get a rebate, but they realize the rebate is a nominal amount compared to the ultimate outcome, and possible future outcomes.

  41. not true A.T. Buyer’s agent are often spending months looking for, and evaluating multiple properties for their clients. it can be a full time job – so unless you don’t have a full time job yourself a good agent is critical.
    also knowing what to look to look for in both the home, the disclosures, and in the comps, are critical to making the smartest decision possible.
    for example, a home with no in-law in an asian community sells for less than one with an in-law. if you’re not asian you won’t realize that you could pay less for that particular Sunset home and end up over paying. you don’t discover your mistake until you sell – which of course is the kind of thing stats and studies will miss.
    those Redfin agents would have no idea about the above example – the only way you discover that sort of thing is trying to sell a home without an in-law in a predominantly asian neighborhood.
    same is true for many other amenities – a single buyer who is a minimalist says “oh, it doesn’t matter that there is no extra storage, i love the place”. except when he sells he finds out 9 in 10 buyers insist on extra storage and so he sells for less. parking, natural light, walking distance, flat blocks, in-unit w/d, etc, etc….. you buy right, with as many as the must-have items, and you’ll sell for more than your competition. it is the “real sf” argument applied to amenities. your place holds its value better in a down market, and sells for more in an up market.
    buy on your own without a local expert and you don’t know what you don’t know until it’s too late. that redfin agent with 38 deals is spending most of his time at his desk dealing with paper work. he could probably run circles around me with his understanding of each and every form – but has no idea that his client just over-paid and why. same with the self-represented buyer. although – a self-represented buyer with a critical eye and who has spent months looking at 50+ properties gains agent-like knowledge and becomes smarter than his redfin agent. so that formula can work – you just have to work for that 50% commissions savings. nice work if you don’t have other work to do

  42. “Buyer’s agent are often spending months looking for, and evaluating multiple properties for their clients.”
    Often perhaps but certainly not always. Even in the days before teh internets made it easy for anyone to run filtered property searches plenty of buyers did their own footwork. A large number of buyers really only involve their agents when it comes time to write an offer. I doubt that my agent spent more than ten minutes a week on my behalf during the search up until the first bid.

  43. MOD – so you got the first home you bid on? Definitely not always the case – lots of value shoppers place what they feel are fair offers, and sellers turn them down. and unless you’re only seeing properties during open house times, most agents are spending a fair amount of time going on appts with their clients. but yes, in the internet age, there are a lot of buyers who spend lots of time on the internet, and then only seeing 5 or 6 properties before they write an offer. the quick sales balance out the long ones.

  44. hangemhi, all good points, and I agree that if a buyer really does not know the market or have a good sense of pricing, a knowledgeable agent can be a big help.
    But why do you think a redfin-type agent will have less knowledge on these issues that any full-freight agent? 38 sales in a year does not sound like it would result in one being chained to the desk in paperwork.

  45. A.T.
    You should take a look at Refin’s model, they have several different kinds of agents, and you would end up working with all of them I think.
    It may be suitable for your needs.
    I don’t really talk about other agents, but I can say that I am very happy to show my listings to any agent, especially Redfin agents.

  46. hangemhi – no there were a few lost bids before the win each time. And one deal involved a coupla back and forth counteroffers. Still altogether I’d guess that the agent put in maybe thirty hours total on my behalf for the most protracted purchase.
    In one case there seemed to be additional time directed my way in the form of unsolicited pocket listings. All of those were stinkeroos (what was the agent thinking?) so I don’t count that as time spent on my behalf.
    But your point of balancing out is valid. I aborted my last search in 2007 so the agent got nada for the twenty or so hours spent. The same happens to me when prospecting for new contracts. I’ve spent 10-100 hours meeting with clients and writing up the SOW, contract, and other collateral though not all of those projects ever get funded.

  47. A.T. someone can correct me if i’m wrong, but I think their biz model is that their agents spend most of their time in the office and not in the field. I liken it to appraisers – who better to tell you your home’s value? Except they aren’t looking at homes thru buyers’ eyes. It is eye opening holding an open house and getting feedback from 20 people at a time. Equally so seeing 20 properties thru one of your client’s eyes. After years of that you just know vastly more. The mere fact that Redfin agents don’t work open houses is enough lost opportunity to learn how to spot real value and avoid stinkers.
    lastly, if a redfin agent becomes a master, more than likely they’ll strike out on their own where their income potential is greater. the best and brightest go where the opportunity is.
    what redfin has going for it is a phenomenal site. without that, their 50% offer wouldn’t attract the kind of business they do get.

  48. peanut gallery,
    Yes, there is a negative REO premium. I wrote earlier in this thread that I believed there was research backing this up, and then I read about the conclusion again in this opinion piece by Larry Summers, Why the housing burden stalls America’s economic recovery whose conclusions I don’t agree with, but here is the relevant sentence:

    Third, stabilising the housing market will require doing something about the large and growing inventory of foreclosed properties. The same property sold in a foreclosure sale nets about 30 per cent less than if sold in the ordinary way and the knowledge that there is a huge overhang of foreclosed properties deters home purchases.

    Now, this wasn’t an academic paper and he doesn’t cite a source, but judicious use of google scholar quickly converges on a reasonably recent paper,

    Our main interest is in foreclosures. We find large foreclosure discounts, about 28% on average. These discounts are not highly sensitive to the type of housing…

    from Forced Sales and Housing Prices By John Y. Campbell, Stefano Giglio, and Parag Pathak, to-be-published this year in American Economic Review.
    Hope that helps.

  49. If that reached the same conclusion as their MIT paper, didn’t they find that vandalism played a large role in the foreclosure discount?
    While it seems prudent to assume that on average you’d see average vandalism, if you’ve been in the unit and it is undamaged I think it’s a different story.
    Additionally, percent wise it’s easier to do 20% of damage to a $100k home then to a $1M home. Especially when land value is a large component of the $1M home price.

  50. Brahma,
    A problem with that study is that their foreclosure sales include both REO sales on the open market as well as courthouse-step auctions where bidders have no right to inspect the property. I would expect that those two categories would differ significantly in terms of discounts. Plus they don’t seem to be able to quantify the exact impact of vandalism on their numbers.
    However, I would expect there to be an REO discount (on average) even for homes that have not been subject to vandalism simply because the bank is a motivated seller. Sitting on an inventory of foreclosed properties is expensive for the bank and it may well have different incentives than a regular homeowner when it comes to holding out for the highest possible price. Also the personal gain for the homeowner if the price is high is different than for a bank employee handling an REO sale.

  51. ” Plus they don’t seem to be able to quantify the exact impact of vandalism on their numbers.”
    There’s an implication based on the discount they show for different types of forced sales.
    “By contrast, other types of forced sales lower home prices by smaller amounts. When a house is sold after the death of an owner, Pathak and his co-authors found, the price drops 5 to 7 percent on average. When an owner declares bankruptcy, the value sinks 3 percent.
    The researchers believe that their discovery of the gaps between these various price reductions is a key to isolating the effects of foreclosures. Because the declines in value are so disparate, yet occur among comparable homes in the same times and places, the reductions in value are not all attributable to the same overarching economic conditions. Instead, the researchers suggest in the paper, a central cause of the larger foreclosure discount is that the condition of foreclosed houses often deteriorates much more than it does for other kinds of houses whose ownership changes hands,.”
    In the text of the paper the find that homes sold due to death of owner tend to have fallen into a bit of disrepair, but less so then foreclosed homes. With the 3% bankruptcy discount mostly reflecting a forced sale discount without any change in condition factor.

  52. anonanon, I agree with your last paragraph completely and I should have written that in my original comment at October 17, 2011 11:29 AM.
    On REO sales on the open market not being the same as courthouse-step auctions, point taken. I’d still say there’s an REO discount in both cases, though in the latter the discount would just be higher. People making an offer can see that the house is an REO from the MLS; seems like someone could take that fact alone as the basis for a study to see if there’s an REO discount.
    As far as the shortcomings of that paper, I’m not going to even attempt to defend the entire thing. First, my first-hand knowledge of econometrics isn’t that deep and second (this goes to the part tc_sf highlights, above), I’d guess that the authors wanted to control for the impact of vandalism, but then you need some way to do that in a reasonable scalable manner.
    The authors probably ran into the converse of the same problem S&P runs into when they try to control for changes in property values due to improvements when they produce the Case-Shiller Home Price Index: how do you collect the data for what was changed to each house and assuming you can even collect that data, how do you quantify what was done to each house?

  53. “seems like someone could take that fact alone as the basis for a study to see if there’s an REO discount.”
    Unclear if there will be enough data to be significant, but a main reason for the creation of deed for lease programs is the hypothesis, supported by the above study, that it’s really vacancy and the ensuing decline of property condition rather then foreclosure that drops home values. In theory, when banks start selling their D4L homes you’ll have a data set of REO’s which have not experienced excessive vacancy. In practice I’m not sure that these programs have been utilized enough to provide much data.

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