Economic theory suggests when the supply and demand curve intersect the optimal price of a product is realized. In real estate we tend to be a bit more into ‘plain speak’, so we’d say any house has a buyer at the right price. Normally I’d agree, even the ugliest most haggard house in Calgary can and will sell quickly at a low enough price. Just the other day we offered asking price on an old bungalow in a good area, it had strong rehab potential. Everyone else seemed to think so too and it sold the first day on the market at over list price with multiple offers.
Why then has a rough, old, unwanted and neglected house in inner city Calgary, with a good size and zoning (rc2), in a very good neighbourhood, near a really nice green space and skating rink, adjacent to the bike route downtown not sold after so long? Surely dozens of eyeballs have scrutinized this place and all come to the same conclusion to cross it off the short list.
Priced at $518,900, 2503 12 ave sw should be able to sell given a casual glance. It is under the market price of a similar Rc2 zone property in the community. It even sits on a corner meaning it generally has a premium to sell because it is easier to access and up-zoning potential to the row house zone is quite feasible. The problem is that the house is rough enough that no end user or retail buyer wants to live in it, and no investor wants to pay the asking price and make repairs because the yield is too low. I’d declare the yield is non existent, and for an old house with a lot of potential costly trouble areas it could take a lot of money to make it habitable for years to come. And after sinking many new dollars into it, you’ve still got a crappy old house. So issue a), it is not appealing to home buyers, and issue b) it is not appealing to investors to rent out. That must mean it appeals to builders who want the lowest cost land possible to demolish old houses and build new semi detached homes? Yet due to the location, overlooking the highway into downtown the setting is really unattractive to a builder. The builder would have a really rough time selling the finished houses to, you guessed it, retail home buyers, who tend to be extremely picky when selecting a home. So issue c) with this property, it isnt appealing to builders either. That means this house is basically appealing to nobody, thus it hasn’t sold. And the tale grows worse, let’s discuss issue d) there is a major retaining wall failure along the side property line. This retaining wall is holding up the grade on the neighbours higher side. Regardless of who’s fault this is or what must be done, this is a costly disaster. It’d be most unappealing to an investor because fixing retaining walls has no value or rental yield. Perhaps a builder would be able to tackle this with the house demolished, but then you are coordinating working on a neighbours property to dig in a new and very costly wall, that likely is the neighbours responsibility to manage. That means wasted time, aggravation, and potentially unsafe worksite conditions. If you add up a+b+c+d you’ve got a nightmare scenario. A pity this lot sold for $510 back in 2013, there may not be even enough equity in the property to deal with the slope stability problem.
So why dont they just drop the price until such threshold is reached that it now appeals to somebody? Well, to me, as the potential builder buyer I really dont want it even at $100k less. I dont think I even would want it at $150k less (after deducting the cost to fix the retaining wall). For me, I’d have to discount whatever I build there by some unknown but colossal sum, making it very risky. There is a good chance that even after factoring in a mighty discount I still would be stuck with it (my own unsellable property). And the horrible location does not translate into lower construction cost to rebuild on it.
What you find in the inner city is cost to build anything, anywhere, is remarkably similar. To get designs made, pay for city fees, dig a basement, pour concrete, buy lumber, these inputs are not related to ‘value’. They just cost the same everywhere. If you are going to incur a lot of input costs, you are best served to funnel your investment into a worthy location where the additive sum of the parts will be something the end buyer will value. With 2503 12 Ave SW, there simply isn’t anyone yet willing to invest real dollars, at 2020 construction pricing into such a flawed location.
The fallacy of the realtor community (generally), and the owner of this property, is they have this mindset that the locational harm of the value of this site is only a small amount compared to a much better location. So they come to the quick conclusion that a house in community X is worth $600k, so this one must be worth that same $600k less a small chunk taken out, say $80k. Yet we’ve found that after so long on the market, the market is now clearly saying the 2503 12 Ave site is not worth the discount they are offering. This is because they are unaware that the investment to rebuild this site isn’t just the land cost, it is also the build cost which cannot be discounted very much over competing prospects. If the build cost to do a new semi detached home is $800k, then the land at $519k represents only %40 of the project cost. But the discount they’ve offered to the builder from a value of say $600k to $519k is $80 or 6% of the project cost. To the builder, 6% is a tiny amount to save compared to the future discount of the newly built home (I am guessing $200k of project value is harmed).
Given these rough numbers, it appears I’d need another $200k of discount to be attracted to the property. That’d put the land cost at $319k. Yet even at that number I’d have some serious reservations. This is because my personal effort to build a house is identical on a good lot vs a bad lot. I don’t want to undermine my management efforts by directing them into a bad site, when I could easily buy a much better property that I'd be excited to work on.
I doubt the owner would ever sell at a price I’d offer to buy this lot at. They’d be insulted by the bid, or feel I’m trying to steal it. This is why I have declared the property at 2503 12 Ave Sw to be unsellable. Now that I’ve gone ahead and published my thoughts on this site, it will probably sell! But it won’t be to me. The future of this property is unknown, but I suspect that it may require extremely tight market conditions where buyers are less discerning and more willing to overlook horrible problems like soil stability and imminent retaining wall failure, traffic noise and poor resale potential.
