Make Up Your Mind!

Development

5 minute read

February 8, 2012

Do you want to renovate and flip, or do you want to pull chute on the project?

And if you decide to renovate, do you actually want to sell, or do you want to let the house rot on the market?

If you feel as if you’ve heard this story before, it’s probably because you’ve heard something exactly like it.

I”ve seen properties listed over and over and over, with various “pricing strategies,” only to remain unsold.

I’ve seen 5, 6, or even 7 listings for the same house, all with zero success.

But there is a house in the west end of Toronto that is sticking out like a sore thumb as it continues to rot on the market, and now blog readers, clients, and even some of my friends in the area are starting to ask about it.

It’s a story you hear once in a while, but it’s not common.  The reason it’s not common, of course, is because it involves a buyer-turned-seller who changed his or her mind about how to proceed.  It looks like the buyer intended to renovate the property, then changed course, then did a quickie-reno, and is now suffering the consequences of changing his or her mind one too many times.

I can’t give out the address, but let’s just refer to it as “the property.”

The property was first listed for sale as an estate sale in August of 2010 and drew a lot of attention due to the 50-foot frontage, and the reverse ravine behind the property.  I know hindsight is 20-20, so you’ll have to believe me when I say I’ve always felt this way – but I don’t think this street is a good candidate for a reno-and-flip.  Prices are finnicky as the street is a thoroughfare for traffic, and you simply can’t predict what is going to happen when a home is listed for sale.

The property was listed at $589,000 and sold in multiple offers for $651,500 – or 111% of the asking price.

As this was truly a “builder’s lot,” the expectation was that we would see the old home torn down, and a new one built in its place.  So it was rather surprising to see the exact same house re-listed for sale in March of 2011.

LIsted at $749,900, it looked like the buyer-turned-seller was looking to recoup the original price paid, plus land transfer tax, plus commissions, and perhaps pocket a tidy little profit in the process.  Unfortunately, the market and its participants are far too efficient and savvy respectively to allow a 15% return on investment in a little over a half-year.

My favorite part about this “new” listing, however, was the extras in the listing: Newer Gas Furnace 2006, Newer Thermal Windows, Eaves & Fascia 2001.

I love this, of course, because the buyer-turned-seller was advertising things that were already there when he purchased!  Usually a seller will make note of improvements to the property, but here he was just pointing out exactly what he bought months earlier.

Who knows why the seller changed course and decided to unload the property.  Maybe he didn’t have the money, or maybe he didn’t see any profit in the project.  Regardless, it’s near impossible to “change your mind” in real estate and get your money out.  Transaction costs are high, and the market is efficient.

Of course, you’re also putting up a white flag when you write in the listing “MUST SELL.  BRING YOUR OFFER.”

The price was reduced to $729,000, but the property didn’t sell.

The property was re-listed that month at $699,900, but didn’t sell at that price either.

In May of 2011, the property was re-listed again at $699,900, which seemed to be the seller’s magic number.  Having paid $651,500, the listing price was exactly what the seller need to obtain in order to break even.

But you know what?  You don’t make money by changing your mind.  Maybe the seller over-paid for the property, or maybe he didn’t have the $250,000 (cash or bank loan) necessary to construct a new 3,000 square foot house on the land.  Either way, he would be lucky to get out for the price he paid for it, and only lose $40K.

The May listing was especially amusing because the listing started out: “Dreamers And Builders….Build Your Dream Home Here.”

I’m not sure if that was cleverly written, or if it was just coincidental, but I find it funny because a builder, who chickened out of building, is now calling all builders and renovators!

The listing goes on to offer: “Full Set Of Plans Available for 3,000 Square Foot 2-Storey Detached Home.”

Should we assume that’s as far as the builder got?  He drew up plans, and then changed his mind?  That’s like getting through step four of putting together an IKEA coffee table and then trying to sell it to EQ3 or Structube!

The property went quiet from June to September, and then alas, it came back out onto the market in September for $949,800, or about $250,000 more than previously offered.

But there was only one problem: it was still a bungalow on a lot that was calling out for a massive, 3,000 square foot home.  So what did the developer-builder-buyer-seller do with those plans he was offering up for sale only months earlier?

“Quality Renovations Throughout,” stated the new listing!

Only the house didn’t look $250,000 better.  In fact, it looked like somebody added stucco to the outside of the home, finished the basement, put in a new kitchen, and then figured it was worth a quarter-million dollars more.

“Amazing Make Over” said the listing.  Only a “make over” doesn’t get you $250,000, especially when you couldn’t unload the house in the first place.  We’re essentially talking about a $300,000 increase here, and how much do we think went into the property?  It’s anybody’s guess.

In October, the house was re-listed at $925,000.

In November, the house was re-listed at $899,900

In January, the house was re-listed at the same $899,900 price that didn’t achieve any sale months earlier.

And finally, the house was re-listed this month at $888,000, but they added one thing to the listing: “Over $200,000 Spent On Quality Reno.”

Well, then!

“Quality Reno,” you say?

“Mmmmm….the soup of the day, that sounds good, I’ll have that.”

I would love nothing more than to see an item-by-item accounting of that supposed $200,000.  In fact, if they could provide it – I’d buy the house.  And I’m not even in the market for an over-priced piece of crap mistake!

Okay, that was aggressive.

But the moral of the story is a familiar one: two wrongs don’t make a right.

The builder, if he ever truly was a builder, decided not to build a 3,000 square foot house on the sprawling 50-foot lot, and tried to unload the property.

That was the first mistake.

But when he wasn’t able to get his price – break-even, or one with a built-in profit, instead of just taking one on the chin and chalking it up to a learning experience, he decided to do a quickie make-over and made the situation worse.

That was the second mistake.

This property was destined to have a 3,000 square foot home built on the land, and nobody really wants a renovated bungalow that still has remnants of a sixty-year-old house.  The builder, who refused to lose any money – even a paltry $20,000 (paltry compared to how bad things can get, especially when you’re paying $5,000 per month to carry the property), had this hair-brained idea to put lipstick on a pig and hope that somebody would kiss it.

I’ll say it again: two wrongs don’t make a right.

This one is going to end badly, as it’s been 18 months since the original purchase, and the “renovated” bungalow is less marketable than the original building lot.

You have to make up your mind in advance, and in this case, the buyer-seller had no definitive plan, and a simple MLS search for the address makes this abundantly obvious.

To make matters worse, the newly-built, detached, 2-storey home next door (on a smaller lot) only sold for $849,000, so I think there will be a few more price reductions for this baby before all is said and done…

Written By David Fleming

David Fleming is the author of Toronto Realty Blog, founded in 2007. He combined his passion for writing and real estate to create a space for honest information and two-way communication in a complex and dynamic market. David is a licensed Broker and the Broker of Record for Bosley – Toronto Realty Group

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6 Comments

  1. Graham

    at 8:22 am

    Quick random question: What is a reverse ravine? If a ravine is defined as “a deep narrow valley or gorge in the earth’s surface worn by running water.” Then what the hell is a reverse ravine? A hill? From my Google search it appears to be some made-up realtor term. 🙂

  2. Ralph Cramdown

    at 9:20 am

    I don’t think there’s anything wrong with listing improvements made before you bought the place. To the buyer, a newer gas furnace beats a coal-converted-to-oil monster, regardless of who put it in.

    A rapidly rising market makes all kinds of flippers look like geniuses, and covers up a lot of small mistakes.

    What I want to know is, was it the same agent representing the previous vendor and the current one? Because they both tout “Highly sought after Swansea location.”

  3. Moonbeam!

    at 10:29 am

    I’ve seen quite a few properties in Scarb. that have had For Sale signs on and off for months… . Then some have a Sold sign and later a new For Sale sign. Eventually they do seem to get sold.
    As for the tear-downs, I’ve watched 3 separate properties that have a half-built new house, now standing incomplete for months and years… I guess the builders ran out of money… I feel for the neighbours who must live beside these eyesores…

  4. Kyle

    at 11:15 am

    I think buyers are getting a lot more savvy. Those that are looking for new builds now, actually expect high-end finishes and professional designs. Instead of a stucco and mock stone covered homage to Home Depot sales items. When i drive on South Kingsway or parts of North Toronto, it looks like all the newer houses were designed by Accountants, not Architects. Houses that are only 10-15 years old, look terribly dated, because the materials were chosen based on costs, and not based on creating a quality home with a cohesive timeless design.

  5. Darren

    at 4:45 pm

    There’s nothing worse than a house “fixed up” with stucco. It’s fine for a commercial building but it’s the absolute worst dressing on a home. I’ve seen countless lovely bungalows while walking my dog get ruined by layering it with stucco. Yuck!

  6. Adam

    at 10:44 pm

    I’d like to know where you can get a 3000sqft house built for 250k, that’s not Fred Flinstone grade.

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