We've been thinking about dabbling in investment/rental property. The Mrs. is pretty good at sniffing them out. We went to see one recently. In fact, we were probably the first to see it. The Realtor was there with the seller to get the listing.

The place might have potential, but, as-is, it would be more suitable for a Criminal Minds kidnapping/dungeon episode.

We seriously doubt that any of the "improvements" were permitted, much less up to code. Mainly, the "improvements" were liabilities that would have to be ripped out and completely redone. Along with the rest of it.

Nonetheless, the seller and the Realtor thought the house should command a premium price per square foot because of the "improvements." In reality, if you took out added square footage from the "improvements" (not even counting the liability and rehab cost), our estimated valuation was less than half of what they were asking based on comps, condition, work needed, etc.

They are wanting a Sequoya Hills or Fox Den valuation. This property is not in one of those places. It was sad, really. One could argue that the MLS listing is basically fraudulent.

We understand sellers who have emotional attachment, have invested too much, or are otherwise just crazy. There's no excuse, though, for Realtors who enable them.

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gonzone's picture

Speaking of sniffing them

Speaking of sniffing them out, this one must have been a real stinker.

Rachel's picture

Although sometimes..... One

Although sometimes..... One house in our neighborhood has sold three times since we've lived here - every time for a lot more than we think it's worth. If the buyer thinks it's worth what s/he paid, then it's worth it.

R. Neal's picture

We looked at one over there a

We looked at one over there a while back. It had been reconfigured for student housing. It was in a prime location, but awful inside. Fixing it back up for single family occupancy would have cost a bunch.

On paper, leaving it as-is for student housing would make a lot more money. We weren't interested in making Island Home more like Fort Sanders, so we passed. Not to mention the nightmare of dealing with student renters.

Rachel's picture

The house I'm talking about

The house I'm talking about is quite nice, with a lot of historic features intact. It just keeps getting priced above market - and selling anyway.

We have a couple of those houses you describe over here. Bet I can guess which one you looked at.

metulj's picture

Barron's had a piece this

Barron's had a piece this week on Zillow and Trulia saying that these services are basically unregulated pricing vendors and are really harming real estate markets. They also said that Zillow is going to bomb and take the housing market with it. Plenty of people think their online valuations of properties are real and reflect the market. The whole construct of comps is bogus as a pricing mechanism. There is no regulation of comps no matter what the realtors say.

R. Neal's picture

It's pretty easy to look up

It's pretty easy to look up recent sales down to the street/block level. Then you can drive by and judge for yourself whether you are comparing apples or oranges.

The problem with those sites, in my opinion, is that they don't/can't do that. Comps based on price per sq ft in a zip code are bogus. Our zip code has houses ranging from $20,000 to over one million. Not clear on how an algorithm can sort that out.

So to that extent, I agree they are mostly unreliable. Realtor.com at least now shows ask, sale and time on market for recent sales.

Rachel's picture

Zillow also doesn't seem to

Zillow also doesn't seem to take into account intangibles, like historic neighborhoods. The values it puts on IHP houses are ludicrous.

But then again, so are some local appraisers. A bank had our house appraised for a line of equity last year. When I heard the appraisal value I laughed my head off. We could put our house on the market for twice that and it would sell in ten minutes. Then I looked at the comps, and they were a joke. Yeah, same square footage in south Knoxville. But that was all the houses had in common.

CE Petro's picture

Wellllll

Let me put a different spin (if you will) on this. Once the Realtor has a binding agreement to represent someone (either buyer or seller), they have an obligation to do what the client asks (during representation for selling/purchasing real estate) as long as it isn't illegal. Overpricing a home isn't illegal.

The bottom line is it is the Realtor's responsibility to get the best price and terms for their client. That includes when the seller believes their house is head and shoulders above similar houses.

None of this means Realtors are "enabling delusional" sellers or buyers. (mostly not) It's part of the job to educate unrealistic buyers and sellers and sometimes we get that message across and sometimes we don't without a little help from the market.

R. Neal's picture

Yeah, I hear you and get all

Yeah, I hear you and get all that. In this case,though, my opinion is that the livable sq ft is being misrepresented. And priced way above market. It's a waste of the seller and buyer's time. Seems like sellers need a little tough love from time to time. I guess getting the listing overrides that.

But I suppose someone with more vision than us will see the potential and the seller will get his price. More power to him and his Realtor.

CE Petro's picture

Don't Disagree

I don't disagree on the tough love. And, I also don't disagree that you will find there are occasional Realtors that are only interested in getting the listing.

As for the square footage being misrepresented, it is the buyer's (and their agent's) Due Diligence to verify square footage. If there is a difference, even a significant difference, best thing is to walk away.

bizgrrl's picture

Being misrepresented is an

Being misrepresented is an understatement. They at least doubled the square footage to include a basement that is no way livable except by a troll.

yellowdog's picture

Is leaving stuff out lying?

We know of several instances where realtors have neglected to tell prospective buyers that there are plans for a highway to go through or near the house or land that is for sale. I think it ought to be officially professionally unethical but do not know if it is.

Sandy L. 's picture

They have a duty to disclose this

They also have a duty to know these facts, so they can't just say shrug it off and say they didn't know. It isn't just unethical, it can be negligence.

metulj's picture

The deep dark private hell

The deep dark private hell that anybody trying to sell FSBO is part of this as well. Comps say $100000. NO! My house is worth twice that! One of the problems with a house is that it is a home.

CE Petro's picture

Interestingly

Since you bring up FSBO's
ForSaleByOwner Founder uses an Agent

and

BuyOwner CEO uses a Realtor

But don't write off all FSBO's as being unreasonable. Quite a few are very reasonable for their neighborhoods and condition.

R. Neal's picture

We bought our second house

We bought our second house from a FSBO. We eventuality sold it as a FSBO.

We were happy with both transactions, although it sold pretty fast (seven days on the market). We probably could have gotten more if we had listed with a Realtor, but we were in a hurry so there you go.

Mike Knapp's picture

The game never changed just papered over

Lax financial instruments, even post 2008, allow extreme over leverage in the form of asymmetrical, unrealistic income to debt ratios for example. Banks can get in a 5% stake. issue MBS's and then toss them into pools with basically no skin in at all. Then people stay for maybe 5 years and they're out again. Lather rinse repeat
I'd agree with other comments that a variety of perversions abound such as the vaguely regulated comp/inspection racket. However deeper still is that the core driver which allows, more like forces, the imperfections around the periphery is that of homeownership as a pillar of national economic policy. No one save a few who saw the bubble to begin with want to talk about this. I'd venture because it strikes at the heart of what is so vicious about the absolute vacuity which is American economic policy - we shat ourselves with a burst housing bubble which thoroughly depleted our savings and now, thanks to troglodyte anti- guvmint spending notions, we have no economic energy to clean it up. So it looks like we may be back to square 1 getting the housing bubble re inflated since spending programs are off the table.

Sandy L. 's picture

Buyers determine the value of the home; not the sellers

Couple of things : Buyers and realtors do not determine the value of the home. Home prices are created when a buyer purchases a home. Appraisals use past sales to determine home values; thus, you are the one in charge of setting the price. Realtors must present all offers and depending on the sellers motivation, you might just get it or a counter within your distance.

You make your money when you buy, not when you sell. Often people think that in the future this home will be worth double or ten times, blah, blah, blah…. no one knows that. Market values can and have gone down, just as we saw in 2008 until now. Don't listen to prognostications. Value it on what it is worth to you - at this time If all the homes on the block are worth 100k and you buy yours for 50k, you have made money right there on that deal. The neighbors homes may go down slightly, but not that much. This is one of the best things about real estate is you can negotiate the price - you can't do that in the stock market.

Tell the agent, you are interested in purchasing the property, but not at that price. It is better to say purchase than make an offer, since purchase sounds more committed. Don't worry about the agent's shock if your price is too low, they must present all offers and get back with you. Terms can make a difference too. Of course, cash talks the loudest, but that isn't an option for everyone. Closing dates, repairs, proof of bank commitments, are things that can shift the debate off of the price into your favor. Make sure you point out all things wrong or done without being permitted, and in need of repair. Start with the big things, then go all the way down to the door knobs to justify all that is "wrong" with the home.

In real estate, the only good listing is a listing that is sold. Realtors don't get paid unless it is sold. There is also the old adage of "sellers are yellers", so it behooves the realtor in several ways to get your deal put together.

xmd's picture

We have several rental

We have several rental properties. Some through real estate agents, some FSBO. So far, knock on wood, they are working out great. If fact I will be able to retire early because of them. We do most of the work and have been very lucky in getting good houses in good neighborhoods. Think Old North Knox. If I can help you in any way PM or email me.

fletch's picture

Speaking from personal

Speaking from personal experience, mountain rental properties in the Gatlinburg area are rock bottom, with a glut of condos and vacation cabins on the market and the few buyers around are picking up properties from owners under water and desperate. If you could find a property with good rental income it might be a good time to buy. Rental management agencies typically take a 30% cut tho and beware of condo HOA and financing problems. A nice benefit tho is you can use it for a weekend getaway, but typically you want it booked for holiday periods and the Fall season.

Sandy L. 's picture

Good advice, Fletch

Vacation homes are the first thing that goes back to the Bank when the economy crashes. Developers are often the first in trouble and will undercut the prices in order to appease the bank. In the 1980's, I remember a developer selling "pre-construction" oceanfront condos starting at $183,000, by 1986 he listed his remaining condos at $90,000 to $115,000. This meant all the other sellers had to wait for his stuff to clear out or drop their prices. Since many were underwater, they just gave their keys back to the bank. The sellers weren't full-time nor did they have much invested it it. They simply walked away.

Besides getting a good deal on the price, there is rental income and tax deductions that come with investment property. This can make for an attractive deal.

Two years ago, we bought a cabin next to the Nantahala Forest. The sellers were from Florida and were not coming back to it. They hadn't vacationed there since 2006 and this was 2012. The place needed a ton of work, but as the saying goes "it has good bones". Plus, my husband loves to tinker and he gets to do it in the cool, peaceful mountains - it is Heaven for him. Initially we talked about renting it out, but my husband would rather be there every weekend than to rent it out to vacationers. The weekends we have to be home, he invites friends to use it. We've had no regrets with this purchase.

rht's picture

realtors

the commission system arguably motivates realtors to push sellers to set asking prices that result in relatively quick sale -- resulting in the realtor getting a decent commission for the least amount of effort. The difference between 3% of $250K and 3% of $200K may not be worth the extra effort for the realtor. I think it was Freakonomics that cited statistics that when realtors sell their own houses, they stay on the market longer than houses sold by non-realtors -- since its worth it for the realtor to wait for the maximum.

When we sold a house we talked to a few realtors, but ended up selling FSBO for considerably more than one of the realtors had suggested asking.

mudcop1's picture

Could be worse

Regina Realtor's picture

pit of vipers

The actual sellers and buyers are, for the most part, just victims of a system designed to use them as a means to siphon off wealth. The realtors and lenders are the ones who do these deals on a daily basis and know what's going on, but their motivations are not terribly aligned with those of the actual parties in a transaction. The buyers and sellers are almost always neophytes at the mercy of advisors who are paid to maximize what they can extract from each transaction, rather than to serve their alleged clients. The disaster of 2008 should have resulted in significant reforms to change this dynamic, but that ain't what happened.

Mike Knapp's picture

Closer to my thinking on this

Closer to my thinking on this

Joe328's picture

Appraisals Rigged

For years appraisals have been overstated to ensure bank financing. With all the foreclosures the true market value is returning. It's worth what someone is willing to pay.

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