Charting the Market in One Property over the Past 5 years the Trend says Caution

Per my past blogs I am not providing the address of the following (I can advise within 1 block of King Soopers and adjacent neighborhood retail) I am using this listing as an indicator of the market and possible predictor of the near future. The residence is a historic 1/2 duplex, part of a grouping of townhomes dating to c. 1908 located in a desirable central Denver neighborhood yet addressed and fronting on a busier one-way Avenue.

With 3 bedrooms, multiple levels, approximately 1,800 SF finished square feet, reserved parking and low HOA/taxes an attractive listing and opportunity for the correct buyer. Personally as a prospective buyer and real estate broker I see challenges from being semi-detached i.e. sharing a common wall to the frontage on a busier roadway to reserved yet uncovered parking but this is the logical side of me.

I decided to look at the history of this listing as I pass it almost daily on my commute from Cherry Creek North to Downtown Denver.

The residence first came on the market as follows listed with a full-service brokerage offering a 2.8% co-op:

  • 7/9/13:          Initial Price:               $360,000
  • 7/9/13:          Price Increase:           $375,000
  • 7/11/13:        Goes Under Contract
  • 8/2/13:          Sold and Closed:        $375,000

The same unit enters the market again with a full-service brokerage offering a 2.8% co-op as follows:

  • 7/13/16:       Initial Price:               $585,000
  • 7/21/16:       Price Reduction:        $574,900
  • 9/11/16:       Listing Expires

Five (5) days later the listing reappears with a different full-service broker and brokerage firm offering a 2.8% co-op yet $35,000 lower asking.

  • 9/16/16:       Initial Price:               $535,000
  • 9/26/16:       Goes Under Contract
  • 11/21/16:     Sold and Closed:        $536,000

Thus the seller who purchased in 8/13 for $375,000 has sold 3 years later for $536,000 or $161,000 gross profit in excess of 40% before commissions, fees and closing costs. Over three (3) years an attractive return coupled with being a nice abode.

Now fast forward to June 2018 or just shy of 18 months after the last purchase. The unit is placed on the market with a fixed fee brokerage and offering a co-op of 2.5%

  • 6/7/18:         Initial Price:               $590,000
  • 6/23/18:       Price Reduction:        $585,000
  • 8/11/18:       Price Reduction:        $575,000
  • 8/30/18:       Listing Expired

If the seller above did sell for $575,000; their gross profit would be $39,000. After the fixed fee commission and the 2.5% co-op to the selling broker AKA the buyer broker their net profit would be approximately $22,000 before closing costs and Title Insurance. Not to shabby for 18 months, basically generating $1,200/month in profit HOWEVER, the unit did not sell.

The unit has been placed back on the market as follows with a full service broker (a firm/broker/team that is quite well-respected and knowledgeable) and a co-op of 2.5%.

  • 9/14/18:       Initial Price:               $575,000

Now let’s assume with the new broker/brokerage and the co-op, let’s assume 5% of the closing purchase price. My gut says the unit will close between $545,000 and $555,000. Let’s see what the net is after commission of 5% sans closing costs and Title Insurance:

  • At $575,000 – 5%($28,750) = $546,250
  • At $567,500 – 5%($28,375) = $539,125
  • At $560,000 – 5%($28,000) = $532,000
  • At $553,500 – 5%($27,675) = $525,825
  • At $545,000 – 5%($27,250) = $517,750

Thus not even considering inflation which is now evident or the Time Value of Money, unless this sellers assuming a 5% commission structure transacts at $565,000 or above a strong possibility of actual net loss over the last 18 months.

I understand the initial listing with a fixed rate brokerage as in a strong sellers market there is this assumption that all full-service brokers due it place in MLS and other distribution channels and wait for the phone to ring. I with 3 decades as a broker can attest this is far from reality, however the perception continues.

Yet consider this, while listed with the fixed price brokerage for three months the seller  I assume was paying on a mortgage, thus those 3 months of payments are not coming back and doubtful much impact towards principal. With the new listing I would not be surprised to see reductions before the end of September.

Granted there may be new prospective buyers who have not seen the listing prior. Yet with continued forecasted interest rate hikes and a general slowing of demand, whether seasonal or I assume more indicative due to a lack of demand I would be surprised if the unit sells at the asking of $575,000.

Again my gut advises the unit will sell for between $545,000 and $555,000 assuming no Fall Surprise in the equity markets; not much more than when sold two years prior and if factoring in closing costs and inflation, an actual monetary loss. Will keep all posted.

 

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