real estate promotion is based on an inventory of features, not design. flippers have figured out how to 'add' just enough of those features to get them listed, thereby climbing above the listings that don't include those features. it's all about checking boxes, no design necessary!

it may be partly that non-design/construction folks don't see themselves doing much work to a place themselves. don't know how to/don't want to: doesn't matter. stewardship is over. people want to live like renters in the homes they own; better yet, like hotel guests. if everything is included and in good shape, the closer they are to that ideal.

btw, i doubt this is happening as commonly now as it was a couple of years ago. buildings aren't doubling or tripling in value, but these same listings of inventory may be what helps some maintain their value.

Yeah, I'd check the date that happened, when it was bought, etc. Sounds like a deal made when things were just starting to go gangbusters, certainly not now.

And value is something tangible to most people. You go in and see a 30 yr old kitchen and you think, 'damn, that looks like crap'. Spend 10k on new stuff and instant value.

I don't see how it can really hurt any industry. It is just creating value where there wasn't any. Most likely, these are old buildings in a decent location that can justify the increased value. This won't just happen because you put that money in any old building.

I put my money on that there is no possible way you could 'literally buy an entire building for the same price'. Not many buildings you can buy for $350k, beyond a small single family.

Also, the previous owners may not have had any cash to put in, so what they sold for could have been 400% what they paid 20 years ago.

Not really that hard. Problem is that markets just aren't there anymore.

The show is from 2007 I think.

it may be partly that non-design/construction folks don't see themselves doing much work to a place themselves. don't know how to/don't want to: doesn't matter. stewardship is over. people want to live like renters in the homes they own; better yet, like hotel guests. if everything is included and in good shape, the closer they are to that ideal.

I can agree with that. It, however, doesn't make any sense. I suppose the problem is value addedness .

Let's say the construction cost per square foot is $350:

A given square foot of property include at least the following--

Structure
Insulation
Sub-Floor
Flooring
HVAC

Each of these have levels of value built into them. For instance, a structure is designed by both the architect and structural engineer. The structure is assembled by labor under supervision of a construction manager. The structure is made from concrete. That concrete is mined from limestone, crushed, processed, treated, packaged and shipped.

Everyone from the miner to truck driver to surveyor to construction worker to supervisor to engineer to architect is getting paid.

So, we can basically assume that the $350 dollar figure is retail . Anything above that "cost" mark is owner (risktaker) profit. In addition, the people who are financing these projects are also already getting paid via interest from credit, deposits, loans et cetera. That $350 project cost also includes insurance, employment taxes and employment insurance.

I'm not entirely sure of how significant the risk actually is but it is a racket.

Why are not more buyers made aware that mortgages, from FHA loans to large commercial buildings, can have renovations bundled into the mortgage itself? Why pay for flipped property when one can buy the property, hire professionals, renovate it and still pay far less than what a flipped property would have gone for?

I've been researching some new buildings that have gone up in Manhattan... the funny thing is that many of the buildings are valued for far less than what their construction cost was and far, far less than what they're being sold for.

I catch these types of shows when I am visiting mom. I always here people say "I don't like the carpet (wall color etc)" It is always about style never about it being dingy. Would it kill these people to have that carpet for a few years until they switch it? They rule houses out based on the simplest things to change. I would start with location because it cannot be changed. I am probably a bit different though since I am deeply concerned with walkability and ease of commute. If you don't care about that how about floor plan? It is tougher to move walls than to paint them.

I think Steven Ward nailed it people want to live like renters in the homes they own; better yet, like hotel guests. if everything is included and in good shape, the closer they are to that ideal.

"if everything is included"

I'm no Realtor or real estate lawyer but that sort of thing bothers me to no end. Anything that's not nailed down or glued down is not real property or a fixture of real property.

Are you buying a $200,000 property or a $180,000 property with $20,000 worth of add-ons. Because the value of your house is really only the $180,000 and probably a lot less than that.

However, I think my larger more serious point is what should the expected benefit be of the owner of the property?

Should we markup property 20%, 30%, 40% because someone owned it for a few months, paid interest and did repairs even if cosmetic?

Should a real estate company charge double their construction cost because they offer the only condos with garbage disposals and half bathrooms? Should they have this high of a markup even if they plan on collecting residual fees in the form of commons or association fees?

Should someone be paid $100,000 dollars for flipping a small house?

Uxbridge I ask these kind of questions a lot myself even though I know asking "should" is basically pointless.

Should flying away on a family vacation involve a rent-a-cop going to second base with your wife, daughter, or mother?

Should, at the very ffffffffing least, there be some criminals from wall street on trial since over 1,000 bankers went to jail during the S&L meltdown?

Should we live in a world where children die every day from lack of food or antibiotics?


Would a limit on the % of profit you can make on a flip have helped to prevent the current real estate crisis? Who knows, but I can tell you profit is number one. Nothing else is even on the radar. Corporations will lie, cheat, steal, poison the environment, and ruin the entire planet if given the chance as long as their is short term profit in it for them.

You're politicizing to an uncomfortable point.

The idea is this:

Architects, engineers, planners, interior designs and even construction workers get paid whether the building sells at cost or at a ridiculous markup.

That's because an Architect's fees are built into the "at cost" price.

If we could educate the public in general and put pressure on banks to include renovations and repairs as a standard practice in mortgaging, it would actually benefit the public as a whole.

Architects, contractors and engineers would have more stable work and income. Owners could keep the value they create rather than mortgage that value to pay others. Construction and materials costs would be more accurately represented if the market pressure was more geared toward the general public. It would also let people purchase properties for closer to their appraisal value rather than their market value. And lastly, we wouldn't have such hyperinflated real estate.

Flipped properties and new development were great for local government with diminishing tax basins. They were great for people making the money off of them. But they're a bad apple in the bunch now.

I am not sure what the confusion is. It is simply supply and demand.

If I was buying a place and I had $300k to pay I would not buy a place for $300k, put $50k into renovations to make it worth $400k. I would have $300k and that's it.

I, like almost anyone buying, would rather have had someone else (ie the 'flipper') do the work prior to me getting there. No one wants to deal with crap like that, and that's how value is added - someone is doing what others dont' want to do, creating a product others want and selling it for a profit (whatever the market allows).


Personally, I bought my place to not have to do any renovations. Why would I want to be paying for renovations (via your suggestion), before I needed to make any? Who's to say what level I'd want (am I going with Whirlpool or Viking, walnut floors or oak, radiant heating, etc.? Endless variables, each one impacting the value of my place afterward, potentially).

I would not pay a penny more than what I wanted, as that would be money that I could use to invest elsewhere.




Lastly, there were many factors in the bubble. Again, it was supply and demand. The banks didn't set the prices of real estate, they were the enabler that allowed over extension of loans. Appraisals were also part of the problem (homes didn't get loans without an appraisal). It was a systemic problem, but 'flippers' were just people that figured out how to make money by adding value to the properties they bought and resold.

Personally, I see nothing wrong with anything 'flippers' have done (I certainly considered doing it, but figured I was too late). They simply saw a market, worked hard, took many risks (and, indeed, I know of many that have gotten absolutely killed, just like any re developers). Some did well, some did horribly.



Just like re development, there is no reason architects cannot take a piece of the pie. They would, however, have to take the risk on associated with it.

Markets to an amazing job of correcting themselves, just as they did with the stock market and previous re bubbles. Developers take that risk that they'll get caught on the downside, but that risk is why they also make a ton of money when things go well.




Oh, and I'll put money on that the people you are referencing for your show are dead now, values back at next to nothing with lofting loans out. 2007 was a long, long time ago.

if we limit the discussion to residential, i think it's pretty obvious that 99% of mortgagers have one mortgage (and only want/can handle one mortgage), are scared shitless about major renovation, have heard tons of horror stories about unscrupulous contractors (and architects), and don't have the skill set or mind-set to tackle the risk of doing the work themselves on what, at the time, seems like an open-ended proposition.

most people need to know what their mortgage will be to a high specificity - renovation overruns are too risky - even if they ultimately might have a lower mortgage if they did it themselves.

bird in the hand.

I don't know about you guys, but I am honored to be a box on a realtor's property amenity list. "Designed by architect" should be worth at least an additional $20 grand that I, of course, never saw.

Uxbridge sorry to take it there. When you say politicizing though I don't see those issues as left or right even though they may propose different solutions. Those are extreme examples. I realized long ago almost nothing happens in this world because it "should." The only person you can control is yourself so I try to make little adjustments in what I do.

Posting this?

yep

Value is perception.

A house worth 300K can be short sold for 200K. A must have lot with a view can be sold for 10x the lot across the street.

All pricing is emotional and not based on actual costs. BTW: no one cares but you the amount of blood sweat or tears that goes into a project. so get over yourself and price what you can.

In the end the price is what two people are willing to exchange for.

Remember, everything is negotiable. Any price can be changed since it just a number. It was made by a human and can be changed by someone.

It is a long way around to set your own price and make it as high as you can get away with.

dsc you are ignoring the FACTS that banks were using special appraisers who would come up with a number they liked. Not on every single appraisal, but this was a systemic problem not an isolated incident. They also removed themselves from any liability with the default swaps. They were negligent on their due diligence to to see if buyers were qualified because the risk was passed onto the mortgage backed securities investors.

So in the end flippers were able to reap huge profits not because of their business acumen, but because they exploited a flawed system.

for a more elaborate, and better phrased response see:

The 21 Absolutely Unbreakable Laws of Negotiating

http://www.scribd.com/doc/7323362/The-21-Absolutely-Unbreakable-Laws-of-NegotiatingBrian-Tracy

some examples:

1. The Law of Subjective Value: The value of anything is subjective; it is determined by what someone is willing to pay for it.

2.The Universal Law of Negotiating: Everything is negotiable.

All prices and terms are set by someone. They can therefore be
changed by someone

5. The Law of Maximization: People always strive to get the
very most for the very least in any exchange of time or money