Morning quarterbacking involving the real estate world by Elliott

Steven Elliott, Elliott Gottschalk & Associates

Well, everybody who’s anybody has made their forecasts for 2017, including the winner of last Sunday’s Super Bowl. I contemplated making a prediction and thought better of it. I also thought about a real estate market forecast for 2107 and again, thought better of it.

With those ideas out the door I thought, now what? So, I ruminated a bit and as I was working on an appraisal it hit me. Instead of a forecast what about some Monday morning quarterbacking involving this crazy real estate world. Hopefully it will give us pause to reflect and perhaps take it as a wakeup call.

Now, let’s jump in to the way back machine to a place known as Roxbury and the year 2006. The specific address is 43 Waumbeck St. and it has just sold from an estate to a developer in December for $240,000. This is a pretty run down three-family with nothing much in the way of amenities. However, the developer thinks “Hey I’ll spiff it up and convert it to condos,” which he does. Fast forward to July and August of 2008 when he wheels and deals all three renovated units for $360,000, $350,000 and $360,000, or a gross sellout of $1.07 million. Mortgages you ask? Of course, totaling $891,000. Foreclosures you ask? Of course, all three in 2010 with the amounts on the three foreclosure deeds totaling $1,015,965, or 95% of the total of the three purchase prices. Dumping resales by FNMA? Again, of course, with Unit 1 going for $92,000, Unit 2 for $112,000 and Unit 3 for $87,500 in 2011 and 2012. That’s right, a whopping $291,500, or 27% of what they sold for in 2007. Second to last step? You guessed it, Statement of Removal from the Provisions of the Massachusetts General Laws Chapter 183A. This means that as of November of 2015, when the document was recorded, the property was no longer a three-unit condominium, it was now back to its old, former self, a three family dwelling. Oh how the mighty have fallen. However, the method in the madness is real estate taxes dropped by more than 30%. And for the final chapter in this fascinating short story! It goes on the market in April of 2016 for $669,000 and is placed under agreement in 65 days and closes on or about September 2, 2016 for $640,000. So after a 5% commission and maybe another $30,000 in spiffing it up, the We Close the Deal, LLC, yes that’s the name they picked, walks off with a tidy 98% profit. Not to mention all of the income they collected over and above expenses for the four or five years they owned the units and rented them out. At the time of sale, the property was generating $5,050 per month, or $60,600 annually. The annual income amounted to 21% of what the owners paid in total for the three units.

And, that’s not the most egregious example of this kind of thing that I’ve seen and I’m sure many of you have seen as bad or worse.

So, now comes the question, what have any of us learned? Rates are still low, prices are still rising, lenders are rushing about making as many loans as they can and no one seems the least bit concerned. As I’ve said many times, appraisers are the gatekeepers. We’re the only ones with nothing to win or lose, except a client, maybe. So, as I say, continue to be diligent and as a famous Bill says, continue to do your job. I’m too old for another dramatic crash and economic collapse. And, by the way, guess who will shoulder a significant amount of blame if it happens…

Steven Elliott, SRA, MRA, is principal at Elliott Gottschalk & Associates, Ashland, Mass.