Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

28 responses to “Renegotiating and Walking Back to Olive8”

  1. AMS

    All of this is nice, but there is one small part missing: The purchase price.

    The other day I wrote about how I was going to start buying art. For the sake of this discussion, let’s assume that I am buying art to enjoy. Does it make sense to buy a fine piece of art for $10M? I don’t think so. I come to this determination based on the ratio of art cost to annual income ratio.

    I also commented how in Marin county the median price to median annual household income is ten. Sure all those homeowners are probably enjoying the homes, but is it prudent to buy at 10x annual household income?

    So while it’s nice to buy something to use, such as a car or home, preservation of one’s financial condition should be considered too.

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  2. AMS

    RE: The Tim @ 2 – If the guy has plenty of cash, then the final sales price isn’t that important. Imagine if Gates were making an Olive8 purchase because he likes it. Who cares how low the price paid is, it’s pocket change.

    On the other hand, if someone has very limited resources, then the purchase price is critical.

    Does it make sense to buy a $10M piece of art for $5M?

    Does it make sense to buy a $5M home for $1M if you cannot afford $1M?

    Note the difference between the top and bottom end:

    Does it make sense to buy a $500,000 home for $100,000?

    Just as in the case of the $5M home for $1M, there is some positive Alpha, but the risk on the lower end is far less. Because of the differences in risk, for the average buyer, proportionally the positive alpha on the lower end is greater than the upper end.

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  3. Ray Pepper

    Okay, I will be the ass here.

    Andy who represented you in this transaction? You mean to tell me there was no protection in the P & S for the property not appraising at the sales price? You still plopped down 24k without an escape clause.

    You mentioned ” a deal is a deal “. I disagree strongly and would have had my documents in front of a real estate attorney day 1 when I was presented with a loss of my earnest money. What if you lost your job? Had a decrease in income? Had to move? Got a divorce? A complete wipe out of your earnest money? You signed this?

    Andy, it seems to me it was a COMPLETE debacle on your part. I would really wish someone could post the P&S agreement Olive 8 had its Buyers sign so we can all review it.

    Andy’s story, in my opinion, has nothing to do with his decision to buy or not. His story brings to light bad judgement, bad advice, or horrendous representation that should be exposed.

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  4. AMS

    RE: The Tim @ 2 – By the way, I once had a friend go on and on about a $20,000 loss. I finally asked, how much capital are you down to? Let’s just say he was ‘down’ to about $10M. I asked how much he spends when he goes to Vegas…

    It’s like the guy who was all upset the other week over the $10, or whatever amount it was, that he was owed by a coworker. Sure his home is falling in value by $100 per day, but that $10 is really important.

    Sure I’ve got a gunshot wound, but could you please treat this minor abrasion?

    I’ll probably never understand any of this thinking.

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  5. Jonnny

    RE: AMS @ 3

    If you buy it for $100K, it’s not a $500K home (unless you can turn around and sell it for $500K)

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  6. AMS

    RE: Jonnny @ 6 – Yes, you can turn around and sell it for $500k under normal sale conditions. Similar with all the other examples.

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  7. deejayoh

    By AMS @ 7:

    RE: Jonnny @ 6 – Yes, you can turn around and sell it for $500k under normal sale conditions. Similar with all the other examples.

    If I was that good at finding irrational sellers, I think I’d have a new line of work! Capital woudl be no problem

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  8. AMS

    RE: deejayoh @ 8 – That $20 bill on the sidewalk is clearly fake–it’s not worth the chance to check it out.

    Ray talks about finding GEMs…

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  9. softwarengineer

    When You Buy a Big Ticket Item

    Common sense may be a low priority to the rich and the elite, with this caveat:

    Many common people also got sucked into buying Condos in the 80s and when they turned into apartments [due to low unit closure, like Olive8] lost their shirts.

    Andy may be bought out by the new landlord of Olive8 at whatever the market bears, assuming that happens [it could] and I assume, if he still lives there, may be a renter again, with a lot less pocket change.

    Even renters on the blog fear units that could foreclose out from under them and then they have to move again.

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  10. Groundhogday

    If you are making a purchase decision, then you are really talking about different ways of financing the value of living in a particular unit. The obvious comparison is buy vs. rent, particularly for a condo in a building where there will probably be many rentals available. And you don’t get to put in a garden for a condo. So where is the buy vs. rent financial comparison?

    Sorry, this reads like a good rationalization.

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  11. Alan

    In the spirit of #7, if you could fly like Superman, should you go to Paris if airplane tickets are $10000? Of course, you should. It doesn’t matter if you can’t really fly or if your income isn’t high enough to buy an airplane ticket because we are talking about hypothetical situations.

    If you are earning $100k a year, should you buy a house for $1M that you believe is really worth $5M? No, you shouldn’t. Because the house isn’t worth $5M and the fact that you believe it is means you are kind of deluded.

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  12. AMS

    RE: Alan @ 12 – I’ve been offered some very attractive purchases that I could have immediately flipped. There are plenty of good deals out there. Ask Ray about some of his GEMs.

    That said, I’ve turned down many deals because I simply had better projects going.

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  13. Ray Pepper

    RE: AMS @ 13

    Actually AMS all the GEMS I’m finding are STI very quickly or have multiple offers waiting for bank Approval. This Obama bounce is proving to be meteoric in Bellevue, Kirkland, Issaquah, and Redmond. Knock 150-200k off a 800k home in those areas and the VULTURES are swarming. I see why some analysts are concerned about another small Bubble forming. Hope we don’t get a 2nd wave of Short Sales in 10 years from this “mini-bubble” we have forming again.
    Expect the short sales to be much more efficient in late 2010 forward to move this inventory much quicker.

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  14. AMS

    RE: Ray Pepper @ 14 – “…all the GEMS I’m finding are STI very quickly or have multiple offers waiting for bank Approval.”

    The underlying point remains, however, that you are finding some. They exist.

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  15. AMS

    About three years ago, I was bidding on some items at that large online auction site. Various sellers, I was bidding about $250, but my bids were simply not high enough. After checking out who I was bidding against, I noticed a single bidder had spent $15,000 in a single month. Not only that, the bidder appeared to be honest, in that he was paying for his winnings. His value on the item was about double how much value I placed on the item. In fact, I bid him up a few times. I’d punch in a bid of $350 knowing that it was a safe bet. I didn’t mind spending his money.

    After some time, he won all he needed, and then I won my item for less than $250.

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  16. Packet

    RE: AMS @ 15

    No, they don’t really exist. All those properties end up getting in bidding wars and going for significantly over asking price. It’s not exactly a gem if you’re paying 30k more than advertised.

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  17. AMS

    RE: Packet @ 17 – I’ll be happy to pay $30k more than advertised if I think it’s still $50k lower than I am willing to spend.

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  18. corncob

    His post sounds, to me, more like Olive8 convinced him to buy a cheaper/lesser unit instead of him bargaining them way down on his reserved unit.

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  19. Raj

    Last week I saw a short sale property on Eastside. We liked it and it is listed for 280K. My agent said you will give an offer for around 300k inculding closing cost bcoz there will be more offers

    My questions
    1) Is the agent saying is right?
    2) My thinking we usually gave offer less than the listed price. Am i right?

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  20. AMS

    RE: Raj @ 21 – You can offer whatever you want, including below asking price, asking price, and above asking price.

    But, just like a first-price sealed bid auction, highest bidder wins for his bid, so bid lower than a second-price auction.

    If you were the seller and two offers came in, which would you take?

    I have no idea how many offers are going to be made. It’s unclear how your agent knows the number that will be made. Maybe you could explore that a bit more. Also how much is the property worth to you?

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  21. Ira Sacharoff

    RE: Raj @ 21
    Short sales are sometimes a different animal altogether. Even if the seller accepts your offer, the lender also needs to approve the deal. I have heard that lenders will not generally approve deals where the agreed upon price is less than 80% of the current market value. Maybe your agent knows the current market value and has an idea what the lender will accept.
    Most short sale deals don’t end up closing. If you feel that it’s a place you like, and even at 300,000 seems to be a much lower price than comparable properties, go ahead and make an offer. Just don’t expect to actually end up getting the property. Make sure that in your offer you have the right to walk away from the deal without losing earnest money any time before lender approval.

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  22. AMS

    RE: Ira Sacharoff @ 23 – “Make sure that in your offer you have the right to walk away from the deal without losing earnest money any time before lender approval.”

    Is there any time when you cannot withdraw an offer before it’s completely approved?

    Even if you give an initial deadline of 30 days, that can always be shortened before it’s approved, or even withdrawn.

    As always, I am not an attorney, and I always recommend legal representation.

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  23. Ira Sacharoff

    “Is there any time when you cannot withdraw an offer before it’s completely approved?”

    The difference being that in a short sale, you’re not only going to need the approval of your own lender, but also the approval of the seller’s lender, and that could take a very long time.
    In a typical non short sale deal, there are a a number of contingencies typically, which would enable you to change your mind and get your earnest money back. But what if your agent possessed award winning incompetence, and the contract didn’t contain any of those contingencies, that you waived inspection, etc?

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  24. mukoh

    RE: AMS @ 16 – AMS I ran into that same issue at this month world coin at Heritage. Some people are willing to pay 20% higher then last months kunker auction. Beats me.

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  25. truthtold

    RE: Ray Pepper @ 4 – agreed… consistent bad-advice or poor-judgement storyblog does not indicate cleverness or good representation.

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