The $800,000 House

By
Real Estate Agent with GenoPetro.House IL 471.018331

 

Over the past year or so I discovered an interesting Real Estate wrinkle I call "The $800,000 House Phenomenon." I didn't recognize it at first because I think it used to be called "The $600,000 House Phenomenon" but as the housing market changed, so did the phenomenon. And although I personally find it unique to the Northeast Side and North Shores of Chicago, its probably present in every market in any city at some pricepoint or another. It lays out something like this:

A client, or more accurately a young couple, decides to buy their first big single family home. If they are North Shore buyers then they have visions of a white, Center Entry Colonial built in the 1940s-50s on a 'Father of the Bride', 'Home Alone' or any John Hughes movie setting type of street. If they wish to reside in the city proper (in this case Chicago) then its a beautifully rehabbed brick and lead glass expanded cottage or carriage house, walking distance to the lake, zoo and parks. This is their housing vision. They live in nice, tricked-out condos now but they want 'The House.' And again, this phenomenon is very neighborhood specific. Its a 'location' thing.

The fact that "The $800,000 House" is obviously under a million dollars makes it appear 'do-able' from a financing point of view--after all, who really wants to spend a million bucks on a house when you're still in your early to mid thirties? Anyway, at least once a week I get a request to assist in the search of just such a home..."around the $800,000 range...in a great neighborhood..." And here is the reality:

Two-thirds of the houses I find in this price range are either overpriced by a hundred thousand or so already (sometimes more) or just poorly remodeled little things with low ceilings, average to bad bathrooms and kitchens that if priced more correctly, would already be torn down. And needless to say, you can pretty much forget New Construction. Across the board, my clients are generally a little discouraged by what I send them in this price range because what used to be the $800,000 neighborhood is now the nesting ground of the soon to be built 2.5 to 3 million dollar 6.000+ square foot New Construction House. Its still an $800,000 Neighborhood--it just doesnt include the actual HOUSE. This all has to do with a Real Estate term called 'The Highest And Best Use" of a property which I think is pretty self-explanatory. And I dont think its a bad thing either. I sell a lot of New Construction that serve higher and better uses than what previously stood on the site.

But it is a little sobering when you actually come face to face with what's on the market (housewise, that is) for under a million in Chicago. Simply navigate around my search engine linked at Chicago's Home Weblog and you'll see that  many of the homes dont look enticing enough from the MLS picture to even request a showing. And most, if not all of my clients' condos from which they are moving have better finishes and appointments. Again, I find that these properties comprise about two-thirds of what's out there. One must keep in mind that the 'Location' rules and if the 'Location' happens to have a ho-hum building on it with a bulldozer parked in the driveway, so be it. The truth of the matter is the million dollar plus housing market expands and ticks up every month leaving the $800,000 House that someone might actually move into a little further behind in almost every way. But this too, is a good thing. You gotta have 'appreciation' and on a personal level it makes my job more interesting, more challenging, and more rewarding when I do connect with the perfect house. And they do
exist. Read on.

Most of the remaining third of inventory are correctly priced at land value only and WILL be torn down if they dont fall down on their own waiting to close. The remainder of the remainder--those few rare gems that boast curb appeal, livability and attractive pricing--are what I'm talking about. Now we're in 'the zone' and the scenario plays out like this:

On a weekly basis, a handful (maybe less) of homes in the $800,000 range appear on the market and by "market" I mean a good portion of the Northeast Side of Chicago and almost all of the desirable "upper-end" North Shore communities within an hour drive of the Hancock Building. Many have had new and sometimes drastic price reductions because the now increasingly discouraged owners who originally felt their homes were worth "a million" realized the Buying side of "the market" wasn't responding. This is usually attributed to a combination of timing and simple Incorrect Pricing and is a topic I have addressed at length in a previous Blog. These homes are too nice to tear down and while not without a few obvious flaws; dated baths and kitchens, small closets, no central air, odd shaped or irregular sized lots---they are still, all things equal, solid properties with decent curb appeal worth maybe in the mid to upper 700s as of this writing. Many of these may be a little overpriced but are still able to command a negotiated offer that is acceptable to both the Buyer and Seller. I negotiate more than my fair share of these as well.

And finally, what's left of the above handful are the cream of the housing crop--new on the market with significantly better renovations and curb appeal, on the prettiest streets in the most desired neighborhoods with the highest rated public schools. These go into multiple offers the first day or so on the market with few or no contingencies and virtually No Negotiation. These are the true $800,000 Homes. These are homes that more than one Buying entity likes (loves) (desires) enough to write a contract on the spot and close in 30 days. These are the ones that WILL be worth a million in short order. They are generally priced right for a timely sell as the house is already flush with Equity and the Owner needs to move on NOW--no fooling around, no testing the market. As I mentioned earlier, I have at least one person a week asking me if I know of any of these. And what do I do?

Bubble notwithstanding...I put them in the car immediately and tell them without hesitation about this "$800,000 House Phenomenon" I discovered.


posted by Geno Petro

DISCLAIMER

{I recently posted a picture and an accompanying story on my primary Blog and was informed by another site's SEO that my duplicate content might get me banned from Google! Wow, I had no idea. But I reminded myself that ignorance of the 'law' is no excuse. The content apparently needs to be 25% different (am I there yet?) and thus, a commentary before or after should be in order. (Obviously this is an example of a commentary before a duplicate post.  All previous AR entires I have already submitted will soon have commentarfies after the duplicate post as well---but I suppose they {the commentaries} will each need to be 25% different) I don't know nothin' about nothin'. It wasn't me. Why didn't you tell me? 

The truth of the matter is I stumbled across Active Rain by accident while checking out Sellsious. It wasn't sure anyone in the blogosphere was even looking at my primary Blog since I had a total of 1 comment from a friend and 1 comment from my wife and 1 comment from an insane person (a diatribe, actually) the first 3 months I was up an posting. I didn't think my stuff was that bad so I decided to start posting here as well. So from here on forward and backward, this is my 25% Difference Non Duplicate Discalaimer, and I'm sticking to it...unless its a bannable offense from Google  in which case I'll sell my overpriced Google stock and show them! I'll ban them from my portfolio. See how they like it when I give them no page rank! Now I know 'I'm double dog daring' a big guy on the playground (Jean Sheppard reference for my Philly friend, Brian Brady) but right now according to Google, I'm not even another Bozo on the bus. So Thus I Disclaim and wait for the axe.}

 

 

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Rainmaker
223,240
Rick & Ines - Miami Beach Real Estate
Majestic Properties - Miami Beach, FL

As expensive as everyone thinks Miami is, I think Chicago has us beat.  You can still find reasonable homes here for $800K - it's still a good price range - although we are creeping up  the million mark.  That does not at all include waterfronts.

ines

Nov 20, 2006 02:57 PM #21
Rainer
2,009
nobody - I asked for this to be deleted i
c - Winston-Salem, NC
Great post, man.  Here in the Triad of NC, that happens around $350,000.  I could use some more $800,000 loans though.  Can you get some of the folks to invest down here?  LOL.  That majic price break is amazing though.  It's such a psychological thing, and people do not even catch themselves thinking like that.  It's almost a status thing, yet it's also something personally satisfabout feeling good enough to do something bigger than average.  Everybody does that across all levels and puurchase types though. Whether it's homes, cars, or clothes, it just changes the break point in dollars. 
Nov 20, 2006 03:44 PM #22
Rainer
100,192
Kaushik Sirkar
Call Realty, Inc. - Chandler, AZ
One more thought - the concept of your post should be familiar to most realtors.  What might be nice - to compile a list of what the $800,000 house actually equals in different markets??
Nov 20, 2006 04:51 PM #23
Rainer
15,226
Joanne Brown
Rockland County Real Estate - Nanuet, NY

well put Geno, it's unfortunate though, I usually meet the buyer for this house at the same time the phenomenon is listed.  They think it's a sales pitch, don't cough up an offer and are chasing the phenomenon for way too long.

kind of like the sellers you were convincing to list, didn't believe it was a good time, thought the prices would be up in the spring to cash in.

don't it always seem to go, you don't know what you got till it's gone...

Nov 20, 2006 06:50 PM #24
Rainmaker
163,532
Home Design
Alpharetta, GA
Home Design and Real Estate
Hey Geno, great point made.  This same thing goes on in Atlanta, but around 500,000k.
Nov 20, 2006 10:37 PM #25
Rainer
25,431
Blanca Cholewczynski
U - Oak Brook, IL
XCO

WOW Gino,

I go to sleep and look at all the trafic you had last night.  Hey, some times you can see a lot of nature in the South of France, where you in Cannes for the film festival?  

Nov 20, 2006 11:49 PM #26
Rainer
30,396
Geno Petro
GenoPetro.House - Chicago, IL

I just made a  folder of all the realtors and mortgage brokers from the different markets who comment on my posts. When I run across a person getting ready to relo out of Chicago I'll pass on the info and be in touch. So Dana in Pueblo, you may very well be able to take one of these '$800,000 buyers' and sell them 8 properties! A lot of comments are saying the same thing--that every market has its own 'break point in dollars' (Jeff from N.C. Triad). Needless to say, the only reason I even have time to write a blog these days is because everything has stalled a little here. I think its probably due to the 'Believe everything you hear in the Press Phenon..."

 

 

Nov 21, 2006 12:40 AM #27
Anonymous
Nicole

Geno --

I'm friends with Leigh but just found your blog and thought it was very informative and you are right on the money here.

 

Leigh and I grew up in CLT in same community.  I am now 15 min's from Lees McRae College, selling a new development.  

 

I love Chicago!!!!  I will keep watching your blogs.

Nov 21, 2006 01:25 AM #28
Rainmaker
400,714
Suzanne Marriott
Keller Williams Arizona Realty - Anthem, AZ
Associate Broker, CLHMS, e-PRO
That price point is still moving quickly in the Phoenix area - if priced correctly.  We had a few in the last 3 months - including one priced by the previous listing agent at $1,050,000 which naturally expired (since nothing in the neighborhood had ever sold for more than 900K - and if there was going to be a first - this wasn't it!)  The owners paid $680K in April of this year, listed with us in September at $850K and closed the following month at $835K.
Nov 21, 2006 01:34 AM #29
Rainer
30,396
Geno Petro
GenoPetro.House - Chicago, IL

Thanks, Nicole.

 

Suzanne, that's good to know. The real point I was making and you just confirmed it, is there is still a market frenzy at a particular pricepoint for a certain type of house. The problem begins when someone paid "$680K" a year or so back and feels its now worth over a mil--then lists it at that price, then stalls the market, then reduces the price along with everyone else. There's a another group of people called 'bubble sitters' I refer to on my Chicago's Home Weblog site who are just waiting to 'pounce' when the right property shows up. Unlike a stock market correction or even the 'dot.com' bubble of past (where fortunes can be totally lost), a persons house will almost never be worth '0.' (speculative developments notwithstanding). And when a whole lot of overpriced homes linger on the market  for 180+ days it is quickly reported as bad news. The truth is, in many cases, its someone who recently paid $680 and now wants over a mil....then Suzanne comes along and sells it for $835!

 

 

 

Nov 21, 2006 02:24 AM #30
Rainmaker
3,044,673
Tony and Suzanne Marriott, Associate Brokers
BVO Luxury Group @ Keller Williams Arizona Realty - Scottsdale, AZ
Serving Scottsdale, Phoenix and Maricopa County AZ
As Suzanne pointed out - Sellers need to be educated about price.  It's easy to dazzle them with high numbers - but it also is in violation of the NAR Code of Ethics to fib about the value in order to take a listing.
Nov 21, 2006 02:29 AM #32
Rainmaker
206,209
Chris Tesch
RE/MAX Bryan-College Station - College Station, TX
College Station, Texas Real Estate
no matter what th price point it seems that they always want more than what their getting.  In our price market it is the $150K house that they expect to be perfect, and the seller expects to sell it for 180K...  Same sentiment different commissions!!!
Nov 21, 2006 12:57 PM #33
Rainer
30,396
Geno Petro
GenoPetro.House - Chicago, IL

Chris, what you say is true. And I must also say the majority of my sales are condos in the $400-500K range so its not all upper level home sales for me, either. I remind myself constantly though that I do represent a client (in their quest for 'perfection' at a lower pricepoint)and my self-interest is further down the list of priorities. Still, it is a little frustrating when a client passes on the best listed property on the market wanting  even more for their money. Especially out of town buyers from the southern states. $500,000 here buys a fairly nice 2 bed 2 bath 1500 square foot, 3 or 4 year old condo fairly close to the lake. Parking is usually another $25-30K. I know that in most other cities you can buy a pretty nice 3,000 sq ft home for the same price.

 

Nov 21, 2006 01:12 PM #34
Rainer
407,910
Adam Tarr
MavRealty - Phoenix, AZ
PC -GRI, ABR, CDPE, RSPS, ePro - Designated Broker
Definitely not just in Chicago.  Value is in the eye of the buyer, not seller.  I think more people are starting to see that.  We have seen that with the tremendous influx of CA people who are tired of shacks for 1/2 mil. 
Nov 21, 2006 01:19 PM #35
Rainer
30,396
Geno Petro
GenoPetro.House - Chicago, IL

Angus, I will send any Naperville people your way. Usually they're coming here from there but every month or so I do get
an internet lead requesting your area that I don't know what to do with.

Nov 21, 2006 01:28 PM #36
Rainer
3,978
David Love
David Alan Love, Realtors - Merced, CA
CRS,GRI,SRES,CDPE
Great post. We had a huge run up in prices in the last 4 years, mostly due to the new University of California campus being built and now open here. Speculators drove up the prices at about 20% year over year for 3 years. But guess what, they are going down just as fast. I just listed a home that is just two years old for $389,950. Trouble is they owe $538,000. My point is things can change just as quick.
Nov 21, 2006 01:48 PM #37
Rainmaker
177,557
Angus in Naperville IL
RE/MAX of Naperville - Naperville, IL

GASP! Nobody leaves Naperville...(unless they are being transferred) Say it ain't so.....

 

Nov 21, 2006 01:56 PM #38
Rainer
62,316
Jason Edwards
Austin, TX
Beautifully written Geno.  I really enjoyed reading this riff.
Nov 22, 2006 01:27 AM #39
Rainer
2,009
nobody - I asked for this to be deleted i
c - Winston-Salem, NC
Hey everyone.  At least the ground stays put under those $800,000 Chicago homes.  I have seen crazier stuff in Orange County CA, with no yards and just a steep slope in the back.
Nov 22, 2006 09:46 AM #40
Rainer
30,396
Geno Petro
GenoPetro.House - Chicago, IL
Thanks Jeff (again!) and Jason for the comments. And Jason, thank you for the post on your blog.
Nov 23, 2006 12:32 AM #41
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