Fashionably Late

Anybody trying to sell a property in this disastrous economic environment is either severely distressed or severely stupid. I'm having trouble figuring out which category this falls under.

Address: 4045 E 3rd St #311, 90814
Asking Price: $361,500
Year Built: 1968
Size: 2 beds, 2 baths, 1,155 sq. ft.
$/Sq. Ft.: $330
HOA Fine: $274/month
Purchase price: $282,000
Purchase date: 7/2002
MLS#: P645213
On Redfin: 7 days
Down Payment: $57,225 @ 15%
Monthly Payment: ~$2,600
Income Requirement: $95,375

Description: Rarely on the market. Belmont Heights Casa Grande Condo. End Unit on the 3rd floor. Quiet and clean complex. Low HOA dues. 2 Parking SPACES! Pool. Walking distance to Ocean Blvd & 2nd Street. South Facing. Hills View. Great price, for this area! Spacious bedrooms. Well kept home. Move in ready. Great balcony with breeze. You cannot miss this opportunity to live in Belmont Heights at this price. Newer carpet, paint & bathroom fixtures. Seller to include a 1 year home warranty plan for the buyer.***Open House, 7/5/08 from 12-4pm.***

There are so many realtor clichés in this listing. All it’s missing is “LITE & BRITE!!1!”

As you know, one of my absolute favorite manipulation ploys—ERR, sales techniques, is “Rarely on the market.”

In a not-so-subtle way, it implies that this is a rare, highly-vaunted gem of property and time is running out to secure your piece of Long Beach real estate legend.

I've concluded that realtors’ livelihoods depend largely on selling fear. Even when times were good and any dishwasher with a pulse could get qualified to overbid a 4 bedroom house, fear was still their primary survival tool. Think about it. What were some of the most common phrases from commission-heads trying to get you to buy during the last few years?

“If you don’t buy now, you’ll be priced out forever.”
“They’re not making any more land.”
“You’ll be throwing money away on rent.”
“Prices are only going to keep going up.”
“Don’t you want to secure your family’s future?”
“I’ve already got multiple bids on this one and I don’t expect it to last the weekend.”
“Interest rates are at historic lows—they’re only going up from here.”

“Rarely on the market” is the same fear-based tactic, with the same intended result: You ignoring fundamentals and swooping up an absurdly overpriced property so a homeowner gets bailed out of their panicked situation (or "earns" a lot of money for nothing) and a realtor gets their commission. Well, I hate to break it to this dynamic duo trying to get rid of 4045 E. 3rd, but that party you showed up for--you know, the one where you could con some unsuspecting fool into buying an overrated shack for twice the cost to rent it--is over. And everyone’s at home nursing MEAN hangovers and they're not in the shopping mood.

Don’t get me wrong, this is an okay property. However, I personally can’t imagine plunking down nearly $400,000 and walking downstairs to do my laundry. How many of you have had an asshole neighbor take your wet laundry out and leave it on the counter? Yeah, well now you’re paying $2,600 a month for that wonderful experience.

Furthermore, I’m a busy guy. I can’t sit in my home all day with an egg timer making sure my dress shirts don’t sit in the dryer two minutes too many, lest they be wadded up in a pile on the floor.

And look at the staging furniture. Is that a joke? Does Goodwill know they’ve been robbed? How can this not be an unoccupied REO?

On the plus side, this place is nicely sized, in a good neighborhood, has two underground parking spaces, and a sweet balcony. However, like a vast majority of Long Beach properties for sale it has one fatal flaw. Can you guess what it is? Say it with me:

“IT’S INCREDIBLY OVERPRICED.”

Yes it is.

We all know these places don’t rent out for $2,600 a month, so buying this place instead of renting a neighbor’s identical apartment is already a money-losing proposition.

Let’s be nice and say it would rent out for $1,800 a month. So what would the asking price have to be in order to meet rental parity? Are you ready?

$230,000.

Sounds crazy, I know. But when you consider that the median household income is around $50,000, a price of $230,000 STILL exceeds the traditional 4X income ratio. What, you gonna tell me this isn’t a median property? HA!

Plus, $230,000 also exceeds the .30 debt-to-income ratio required by lenders to get a loan. In fact, even if your household made closer to $60,000 a year the DTI ratio would still be .40. Even if you have no other outstanding debt (that means no car payment, no alimony, no credit card balances, no student loans) you still would have difficulty qualifying for a loan because the required income is $90,000.

But obviously this reality hasn’t deterred our fearless seller, who believes earnestly that nobody reads the newspaper anymore. They clearly overpaid in 2002 but are the last to realize it. The seller does not consider himself part of the housing bubble because he bought “early.” But prices were inflated even in the early 2000s.

If this seller manages to find a buyer at current asking price, the gain after commissions will be $57,810. That’s a pretty nice profit for holding the property for 6 years, considering the real estate carnage going on out there.

But this seller is forgetting one crucial fact: There is no way this non-upgraded, community laundry, sixties relic is going for asking price. Sorry, not going to happen.

It’s definitely possible, if the seller gets aggressive enough, that this place will produce a small profit. But, if the seller insists their apartment is “The Most Special Property in Long Beach” as so many of our featured suckers--ERRR, sellers do, then they will slowly chase the market down, missing the mark each time. Come late 2009, they will watch their dreams of real estate profits evaporate like a puddle in Mosul.

Seller, you were already late to the party once, and if I were you I would cut 15% off tomorrow and pray some knife-catcher with perfect credit, 20% down, no outstanding debt, and no internet connection comes a knockin’. If that happens, you’ll save yourself months, if not years, of agony.

But if you proceed the way I'm confident you will, instead of making $57 grand, odds are next fall you’ll have lost that much.