I just returned from Arizona, where I met my son’s wonderful girlfriend and her equally delightful parents. My son, of course, was a model of good behavior in his lady’s presence. Yes, she had transformed him into a man! And I was transformed into the happiest woman on earth -- I had discovered my future in-laws!
As my future in-laws warmed up to my obvious charms, they shared a recent real estate experience with me. Naturally, I was eager to help as both a professional and a soon-to-be member of the family. True, the drama took place in Arizona. But the lesson learned applies just as easily to Laguna Beach real estate.
A Tale of Two Owners
Donna and John, the parents of my son’s girlfriend, had bought a gorgeous 4-bedroom home in the desolate, middle-of-nowhere town of Casa Grande, which lies just outside Phoenix. Population: Gila Monsters Galore. I’m guessing the house was about 4000 feet, and cost $60,000 when purchased 15 years ago.
Like many homeowners, Donna and John recently got bit by the refinance bug. So they visited the lender who owned the mortgage on their home. Bingo! The lender offers the credit-worthy pair a juicy no-cost re-finance. Donna and John are ecstatic.
Enter the appraiser. For a comparison home (comp), the appraiser chooses a real piece of work – a shabby foreclosure sitting on a noisy main thoroughfare. As added bonuses, the dishwasher had been stolen, the cook-top was nowhere to be seen, and the place was an absolute pigsty. But in the appraiser’s eyes, this disaster was a comparable home – same house and lot size, same age. And besides, it was the only ‘comparable’ home that had sold in the last six months. Therefore, a comp!
Like many appraisers ruffled by 2008 market plunge, this pro didn’t take into account the home’s hellish location, abuse-inflicted damage, and screaming need for repairs. So he assessed Donna’s and John’s stunning home at the battered foreclosure’s value -- $257, 000. That’s $257,000 for a 4,000 ft. castle perched on half acre, and resplendently adorned with gorgeous granite upgrades, new baths and kitchen, and tumbled travertine floors. This amount probably would cover a 5-foot set back for Laguna Beach real estate.
Adding insult to injury, the loan’s interest rate also screamed foreclosure – 3.75% on a 30-year for two people with soaring FICO’s. A more equitable rate would have nudged 3.25%. Therefore, the half point difference was costing this couple an extra $100 per month -- essentially gobbling up the benefits of free financing. Some deal!
Obviously, the appraiser should have used a score card that addressed the foreclosure’s specific defects. Subtract $10, 000 for the abused condition; another $20, 000 for the undesirable location. That’s a total of $30,000 that should have been part of my future daughter-in-law’s estate! Instead, he compared a ripe apple with a rotten one. And the ripe one got juiced. Believe me, this type of miscalculation happens far too often, even with Laguna Beach real estate. Fortunately, owners do have a number of recourses.
I’ll be revealing those recourses in my next article. But if you really can’t wait, I’ll be happy to email you an advance copy upon request. Just shoot me an email.
The Coastal Property Experts
Transforming Integrity Into Results