Estates will set clearing levels - Appraisers must face facts

Jake: Well put, I always have laughed at the apts I see with that nasty ass 70's look that they did in the late 80's, somewhat sleek, but plasticky look. Owners say, "but we spent a ton on this beautiful renovation". Reality is an estate "gut" renovation costs me the same as a poor taste 20 yr old "gut" renovation. I laugh as they curse my comments!

Great post, Jake, but do you think it will just be estate sales that set these nasty low, downward-spiral comps--do you think foreclosures and short-sales might factor into the mix as well?

Completely agree. And how about sellers with animals? Can I just tell you, I love my dog. But I don't love yours. Or that stale smell of urine. Your agent should have required you to get all the stinky animals out of the apartment BEFORE we came to see it. I don't care what condition the place is in, we are never going to get rid of that odor.

princeton babe,
Foreclosure and shorts sales will impact on the margin but I think condo flips will be the real trouble spot:

From last week's thread on inventory,

Given the high percentage of co-ops in Manahattan many of which have more stringent down payment and income requirements than mortgage lenders I do not believe we will see many foreclosure sales in Manhattan. Most owners in distress due to job loss or declining incomes will still have enough equity and savings to warrant a sale even at a distressed price and avoid foreclosure. On the other hand, condo owners and condo flippers are more likely to face the default notices. But here too they may be able to rent out their units. This is death by 1,000 cuts as declining rents won't cover the mortgage, taxes, insurance and condo fees.

btw, princetonbabe,

Is your real name Brooke Shields?

Jake, couldn't agree more re: the shtanky pets. I've been to estate apartments where the reek of cat urine was enough to cause tears. No way 50 years of pee seepage was ever gonna get out of the original herringbone floors... time to rip everything and start over.

Oh, oh, I have a smelly pet story. I took a job for a little while as a super of a couple of buildings in Brooklyn. At one point, I was down in the basement of one of the buildings with the owner and her four dogs. I commented on the gas leak I smelled and she pointed at the four dogs. The truth was that the building had a gas leak and she had four gassy dogs...

Jake, you have no idea what you are talking about. NOBODY wants to buy an estate. 95% of these apartments are a complete wreck snd need hundreds of thousands of dollars to bring them into the 21st century.

Jake--you outed me! Yup, I'm Brooke Shields (or at least her 5'1" doppelganger) . . . .

alpine--aren't you kinda making Jake's point--when they ultimately DO sell (everything will sell at the right price), the comps they set will be staggeringly bad news for everyone else.

nobody want's to buy an estate alpine? are you out of your mind? why would i rather pay up for someone's ugly, 10 year old renovation that i will eventually have to replace, than pay a lot less and just get the renovation over with at the beginning. there are plenty of non-estate apartments in horrendous condition and believe it or not there are plenty of estates in OK condition. maybe things work differently in bergen county, but in manhattan there are plenty of people who would love to buy an estate.

in a real estate downturn the new price is usually found through the three Ds: death, divorce, and debt. this will be no different. there are a certain number of apartments that literally have to sell, as in, at a certain point they would have to sell for $1. wait a few months and those units will start to show themselves.

Most people under-estimate the costs of renovations. They watch too much HGTV and think they can renovate an entire kitchen for $5,000. Whatever yout hink the cost to renovate is, add 20%. And if you hae never done a major reno before, add at least 30%! Plus it is a major hassle because of co-op boards.

alpine,

now you have completely contradicted your own point. first 'nobody wants to buy an estate.' now 'people underestimate the costs of renovations.' which is it? people want to buy estates because the underestimate the costs of renovations? or they don't want to buy estates because renovations are so unpleasant?

i think there is an even bigger point regarding renovations: new construction will never be new again. that is, as soon as you live in it it ceases to be new, and loses value. much better to buy something that is already lived in so you aren't paying a premium for newness.

Not everyone renovates estates. Some people have lived in an apartment for a long time and eventually update it. What are they going to do when the kitchen is no longer functional? Move?

"people want to buy estates because the underestimate the costs of renovations? or they don't want to buy estates because renovations are so unpleasant?"

BOTH. First time buyers under-estimate costs. They have no idea what anything costs. Move up buyers who may have already done a reno in the past know about the hassles and are less likely to do a second reno.

I think this is true, and I am hoping to buy a large estate wreck in a year or two.

It's going to be interesting to watch til then. I'm involved in a business matter with someone in Park Slope, where a prime brownstone in estate condition will be put on the block in a few months. A year ago it might've gone for upwards of $4 million, even though it's a wreck. I wish I could figure out a way to afford to get it myself and flip it as condos (2 duplexes) and a rental professional office.

so then apartmently SOMEBODY does want to buy estates. jeez alpine, figure this out.

Methinks alpine is purposely playing devil's advocate and leading us around by the nose for his/her amusement . . . duh

lucid,

methinks you misunderstand the meaning of 'flip.' buying a wreck, renovating, converting to condos, marketing, and selling is not a 'flip.' it is a conversion. if you want to get into the business of converting townhouses into condos, be my guest. but in this market i would not expect to do very well.

I think the wrecked estates make sense for people who have connections in the building trades and can renovate apartments at a lower cost than the rest of us. We saw a complete wreck of an apartment on the Upper West Side, the worst apartment I have ever seen. Fifty years of cigarette smoke, cat pee, plaster repairs on top of plaster repairs, the bathroom looked like a cave with Stalactites, the kitchen was destroyed beyond belief, and the herringbone floors were all broken and worn out. The damage was breathtaking.

I didn't have the heart to attempt such a renovation but perhaps there is someone out there who could bring it back to life, and deserves the profit for rehabilitating the housing stock. This apartment was not technically an estate as the woman still lived in it and, from the wheelchair I saw in the bedroom, could probably use the money to help with medical bills.

Isn't it all just going to make the comp numbers that much worse?

Are there really enough estate sales to influence the comps? It can be argued that estate sales are outliers and not true comps, just like distress sales are not true comps.

Or insider sales, for that matter.

"Are there really enough estate sales to influence the comps? It can be argued that estate sales are outliers and not true comps, just like distress sales are not true comps."

When the other sales are down 80%, sure....

Not to mention, folks have access to those comps. Brokers are going to have a hard time telling folks to ignore the sale that went through at half the psf...

Estates only make up a small fraction of overall sales so their impact on comps is very minimal. We have had estate sales for decades. So why will they all of a sudden have a major impact now? Has the number of people kicking the bucket tripled?

One more time... sales are down SEVENTY FIVE PERCENT. Meaning any sales are now 4x as meaningful, at least.

And, because - as you said - estate sales don't really fluctuate too much, they're an even bigger part of that pie now...

I know you don't like data very much, but this is pretty basic.

Kinda hate to admit, but I see alpine's last point and was thinking the same thing myself. IMHO,condo flippers (investors who can only hold out so long as they're bleeding cash) could have a bigger and more immediate impact.

Alpine292: Sadly, yes - the Greatest Generation is dying. Unlike their parents (who were mostly lifelong renters if they were city dwellers), a lot of folks who are now in their 70s-90s bought coops between the late 60s and early 80s. That inventory represents a very significant market overhang, especially in long-established neighborhoods like UES, UWS, some parts of Queens, etc. With overall sales volume way down, the influence of those estates will be much greater.

81: that is a lucid, intelligent, well thought-out idea. Overruled. I have never understood the coorelation between old/dying and living in squalor. The most beautiful apts I have ever had the privilige of visiting have been owned by very old people. Remember, the old have all the wealth in this Country.

> I have never understood the coorelation between old/dying and living in squalor.

You don't have to. Its certainly a portion of estate sales, and that portion is now a bigger portion of the overall. Thats a fact.

You can't overrule, you 'aint the judge.

Maybe estate sales are also down 75% due to medical advances. May owners keep cheating death, the ultimate property manager, as long as possible.

The old tend to have more wealth because they have had more years to accumulate that wealth. I am reminded of a 20-something co-worker of mine who made disparaging comments about the wealth of our 50-something manager, after she saw pictures of his beautiful house. I felt happy for the guy that he had saved up enough money to buy a nice house, but she was jealous.

81 022: you guys could be right...but it never ceases to amaze me how many younger people live in expensive apts that would qualify as < estate condition! and I am the Judge...in my own World..and theres a little yellow man in my head.

patient09: I am not sure I know what you mean. I myself don't think see the correlation between squalor and estate condition. There are plenty of estates that are beautiful aparments where the owners have not been living in squalor. But I would not want to live in them without upgrading the windows, plumbing, electrical, appliances etc. Are you saying that every old, wealthy person is a habitual renovator? That they all have installed central air and T1 internet connections and plasma TVs throughout? That's not what I see. In fact, I was looking at a beautiful apartment the other day that still had a fuse box.

it is just hilarious that people don't understand this: the three ds are an iron law of real estate. death, divorce, and debt produce new units on the market no matter how dead the market gets and no matter how low prices fall. there is no way around them. when the market dries up, the three ds account for a far larger portion of sales. it isn't that more people are dying, it is that fewer people are buying.

. . . and it's those 'younger people living in expensive apartments' who speculated, perhaps got in over their heads, and perhaps will make a more imminent dent in comps

jake,
perhaps you want central air, ugly new windows, and plasma tvs all over your apartment. i for one would much prefer a beautiful prewar apartment in beautiful, gently renovated original condition. i'd much prefer a through-wall air conditioner to central air. i'd rather rehabilitate lovely old windows than replace them with ugly new ones. and i think one decent tv in a discrete location is more than enough for any apartment.

an architect friend of mine will only work with clients who have pianos. i second the motion: a piano is far more of a necessity than a dumb television.

"Maybe estate sales are also down 75% due to medical advances. May owners keep cheating death, the ultimate property manager, as long as possible. "

As long as the medical advances didn't start just this year, the overall pace of deaths won't fluctuate. Let everyone live another 10 years, you'll still end up with the same death rate once the change is baked in.

Of course, it might make the apartments even crappier... long drawn out deaths and more medical bills. More debt, and more smell.

jake: my bad, I lost track of the thread. You often hear of Estate sales, or estate condition. I was thinking the implied estate condition irrespective of how/reason for sale.

> In fact, I was looking at a beautiful apartment the other day that still had a fuse box.

Wait, what's wrong with a fuse box?

My hi-fi won't work without it.

"One more time... sales are down SEVENTY FIVE PERCENT. Meaning any sales are now 4x as meaningful, at least."

EXACTLY! But if estate sales are down 75% or anywhere near that, then they do not comprise a bigger portion fo the overall sales than they did during the bubble.

Alpine... did you just seriously suggest that estate sales are down 75%?

alpine,
my oh my. read what you just wrote and then consider going back to finish your high school diploma. estate sales cannot decline 75% over a significant period of time--for a few months at the most. do you understand what an estate is? it means that the person who lived in the apartment is dead and the heirs need to sell the apartment in order to execute the estate--pay taxes, make distributions etc. if estate sales really were down 75% last quarter then you should be very worried, because those 75% of estates that have not sold are going to be cutting their prices drastically in order to sell within the next few months.

Not all estates end up on the market. Sometimes one of the kids will live in it. My grandmother owns a 2 family house in Brooklyn. In her will, my uncle will get the house (which he will rent out) and my mother gets the cash.

so you think 75% of the estates that would have sold in last year's market conditions will now be occupied by the owner's children? deep breath alpine. why not just admit you made a mistake and move on?

I actually think that estate sales are a small enough percentage then they're going to have significantly less impact than the stuff that was renovated 15 years ago in the trends of the time and already looks dated. There are a lot more apartments out there like this (at least from my search criteria), and they are also just sitting there. This is an area of the market where sellers are hugely delusional, because there is nothing *wrong* with the apartments, they're just not appealing. Once these sellers drop their prices to the level where the places will sell, it will make a bigger impact. And those places will absolutely be used for comps for the more recently renovated apartments.

I'm looking at you parquet floors.

So, let me get this straight. Everybody is hoping that death sets property prices going forward so that all of us can get the apartment of our dreams. That is this whole thread, in a nutshell.

How much leeway is there in arguing with a bank that estate sales are unfairly influencing the price?

> deep breath alpine. why not just admit you made a mistake and move on?

You really asking this of "market is NOT down" / "its official - rents are NOT declining" alpine?

alpine,
you are very fortunate in that it sounds like your grandmother is not dead. Additionally, you are also very fortunate in that according to you she has an estate that is 50% cash and 50% real estate. Understand that not very many are so fortunate. Understand that many here in the city are real estate rich and cash poor. I am not a lawyer (I play one on TV though) but my undertsanding is that the tax bill on the estate must be paid in cash within 270 days of the will being probated. (All you estate lawyers out there please correct me and chime in) You are also fortunate in your case that both heirs agree on the split of assets and they seem to agree that the value of the apartment is exactly equal to the value of the cash. That almost never happens.

In most cases the apartment must be sold to cover the taxes. One famous case was the family of Joe Robbie who had to sell the Miami Dolphins football team in order to pay their estate taxes. You cannot pay taxes with a share of a football team or a share of an apartment. Taxes must be paid in cash. Apartments need to be sold.

407PAS,

This is a market where very few transactions are happening and new lsitings are outpacing new contract signings by a ratio of 6:1. There is no such thing as a forced buyer. You better believe that there are forced sellers. The transactions that are and will be happening in the coming months are from forced sellers who are kicking themselves for not selling 18 months ago. The closings which come from distressed sales then become the comps for new transactions. These comps cannot be ignored by apprasiers. You do not argue with the bank you argue with the appraiser. The appraiser operats under the watchful eye of the new sheriff in town Andrew Cuomo. Are there any appraisers out there who could chime into this discussion?

Unfortunately, there was also not much use in arguing in 2006 and 2007 that the price psf. for the new development condo was unduly influencing the price of the estate sale.

Actually, when the will was written out at the peak of the market, the house was WORTH more than the cash. It was not a 50/50 split. But because prices have taken a beating in the outer boroughs, it's an even split now!

That summary is correct 407PAS. I bet the buyers here read the obituaries to determine where they can get a good deal! Come on jake, admit it, you read the obituaries...

407Pas,

No, I am not hoping that people die so I can get the apartment of my dreams, that's absurd. I am cognizant of the reality that people do die (including, one day, me) and that death is not going to temporarily halt to wait out the bear market. You are acting like it is goulish to even talk about the impact of estate sales on the market. Perhaps we should take death out of the equation when calculating social security payouts--just assume everyone will live forever.

The point is not that you can get a better deal with an estate. The point is that estates, like many divorces, foreclosures, and bankruptcies, are forced sales. This means that the market will eventually find its new level as these forced sales make their way through the system.

I never said anybody was hoping for someone to die, just that people in this tread seem to be hoping for enough death-driven (estate) sales to bring down prices. I think people are overestimating their impact on the overall price levels, but I don't really know.

It strikes me as a little ghoulish that people are hoping for the combination of estate sales and forced tax payments to move the market, but such is life and death, I guess. ;-) Earthquakes cause the price of cement to rise. Maybe we should hope for more earthquakes.

I saw this New Yorker cartoon where some business tycoon was puffing on a cigar and saying to his cronies: "We've licked taxes! That leaves death!"

If the person dies in their apartment, it may be haunted!

pas,
it is one thing to hope for an earthquake. it is another thing to prepare for one. i am not hoping for enough death to move the market. i am preparing for the inevitable deaths that always happen and always play a role in the market. nothing ghoulish about that. likewise, if i buy in san francisco you can be damn sure i am going to demand a good price if i buy in the marina (susceptible to earthquakes because built on landfill).

any form of forced sale has a huge impact on a bear market for the obvious reason that it will help determine the new price level. estates are not the only type of forced sale but they are one of the most important.

No alpine292,

N"o man is an island, entire of itself; every
man is a piece of the continent, a part of the
main. If a clod be washed away by the sea,
Europe is the less, as well as if a promontory
were, as well as if a manor of thy friend's or
of thine own were: any man's death diminishes
me, because I am involved in mankind, and
therefore never send to know for whom the bells
tolls; it tolls for thee."

John Donne

I do not read the obituaries but I have read The Art of War. I do want to know all I can about my opponent. I do not revel in the misfortune of others. But I understand that there may be opportunities in the misfortune of others.

i think of the three d's that distress is going to by far the biggest impact in 2009. death should be a pretty constant function of population, and divorce may actually go up a tad given the stress that financial duress puts on families, but in absolute terms, i believe distress will go up the most (and therefore go up the most as a % of total transactions). so many people who bought at the peak with little money down, little excess reserve, and thinking only to be able to make the monthlies are now without jobs and/or with significantly reduced pay. that is going to cause a flood of supply on the market this year.

special k, what a ghoul you are! perhaps you should troll around bankruptcy proceedings in search of your next apartment. what kind of person are you? how can you seek to profit from the distress of a fellow human being. you are trying to analyze the market by taking into account the reality of the economic situation: some nerve you have.

:)

You can't buy in Manhattan with no money down. Most co-ops require 25% down. Even condos require 10%.

happy, guilty as charged!

alpine - who said no money? i said little money. and 10% to me qualifies as little money - as in, little enough to be completely underwater at this point if you bought during the peak. at this point, maybe even coop buyers who put 20% down and bought at the peak are underwater

happyrenter--maybe you should show alpine and jake the entry you added to the price undercutting thread about the estate listing priced 3 million less than its neighbor six floors below . . .

I'm off to the gym in order to work out so that I can hopefully live longer. I may get killed by an uptown bus in route, thereby providing an economic opportunity for somebody. You never know.

407PAS please use the services of SCI... I kids own stock in them under their trust :)

Brooks Shield... $3MM price diff... OMG... Liked you in Blue Lagoon...

Brooke,

Winner! Winner! Chicken Dinner!

I even think I like the estate better. And happy renter if you like old school and through the wall instead of c/a you too can live on a higher floor and save $3mm bucks. That staircase is amazing! A piano would like nice in this place. 45C, not so much.

Man oh man. Game, set, match. Stick a fork in this thread because it is done.

Now if we can only find petrfitz. I'm sure he would want to bet us all $10,000 that #45C trades at the ask and trades first.

I would expect many fewer estate sales in 2009, since the estate tax exemption has just risen from $2 mn to $3.5 mn. That and declining real estate values will make for much lighter estate tax burdens and in turn fewer estate sales. Many heirs (my wife included) want to hold onto family properties, so the declining values and the rising exemption are in fact welcome. The IRS also provides extensions beyond the nine month deadline for estate tax returns (w/ interest due retroactively) so many heirs can in fact avoid fire sales.

Thank you, exnewyorker.

As Woody Guthrie wrote on a business card he gave to Bob Dylan, when Bob visited him in the hospital:

Ain't dead yet.

What is SC?

not just estate sales. gotta believe the jingle mail is coming. already there are pleny of apartments valued less than their purchase price in 2006 to early 2008. there will be many more underwater in the coming months/years. with 10% down (or less), the lost delusion of ever increasing value, prices falling, the equity gone, and the job or bonus a fond memory, the rational actor could well just send the keys to the banks.

exnewyorker,

this is simply unrealistic. almost every estate will fall into one of two categories:1. over the $3.5 million exemption, or 2. lacking enough cash to divide the estate between the heirs without selling the apartment. yes, it is possible that an estate will consist of only an apartment worth less than 3.5 million with only one heir, but that is hardly the usual. and even in that case the heir would have to want to and/or be able to occupy the apartment. this is not going to cut down on estate sales in a major way.