Movement on the Perimeter

One factor that will tend to make the local RE market sluggish is when buyers get picky about location.

Oh, we know, location (x3) is the RE mantra. Everyone knows location is important.

But in more frenzied times, buyers' goal is to buy something, anything, ASAP, and not to let a specific street or location trip them up. If they're trying to buy the ZIP code, after all – or the school district – they might look past things that suddenly seem important when they have a choice, like those refinery stacks they would see each morning out the kitchen window as they make the kids' lunches.

In a calmer market like today's, sellers can overcome their homes' location issues only with realistic pricing, or big adjustments.

In the last few days, 2 listings proved that location issues need not be insurmountable:

790 Rosecrans (pictured above), which MBC has described as both "lovable" and "awful," is just a tired, older home that looks out on an entry/exit gate for the refinery. Because it's fairly large (3250 sq. ft., though just 3br), the sellers no doubt felt justified starting the price near $1.6m ($500/PSF) on Aug. 1, 2007. By December, the price was down almost $300k to $1.295m, where it lingered till the sellers made a deal in the last few days.

That latest list price equated to $398/PSF – a new low for the Trees in recent times – and you might assume the final price is lower.

3613 Oak (pictured at right) presents a different kind of case. It's on the small side (3br/2ba, 1400 sq. ft.) and, as we noted in the Market Update just a few days ago, it's got "a big location issue – just off Rosecrans, facing out onto a commercial building."

Oak, Rosecrans, commercial – a triple whammy.

Defying the odds, the sellers made a deal within 2 weeks. Maybe that's because they did not overreach on price. They began at $1.089m, a price that would help them to almost double their money (they paid $555k in Aug. 2001).

Let's face it, a million bucks is still a lot of coin for a small home in a sub-subpar location like this, but Oak also had the lowest start price for any livable, 3br home in the Trees that we have seen in a year, probably much longer. (MBC has been publicly tracking for a year.) That's how you make it happen.

Recently the proportion of SFR inventory in off locations has been growing. The sellers will all have to deal with the price impact of pickier buyers.

Let's count first just by looking at homes that, like 790 Rosecrans and 3613 Oak, are on the outer perimeter of our subject region west of Sepulveda.

Start with Oak Ave. in the Trees. Entering Monday, there are 6 active listings on Oak, 2 of those on the "wrong" side (east/Sepulveda side). There was 1 more on Larsson, Oak's equivalent in the Hills (it's also on the "wrong" side). Add 1 more home on Rosecrans. We've counted 8 on the outer-most perimeter.

Now add 8 more listings in the Trees on 35th St. or north of it, an area where – in many cases – the refinery is a profound presence. Add 1 more from the Sand on 36th Pl. with refinery issues (among others; see "A Real Turkey").

That's an impressive 17 listings (out of the 84 total active SFRs) around the less-desirable outer rim.

We also need to consider busy streets:

• 3 listings on Highland;
• 2 on Pacific;
• 1 on MBB;
• 1 on 2nd in the Hill Section; and
• 1 on Blanche (in addition to 1 already counted above).

So we're at 25 out of 84 – nearly a third (30%) – in which location is an easily identifiable problem. That's before we start talking about homes on alleys ("Places"), homes on other so-so streets or quaint homes sandwiched by big boxes, all real location issues.

Once buyers extract their price (cuts) to get the more marginal homes sold, comps for everyone are affected.

Some sages say it's the marginal listings that ultimately define the market. We don't have many distressed sellers (foreclosures, short sales) at this time, but we've got plenty of location-challenged inventory. These listings could prove to be the leading edge of a wave of price-chopping – at least those that can make a deal.

Buyer, You'd Better Verify

You'll see boilerplate language in every home listing saying "buyer to verify" all information.

And you should, though verifying some details – like square footage – won't usually occur until a deal is made and you're at the inspection stage. Then, if you've got a sharp inspector or appraiser, someone may notice that some listing data was inaccurate.

Whoever takes an interest in 528 6th St. (click for details via Redfin) had better ask for the verification up front. Because there's a pretty great discrepancy between the square footage listed when the home was built and sold 2-3 years ago and the number found in the current listing.

Right now the home is said to offer 4168 sq. ft. However, when it was sold in Feb. 2006 – one year after it was completed – the size was listed as 3321 sq. ft. Click here for the old listing info, and here for the current listing. (Click the little graphic for a snapshot of the listing; we're putting this in just in case the sq. footage changes later.)

Records held by the city of MB definitively establish the square footage at 3305. The home was newly built in Feb. 2005, and there have been no additions since then. Simply put, the 4168 sq. ft. figure is wrong – high by 25%.

To be fair to the sellers and listing agent, this 4168 sq. ft. figure is exactly what the county assessor shows. (Click graphic to enlarge; see the bottom-right portion.) Can't we trust gubmint sources for stuff like this? No, apparently not. In fact, we're told the assessor makes mistakes like this more often than we'd like to think.

How does the error affect the potential sale of 528 6th? There are some obvious answers, but here's a key consideration – the price per square foot right now looks like a relative bargain at $827/PSF. When 528 6th first hit MBC's radar (see "6th St. is Turning Over"), we compared this home against two others on the same block, each of which had a PPSF near $1,000.

If we recalculate the PPSF for this listing, which is currently asking $3.449m, it jumps to $1,044/PSF. Now it's average or a tad high, no longer the bargain. Could that affect a deal? Sure. And what if the buyer only discovers this issue after escrow begins? That's a mess.

MBC has made 2 inquiries to the listing agent, asking for an explanation of the discrepancy. No reply. Too bad. The listing needs to be fixed ASAP.