Personal Finance

Create a company that offers short selling homes?

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  • Dec 13th, 2013 10:18 pm
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licenced wrote:
Dec 13th, 2013 8:54 pm
Techrium, that’s not a bad ‘how to short real estate’ idea. My thoughts on such is to:

1) find a homeowner who believes the market will crash
2) the homeowner and seller will agree on an independently appraised value. (AV)
3) the homeowner will choose a rate of decrease (D) and determine a future value. (FV)=AV(1-D)
4) the homeowner will choose an evaluation date by which the decrease must happen.
5) the parties draw up an agreement. 99% of ownership is turned over in trust to the short seller who in turn, places in trust, collateral equivalent to FV. Homeowner continues to be liable for all expenses.
So basically a futures contract. As I suggested earlier to techcrium.

Valuation is, of course, the problem. Even different appraisers will come up with different things. And a comprehensive formula would be needed to adjust for things such as maintenance, owner additions, owner damage/impairments, etc. that may influence the value.
The question is, would it be considered gambling or trading illegally under some law or other?
I don't see why it would be. The problems largely turn on the whole issue of actually establishing a valuation for a single house. As opposed to using an index which presumably averages out far more samples and is less prone to manipulation by either side. After all, in the case you describe, it would be awfully easy to slip an appraiser a few bucks to change his 'opinion' one way or the other.
Lot going on in the background so I hope I don’t have any formulas backwards.
I understand what you're saying, its basically identical to a futures contract.
TodayHello wrote:
Oct 16th, 2012 9:06 pm
...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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This will never work in real life, but it will most certainly work in bored rfd's head.
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provocateur wrote:
Dec 13th, 2013 9:15 pm
This will never work in real life, but it will most certainly work in bored rfd's head.
Yeah, you're probably right, but certainly there have been lots of great businesses and business ideas that have come about over the years through people thinking out of the proverbial "box". I hope techcrium isn't discouraged from such. Its, at the very least, a good mental exercise for him to understand why doing such against an individual house is highly problematic. And the better approaches that are perhaps out there.
TodayHello wrote:
Oct 16th, 2012 9:06 pm
...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Mark77 wrote:
Dec 13th, 2013 9:01 pm
So basically a futures contract. As I suggested earlier to techcrium.
Yes a futures contract, Techrium obviously understands his scenario can only be a future's contract.
Valuation is, of course, the problem. Even different appraisers will come up with different things.
Not a problem between agreeing parties -don't make it more difficult than it needs to be.
And a comprehensive formula would be needed to adjust for things such as maintenance, owner additions, owner damage/impairments, etc. that may influence the value.
No such agreement needed and the homeowner would be a fool to undertake any additions or improvements. Damage and repairs would fall to the homeowner under expenses.
The problems largely turn on the whole issue of actually establishing a valuation for a single house.
Well then this establishes that calls for a collapse of 50-70% is also void of proper evaluation. One cannot predict a 50-70% market collapse then hedge their bets by saying, 'oh but it may not happen to house 1 through infinity.'

And that's exactly what the crash proponents are saying, isn't it? Yet, when faced with a 'hedge' against their bet they find excuses.
As opposed to using an index which presumably averages out far more samples and is less prone to manipulation by either side. After all, in the case you describe, it would be awfully easy to slip an appraiser a few bucks to change his 'opinion' one way or the other.
Index, schmindex. And I said an independent appraiser. They can be had by throwing a dart even and having the lawyer for both sides of the agreement handle the choice.

Of course, if one likes to talk more than act or leans toward conspiracies, they'll find a way to never take a challenge.
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licenced wrote:
Dec 13th, 2013 9:19 pm
No such agreement needed and the homeowner would be a fool to undertake any additions or improvements. Damage and repairs would fall to the homeowner under expenses.
That's not practical. And who determines the repairs required? I mean, there's lots of stuff that can be deferred maintenance-wise or repair-wise on a house. But sometimes those deferred repairs are not good. So you'd need a comprehensive formula for such.

In aircraft leasing, for instance, the contracts are fairly elaborate and include performance tests on the engines, as well as the requirement of ongoing legal airworthiness. But to implement such on a house, wow, that would be difficult.
Well then this establishes that calls for a collapse of 50-70% is also void of proper evaluation. One cannot predict a 50-70% market collapse then hedge their bets by saying, 'oh but it may not happen to house 1 through infinity.'
Huh? Where did that come from? Totally out of left field, this isn't a thread to discuss RE prices or future RE prices, its a thread techcrium started to discuss a method of profiting from RE falls or at least facilitating a market in such hedges/transactions.

Index, schmindex. And I said an independent appraiser. They can be had by throwing a dart even and having the lawyer for both sides of the agreement handle the choice.
Same lawyer can't represent both sides. You should know that.
TodayHello wrote:
Oct 16th, 2012 9:06 pm
...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Mark77 wrote:
Dec 13th, 2013 9:24 pm
That's not practical. And who determines the repairs required? I mean, there's lots of stuff that can be deferred maintenance-wise or repair-wise on a house. But sometimes those deferred repairs are not good. So you'd need a comprehensive formula for such.
No formula is needed. I specifically said the homeowner is responsible for expenses which means the contract will reflect that including the requirement for the homeowner to keep the property in a good state of repair, and if it is mortgaged, that requirement is already there. Do you want fine print or just splitting hairs on a preliminary outline?
In aircraft leasing, for instance...
Stay on topic please.
Huh? Where did that come from? Totally out of left field, this isn't a thread to discuss RE prices or future RE prices, its a thread techcrium started to discuss a method of profiting from RE falls or at least facilitating a market in such hedges/transactions.
It came from you when you trie to collect brownie points for stating it's "a future's contract."
Same lawyer can't represent both sides. You should know that.
Yes, of course I do, I've stated here on RFD numerous times, it was obviously a gramattical error writing the lawyer for both sides, it should have been: the lawyers for both sides.

Background stuff remember?
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licenced wrote:
Dec 13th, 2013 9:43 pm
No formula is needed. I specifically said the homeowner is responsible for expenses which means the contract will reflect that including the requirement for the homeowner to keep the property in a good state of repair, and if it is mortgaged, that requirement is already there. Do you want fine print or just splitting hairs on a preliminary outline?
"good state of repair" is a subjective term. Come on, as someone involved with RE, you've probably seen tons of houses that have been in varying states of repair. What one person considers "good repair" is different from what another person may consider "good repair". Unless you adjust for that, certainly there's a problem with coming to a valuation and/or to an adjustment.

At least with futures contracts on a stock versus short selling, all you really have to worry about are significant changes to dividend policy. And if you get into the nitty-gritty of options contracts (ie: read the OCC reference contracts), there is usually provision for adjustment to contract terms when large one-time dividends are paid out.
Stay on topic please.
That is on topic; in some forms of contracts that require the return of the underlying asset to the original owner, ie: aircraft, there are very rigorous tests/measurements of the maintenance required, and financial adjustments that are made. To make it fair, you would have to replicate such for a house, which, I would submit, is virtually impossible.
It came from you when you trie to collect brownie points for stating it's "a future's contract."
Yes. Nothing to do with RE prices or the 50-70% decline prediction of mine whatsoever (which was mostly in reference to and relative to the stock market). So why you brought that up with the other snide remarks, I don't know.
TodayHello wrote:
Oct 16th, 2012 9:06 pm
...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Stop Mark77, you're out of yor depth. Good state of repair means precisely that. It is different to 'good working order' which is what you're obviously confused about in that working order means that it only has to be working, 'good', in that regard is subjective. Good state of repair indicates it must be kept to the same standards as at the date of the agreement IOW - not sub-standard and not less than as it was on the date of agreement.
Mark77 wrote:
Dec 13th, 2013 9:49 pm
"good state of repair" is a subjective term. Come on, as someone involved with RE, you've probably seen tons of houses that have been in varying states of repair. What one person considers "good repair" is different from what another person may consider "good repair". Unless you adjust for that, certainly there's a problem with coming to a valuation and/or to an adjustment.
Off topic.
At least with futures contracts on a stock versus short selling...
That is on topic;...

Yes. Nothing to do with RE prices or the 50-70% decline prediction of mine whatsoever (which was mostly in reference to and relative to the stock market). So why you brought that up with the other snide remarks, I don't know.
You've been calling for a 50-70% crash so there is nothing snide about the remark. And you can stop with the "snide" accusations since you frequently engage in them yourself.
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licenced wrote:
Dec 13th, 2013 10:07 pm
Stop Mark77, you're out of yor depth. Good state of repair means precisely that.
No you stop! In order for such a contract to be workable, you would need to define such in actual contract language. Because you may have a different idea of what 'good state of repair' means compared to the next person.

Even as a renter dealing with various landlords over the years, I've seen a disparity between what my own beliefs of "good state of repair" is versus the landlord's. One landlord with-held a few hundred from my damage deposit to clean carpets which I left perfectly clean minus reasonable wear and tear. Two others returned my damage deposit in full.

See the problem this causes?
It is different to 'good working order' which is what you're obviously confused about in that working order means that it only has to be working, 'good', in that regard is subjective. Good state of repair indicates it must be kept to the same standards as at the date of the agreement IOW - not sub-standard and not less than as it was on the date of agreement.
Except you can't define that in actual contract language very easily. Its practically impossible in the practical sense!
Off topic.
No, not off topic at all. In that case, if the airplane is not legally airworthy, then it does not meet the standard for re-delivery. If it is later discovered to not be legally airworthy because of the use of non-airworthy replacement parts, then there is legal recourse to take legal action against the lessee for re-delivering a non-airworthy aircraft.

Compare this to a house. If the stove breaks, is the lessor obligated to replace such with a brand new stove, or can they replace such with a used stove? What about the roof, if the roof is replaced, is the pro-rated cost of the roof credited against the return? See the problems here? Maintenance on a house can't just be confined to the phrase, "good state of repair" as obviously that phrase means different things to different people.
You've been calling for a 50-70% crash so there is nothing snide about the remark. And you can stop with the "snide" accusations since you frequently engage in them yourself.
Hardly, you started injecting off-topic nonsense into this thread.
TodayHello wrote:
Oct 16th, 2012 9:06 pm
...The Banks are smarter than you - they have floors full of people whose job it is to read Mark77 posts...
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Mark77 wrote:
Dec 13th, 2013 10:13 pm
No you stop! In order for such a contract to be workable, you would need to define such in actual contract language. Because you may have a different idea of what 'good state of repair' means compared to the next person.
No you do not! Conversely, to agree to keep the property in 'a state of repair' arguably means the property is to kept in need of repair.

Conversely it can be said:

in a sub-standard state of repair

in an above average state of repair

in no need of repair

That's all that is required to answer your post.

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