Wednesday, December 10, 2008

"A Tale of Two Foreclosures" - What Will Foreclosure of 1216 Augusta Street Do to "Value" of Nearby Properties For Sale?

C-ville Weekly has an article by Will Goldsmith entitled "A Tale of Two Foreclosures" with the subtitle, And a look at their place in the scheme of things.

1216 Augusta Street in Charlottesvill
e is scheduled to be sold at foreclosure auction on January 6, and 332 Minor Ridge Road, in Albemarle County, is scheduled for foreclosure auction December 11.

The owner of both properties is Doug McGowan, a real estate agent at RE/MAX here in Charlottesville. One of his tenants is a staffer at C-ville--whom he did not bother to notify that the property was in peril. (Hey, guy was busy. Happens.)

Both houses, as well as a $962K primary residence the article describes as a "McMansion," were bought in 2005-2006 with little or no money out of pocket, with interest rates from 7% - 13+% using Adjustable Rate Mortgages or Option ARMs. He also re-fi'd the two rentals in order to pull money out--a practice common during the housing bubble, where owners used their properties as ATMs.

At one point the article states "It’s unclear what McGowan was thinking...."

We're going to suggest that among other things, McGowan was thinking:

1. Charlottesville is a protected market - that is, due to its unique geography and proximity to UVa, it will outperform anywhere else in the Commonwealth (or the USA, for that matter).

2. Real estate values always go up.

Oops.

Toward the end of the article, the potential impact of the foreclosures on others is made explicit:

The foreclosures are not only bad for McGowan. Likely, they will drop home assessments in the Rose Hill and Wynridge neighborhoods where his properties are located. That means less money for local government. If the neighborhoods are seen as distressed, it could make it harder to get loans to buy in those neighborhoods, creating a vicious cycle of declining value.

Additionally, a foreclosure sale can lower the price of houses currently offered for sale. Not that this is a bad thing in a bubble market: it's inevitable as part of the nationwide "correction."

In the Rose Hill neigh
borhood, there's already at least one foreclosure on the market a half mile away: 1404 Westwood Road, which we viewed in late September.

MLS #442361
, 4br/1.5 bath, 2600 sq. feet brick rancher o
n the market for about a year. The listing explicity states this is a foreclosure, and hollers in caps "PRICE REDUCTION!" Asking: $315K, then $278.9K, and NOW $244,900. The Bank paid $315K for this house and has resigned itself to a loss--er,writedown.


Now add in the foreclosure of 1216 Augusta to the area.

What will happen to the price of the house for sale directly across the street from 1216 Augusta?

Yes, directly across
the street.
MLS# 455468

1213 Augusta Street

Asking: $325,000

4 Beds, 2 baths, 2,406 sq ft. Acreage: 0.25, 1957.
Last sale: $141K, 1996.

Additionally, there are two houses just behind 1216 Augusta for sale, on Westwood Road. You can see 1216 Augusta from their yards. Both came on the market within the past two months, and are next door to each other:

MLS# 459232, 1516 Westwood Road, $399,500.
2 beds, 2 baths, 1700 sq. feet, ca. 1952. Last sale: 1997, $145.5K.

MLS# 458407, 1514 Westwood Road, $489,900. 5 beds, 3 baths, which includes an "in-law" apartment. 3,500 square feet, ca. 1956. Last sale/re-fi 1996, $121K.

Across the street:

MLS# 454843, 1505 Westwood Road, $375,000. The price started +/- six months ago north of $400K.) 3 beds, 2 baths, sq. feet: 1,524, ca. 1953. Last sold in 2006 for $196K, before major renovations.


On the other side of Augusta Street:

MLS# 457574, 1610 Amherst Street, $359,000. 4 beds, 2 baths, 2200 sq. feet, ca. 1960. Last sold in 2005 for $293K.

There are also a number of other houses for sale in this area whose price and "value" may be affected by this foreclosure.


Additionally, Mr. McGowan may face a "deficiency judgment." In Virginia, a bank has the right to sue the owner for the difference in what is owed and what is brought at auction (suit may be for other monies as well). A judgment lasts 20 years in Virginia.

Don't miss the Comments when you read the article in C-ville. There's a debate on whether or not Doug McGowan should have been named. Judy Savage, President of the Charlottesville Area Association of Realtors, weighs in and takes time to spank the writer and editors, though as one commenter points out, she doesn't identify her job or association position.

According to Savage, Realtors in this area are in dire straits. Among the information she imparts are these direct quotes:
  • "Many of us have seen our incomes fall 75% from just a few years ago."
  • "The Realtor in question is only one of many facing foreclosure and bankruptcy..."
  • "I know of several Realtors and Lenders who have now been foreclosed on because they relied on this bad loan product."
  • "Just about every restaurant and big box store in town has a Realtor working there part time just to keep their head above water."

We can't help but notice that this is all a lot less sunnier than what we've heard recently from CAAR CEO Dave Phillips.

With property sales declining since 2006, and the fact that there is currently 18+ months of inventory on the market, it's no wonder.

22 comments:

brigadoom said...

Don't forget the ONE MILLION DOLLAR listing, a block away:

1618 Westwood Road

MLS# 459777

New listing

solon said...

McGowan apparently didn't think anything of the fact that he was paying nearly 200% more than the previous owners paid a decade earlier for 1216 Augusta.

Drinking the Kool Aid. Maybe the bigger surprise is that he didn't buy even more properties. Maybe getting into a $960+K mortgage stopped him.

As for what Judy Savage says in her comment:

"He couldn't predict what would happen to the housing market and he is a victim of it, just like thousands of others that you didn't name."

You know what? He's not a "victim." And there are *millions* of people who did *not* participate in RE gambling and contribute to bringing down the entire American economy.

I have to say I prefer the clownish babblings of CAAR CEO Dave Phillips to this kind of self-righteous vitriol.

Anonymous said...

The price of 1404 Westwood has dropped 20% in just a couple of months.

It could go down another 10-20% and then be just about where it should be.

Watching this one with interest.

Anonymous said...

"self-righteous vitriol"

I Love Charlottesville

Montpellier said...

Oh My...I just have a tingly feeling all over! I missed the C'ville article, but this writeup is just...snarka-tastic!

1404 Westwood has been on the market for ages - the previous 'owners' were at it for some time before the bank stepped in.

The properties in the 1600 block of Westwood are different from the 1400 block, but yeah, not that different. These are lovely, practical small homes, and although they are within a very easy bicycle commute of UVa, they aren't that magical.

Well, time to go contribute some gleeful vitriol to the c'ville comments!

larsen b said...

I drive by the two houses next door to each other on Westwood, 1514 and 1516, since it's a cutthrough street. I was surprised to see them both come on the market, and to come on the market at this particular time.

When I learned what both were going for I was frankly stunned. And then when I learned that one of them has an additional 2000 square feet and is going for 89 thousand more than the other one, even more shock. $400K is the new $300k. Ridiculous.

BTW, if you haven't been over to read the comments on C-ville lately, don't miss them. It's turning into a dogpile.

Anonymous said...

Judy and Tara Savage are not doing anything to improve the public's opinion of realtors.

wii frik said...

This. Is. Awesome.

downtowngirl said...

Whooo. Dogpile indeed, but deservedly so in my opinion. I think there are some realtors who underestimate how fed up some of us are in this town.
Many of us have waited to purchase, and are now being rewarded by having to bail out these "poor" investors. We also have to jump through fire hoops to purchase, which will be a good thing in the future, but most of our economic problems come from Kool Aid addiction.
My spouse who is neither a realtor or an economist foresaw this mess years ago and talked me into renting. He didn't see the scale of the problem of course, but he knew the market couldn't sustain itself at that level.
I wish no misfortune on Mr. McGowan, but I think his behavior as a landlord probably explains a lot about his character in general. Either you're ethical or you aren't. As for the realtors, this whole situation seems to be thinning a crowd that frankly needed it. There are great realtors here in Cville who will be able to survive this, and perhaps the ones that have to change careers will be better off as well.

Anonymous said...

What she said. The realtors here have for too long caved to the deluded sellers' views of what their homes are worth, and now the market is in lockdown. Until the market here adjusts to economic reality and prices fall (as they already have everywhere else), this situation will persist and most buyers will continue to wait it out. The realtors that survive will be those that recognize this fact and start advising sellers to price their homes realistically or else not take the listing (and the associated costs of futile advertising).

lloyd said...

bb,

wondering if there will be a post about houses near the minor ridge place, mcgowan's other property.

Pavel Dovgalyuk said...

I'm fascinated by what happened to a foreclosed property on Briarcliff in 2007 and now 2008. The neighbor next door bought his place for around $250K earlier in the year and this foreclosure listing came on the market around $178K and sold very quickly. I think there were around 6 offers on the property. One would automatically assume that the next door neighbor and the rest of the neighborhood is doomed - but that is not what happened. A contractor bought the property and spent a good deal of time (and obviously money) improving the property. It was listed after the improvements on 09/01/2008 and sold in just 29 days for $292,500.

michael guthrie said...

to all the anonymous/sudo named posters:
whether you liked of disliked, agreed or disagreed with what they said, At least Judy and Tara had the courage to post their names vs hiding behind anonymous. My queston is would you write what you write if folks knew who you were?

Anonymous said...

It sounds like you don't spend much time on blogs, Michael Guthrie?

Or the Internet.

"Anonymous" is Reality 2.0

xxoo,

Anonymous #5

michael guthrie said...

Actually, I spend a lot of time on blogs. It just seems like it is very easy to say things anonymously that you wouldn't say to someone in person.

Brooklyn bob said...

Michael,

Using monikers, pseudonyms, initials, and "anonymous" are acceptable on the web. Standard operating procedure.

Of the 36 comments in the Cville story (so far, 7pm on Dec. 11) 20 of them are from people identified with one name, a moniker, or just by initials. Three = Cathy Harding. Two each = Tara Savage and Judy Savage. Commenter 36 who used Doug McGowan as a realtor doesn't even give his last name.

Why aren't you commenting on anonymity on that site? Is it because the bubble bloggers themselves are anonymous? Well, that's a function of the 'net.

You say "at least Tara and Judy had the courage to post their names." I wish they HADN'T used their names. IMHO, they've hurt themselves professionally by responding angrily without pausing to think about how others view them. They seem ruled by emotion. That's not what I want in somebody who is helping me to drop half mil or million.

Worse, Judy doesn't seem to know the difference between "professional" and "ethical." I don't think anybody questioned her "ethics." They suggested she was being unprofessional. She holds a position as president of a trade association. Therefore she's the association's representative to the public. All the time. Yet Judy Savage seems to actually believe that in a public comments section concerning somebody in her business, let alone a realtor who works in her company, it's possible to "defend" him as a "friend." This is a further error in professional judgment.

Anonymous said...

Let's not forget that one of the most incredible voices on the whole mortgage mess was a person using a pseudonym. Nobody but Calculated Risk himself knew who Tanta was until she passed away 10 days ago.

http://calculatedrisk.blogspot.com/2008/12/on-tanta-journalist.html

brigadoom said...

Pavel, that buyer/seller of a foreclosure should count his blessings. Don't think we'll be hearing too many more stories like this one.

As a buyer, when I see there's a foreclosure in the neighborhood, I'll compare it to everything else for sale nearby.

Take 1404 Westwood, which was a foreclosure. It's been on the market a long time. Recently come down to 244K. I'm going to look at the houses on Westwood, AugustA, Amherst and wonder A) why are they priced higher when they're in the same neighborhood? B) why are they priced higher even though they're smaller? C) Why should I pay more than 244K?

To make sure I pay less than $244, I'm going to offer about $220.

And if it's the Spring and these properties are still around, even lower.

This may not make sense to a realtor. But believe me, it makes perfect sense to buyers.

michael guthrie said...

Brooklyn Bob,
I made the same comment on Real Central Virginia so no, I am not making a comment on the bubble bloggers. Whether it is standard operating procedure or not, I stand behind my comment that it is a lot easier to be mean spirited in one's comments when you aren't looking at that person. My rule of thumb is when I post a blog I try to write what I would say as if I was actually in a conversation about a particular topic. I think if more people did that blogs would be a lot more civil in their tone.

Pavel Dovgalyuk said...

brigadoom, I see what you're saying and agree with you. As a Realtor I have to be careful commenting publicly about other Realtor's listings so that's why I have a password protected section of my website. All I'll say about 1404 Westwood is that the "lot" matters to some folks - and it seems to me the closer you get to UVA (Rotunda) the pricier it gets on Westwood. Each property is unique and as a Realtor working with buyers on day to day basis - every single detail goes into price consideration. Why did someone pay $370K earlier this year for a home in Johnson Village when all the other comps were around $300K? Each home is unique.

Rob said...

You have to buy this right now, if you want it you have to put a contract in today was all I heard when looking at houses 2-3 yrs ago. Many of the realtors I talked to seemed like used cars salesman. The hard sell, pressure sell was the name of the game. Now, this market is weeding them and many others out and hopefully leaving the professional and ethical realtors.
To all buyers, its Your money make the offer YOU want. Then, you cant blame or congratulate anyone but yourself.

michael guthrie said...

Rob,
It was more like 3-4 years ago. I am sorry if you ran into Realtors that came across unprofessionally. Truth be told, if you were looking for a house in 2004, the Realtor may not have been hard selling but stating fact. Often times there would be several buyers for the same house and if you didn't act that day the house would indeed be sold.