Time Keeps on Ticking

This post is a further continuation of the "Saga of Sonnypage", an Atlanta area real estate broker who posts on my investment board the Motley FOOL.

Previous Sonnypage highlights include:

Lights Out in Georgia on 2006-07-27
Soft Market Debris .... on 2006-08-02
Is the Fed irrelevant? on 2006-08-03
Scared in Atlanta....... on 2006-08-06

Sonypage - 2006-08-27

Most of our regulars here know by now that my wife and I are Realtors who live and practice real estate north of Atlanta. It's been a slow year to say the least. In my last post I mentioned that we currently have eight listings, but that I thought, for various reasons, perhaps only four or five of them might realistically be expected to sell. At the bottom of my list would be Kevin's new construction listing.

We met Kevin almost a year ago. He was introduced to us by his son in law, also a builder, whom we had sold a home for a couple of years ago. Together we walked through the newly framed home Kevin wanted us to sell for him. He wanted to ask $800,000 and asked us what we thought. We really had no comps. We were out in the boondocks north of Alpharetta, out in Hall County. If this home was in the expensive golf community where Kevin was building two other homes, then perhaps that price could be justified. But here we were on an isolated country road far from shopping and other amenities. The lot was a full three acres; this was out in horse country, so we took a chance. The buyer of this home, if one came along, might be someone with horses and money. Besides, last October when we took this listing, our market here was still strong. So, we agreed to start at $800,000.

Ten months have slowly passed. Kevin has slowly drawn down his construction loan, slowly moved forward on this home, and hoping, as all builders do, that a buyer will surface and give him a $50,000 or so deposit to finish the home. For you see, construction loans, certainly for spec homes, are never 100% of the cost to build. My professional best guess is that the construction loan was about $600,000 and is exhausted. Kevin probably has only $50,000 or so of his own money in the home and has no more to put in. He reduced to $750,000 a few months ago, but balked at dropping to $700,000 a few weeks ago when I suggested he do so. He told me then that would be all of his profit. Activity on Kevin's home has been very slow, the slowest of any of our listings. In a still decent market like we had last year, Kevin might have pulled it off, but this year, I was starting to think it would never happen.

Then, last week, we received a hit on our website. A potential buyer had seen our pictures of Kevin's home on the internet and wanted to see the house in person. Most importantly, he had two daughters with horses. The rule is one acre per horse, so this just might work. We set up an appointment for the very next day. We called Kevin with the good news. He was out of town, he also builds in another city, but said he would call his son in law to stop by and “spruce it up”. My wife and I arrived early the next day and were appalled at what we saw. In the two weeks since we were last there, the tall weeds that had completely overgrown the front and side yards had only grown taller. Kevin had promised to have them cut. Inside, the house looked abandoned, with construction debris all about. No work at all had been done since we last saw the home. The prospective buyer pulled up and we walked him through the home. It did not show well, debris was everywhere. In the basement, one entire corner was flooded. Did the buyer notice the mold on the basement stairs as we walked back up? I did. In spite of all this, the buyer said that he would like to bring his wife back for a look and to meet with the builder to get ideas on finishing out the home. That was last Thursday. We called Kevin that night. The soonest he could meet he told us was next Thursday. He is building in another city, as I said, plus another subdivision on the other side of Atlanta. We urged him to meet sooner. We also urged him to get the basement flooding resolved quickly and get those weeds hedge hogged. He would get his son in law to deal with the issues with the house, he said, but next Thursday was the soonest he could meet. This morning, Sunday morning, I received an email from the prospective buyer asking us to cancel next Thursday's meeting with Kevin. They found something else and are under contract.

Kevin, it is very unlikely that you will ever read this, but if you should, even though your real name is not Kevin, you will certainly know this is about you. That buyer needed two acres for those horses. In spite of all else, if your home had been spotless and ready to show, we just might have pulled this off. I doubt we would have gotten you $750,000, but maybe $700,000, or certainly $650,000. Would that not beat defaulting on your construction loan? It is, and was, perfect for two horses and that is what the buyer needed. What he did not need, and would not accept, was the sloppy abandoned appearance of the home and the indifference of the builder. Bear markets, in housing as well as stocks, cull out marginal players. A bull market would have forgiven you, Kevin, a bear market will not.

Sonnypage

Mish:

Kevin wanted to do better than break even as he gave up on maintaining his place for showing. Ten months have been blown with only one showing. Mold is showing on the walls. Kevin, kiss it goodbye. You need a miracle now and if I am not mistaken things are slowing everywhere. Given that "all real estate is local" (yeah right), the big problem is Atlanta (and Boston, and LA, and San Diego, and Las Vegas, and DC, and Phoenix, and Chicago) but other than that real estate may be local (but at this time I doubt it).

Since Sonnypage has not reported a sale I assume he has none to report. No I am not gloating as I have no desire to see Sonnypage get hammered but I will suggest to Sonnypage that the time has come and gone for him to "make his year". Two sales a quarter or even three a quarter will not do it now.

Time Keeps on Ticking
It's too late for Kevin (barring a miracle) and I wonder if Kevin even realizes it.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/