Wednesday, November 19, 2014

What Do Bubbles Look Like?

Sentinel Media Services
"Midcentury Modern in Sonoma"
 The San Francisco Chronicle, Nov 19, 2014
screenshot taken Nov. 19, 2014
The San Francisco Chronicle gets my attention today.  On a fairly regular basis, the paper features a particular piece of real estate for sale somewhere around the San Francisco Bay Area.

Today, they're publishing about a property on Austin Avenue, in the Prestwood neighborhood of Sonoma.  The asking price is $2,295,000. The house is a little under 1,900 square feet.

You can see the location here. One nice thing about Zillow is that it will show you the recent sale history of the property.  I took a screenshot of that, and that's on the right, too.  

The Zillow history shows that William Grecian tried to sell this property back in November of 2010 for $445,000; he couldn't find any takers.  He dropped the price to $420,000 in April of 2011, but still didn't find a buyer.  He dropped the price another $12,500 -- and that's when Laura and Richard Tackett made their offer, for $407,500 on July 15, 2011.
"826 Austin Ave, Sonoma"
 screenshot taken Nov. 19, 2014
available at
Laura and Richard held the property for 872 days.  On December 3, 2013, they listed it for sale at $648,000, a 59% price increase.  Laura and Richard figured the change in the real estate market meant that they'd just made an investment with approximately a 20% annual rate of return.  Of course, Richard and Laura were wrong; the property didn't sell for $648,000. 

Instead, it sold 17 days after listing for $730,000. 

More like a 26% annual return.  

The property was purchased by an LLC, which is more or less the general practice in California with real estate projects that are expected to appreciate significantly.  The registered agent for the LLC is Patrick Doyle of Petaluma, who's a general contractor and is the manager of the LLC. The Deed of Trust on the property (which I checked) reveals the equitable owners. The Deed of Trust is a public record and if anyone's particularly excited to find out who put up the money for this deal, feel free to head to the County of Sonoma's Recorder's office -- they're open 8-5 Monday through Friday.  

The LLC listed the property for sale on November 5, 2014.  The LLC held the property for 320 days.  I can't calculate the annual rate of return, because the calculator I use presumes that the values change monthly; here, the ∆ in the price is so substantial that the number of days included can change the implied rate of return.  But it looks like about a 215% presumed annual rate of return.

Comments, "Midcentury Modern in Sonoma"
Sentinel Media Services
The San Francisco Chronicle
screenshot taken Nov. 19, 2014
There are a great many things I could say about this situation. I'm going to hold those observations, and I think I'll revisit this blog post in a couple of years (months?), perhaps updating it with the transaction history of the address.  

At this point, though, I do want to draw attention to the comments about the house on the Chronicle's web site.  

One poster thought the property looked like a good "flip."  

Another wrote that "I can't believe anyone would pay over 2 million for this toy house."