Eyes Wide Shut | 3091 6th Street [Notable Sales]

Thinking about building your dream home in Boulder? Let's talk about development risk. 

Remember, intelligent real estate decisions are based on deep market knowledge. 
The Hall Family House in the 1940's

Owned for decades by the Rouse family, 3091 6th Street is a worn-out two bedroom home in Newlands at the corner of 6th and Evergreen. Built in 1940, there isn't much to the house. It's a simple ranch style home and it's been a rental property for many years. 

Ownership of this house dates back earlier than the Rouse Family. It was once occupied (and likely built for) Leonard and Clara Hall. If that name sounds familiar, it's because the Hall family have lived in Boulder since the 1870s and their family members continue to contribute to our community today.

January 24, 2019 | Listed for sale at $1,289,200.  

March  6, 2019 | Offer accepted.

March 13, 2019 | Buyer #1 applies for a demolition permit. 

March 22, 2019 | Permit issued for demolition, expires September 16, 2019. Apparently the past ownership of the house wasn't a factor in granting the permit. Or maybe staff missed it. 

April 12, 2019 | Sold for $1,052,500 a massive 18.4% discount

July 24, 2019 | Buyer #1 applies for permit again, this time via their architect. Note the new application says additional time required due to asbestos abatement. Oops.

Buyer #1's Potential Home Design

August - December 2019 | Buyer #1's reckoning. While we don't know what actually happened during this time period, we can take an educated guess. Likely, Buyer #1 figured out how much construction was really going to cost and the absurd length of time it was going to take. Hint: $400/SQFT is a good ballpark. 12 to 18 months is a realistic estimate of time. 

The property is also on a corner lot, which creates restrictions. It is oriented east/west, which casts longer shadows, creating even more limitations. Perhaps this led to design compromises. 

Did their Realtor mention any of these things?  

January 29, 2020 | Buyer #1 bails out and lists the property for sale at $1,095,000. Concept drawings are included in the listing (above). 

February 18, 2020 | Sold this week for $1,200,000 - 9.6% over asking

What Happened?  
1. In the first sale, 3091 6th Street was listed on the wrong MLS. Only a small portion of the market likely saw the property. 

Many Realtors don't subscribe to both REColorado and IRES (although they should). IRES dominates the market in Boulder and points north. REColorado dominates the market in Denver and the Denver suburbs. These MLS systems will share data again at some point in the near future.

Remember: when you limit the buyer pool, you risk leaving money on the table. This is one of the challenges with pocket and coming soon listings. As a seller, unless you're deeply confident that you're getting market value (or a premium for exclusivity), you should think twice before selling in a private deal. 

Next time, choose a better Realtor

2. The best use of this property is almost certainly to demo it and build a modern home. The location is extremely attractive and there's a lot of value in that dirt lot.  

Why not buy it as a rental? It wasn't going to have cash flow, not even close. The cap rate would have been far too low. So, who would likely be a buyer? A developer, whether for themselves or speculatively for profit.  

The problem is that the home was built in 1940. Demolition requires an additional layer of historic review. This creates added risk for the buyer, and the seller likely wasn't advised to alleviate that risk by filing for the permit herself. If you're smart like Buyer #1, you see that as an opportunity. So you put it under contract and then apply for the demolition permit yourself prior to closing. 

Remember kids, risk and return have a relationship. As a seller, when you leave risk on the table for a buyer to solve, you also give up substantial sums of money. Again, choose your Realtor carefully. The buyer's gain is the seller's loss.

What's In Your Wallet?
The difference between sale #1 and sale #2 was $147,500 (before transaction and carrying costs), a good portion of which represents lost money for seller #1. It was money that could have been unlocked by applying for the demo permit herself, presenting a competent architect's conceptual drawings, and listing it on the correct MLS.  

By doing the extra work and negotiating well, Buyer #1 acquired the property at a steep discount. This left plenty of room to pay commissions, architecture fees, and initial labor costs to remove the kitchen and mechanical systems. Typically when a buyer has to get out of a real estate development project they acquired less than a year ago, they lose their shirt. Yes, even in Boulder (see She Loves Me, She Loves Me Not). Instead, Buyer #1 probably cleared about $50K. 

Why Didn't They Build a Dream Home? 
Maybe there was a change in personal circumstances. Or more likely, maybe they discovered that new construction costs in Boulder today are often $400/SQFT or more. That adds up quickly for a 3,336 SQFT house (the maximum floor area in RL-1 zoning for this home's lot size). Don't forget, there are also additional limitations due to the fact its a corner lot. 

The cost of construction would likely have added $1.3M to Buyer #1's initial acquisition cost, and at the end of the day, they would have been into it for about $2.4M. Don't forget to add 12 to 18 months for construction to be completed. Plus, the unknown costs for deconstruction, which now includes asbestos mitigation.  

Even in Newlands, $2.6 to $2.8M is not going to be an easy sell for a house that is only about 3,000 SQFT. I'm sure that's what a developer would want to target for this project to be profitable. And on top of that, there's an increasing chance that the economy might be in a recession in 12-18 months, meaning longer carrying costs. 

As for the new owner, in exchange for bailing out Buyer #1, they have a near shovel-ready project. Public records don't show they've received a new demolition permit as of yet. Perhaps they're just starting the process. Hopefully their Realtor helped them do their homework and they went into it with eyes wide open. 

Just remember, when it comes to due diligence and intelligent real estate investing, hope is not a strategy. I look forward to seeing what the new owners do with the property.

Osman Parvez  is the Founder and Employing Broker of House Einstein. Originally from the Finger Lakes region of New York, he lives in Boulder with his wife and their Labrador Retriever. He has been a Realtor since 2005.

Osman is the primary author of the House Einstein blog with over 1,200 published articles about Boulder real estate. His work has also appeared in many other blogs about Boulder as well as mainstream newspapers, including the Wall Street Journal and Daily Camera. For more information, click HERE.

Fresh Listings | Our review of the most compelling new listings to hit the Boulder real estate market.| Subscribe

Socials: FacebookTwitterInstagramYouTube

Thinking about buying or selling and want professional advice?  Call us at 303.746.6896. Your referrals are deeply appreciated.  

The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties. House Einstein strongly recommends conducting rigorous due diligence and obtaining professional advice before buying or selling real estate Cover Shot: Uto

Please Note

This document contains forward-looking statements. You are strongly cautioned that investment results are subject to business, economic and other uncertainties. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time. Always consult your financial advisor before making an investment decision.