We recently talked about the Golden State Killer’s house and I put together a poll. If this house came to the market, what sort of price reduction would you expect if any? Let’s look at the results and talk through some ideas.
POLL RESULTS: There were about 400 votes. Thank you everyone for voting. I’ll actually leave the poll open for a couple more weeks and you can vote HERE.
KEY POLL TAKEAWAYS:
- 37.6% said the impact would be 0-10%.
- 41% said the price discount would be 10-40%.
- 21% said there would be a discount above 30%.
- Most respondents hovered between 0-30%.
- Votes declined as price discounts increased.
THOUGHTS ABOUT THE GOLDEN STATE KILLER HOUSE:
Minimal impact & marketing: Close to 1 out of 3 people said this property would sell with a price discount of 0-10%. Thus there are a good number of folks who think either there could be no impact to value at all (or a minimal impact). I wish I had narrowed the poll down to 0-5% and 5-10%, but I can’t go back now. This result doesn’t surprise me at all because many real estate professionals and the public have said, “It’s probably not a big deal.” Yet to be objective, let’s not forget this home has a potential marketing issue because it has a smaller pool of buyers even willing to consider purchasing it. I’m not trying to sway opinions, but only saying let’s think about how a more limited pool of buyers might impact value before we claim there is no value issue.
No bodies or crime: One of the big conversation pieces over the past two weeks was that no crime actually occurred at the home, so there really couldn’t be any damage to value. I understand that sentiment, but let me play devil’s advocate. Why not? Close to 2 out of 3 people on my poll said there would be a diminished value despite no crime taking place on site. Also, many locals have said they would not purchase the home at all. So it begs the question, do we need bodies or a crime for there to be a stigma? This poll is nothing scientific, but a lack of bodies clearly didn’t matter to some respondents. I find it’s easy in real estate to make sweeping value generalizations, but I guess this reminds us to be cautious about that.
Selling at a premium: A number of conversations have suggested this property could actually sell for a premium. I completely agree there are buyers out there who would pay more for whatever reason. Yet to be fair (and technical), do these buyers represent the market? Would the market as a whole pay more for this property? That’s the big question to ask when it comes to thinking through value.
Market value: If we lined up 100 qualified buyers to purchase this home, and they were informed that a notorious rapist and murderer owned the home, would it matter for value? There might be individuals willing to pay a premium, or some who wouldn’t care, but what about the market as a whole? That’s the big issue, and it’s frankly challenging to answer a question like this. In fact, there are entire books written about detrimental property conditions, so I won’t pretend this is an easy issue to dissect. Let’s remember banks lend on market value too instead of one individual buyer’s perception of value, which underscores the importance in thinking in terms of the market.
Housing shortage isn’t the trump card: We have a sincere housing shortage right now, so I’ve heard things like, “Because there is a lack of inventory, this isn’t going to be a big deal for buyers.” I think there is something to that because when inventory is low, buyers tend to overlook some negative issues. Likewise, when there are too many homes on the market, negative issues stand out like a sore thumb. So there’s some truth here. Yet my observation is that a housing shortage has not been the ultimate trump card for other homes with negative issues in today’s market. What I mean is buyers have exhibited sensitivity toward overpriced homes and properties with adverse locations or issues. Again, I’m not saying there is a price reduction for this property, but only that a housing shortage has not seemed to erase negative issues for other properties in the market. Yes, buyers are desperate to get into contract, but at the same time my sense is they’re not so desperate that they’re overlooking negative things either.
I know I sound like an advocate that there is a price reduction, but if you read carefully I haven’t actually said that. I’m only bringing up ideas to help us think critically. I welcome your take in the comments. And let’s hope we do get to see this property sell so we can see who answered correctly in the poll. 🙂
I hope this was interesting or helpful.
CLASS I’M TEACHING: Next week I’m doing my favorite class at SAR called “How to think like an appraiser“. It’s from 9-12pm on June 1st. We’ll talk about comps, adjustments, value, etc… It’ll be fun. You’re invited.
NOTE: This is not a scientific poll. Take it for what its worth. Let’s think critically about value and have conversation. That’s the goal.
Questions: What do you think of the poll results? Would you buy this house? I’d love to hear your take.
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You are likely correct that selling at a premium does not represent typical buyers in “The Market”. However, the property may have a significant amount of publicity and notariety. In the case of the subject property in your article this amounts to free advertising to a wider than usual audience in a National or even International Market. If this is true then careful consideration should be given to an alternate definition of “The Market”.
Super luxury properties with very large marketing budgets are worth the same consideration. Loosely defined as cash buyers, with special interests. In atypical cases determining the most reasonable definition of “the market” could require a good deal of research on the part of the appraiser.
Thanks Mike. I appreciate it. That’s a great point and I think we do have to consider there could be a specialized buyer for a property like this to a certain extent. Lots of eyeballs will be on this property if it does come to the market. Yet eyeballs don’t always lead to offers. I recall that one “record-breaking” $250M listing in Bel-Air last year that is now listed at $188M (which includes $30M in art and cars). It had worldwide attention, but the price apparently wasn’t right, so it did not sell despite the attention and clicks.
Interesting post, Ryan. I actually chose a percentage reduction higher than most. I can’t wait until it sells to see the stigma attached to it, if any at all.
Thanks Tom. We’ll see. I think the knee-jerk response from many is to say there is no reaction at all. I hope this one comes to market so we get to see. I know some very bright minds who have said 20-30% easily. We’ll see.
We had a property in my market sell years ago that was owned by a raper and killer. The property was purchased by a concerned citizen who tore it down and then sold the lot. It was not a market transaction and I don’t know any more details than that.
Thank you Gary. That’s interesting to hear. I wonder if any crimes occurred at the house. I’ve definitely heard of this happening. I wouldn’t be surprised to see something similar in this case, though I would guess there are far more buyers who would actually live there too. Yet there are definitely people out there with lots of cash and a big heart though…
Such an interesting topic. Since none of the crimes occurred there, some may not have an issue with the house- however, if the house becomes a focal point of the investigation, if suddenly there is a high percentage of traffic of the curious onlookers, or if they find substantial evidence at the home, that may change the minds of those who previously thought lack of crime scene wouldn’t deter them from purchasing. Thanks for keeping us thinking, Ryan.
Thanks Shannon. I’m fascinated with this topic and I’m glad you are too. This really is all about thinking through the issues, and I find there are quite a few layers here to consider. Even the comments on this thread challenge us to think about aspects of value (like Mike above talking about what the true market is here).
The Sacramento Bee actually ran an article about the subject this morning, which will hopefully fuel more discussion. Here’s the story:
http://www.sacbee.com/news/business/real-estate-news/article211756644.html
Any onlookers who clicked over from the Bee can comment. I’d love to hear your take. Just so you know, the first comment on my blog is always moderated because that helps weed out spam comments. Then all other comments are posted automatically. I accept all comments unless they’re mean, spam, or inappropriate somehow. So bring a take if you have one. Let’s talk shop.
Great article! Keep us all posted.
Great article Ryan! It is interesting to see people’s reaction to this kind of stigma. To your point, it does seem that when we are in a market like the current one, negative influences seem to have less impact on market value. Especially on less diabolical influences like a residential property being on a street with heavier traffic or next to a commercial property. I have definetly observed this over the years. Thanks for a great article and excellent thoughts as always!
Thanks Jamie. I appreciate your take as always. It’s fascinating how that works. The level of supply really can make a difference. At the same time buyers these days seem almost more finicky at times despite a housing shortage. What I mean is they are very picky despite having anemic inventory. They have more data than ever at their disposal they know as soon as homes hit the market, but they are also patient. Granted, they are frustrated to have to make so many offers to get one accepted, and to maybe spend longer looking for a home, but they are still seemingly patient about waiting for the right home.
Congrats on today’s SacBee article – great job 🙂
Thanks Kaye. I appreciate it. 🙂