Aggressive Housing Prices

anonymous · June 2007

Anyone know anything about this co-op building on Eastern Parkway and Rogers, which houses a 2-bed unit listed at $430,000: http://newyork.craigslist.org/brk/rfs/346890088.html. (Not sure when Rogers was designated the new Prospect-Crown Heights border, but whatever).

I LOVE Crown Heights, but this seems like pretty aggressive pricing for the area. Granted, I've seen advertisements for other co-ops in or near this building for similar prices, but the asking price still seems disproportionate to the pricing trends that I have seen in the neighborhood.

On a related note -- and this might be an elementary question -- given that the vast majority of home purchases are made with bank loans which are contingent upon appraisal values which are heavily dependent on historic sale values, what actually pushes home values beyond the historic price points? It seems to me that unless you have a number of all cash sales (or shady appraisers) housing prices should stay relatively stagnant.

daver · June 2007

I'm no expert, but my real estate experience indicates that the bank will lend damn near up to the full appraisal, which means that if you have a down payment, the price could easily go over the appraisal. Which will then push up the appraisal for the next guy.

For instance, a house appraised at $400k sells for $440k. They buyer has a standard 20% $80k down payment, the bank lends $360k and is happy. Our, the buyer has a 10% $40k down. The bank lends $400k and is happy. Or, the buyer has a 5% $20k down. In this situation I have seen the bank lend $400k on a first, then the other $20k on a 2nd with a higher interest rate, reflecting a higher or even over LTV ratio.

Well, that is what I have seen, at least. I'm no expert, this is just my personal experiences from buying and selling a few houses over the last ten years or so.

anonymous · June 2007

That makes sense Daver. So, basically the main factors are either (1) wealthy investors who can afford to kick in more money up front or (2) savvy banks that are willing to take the risk. But are most banks actually willing to lend above the appraised value (in exchange for a second lien and higher interest)? Wouldn't they want some type indication about positive price trends in the area?

ben · June 2007

appraisals are very subjective. Sure they are based on comparable sales but then they have to be adjusted for location, condition, square footage, finishes, layout, etc.

Since there are price trends in play as well an appraiser is trying to determine what the property would sell for today. One indication of that is what the current seller is offering to pay even though that can't be used in the appraisal. However, if another property identical in every way sold 6 months ago for $100 and prices have generally gone up 5% since then the appraiser will not have a problem setting a value of $105 for the property. This can work the other way as well if prices are dropping.

What often happens, right or wrong, is that the appraiser looks at the price the purchaser is paying and then tries to find the justification to get that price. This may mean finding other properties that sold for less and then making the necessary adjustments.

The banks also know that this is not an exact science and recognize that if it is within 5-10% of the true worth then they are pretty well covered.

capt. planet · June 2007

All this is changing, even as we write. Due to collapse of the subprime market and the many foreclosures on subprime loans, the banks are tightening up their guidelines. The good ol' days of appraisers justifying just about any price are gone. It will much harder in the years ahead to a get a loan approved. These things happen every 10-15 years or so. It's a natural reaction to the tendency of most banks and borrowers to go hog wild in their search for more profits and bigger houses.

doctorj · June 2007

The way I see it, $430,000 is towards the upper end of what a pair of first home buyers on middle incomes can afford at today's rates. You can no longer get a nice 2-bedroom for that in Brooklyn closer to Manhattan than Crown Heights, so (without having seen the place) the pricing doesn't sound particularly aggressive to me.

anonymous · June 2007

You know, I just checked on Property Shark and apparently there is a co-op on Eastern Parkway and Rogers that sold for $427,500 in May. So I guess $430,000 is not aggressive. Interesting!

Aggressive Housing Prices

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