If you asked 10 people what a typical Detroit home is worth from a photograph, you would get 10 different answers ranging from say, $5,000 to $100,000. Each of them would be able to justify their response. This would be the result of what we call buoyancy in the marketplace…
Why so much buoyancy?
Well, there are a lot factors to this answer. Scandals and subsequent bankruptcies have lead to thousands of foreclosures since the great recession. The federal forgiveness programs allow for banks to sell low and then be fully reimbursed as a Quid Pro Quo for not going after homeowners who defaulted. There is also the great Millennium migration back to Detroit, fueled by Dan Gilbert’s focus on redeveloping Detroit, which sky rocketed values.
On top of that, there is HUD and Fannie Mae discounting homes every day. Fannie Mae selling at deep discounts have depreciated Detroit’s property values. Fannie Mae and HUD seems to sell everything for 50% of what the last comps were, thus pushing prices down. Foreclosure prices on the other hand are beginning to rise, because banks are no longer getting reimbursed – THANK GOD!
The most starling example of this is a house on Dale Street just north of Puritan, less than 200 feet inside the city. In September 2017, a willing buyer offered $55,000 and wanted to assume an existing mortgage in the amount of $50,500 and pay $4,500 down. The bank said no, (I guess the bank thought the property was overpriced and wanted to take advantage of the reimbursement program). The bank did agree to a $25,000 short sale. Everyone was happy. Then in October, the bank asked the seller to reimburse them for the shortfall. Wow! Did something happen between September and October? I say yes. I speculate that the Trump administration terminated the bank reimbursement program at the end of the fiscal year (9/30/17) and this deal was caught in-between. Does this mean that banks will now stop shorting property values and creating artificial comps? And will HUD do the same thing and let arms- length agreements rule? We will see…
With all of these different factors simultaneously at play, no one in their right mind can say for sure what the hell a piece of property is worth. I got an appraisal the other day on a 2,800 sf house on Atkinson near 12th street. The “as is” value came back as $30,000 but the after repair value (needing $35,000 in improvements) is valued at $195,000. I now have a purchase agreement on it for $220,000 that gives the buyer a $30,000 repair credit. Go figure….. To further add to the equation, a 2,900 S,F. house around the corner on Edison is selling for $335,000.
So, what is the house on Atkinson really worth? You can see how there is a reasonable answer anywhere between $30,000 and $250,000. This still doesn’t fully answer the question though. What is real estate really worth in Detroit. Let me answer it this way and you can figure this out yourself.
I closed on a duplex on Evergreen near i-96 freeway for $65,000. The comps showed $40,000 but the buyer really wanted the deal and ignored the comps. At the closing I asked to see the appraisal and was somewhat shocked that the value was exactly $65,000. The bank said AND the title company representative confirmed “99% of the house come back for the exact sales price”.
So now you have your answer. The value is generally what 2 people agree on, in other words the purchase agreement rules, but only if banks and HUD get out of the way.