Sellers hit by falling home values Some owe more than house is worth

November 29, 1992|By Ed Van Herik and Russ Britt | Ed Van Herik and Russ Britt,Los Angeles Daily News

Tom Beezy priced his four-bedroom house right last November when he put it up for sale at $534,000 -- or so he thought.

"I figured to sell at $490,000," Mr. Beezy said. But the market was cold and he had to lower his price several times for his Bell Canyon home in suburban Ventura County.

In September, he accepted an offer of $390,000 -- not much NTC more than the $370,000 he paid for the property four years ago and less than the total he had invested after improvements.

Across Southern California, sellers are finding out that prices are not what they were three years, two years and even just a few months ago.

Don Anderson, incoming president of the Antelope Valley Board of Realtors, estimates that some homeowners have seen their home values drop by as much as 25 percent in the past two years.

The declining market raises a troubling question for homeowners: What's my home worth?

Buoyed by the blistering run-up in home prices in the late 1980s, many homeowners planned lavish retirements or dabbled in real estate investments to enhance their lifestyles.

Faced with declining home prices, some owners today are being forced to scale back their lifestyles. Others who bought or refinanced in the late '80s are faced with the prospect that they now owe more on their house than what it's worth, making it impossible to refinance again or sell without putting up more money.

John and Sally Dietz now are faced with an uphill battle to sell their home in the high desert city of Lancaster, northeast of Los Angeles. The couple, who bought for $110,000 in 1987, took out a second mortgage when the home's value shot up to $155,000 and now are trying to sell even though they know their home has fallen in value.

The house was appraised in April for $123,000, but the couple put it on the market for $129,000, which would pay off their loans, a real estate broker's commission and some closing costs.

John Dietz said they need at least $119,000 to get out without a loss.

"That's just what I need to clear my loan," he said. "I don't want to walk away from it. But if I don't sell, I will."

Jennifer Jones, an agent in nearby Palmdale, said an owner who moved to Omaha, Neb., had to bring $20,000 to the table in order to close the deal on his home.

"I think he just wanted to sell it. He knew he was going to take a hit," Ms. Jones said. "He could have gotten more for it if he had more time."

Real estate agents rely on the sales prices of nearby, similar properties when determining the value of a home, but their estimate is just an educated guess.

While it might be easy to set a price on a tract home in a subdivision, making an estimate on an expensive custom home can be difficult, especially if few homes have sold nearby.

An appraiser will inspect the home and draw up a cost estimate of what it would take to build the home from scratch. He then compensates for depreciation, adds in the price of the land, and makes an estimate of what he thinks the house is worth, said Klaas Bos, president of the Appraisal Group Inc. in Pasadena.

"It's not an exact science," he added.

When Terry Martini in suburban Sherman Oaks decided to sell her house, she couldn't find any reasonable comparisons for her 2,800-square-foot residence.

Relying on a old appraisal of $465,000, she priced the property at $495,000. It sold recently for $365,000.

"Three years ago, I could have probably gotten $500,000," she said.

But today, the sagging Los Angeles economy, coupled with faltering consumer confidence, has driven down home prices as more homeowners put their properties on the block.

Today's buyer wants a bargain, said Ms. Martini's agent, Bud Margolin, and some agents tell their sellers to price their property a few thousand dollars lower than surrounding properties to lure buyers.

Mr. Beezy's agent, Jill Alpert of Fred Sands Realtors, had suggested a price reduction that made the hillside home the cheapest in the area shortly before it sold.

Because of the continuing drop in prices, real estate agents say it can be difficult keeping an accurate fix on exactly what a home is worth.

"Since the first of the year, home prices are easily down 10 percent," said Ron Prectl, an agent with Century 21 Lamb Realtors in Northridge, a Los Angeles suburb in the San Fernando Valley. "Prices we put on a house a few weeks ago aren't necessarily the case now."

Some real estate agents say that the decline in prices is likely to accelerate as financial institutions take back more properties in foreclosure.

Financial institutions often lower the price of homes they have seized below market price to sell them faster. Because of those discounts, the rest of the property around them will also be devalued.

"I don't think even appraisers know where the bottom is," said Mr. Bos.

Real estate analysts say the only one sure gauge to determine the value of a home is to put it up for sale.

"It's worth whatever someone will pay for it," Mr. Beezy said.

Many homeowners develop an emotional bond with their home that makes it hard for them to discount the price.

Some home sellers, reluctant to reduce their idea of the home's value, are slow to face up to the demands of today's declining market. Mr. Prectl said that many will lower their asking price, only to find that the market is dropping faster than they are.

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