A Palm Springs house sold for $1.3 million in 2023 after zero days on the market. It previously sold for $611,000 in 2021. How is that possible?

This is the dream, but what is the reality?

This is the dream, but what is the reality? – Getty Images/Image Source

PALM SPRINGS, Calif. — In the photos, the swimming pool is a sparkling blue. In reality, the water has turned green from algae, and the house viewing only went downhill from there: Someone had stolen the pool equipment, an increasingly common crime in these parts.

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As we came to the end of the viewing of this once-upon-a-time million-dollar home, there was the roar of a jetliner overhead. We looked up, looked at each other, and looked up again at the airplane. The broker showing the house was nothing if not candid. “We’re under the flight path,” he said.

Property records show that this modest house at 2190 North Deborah Road in the Desert Park Estates neighborhood of Palm Springs was bought for $611,000 in 2021 and then sold for $1.3 million on Feb. 2, 2023, to a limited-liability property-investment company based in Sacramento.

Days on the market? Zero.

That’s a 113% price increase in a market that had slowed down considerably from the pandemic-era frenzy. This mother of all house flips has now ended up in a bank-owned short sale less than one year later. It’s currently listed for $625,000. How is such a story possible?

The 1,242-square-foot, three-bedroom home sits on a quarter of an acre in one of the most desirable cities in California’s Coachella Valley, but it’s not in one of the best neighborhoods. And even with a new kitchen, bathrooms and swimming pool, the house — using the prices of homes in the immediate vicinity as a guide — is not worth more than the $611,000 paid for it in 2021.

‘I had a buyer before we listed’

William Green, an out-of-town real-estate agent based in San Diego who sells properties in Palm Springs, represented both the buyer and the seller when the property was sold in April 2023. “I had a buyer before we listed, so we didn’t even need to put it on the open market,” he told MarketWatch.

Green said that’s not uncommon. “That’s how buyers get an edge,” he said. “They reach out to every realtor in town. There are a whole lot of deals that are off market. Most dealers don’t post them on the MLS — the multiple listing service — so people can see what homes are selling for. It helps buyers and sellers stay informed.”

Local real-estate agents say buyers don’t need an edge in this market where a double-edged sword of restrictions on short-term rentals and persistently high interest rates have put a damper on the property market, particularly houses in the price range where buyers typically need a mortgage.

Green was also listed as both the buyer’s and seller’s agent on another house, 2002 North Whitewater Club Drive, in the same Desert Park Estates neighborhood that sold for $1.4 million in March 2023.

It’s an almost identical story: The seller had purchased that property for $750,000 in 2022 and added a new pool, kitchen and bathroom. The buyer — coincidentally, the same limited-liability company that bought 2190 North Deborah Road house for $1.3 million — also defaulted on this property. It was subsequently offloaded in a short sale for $635,000 in January 2024.

Green said investment companies buy up a lot of properties at the same time and then run into trouble. He said he does not remember the names of the appraisers on either of these properties, but added, “They were local and selected at random by the buyer’s lender. Just an FYI: We are still seeing sales in the $1.2 million to $1.5 million range in this neighborhood.”

Zillow gives $771,955 as an average price for Desert Park Estates.

It’s a cautionary tale — for the bank that loaned the money, at least — set in a Southern California city famous for its mid-century architecture.

A statue of Sonny Bono, the singer, actor and politician who was mayor here in the late 1980s and early 1990s, welcomes visitors arriving at Palm Springs Airport. Bing Crosby, Lucille Ball, Frank Sinatra, Liberace and many other celebrities from Hollywood’s golden age have owned homes here, lending glamour to the area.

The Coachella Valley is a diverse collection of communities — from cities like La Quinta and Rancho Mirage, which are widely seen as places offering plush, gated communities for wealthy retirees, to cheaper areas like Cathedral City and Desert Hot Springs.

It’s a mid-century fantasyland — or at least it seems like one if you’re an out-of-town buyer unfamiliar with the neighborhoods, or a bank loaning money to that out-of-town buyer.

Upon closer inspection, even at a $625,000 sale price and a discount of 52% on the 2023 price, the promise of this North Deborah Road property quickly starts to unravel. There’s no furniture, just the dusty remnants of a recent, modest renovation — a ghostly reminder of lost dreams in this desert paradise.

Is this listing a portentous sign that 7% interest rates and lingering uncertainty about a sometimes baffling postpandemic economy are taking a desperate toll on house prices? Or is it, as one commentator called it, an “Airbnb bust” due to a crackdown by Palm Springs on short-term rentals and a sign that prices here are in a “free fall”? Or is there some other explanation?

How could a property that was purchased for $611,000 in 2021 be flipped for $1.3 million two years later? Green said the buyer was aware that the city had clamped down on short-term-rental permits and was not planning to list the property on Airbnb. “They wanted to turn it into a sober-living home,” he said. “They’re popping up all over the place. It’s not a popular investment strategy, but I’m seeing more of that.”

Would you have paid $1.3 million for this three-bedroom home?

Would you have paid $1.3 million for this three-bedroom home? – Photo: Quentin Fottrell

Real-estate values in Palm Springs, located 100 miles east of Los Angeles, took off like a rocket during the pandemic. Prices rose 62% from January 2020 to January 2024, according to estimates from Zillow Z, as locals sold their homes to remote workers and retirees who were keen to escape crowded urban areas.

“Early 2022 was insane,” Stephen Burchard, a Coachella Valley broker, told me. “It reminded me of the San Francisco Bay Area during the dot-com boom. The value of properties went through the roof during the COVID rush — upwards of 60% over list price.”

Offering golf, palm trees, sunshine and a slower pace of life, this area is also popular with snowbirds. “We saw an eastern migration before COVID,” Burchard said. “COVID just put that on steroids. The demand for properties tripled in late 2021, 2022 and the first half of 2023, until the [Federal Reserve] started to bump up interest rates.”

Madelaine LaVoie, another Coachella Valley broker, also recalled the pandemic years as a strange time. “If you had a $500,000 house, some buyers were signing for $600,000. It was a frenzy,” she said. The good times didn’t last forever, though: The peak came in April 2022, after which prices fell by approximately 25%, she said.

By April 2023, the Palm Springs property market was in a funk. That’s when the house on North Deborah Road sold at a 113% premium on its 2021 sale price.

The dramatic rise and fall in the home’s listing price over a three-year period raises several questions that are not related to the pandemic boom: What happened that caused the buyer — a limited-liability company set up in January 2023 — to suddenly default on their loan less than a year after purchase, resulting in a short-sale listing at a bargain-basement price? (The company could not be reached for comment.)

In March 2024, the house cannot be mistaken for a $1.3 million home, even if the current listing promises a “perfect” Palm Springs retreat and continues: “Enjoy a stunning backyard with [a] brand new pool and spa surrounded by beautiful landscaping.”

That’s standard language that could be applied to any modest tract house as much as to one of the luxury mid-century mansions in the chi-chi area of Old Las Palmas. However, the land around this house mostly consists of weeds, gravel — the crushed stone known colloquially as “desert gold” — and a few trees and cacti.

The disheveled appearance may indicate that the agent believes it’s the price, rather than the trimmings, that will sell this home. It is, after all, a bank-owned short sale, meaning the lender of the existing mortgage on the home is allowing it to be sold for less than the amount owed. Any buyer will have to pay a $10,000 processing fee.

The Coachella Valley is popular with tourists as well as retirees.

The Coachella Valley is popular with tourists as well as retirees. – Getty Images/iStockphoto

‘Don’t pay $1.3 million in this neighborhood’

A cap on permits for short-term rentals was introduced in Palm Springs in November 2022, when the city imposed Ordinance 75. No more than 20% of homes in neighborhoods here can be used as short-term rentals.

And while it’s been a bumpy ride for house prices in this area, they have broadly stabilized. Zillow’s median price in Palm Springs fell only 1.5% from January 2023 to January 2024. The National Association of Realtors, meanwhile, says prices here actually rose 4% over the same period.

Alex Dethier, the Palm Springs real-estate agent who sold the North Deborah Road property to an investor in 2021 for $611,000, said he believes that was a good price for the area. What would he say to the person who paid $1.3 million in 2023?

“If they were my clients, I’d tell them, ‘Don’t pay $1.3 million in this neighborhood,’” he said.

Other would-be investors who are interested in running a short-term-rental property should know that this part of town already has roughly double the number of permits now allowed under the 20% cap.

This important piece of information is readily available to all buyers: The City of Palm Springs’ website warns prospective buyers about Ordinance 75 in large, bold, red type, clearly signaling a warning to prospective buyers. It even provides a detailed breakdown of the allocation of permit allowances per neighborhood via online maps.

Palm Springs is widely celebrated for its mid-century architecture.

Palm Springs is widely celebrated for its mid-century architecture. – Getty Images/Image Source

Do your own due diligence

There is a lack of inventory in Palm Springs, which is also a persistent national problem frustrating buyers, Burchard said. This is helping push some buyers further north into what some people regard as less desirable neighborhoods. But every buyer should look at what other houses on the same street have sold for in recent years.

The situation with the North Deborah Road property runs counter to what holds broadly true in Palm Springs, local realtors say. Prices have fallen or stabilized for average priced homes where most buyers require a mortgage, but an 113% increase during this more tepid market is highly unusual and, compared to the rest of the market, definitely an outlier.

“The prices of luxury properties — with cash buyers who are not tied to interest rates — have continued to increase,” Burchard said. “Prices have not crashed. Everybody has been expecting this crash. That is not going to happen.”

And older Californians have incentives to upgrade, he said, noting that people 55 and older are allowed to transfer their property tax three times and adding: “A lot of people who are over 55 don’t know anything about this.”

As the North Deborah Road conundrum suggests, the Palm Springs area has many distinct neighborhoods with their own pros and cons. As one local resident commented: “It’s not the Movie Colony.”

The California Desert Association of Realtors says prices overall are tracking above a 5.5% annual trend line seen for the past 20 years, and it sees that trend continuing. It’s obviously in the group’s interest to paint an optimistic picture, but recent trends appear to support a stabilization of prices. Zillow sees flat prices nationally in 2024.

None of that data explains the stunning price rise and fall on North Deborah Road. For buyers, it’s the $1.3 million question: How do you — or your bank — avoid a similar real-estate disaster? The answer: Whether you are a financial institution or a buyer, do your own due diligence. Investigate the property and surrounding neighborhood to make sure there are no nasty surprises.

As Dethier noted: “It’s crazy that someone came in and bought this house at that price.”

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– MarketWatch illustration/iStockphoto

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