High Up, But Below Trend

Posted by Dave Fratello on Monday, December 8th, 2008 at 4:18am.

There is absolutely nothing wrong with making a $500,000 profit on the sale of your home.

There's plenty to celebrate. There aren't even taxes to be paid on those gains (for a married couple filing jointly).

Still, $500k must be something of a letdown if, when first you spun the wheel of fortune, you were thinking it might land on $2m.

The vagaries of real estate pricing often leave successful home sellers wondering: Could we have gotten more? An extreme case is 808 Highview, whose sale price posted late last week.

In June, this terrific, large (5br/5ba, 4575 sq. ft.) ocean-view home hit the market at $5.250m.

The basis for that price: The home was purchased new in Dec. 2002 for $3.1m, really at the onset of the local RE price boom/bubble that continued, almost unbroken, for 5 years thereafter.

If this year's markup of $2.150m and 69% seemed ambitious, consider this: From Dec. 2002 (purchase date) through June 2008 (listing start date), the median price for all SFRs in MB rose 68%. (This is based on the 6-month moving average as presented in "How're Median Prices Doing?" last month.)

In other words, you could argue that 808 Highview was almost perfectly priced when it began.

But that start price was in jeopardy. By Summer, it was clear that the market wasn't acting like it was during the boom years.

For one thing, scarcity is not a problem in the Hills these days. Everybody loves an ocean-view Hill Section home, but the fact is, there have been plenty available this year.

Within several weeks, 808 Highview took 2 steps down to $4.850m (-$400k/-8%). That worked, sorta. By late August, the sellers had a deal. (See "A Hilly Hat Trick.") The deal failed, however (see "Down Hill"), and the home returned in late September at that price.

A month later, the sellers began broadcasting messages. In October, $350k came off and Highview was at $4.499m. In November, another $500k was chopped, and it was at $3.999m. (It was our "Featured Chop" in the Hills Nov. 15-16.)

The last cut worked quickly. They got a buyer, and a deal that closed fast, too.

T
he results are in: The new owners grabbed 808 Highview for $3.6m.

Overall, the price fell $1.650m and 31% from the start. Who woulda thunk it was so far out of line to begin?

Both figures represent spectacular downward adjustments over the course of just 5 months. Indeed, that chop of $1.650m is lined up to be the chop of the year, unless one other deal we're hearing about gets sealed and closes within 2008.

Meanwhile, that $500k markup represents a rise in price for 808 Highview of just 16% above the purchase price 6 years ago – well below the citywide trend. Resales of homes purchased in late 2004/early 2005 are typically going for markups like that.

It's a bit of a statistical irony that the Highview sale will help to hold up median prices for MB in 2008. That $3.6m sale price is in the upper tier, so the median moves up a notch in response. The sale hardly looks disappointing in that mix, but it's another warning of what it can take to close a deal today.
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