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.

72 responses to “Redfin: Sales, Inventory, and Prices All Still Falling”

  1. softwarengineer

    To Quote The Tim

    Most of its over priced or junk….LOL

    I saw the same conundrum in used cars, trading mine in and watching the dealer salivate….my clean higher mpg trade in with 98,400 on the odometer may not have been perfect, but compared to what’s out there in this economy [have you noticed a lot more cars out there with major body work and cracked windshields lately?]….it was a gem.

    It worked to my advantage too during negotiations and their first and second offers were countered by me….and we finally agreed on the 3rd one….LOL

    I’m driving a new car now and its a great time to trade in a gem used car too, even with almost 100K miles on it…LOL

    BTW, if you have a red, yellow or blue trade-in, its rare now too….there’s a shortage of good colors on new ones out there….I slopped in to one, but had to search 5 dealers on the internet and pay a bit more too. Most are grey, white or black….

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  2. Basho

    In my Redfin notifications I’ve been seeing a number of houses selling at prices above recent comps. Probably the work of a few undisciplined buyers. Unfortunately, when sellers see these new comps they too will expect someone to overpay for their house.

    Look at this new listing.
    http://www.redfin.com/WA/Bellevue/1017-145th-Pl-NE-98007/home/500486

    The seller listed at $170,000 more than what his/her next door neighbor sold for 2 months ago.

    http://www.redfin.com/WA/Bellevue/1027-145th-Pl-NE-98007/home/499608

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  3. ray pepper

    Slim pickens in the sub 80k Pierce/Kitsap/Thurston/Mason County Gems as well. Thats OK. Patience!! Because in the end they ALL need to sell far more then we need to buy.

    Just keep saving and let the Buyers Buy! You will like the inventory FAR MORE in the coming years!

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  4. grumble

    Yep, lots of dreamers still out there.

    Those that are not putting their homes up for listing that historically would be, are probably hoping the market will turn, or are getting a free ride while they wait for the bank to foreclose on them.

    The market will likely continue to go down when the foreclosures do hit. If you need to sell, better to get in sooner than later.

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  5. Kary L. Krismer

    By Basho @ 2:

    In my Redfin notifications I’ve been seeing a number of houses selling at prices above recent comps. Probably the work of a few undisciplined buyers. Unfortunately, when sellers see these new comps they too will expect someone to overpay for their house.

    I’m not going to comment on your examples, but it’s possible there are features to the house, or condition, that make it worth more than the properties you think are comps. It also could get back to the issue of there being relatively little inventory. If you’re looking for something specific and you find it, you would likely be willing to pay more for it than for houses that don’t have that same thing.

    Also, you might simply be off on what you think are comps. I’ll mention again a listing I had that sold with multiple offers, all pretty close, except one low ball offer from an unrepresented buyer. He thought that the houses just to the north of my listing were comparable, when they weren’t. When he saw the price mine sold for he probably didn’t understand why three people were willing to pay so much more than he was.

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  6. David Losh

    I’ve seen some great houses for sale that need work, but the work required really isn’t that much, they look bad, but have good bones, with upgraded systems.

    I saw one today for $739K that I saw six years ago. The listing agent is being coy, but I know those people will be glad to take any offer at this point, or they will rent it! (LOL, as softwareengineer would say)

    They can’t rent it because it would trash the work they put into it, and further deteriorate the price. It’s in great shape, but still needs more cosmetics. For $10K you could increase the value, but I can see they are tapped out. They moved with the idea to sell the family home behind them. They waited too long, and it never sold so they have moved back in to it.

    I have seen good houses in all price ranges. In my opinion buyers are uneducated about value.

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  7. Aaron

    RE: Kary L. Krismer @ 5

    Since Kary can’t comment on this examples and I can, I will:

    These vary in price per square foot by only $2. The home that’s $170K more is also more than 700 square feet larger. It was also built more recently (though only slightly), and has more bathrooms (again, only slightly).

    The larger unit, apart from apparently having every available space stuffed or covered with something, appears to be in really good condition. It has clearly been maintained and renovated over the years.

    The smaller unit has a slightly larger yard that is not as obviously maintained.

    I don’t really know how this compares to the smaller one-story unit down the street, but unless it’s also in really great condition or full of gold or something, I have trouble believing that _asking_ for a whole $2/sq foot difference in price is unrealistic.

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  8. David North

    For the most part, I think the analysis and the data accurately reflect what’s been going on in the market.

    Here’s where I think there is some cofusion between the interpretation of the data and the anecdotal street accounts of how busy things are. It hinges on how one defines a buyer. If a buyer is defined as someone who is under contract and moving toward closing a transaction, or something very similar to that, there are fewer buyers. If a buyer is defined as someone who is actively shopping with the intent and ability to buy, regardless whether they actually engage successfully in a deal, then there are a lot more buyers in the market than this data and analysis reflects. If there are 100 iWidgets available at the store and 200 people line up to buy them, are there 100 or 200 buyers?

    I am hearing more and more complaints from brokers that they aren’t getting enough listings. This is a reversal from the last 3 years, when most broker complaints have been regarding too few buyers, not too few listings. This anecdotal reversal confirms the analysis to the extent that it suggests a shortage of quality listings. There are two primary reason that this is not causing prices to rise. The first, and most important, is that there is very little fear in the market that prices will rise significantly any time soon. Buyers generally are not afraid of missing the bottom. The second is that relocation accounts for a large proportion of buyers, and severe sticker shock greets those coming from most parts of the country. There are numerous other factors, almost all of which are drags on prices, including tighter lending, which can be expected to get even tighter.

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  9. David North

    By Aaron @ 7:

    RE: Kary L. Krismer @ 5

    These vary in price per square foot by only $2. The home that’s $170K more is also more than 700 square feet larger.

    If a larger home is priced at roughly the same price per square foot as a smaller home, and all else is reasonably comparable, then the larger home is usually overpriced.

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  10. Haybaler

    I’m a bit confused.

    IF a huge number of bank owned properties called “shadow inventory” exists…. homes having been held off of the market, then WHY haven’t we seen an increased number of those properties being release into the market as the numbers of available units has declined?

    One would think that the premise that houses were being held off to smooth the price effects of inventory dumping would mean an increase in the percentage of bank owned units on the market as listings/supply declined…

    I would think that the REO managers would manage that inventory something like the engineers who managed the release of the flood waters over the spillways on the Mississippi opening the gates gradually to take advantage of the reduced competition….

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  11. David North

    RE: Haybaler @ 10 – Recent WA legislation imposed some new requirements on banks, affecting their foreclosure processes. There was speculation in another thread last week that this may have caused a temporary slowdown as banks adjust, and if so, could be followed by a catch-up wave. Alternatively, banks (Bank Of America, for example) are opening up loan modification centers and may be trying harder to keep more properties out of foreclosure.

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  12. corncob

    I am one of those “not looking much anymore” buyers. After 6 months of wasting pretty much every weekend looking in the 450ish range on the Eastside, we have instead signed a new lease and will be looking more leisurely until next spring. The market right now sucks for buyers overall, despite any metrics analysis indicating otherwise. If a solid home at a decent price comes up, it is like 2007 again and it goes in three days before non-psycho people even have a chance to see it. If it doesn’t sell in a week it is going to be overpriced with an underwater owner, or have some significant flaw with the location.

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  13. corncob

    RE: Haybaler @ 10 – I don’t think the REO people at banks know WTF is going on, or have any master plan at all. I think they just muddle through as long as possible to keep getting their check every two weeks. Much of the good shadow inventory is tied up with underwater owners. I’ve seen a lot of good houses that are priced way to high, last sale is 2005-2009 and over asking price. Not many people can bring cash to the table to sell a house they can barely afford in the first place. They must hang on by the skin of the teeth and pray some dipchocolate either buys it too high, or the market recovers before they are sunk.

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  14. Basho

    RE: Aaron @ 7

    When you buy property you are buying land and a structure. You need to assign values to each of the pieces independently to appropriately value the property. Construction costs for an above average new home are somewhere in the range of $100-120 per square foot. Essentially, you seem to think it’s reasonable to pay approximately double that for an additional 700 square feet.

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  15. Julie Lyda, RE/MAX Northwest Realtors

    RE: Haybaler @ 10

    We can define “shadow inventory” two different ways.

    Foreclosed homes/REO properties.

    Delinquent homeowners – not yet foreclosed on.

    With REO properties, the banks are putting them on the market rather quickly after foreclosure and those homes are being sold at a healthy pace. I have compiled absorption graphs for both King and Snohomish County so you can see what the standing inventory is, available on my blog.

    The second group are the homeowners who have not yet been foreclosed on. This is the bigger unkown. I’ve done well over a hundred BPOs (in my area) recently, those are broker price opinions for asset managers. These are done for different reasons. Loan modifications, short sales, and pre-foreclosure determinations.

    I’m finding a majority are done for loan modifications.

    I’m curious if there will be a spike in Notice of Trustee Sales filed before the new $250.00 filing fee goes into effect in July 2011.

    We shall have to wait and see.

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  16. Aaron

    RE: David North @ 9 – Fair enough, but I’m not really clear that the two properties are “reasonably comparable”. There’s a lot of opportunity for the quality of two homes to diverge over 30-40 years, and the one for sale today appears well maintained/upgraded. Why assume the second has been as well maintained when there’s no evidence?

    I admit I lack perspective on the bigger=cheaper effect because I live in a neighborhood where the price / sq foot varies by hundreds of dollars (low ~$200/sq foot, average ~ $320/sq foot and high ~$550/sq foot) and often it’s not really clear how they arrived at those prices.

    RE: Basho @ 14 – I’ve never lived in a real estate market where the marginal cost of space during construction was meaningfully related to the final asking/selling price of a home.

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  17. Haybaler

    RE: Julie Lyda, RE/MAX Northwest Realtors @ 15 -So, does your BPO state that Inventory is Falling and Buyers are Frustrated with the lack of Selection so now is a strategically better time to move some REO, as opposed to later, because prices are continuing to fall too?

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  18. Lo Ball Jones

    By softwarengineer @ 1:

    To Quote The Tim
    Most of its over priced or junk….

    Too bad there’s not a way to short-sell homes (on paper) in the financial industry (the way you would short sell a stock).

    I mean, if you really want to bet on falling house prices (short of actually waiting around and forestalling a purchase) how would you do so?

    It seems like all of us “geniuses” here should be multimillionaires based on our knowledge of this market if there were a place to put our money where our mouths are…

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  19. Julie Lyda, RE/MAX Northwest Realtors

    RE: Lo Ball Jones @ 18

    There is a way to short homes/mortgages on paper.

    Just ask Goldman Sachs. They did it.

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  20. Sean

    I’ve been watching the market for multifamily rentals in Seattle for the past year, and I find I agree with this post. I’ve seen a few that were priced reasonably, and they had multiple offers and were locked in contract during the first week. About 90% of the “inventory” consists of properties priced 30-50% above closing GRM multiples on similar properties. I’ve also seen a few short sales go into and out of purchase contract more than once – my intuition suggests the buyers dickered with the banks for several months only to be told by the bank that their appraisal found the property to be worth more, and back out at the higher price.

    If anyone knows the secret to finding a multifamily rental in Seattle that doesn’t bleed cash every month please let me know!

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  21. Julie Lyda, RE/MAX Northwest Realtors

    RE: Haybaler @ 17

    You would be surprised at the “junk” that we do BPOs for. 1 in 25 might be a nice decent home in the $400K – $500K range. Most are under $300K.

    This has actually made it difficult to price some, because a few would be considered “tear downs” in my opinion. Keep in mind my territory is North King County and South Snohomish County. I’m also seeing deteriorating property conditions (which I did a blog piece on). I believe this also affecting average home values. The conditions of some of these homes are horrible. I’ve never seen homes this bad in over 20 years of selling real estate.

    So what does this tell us? I can speculate that the upper end market is not as financially distressed as you all want to believe.

    Foreclosures are dropping.
    Mortgage delinquencies are dropping.
    Loan Modifications going up? (I haven’t confirmed that yet, still need to read the OCC report).

    We’re still in the middle of a mess and I continue to watch the numbers.

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  22. Lo Ball Jones

    By softwarengineer @ 1:

    its a great time to trade in a gem used car too, even with almost 100K miles on it…
    .

    I read this and went off to investigate what my 2007 KIA with 60K miles would be worth.

    I bought it used from Enterprise Car sales on a loan two years ago.

    Surprisingly, just as you said, the current resale value is above the amount remaining on the loan!

    I would actually make a few thousand profit if I sold this car after using it for 2 years!!

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  23. Ross

    RE: Julie Lyda, RE/MAX Northwest Realtors @ 21

    Foreclosures are dropping.
    Mortgage delinquencies are dropping.

    I wouldn’t count on that. http://www.dsnews.com/articles/lps-report-shows-an-about-face-in-delinquency-and-foreclosure-movement-2011-05-17

    As prices continue to drop and homeowners get further and further underwater, I suspect we’re going to see even more strategic defaults.

    We’re still in the middle of a mess and I continue to watch the numbers.

    Absolutely.

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  24. ARDELL

    RE: Aaron @ 16

    I’m surprised no one is factoring in the style difference of a one story home vs a 2 story home. It’s a considerable factor. “comps” are usually “like style”. A 2 story home is a limited commodity in that area. The appraiser is going to have a tough time with this one.

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  25. Scotsman

    RE: Julie Lyda, RE/MAX Northwest Realtors @ 21

    “Foreclosures are dropping.
    Mortgage delinquencies are dropping”

    Neither of these are true on a national basis. The pipeline is filling up/backed up.

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  26. Basho

    RE: Aaron @ 16

    Barring any extraordinary circumstances (e.g. permitting issues), the structure is never worth more than the present value of what it would cost to replace it. If you can’t understand that simple fact there is no helping you.

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  27. Leigh

    RE: softwarengineer @ 1 – Just heard on NPR that NOW is the time to unload that less than 5 year old gently used small cars…30% increase in value from a few years ago, can’t keep them on the lot! Doubt if they want my 2000 Ford Focus with 110,000 miles on it;O) Surprised it’s lasted this long given my spouse’s lead foot driving.

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  28. Julie Lyda, RE/MAX Northwest Realtors

    By Scotsman @ 25:

    RE: Julie Lyda, RE/MAX Northwest Realtors @ 21 -”Foreclosures are dropping.
    Mortgage delinquencies are dropping”Neither of these are true on a national basis. The pipeline is filling up/backed up.

    Not sure what your sources are, but the latest news I’m reading is:

    National Foreclosure Rates Drop 27% in First Quarter 2011.
    http://www.fortunebuilders.com/2011/04/19/foreclosure-rates-drop-27-they-still-arent-happy/

    Mortgage Delinquencies Post Big Drop In March
    “Mortgage delinquencies fell by 12% in March, the biggest monthly drop since the housing bust began, to the lowest level since 2008, according to LPS Applied Analytics.”
    http://blogs.wsj.com/developments/2011/05/06/mortgage-delinquencies-post-big-drop-in-march/

    I don’t put out posts without data to back up what I’m saying. ;)

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  29. Julie Lyda, RE/MAX Northwest Realtors

    RE: Ross @ 23

    Yes I do see that new report.

    However the increase of only 2.4%, which at least doesn’t erase the 12% drop of the prior month.

    Thankfully we don’t live in the sand states. Because Seattle is special, remember? ;)

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  30. Haybaler

    RE: Julie Lyda, RE/MAX Northwest Realtors @ 21

    OK. So, houses under $300K are all dumps….

    What I asked you was… What do you tell the asset managers in your BPO? You are the eyes and ears for those pencil pushing, ass covering, middle managers.

    What does an BPO consist of compared to an appraisal. I’ve seen recent appraisals priced at $400 which have 6 or seven comparables and photos. They state “prices are falling in the subject area” “marketing times are increasing in the subject market area”. I hear you guys get about $30 to do a BPO and can’t imagine how involved you can get for that fee, let alone visit and view a property.

    How does it work?

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  31. Jillayne Schlicke

    The Mortgage Bankers Assoc releases their delinquency report tomorrow. That will help.

    One of the questions I ask Realtor students is: How many ppl know of someone who *would* list their home for sale “if we had a better market?”

    Almost every hand goes up. This could also be considered shadow inventory.

    We also need to consider that the banks are just fine with keeping the pace of foreclosures at a slow crawl. As the job market slowly improves, people in default might be more likely to qualify for a loan mod…….and……now the bank gets to roll all those missed payments back into the modified loan.

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  32. David Losh

    RE: Haybaler @ 29

    Great question, because I can’t imagine how any one could, or would do a BPO in today’s market.

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  33. Julie Lyda, RE/MAX Northwest Realtors

    RE: Haybaler @ 30

    Actually you pegged it pretty well in your description.

    We do give an overview of the market conditions, declining prices, etc. I don’t see market times increasing right now because of the spring bump. However when I give a synopsis of the under $300K market sometimes it shows that 60%-70% of the market is distressed sales.

    Yes we do visit the property as that is required along with several photos of the subject and neighborhood.

    What I’m finding a bit crazy is that after all the ones we’ve done in the last 12 months – NOT ONE has been foreclosed on.

    Can’t answer why.

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  34. Julie Lyda, RE/MAX Northwest Realtors

    Tim – Could you check my post @28 – it still shows awaiting moderation.

    Thanks.

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  35. Scotsman

    RE: Julie Lyda, RE/MAX Northwest Realtors @ 28

    I won’t bother to repost data on record low cure rates- the percentage who are able to recover and bring loans current once they fall behind. It is in the one percent range. In this economy, once you get behind you are likely to stay there until ultimately foreclosure results. Given that, let’s look at the data- the “back up” as you say:

    “Washington Post Staff Writer
    Wednesday, May 19, 2010; 10:36 PM

    The number of U.S. homeowners who are behind on their mortgages rose to a record level in the first quarter, according to industry data released Wednesday. . .

    The increase in mortgage delinquency was a surprising and unwelcome sign for economists expecting the recent improvements in the economy to translate into fewer homeowners falling into trouble.

    On a seasonally adjusted basis, about 10 percent of borrowers were delinquent on their mortgages during the first three months of this year — a record, according to the survey by the Mortgage Bankers Association. That is up from about 9.1 percent during the same period last year and 9.5 percent during the fourth quarter of 2009. ”

    Ok, there’s the data- 10% are behind, cure rates are extremely low, the economy is by many accounts headed for a double dip so the situation won’t be making a dramatic turn around.

    Is it a “great time to buy a house?” Julie?

    Here’s the “positive’ news in the above article- the rate of increase- in the increase (second derivative) is slowing. So maybe we can expect delinquencies to top out at say 11%? Then, following the math, if an amazing 30% of those delinquencies “cure’ then we’ll only be looking at an additional 7% or so of current mortgages ending up in default.

    What will the real estate market look like with 7% of current mortgage holders defaulting and going into foreclosure? Will it still be a greeat time to buy?

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  36. Aaron

    RE: Basho @ 26 – “the structure is never worth more than the present value of what it would cost to replace it”

    How could there have ever been a housing bubble to begin with if value is based solely on construction cost? Are you suggesting no home should be purchased for more than new building cost, plus some small percentage?

    If this is a philosophical argument about how much things should be worth, then sure, I guess.

    In practice, land isn’t being created in the middle of existing neighborhoods. If you want to live in a neighborhood, you usually have two choices: buy some home already there, or don’t live there. Most people aren’t lucky enough to be able to build a home where they want to live without buying an existing home in an existing neighborhood first, regardless of construction costs. Unless you can find a cheap tear-down, it is probably impractical to buy a home just to build your own fictional house that will never be.

    This implies that the actual value of a home, such as this one, is not really tied to the cost of construction, nor the scarcity of land and homes, but of the sub-sub market of homes in that particular area of a particular style, size and quality. Building new housing stock right there instead isn’t really an option.

    The value of the structure on the land is not necessarily the same as its replacement cost. There are homes in Arizona, Nevada and Detroit which can be purchased for less than the cost of materials, let alone construction. On the other side of the coin, there are some homes which have more value than their replacement cost because, frankly, they’re more in demand. Purchasing options within submarkets are limited. If you want to get in, you have to pay the piper. It’s simply a matter of how much you want to get in, particularly in a falling market.

    I don’t know how much this house is worth or whether there will be any takers for it at this or any particular price. It is rather expensive, so there can’t be that many qualified buyers. Do I think they’d have a better shot at selling their home quickly if it were priced lower? Absolutely. I just don’t see the comp provided as indicating the seller is particularly delusional.

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  37. Scotsman
  38. Scotsman

    RE: Aaron @ 36RE: Aaron @ 36

    Key phrase:

    “the structure is never worth more than the present value of what it would cost to replace”

    Talking about the structure- not the land or land related issues.

    Cost to replace, in its broadest sense, would include not just construction, but permits and additional soft costs such as psychological stress, deferred gratification, etc. Bubbles grow from the soft costs- greed, status, fear of missing out, etc. But the basic premise that you’re a fool to ignore replacement costs rings true.

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  39. Haybaler

    RE: Julie Lyda, RE/MAX Northwest Realtors @ 33 – Thanks for the kind reply. I suspect I was a bit growl y in my tone because I hadn’t eaten supper.

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  40. Basho

    RE: Aaron @ 36

    This is simple algebra. It is not open for debate like you seem to believe.

    Property Value (simplified) = Land Value + Structure Value

    Structure Value < (or equal to) Replacement Cost (this is law of one price)

    The two houses I posted have extremely similar lots. To justify a $170,000 difference in value, the structure of the more expensive house would need to be vastly superior to the structure of the cheaper one. It is not.

    "In practice, land isn’t being created in the middle of existing neighborhoods. If you want to live in a neighborhood, you usually have two choices: buy some home already there, or don’t live there. Most people aren’t lucky enough to be able to build a home where they want to live without buying an existing home in an existing neighborhood first, regardless of construction costs. Unless you can find a cheap tear-down, it is probably impractical to buy a home just to build your own fictional house that will never be."

    Have you ever heard of remodeling or doing an addition?

    "This implies that the actual value of a home, such as this one, is not really tied to the cost of construction, nor the scarcity of land and homes, but of the sub-sub market of homes in that particular area of a particular style, size and quality. Building new housing stock right there instead isn’t really an option."

    If your theory was true, home prices would swing wildly based on the number of homes for sale in a given neighborhood. They don't.

    "The value of the structure on the land is not necessarily the same as its replacement cost. There are homes in Arizona, Nevada and Detroit which can be purchased for less than the cost of materials, let alone construction."

    I never claimed that the value of the structure equaled replacement cost.

    "On the other side of the coin, there are some homes which have more value than their replacement cost because, frankly, they’re more in demand. Purchasing options within submarkets are limited. If you want to get in, you have to pay the piper. It’s simply a matter of how much you want to get in, particularly in a falling market."

    Any value above the replacement cost of the structure is attributable to the land (assuming the structure can actually be replaced).

    "Do I think they’d have a better shot at selling their home quickly if it were priced lower? Absolutely. I just don’t see the comp provided as indicating the seller is particularly delusional."

    That's because you're someone who believes that, "the actual value of a home, such as this one, is not really tied to the cost of construction, nor the scarcity of land and homes".

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  41. Aaron

    RE: Scotsman @ 38 – He said, and I quote,

    “When you buy property you are buying land and a structure. You need to assign values to each of the pieces independently to appropriately value the property.”

    Then he says, and I quote again:

    “the structure is never worth more than the present value of what it would cost to replace”

    If I assume your broader definition for the word “cost” and the corresponding broad definition for the word “value” are the ones he meant, then I could rephrase this much more simply: “The value of a property is never higher than the value of that property.” This would be combined with: “The cost one is willing to pay for a property should be no more than its perceived value.”

    Who could argue with that? Who would bother saying that?

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  42. Jonness

    By Julie Lyda, RE/MAX Northwest Realtors @ 28:

    Not sure what your sources are, but the latest news I’m reading is:National Foreclosure Rates Drop 27% in First Quarter 2011.
    http://www.fortunebuilders.com/2011/04/19/foreclosure-rates-drop-27-they-still-arent-happy/I don’t put out posts without data to back up what I’m saying. ;)

    [From linked article: In fact there has never been a better time to get into real estate investing or buy a home.]

    That’s the most misleading post I’ve ever seen on SeattleBubble. You wouldn’t, just by coincidence, happen to make money by convincing people to buy houses would you?

    Here’s the rest of the story, straight from the horses mouth:

    This slowdown continues to be largely the result of massive delays in processing foreclosures rather than the result of a housing recovery that is lifting people out of foreclosure.

    http://www.realtytrac.com/content/press-releases/foreclosure-activity-at-40-month-low-6578

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  43. Aaron

    RE: Basho @ 40

    “Property Value (simplified) = Land Value + Structure Value”

    Emphasis on “simplified”

    “The two houses I posted have extremely similar lots. To justify a $170,000 difference in value, the structure of the more expensive house would need to be vastly superior to the structure of the cheaper one. It is not.”

    I’m not really sure how I’m supposed to know the relative _quality_ of the structures. I only have an unimpressive photo of the second house, and for all I know it’s rotting on the inside.

    “Have you ever heard of remodeling or doing an addition?”

    Of course! But it’s a bit on the expensive side to add a second floor, isn’t it?

    “If your theory was true, home prices would swing wildly based on the number of homes for sale in a given neighborhood. They don’t.”

    Why would that be the case with “my theory”? First, I would point out that competition to sell does create significant downward pressure on prices. It is plain as day in any neighborhood that has a very high (25%+) percentage of homes for sale.

    Second, a market is made up of both buyers and sellers. Living in a given neighborhood has only so much attractiveness before people say “forget it” and live somewhere else, which puts a ceiling on prices. Sellers can only lower prices so far before they’re like “forget it” or a buyer says “Sure!”, which puts a floor on prices. I’m not clear why this pricing mechanism would cause the equilibrium to vary “wildly” in a single neighborhood when people are often willing to shop in more than one. Sellers want to get as much as they can, buyers want to pay as little as they can. Why would THAT change by huge amounts?

    “I never claimed that the value of the structure equaled replacement cost.”

    Fair enough – you claimed houses could only be worth less than or equal to the replacement cost. My apologies.

    “Any value above the replacement cost of the structure is attributable to the land (assuming the structure can actually be replaced).”

    If you believe that, then I’d argue that the value of the land can be increased by the structure(s) upon it. I don’t actually think the land value changes though. I think the combined value (whole is greater than the sum of its parts) just gets appraised into the structures in practice.

    “That’s because you’re someone who believes that, “the actual value of a home, such as this one, is not really tied to the cost of construction, nor the scarcity of land and homes”.”

    As long as people believe it, it’s a self-fulfilling prophecy. In the end, home values are based on market prices, not construction costs. Market prices are ultimately created by at least somewhat irrational human beings.

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  44. Kary L. Krismer

    By Haybaler @ 30:

    RE: Julie Lyda, RE/MAX Northwest Realtors @ 21

    OK. So, houses under $300K are all dumps…

    Good questions later in your post, but I think what they were saying here is a lot of the ones they look at are dumps, not that all under $300k are dumps. Realize that they are looking at a subset of the properties out there: Those owned by people who either don’t have the ability (financial or otherwise) or the inclination to maintain a house.

    You wouldn’t believe the conditions I see inside some of the worst REO properties. It’s shocking how some people live. Some places have so many stains on the carpeting that you’d think they didn’t own plates and carried their food, including apparently soup, out to the living-room in their hands. There are people that if you rented to them you would consider them tenants from hell.

    Then there are also those where the owner tried to do a remodel, didn’t know what they were doing, and didn’t finish. Those can be truly problematic, and often likely best a tear-down. A couple of months ago I mentioned that a client mentioned that there should be some sort of a clause in deeds of trust requiring lender approval before a major remodel. Such activity really does place them at incredible risk.

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  45. Kary L. Krismer

    By David Losh @ 32:

    RE: Haybaler @ 29

    Great question, because I can’t imagine how any one could, or would do a BPO in today’s market.

    It should be easy for you. Don’t you think the value of property never changes? ;-)

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  46. Kary L. Krismer

    RE: Basho @ 40 – I still haven’t looked at the properties you’re discussing, but you’re assuming that the value of property in increased by the cost of an improvement. It is very possible to spend $100,000 and only improve the value by $50,000 (as an example).

    A good example of that would be a high end development I saw that was being developed right around the peak. That left the neighborhood with several large high cost houses that did not sell. One of those was a mid-evil design which was very dark. I would be a great house to own on Halloween, but I really don’t think it would generate anywhere near the sales price of the other homes in the neighborhood, despite having possibly cost even more to build (it had an elevator).

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  47. David Losh

    RE: Kary L. Krismer @ 45RE: Kary L. Krismer @ 44

    The value of Real Estate doesn’t change. It’s tied to the economic factors outside of what the mortgage market is doing at the moment. BPOs are paid for, so are a benefit to, the bank.

    In other words they are completely irrelevant to the transaction between a buyer and seller.

    So some one visits a property, takes plenty of pictures, then decides, randomly that a property is worth what? What a buyer will pay? What a property should sell for?

    The BPO is based on sales data. It’s a snap shot at that moment. That’s why I follow the Global Economic thread more than these. The price of property is much more determined by if Congress raises the debt ceiling than what the property down the street sold for.

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  48. Kary L. Krismer

    By Basho @ 40:

    RE: Aaron @ 36

    This is simple algebra. It is not open for debate like you seem to believe.

    Property Value (simplified) = Land Value + Structure Value

    Structure Value < (or equal to) Replacement Cost (this is law of one price).

    BTW, you’re also assuming values stay above cost. In the current market you see houses are are being built for less than what it would cost to build, because the builders are picking up platted lots for less than the cost of the improvements (utilities, etc.).

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  49. Julie Lyda, RE/MAX Northwest Realtors

    RE: Jonness @ 42 -

    “That’s the most misleading post I’ve seen on SeattleBubble

    “What is misleading? You replied to my comment of:
    “Foreclosures are dropping.
    Mortgage delinquencies are dropping”

    With: “Neither of these are true on a national basis. The pipeline is filling up/backed up.

    “I provided you with data from Realtytrac that shows a 27% drop in foreclosures and a Wall Street Journal article that shows a 12% decrease in mortgage delinquencies for March according to LPS.

    I feel your comment is misleading because it was factually wrong.

    There was no discussion as to why these numbers were falling.

    I will also add that for Washington State I would be surpised if the foreclosure rates don’t spike up in the next 90 days due to the change in the filing fee from $65.00 to $250.00.

    Banks are cheap and I’m sure they will want to get in before the new rate takes affect.

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  50. David Losh

    RE: Julie Lyda, RE/MAX Northwest Realtors @ 49

    Banks may or may not foreclose, just like people will pay, or not pay, all based on this Spring Bounce which in my opinion has fizzled. People will get the idea that the Real Estate market has declined so severly that there is no reason to hold on to a declining asset. Banks don’t want to hold the asset. Banks don’t want or need any more of this garbage on the books.

    No one has mentioned deflation in the face of Trillions of dollars, Euros, Yen, and Yuan in the financial markets. The fact is that the asset that was a Real Estate is showing to be worth less, and less. It’s getting to the point where no one wants to be left holding the pile of poo.

    So, banks can foreclose all day every day. It makes no difference to the pricing declines that is in full swing.

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  51. Snigliastic

    By Leigh @ 27:

    RE: softwarengineer @ 1 – Just heard on NPR that NOW is the time to unload that less than 5 year old gently used small cars…30% increase in value from a few years ago, can’t keep them on the lot! Doubt if they want my 2000 Ford Focus with 110,000 miles on it;O) Surprised it’s lasted this long given my spouse’s lead foot driving.

    Wow. that’s wild.
    My car that i purchased (used, certified) for 35k last March and have put about 18,000 miles on now has a kbb trade-in value of 30k+. Suggested retail is about $500 less than I paid back then.

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  52. Scotsman

    RE: Julie Lyda, RE/MAX Northwest Realtors @ 49 -

    Julie- you are confusing me with Jonness. It helps if you keep it straight.

    Your post is misleading in that while statistically “truthful” it focuses on month-to-month changes while completely ignoring long term trends. Nobody who is up to speed on the related issues will claim foreclosures are diminishing. They may be temporarily stalled by a variety of factors, but they certainly aren’t fading from the picture in any sense. As my quoted statistics show the number of folks behind on their payments has been steadily climbing for years and is now at a record high. There is no way that fact will ever translate into falling foreclosures over time in an economic environment that continues to deteriorate.

    It’s OK to be the “pony poop” girl, looking for that treasure in the manure pile. It’s a great attitude to have and can certainly add to your life. Just don’t try to convince others that it’s somehow not sh%t you’re digging through.

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  53. deejayoh

    RE: Jillayne Schlicke @ 31RE: Scotsman @ 52RE: Julie Lyda, RE/MAX Northwest Realtors @ 49 – Well, as Jillian points out the MBA delinquency numbers came out today.

    Well covered (as usual) at Calculated Risk

    Discussions of “national trends” are a little specious, since just two states (CA and FL) account for 35% of delinquencies. But CR’s overall conclusion is that we appear to be past the peak

    This data is a little confusing on a national basis because of the seasonal issues – and because of the concentration of problems in Florida and other states. Last year I thought overall delinquencies had peaked (that appears correct), and I think delinquencies will decline further this year as lenders work through the backlog of loans from 2005 through 2007. There was a slight increase in the 30 day delinquency bucket, possibly because of lower house prices – that is something to watch carefully over the next few quarters.

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  54. Julie Lyda, RE/MAX Northwest Realtors

    RE: Scotsman @ 52

    No I wasn’t confusing you with Jonness.

    I was replying to his/her post @42, not you.

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  55. Macro Investor

    By deejayoh @ 53:

    RE: Jillayne Schlicke @ 31RE: Scotsman @ 52RE: Julie Lyda, RE/MAX Northwest Realtors @ 49 – Well, as Jillian points out the MBA delinquency numbers came out today.

    Well covered (as usual) at Calculated Risk

    Discussions of “national trends” are a little specious, since just two states (CA and FL) account for 35% of delinquencies. But CR’s overall conclusion is that we appear to be past the peak

    This data is a little confusing on a national basis because of the seasonal issues – and because of the concentration of problems in Florida and other states. Last year I thought overall delinquencies had peaked (that appears correct), and I think delinquencies will decline further this year as lenders work through the backlog of loans from 2005 through 2007. There was a slight increase in the 30 day delinquency bucket, possibly because of lower house prices – that is something to watch carefully over the next few quarters.

    Actually Calc Risk blew it. Delinquencies are going down simply because they’re being removed from the delinquent category and added to foreclosures.

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  56. Jonness

    By Julie Lyda, RE/MAX Northwest Realtors @ 49:

    “What is misleading? You replied to my comment of:
    �Foreclosures are dropping.
    Mortgage delinquencies are dropping�

    With: “Neither of these are true on a national basis. The pipeline is filling up/backed up.

    “I provided you with data from Realtytrac that shows a 27% drop in foreclosures and a Wall Street Journal article that shows a 12% decrease in mortgage delinquencies for March according to LPS.

    I feel your comment is misleading because it was factually wrong.

    You are confusing my post with Scotsman’s. I never said that. I simply read the industry fluff article you linked and then went to the actual source that was quoted (Realtytrac) and found the source interpreted the data in the exact opposite way as you (and your article) are attempting to spin it. I stand by what I previously stated. Your previous post was the most misleading and outrageous post I’ve ever read on Seattle Bubble in my many years of reading this blog.

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  57. deejayoh

    By Macro Investor @ 55:

    Actually Calc Risk blew it. Delinquencies are going down simply because they’re being removed from the delinquent category and added to foreclosures.

    Not sure what point you are trying to make. Obviously the end product of most delinquencies is a foreclosure but if there there are fewer delinquencies there is less fuel for new foreclosures. Its what is happening at the front of the pipe that matters to predict the future, not the end.

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  58. EconE

    I know people who haven’t made a mortgage payment in years yet have not received a NOD.

    Perhaps delinquencies are down because banks are dragging their feet issuing default notices.

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  59. David Losh

    Deliquencies are stagnant because sellers, home owners, want to see where the Real Estate market will go. It’s not like 2008 where people stopped paying a mortgage because the Real Estate market crashed. I’s now a reasoned response to an unreasonable situation.

    Once Congress addresses the economy people will decide if they want to hold on to, or pay for an asset that is severly declining in price. The other thing is if people will need to sell, or want to sell to move some place else.

    The cost to sell is 10%, debate that if you want, but it is a cost. When you go to sell and you get actual estimates of the sales price is when you see the decline in pricing. Are you still going to continue to pay on your home, which is supposed to be a significant asset to you, when you combine even a 10% decline in pricing coupled with a 10% cost to sell? How about a 20% decline in pricing, or the National average of 30% decline in pricing from the peak?

    “New” deliquencies are low because most people haven’t worked out the numbers. They continue to pay to wait, and see what will happen.

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  60. Haybaler

    RE: Julie Lyda, RE/MAX Northwest Realtors @ 33
    I have an idea.

    How about posting a copy of a BPO here…redact identifying info.

    I’m sure we’d all like to see what the asset managers are working from.

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  61. Julie Lyda, RE/MAX Northwest Realtors

    RE: Haybaler @ 60

    Sorry, can’t do that.

    However, the format is a simplified appraisal. 3 Comp Listings, 3 Comp Sales. Property data for each comp, bedrooms, baths, sf, etc.

    Sometimes they are exterior only evaluations and others are interior evaluations with interior photos.

    REO’s, short sales and fair market listings are all used in the price evaluation.

    The banks use these for different purposes: loan modifications, short sales and pre-foreclosure determinations. Since I am not informed as what the BPO is going to be used for, it usually is obvious. Many time when out taking photos a homeowner comes out and greets us and tells us they are doing a loan mod. They are usually expecting us.

    When I say loan mods are increasing it is based off my work in the field. I would say that 80% are probably for loan mods, 10% for short sales and 10% for pre foreclosure evaluations.

    It’s also obvious when it’s a short sale and the home is on the market usually with a pending status.

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  62. Julie Lyda, RE/MAX Northwest Realtors

    RE: Jonness @ 42

    And if we read further into the Realtytrac article in the next paragraph is states:

    “The first delay occurs between delinquency and foreclosure, when lenders and services are no longer automatically pushing loans that are more than 90 days delinquent into foreclosure but are waiting longer to allow for loan modifications, short sales and possibly other disposition alternatives,”

    I think this paragraph says a lot. That the banks are “no longer automatically pushing loans…into foreclosure.

    I feel the banks are changing their tune about rushing right to foreclosure and allowing time to work out alternative solutions.

    This is having an impact on foreclosure rates and I stand by my post that foreclosure rates are dropping (which is factually correct), and I believe (and hope) foreclosure rates will continue to drop.

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  63. Kary L. Krismer

    RE: Julie Lyda, RE/MAX Northwest Realtors @ 62 – It will be interesting to see how our Foreclosure Fairness act affects those decisions. It basically allows the owner an opportunity to opt for some sort of process to take place.

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  64. Julie Lyda, RE/MAX Northwest Realtors

    RE: Kary L. Krismer @ 63

    Yes Kary it will be interesting.

    I wrote a blog about it before it was signed by the Governor. If anyone is interested I outline the features in Bill1362 here: http://www.snohomishcountymarketstatistics.com/2011/03/washington-state-legislature-moves-to.html

    I’m also waiting for a possible spike in Notice of Trustee Sale filings before the new filing fee goes into affect. From $65 to $250.

    Also there were other Foreclosure Fairness Acts passed around the county. I’m not sure which States though.

    The next 3-6 months of data should be interesting.

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  65. deejayoh

    By EconE @ 58:

    I know people who haven’t made a mortgage payment in years yet have not received a NOD.

    Perhaps delinquencies are down because banks are dragging their feet issuing default notices.

    Delinquencies referred to in the article are not the same as NODs. The MBA stats are looking at payment history in the same way your credit score does – 30/60/90 days behind – no NOD required.

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  66. Kary L. Krismer

    RE: Julie Lyda, RE/MAX Northwest Realtors @ 64 – I’m pretty sure that’s not a filing fee, in part because it’s per property not per notice, and it gets paid quarterly, and it doesn’t apply to certain entities, etc.

    I wrote a piece on it too: http://www.trulia.com/blog/kary_l_krismer/2011/04/washington_s_new_foreclosure_fairness_act

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  67. Kary L. Krismer

    By Julie Lyda, RE/MAX Northwest Realtors @ 64:

    Also there were other Foreclosure Fairness Acts passed around the county. I’m not sure which States though..

    There’s been so much legislation passed that it affects the statistics and makes them somewhat meaningless. Remember the surge and then drop in foreclosures when they made the last changes in Washington? Most of the press didn’t pick up the legislation being the issue, and then when comparing the numbers a year later most of them missed it again. When you add in other states it makes it even worse–very hard to determine whether an uptick or downtick is meaningful.

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  68. Julie Lyda, RE/MAX Northwest Realtors

    RE: Kary L. Krismer @ 67

    Yes Kary, you are correct. It is not a “Filing Fee”.

    Begining October 1, 2011.
    Paid lump sum every Quarter.
    Applies to banks who issue more than 250 notices per year.
    Owner Occupied Residences.
    One fee per Residence – not notice.
    80% used for housing counseling.

    There are other details provided in the bill for those that are interested:
    HB1362 (pdf file)

    http://apps.leg.wa.gov/documents/billdocs/2011-12/Pdf/Bills/House%20Passed%20Legislature/1362-S2.PL.pdf

    You are also right that all this legislation affects the foreclosure numbers. That is what they are designed to do. Slow down the foreclosure process for those that what to keep their homes.

    I think that is a good thing.

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  69. Kary L. Krismer

    RE: Julie Lyda, RE/MAX Northwest Realtors @ 68 – What I meant though is you can’t determine meaning of trends as easily. For example, there should be some delay at some point in completed foreclosures (trustee deeds) because of this legislation, but that delay shouldn’t be seen as a sign that the economy is getting better.

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  70. Julie Lyda, RE/MAX Northwest Realtors

    RE: Kary L. Krismer @ 69

    A agree. I don’t think we can use housing as a sign of an improving economy. That is going to have to start with employment. There can be no true recovery until people get back to work.

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  71. ARDELL

    RE: Aaron @ 36RE: Basho @ 2

    Back when, I almost posted Aaron is right and Basho is incorrect, but I decided to wait to see if Basho’s math somehow worked. Per my comment #24, the style of the home makes a difference.

    The one Basho thought was overpriced based on a pure math calculation…went pending in 11 days. Not closed yet, and I still think the appraiser is going to have a tough time with it.

    Will be interesting to see where it closes relative to Basho’s comment #2.

    As I’ve mentioned before, you can’t price a house you would buy against one you would not buy. When the right house comes up…it will sell for more for the same reason you want it to be less.

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  72. Aaron

    http://www.redfin.com/WA/Bellevue/1017-145th-Pl-NE-98007/home/500486

    Went for the asking price… hmm…

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