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Friday, July 31, 2009

New Forms, Cont.

"Memo to Edina Realty Sales Associates"

Literally as I was writing the previous post discussing form changes, I received an email from Edina Realty's excellent legal department walking company Realtors through the highlights, form by form.

Here's an excerpt:

It's almost August, and that means it is time for the MNAR forms changes. The new forms should be used on all deals entered into on or after August 1, 2009.

Here are the changes for 2009:

Septic System Disclosure.

The septic system disclosure -- currently titled "Private Sewer System Disclosure Statement" -- will have a new name based on a change in the law. It will now be called . . .

The actual memorandum goes on for several pages, and is the private property of Edina Realty. So, I'm not going to reproduce it in its entirety here.

The point is, your Realtor (and their Broker) have lots to keep up with, to do a good job representing you.

New Real Estate Forms

Changes to MN Forms Effective Aug. 1

Effective tomorrow (Aug. 1), the forms listed below have all been updated or changed.

Do you know what's in the new forms?

Your Realtor does (or better, very soon).

In fact, several companies specializing in continuing education for Realtors offer classes each August to educate Realtors about the changes. Big brokers like Edina Realty typically offer such training in-house.


Thursday, July 30, 2009

New Bubble, Same as the Old Bubble?

Be Careful What You Wish For

Recession-Plagued Nation Demands New Bubble to Invest In
--headline, The Onion (7/14/2008)

Like many readers, I'm delighted that my decimated (and much too modest) stock portfolio is showing signs of recovery.

On the other hand, I'm leery that the gains are for real.

As I see it, first came the 90's stock market bubble, fueled by Internet mania. Then came the housing bubble, engineered (or not) to counteract the effects of the punctured stock market bubble.

And now . . . exactly what?

The makings of another stock market bubble, to speed recovery from the housing bust?

I don't make stock market calls -- staying on top of the housing market is hard enough.

However, it's hard to escape the fact that better-than-expected corporate earnings -- supposedly the fuel behind the market's 40% pop since March -- are characterized by two things: 1) they're good only in comparison to previously lowered estimates; and 2) most companies are making money -- or losing less -- thanks to cost-cutting rather than top-line (revenue) growth.

To me, neither of those make for the underpinnings of a sustained, new bull market.

Or, maybe I'm just a spoilsport.

Wednesday, July 29, 2009

Blog Rankings

The Twin Cities' 40th Best RE Blog? Really??

Run a Google search on "Twin Cities' best real estate blog" and what do you find?

Not this blog.

At least, not in the top 25 hits ("City Lakes Real Estate" was actually 40th as of this morning -- at least before this post pushed it up several notches).

Instead, you'll find a (mostly) motley collection of stale blogs, non-blogs, and completely inactive blogs.

Case in point: according to Google, the 19th-highest rated Twin Cities real estate blog is something called "Broker Eric Kodner's Twin Cities Real Estate Blog."

Last post (out of less than ten total)? February, 2009. That's how many fresh, topical posts (if I say so myself) there have been on this blog in the last week.

Dear Reader: Any Suggestions?

Nothing against Mr. Kodner, but it's hard to compare his blog with one that's been mentioned or quoted in The New York Times,, Star Tribune, Pioneer Press, etc. numerous times the last year.

[Sorry, had to get that off my chest -- can you say, "Google" and "pay-for-play"??]

P.S.: to be fair, included in the top Google hits are some excellent local real estate blogs, including Teresa Boardman's St. Paul Real Estate blog and Alex Stenback's Behind the Mortgage.

P.P.S.: if you regularly read this blog, and have a suggestion on how to remedy this problem -- at least one that doesn't involve my paying buckets of money to Google -- please feel free to call (612-925-7701) or email me at Thanks!


Translation, Please


--new MLS listing (7/29/09)

I certainly admire the listing agent's intention: to cram in as much useful info about this home as possible, to entice prospective Buyers.

However, at some point, more is, well . . . less.

The all-block letters don't help either. As anyone who's used email for more than an hour knows, that is the online equivalent of screaming.

The preferred way (at least in my opinion) of telling the market about the home's various features is to list them in a supplement.

Everything But a Headline

If you don't know Realtor-speak, here is the same paragraph in plain English:

Well-designed, stylish 2-story custom-built in 2005. Maple floors throughout Living Room, formal Dining Room, Office & Kitchen. Luxury stainless steel appliances -- granite countertops, ceramic tile baths. Four bedrooms up -- master bedroom has a walk-in closet, whirlpool tub & separate shower. Speaker system; premium heating, ventilation, & air conditioning; & security system. Egress window & rough-in bathroom in lower level.

For the record, substituting "&" for "and" is fine . . .

P.S.: As a sum-up headline -- which the listing badly needs -- here's my suggestion: 'This House is Loaded!"

"The Aristocrats" for Business Journalists

Michael Lewis on Goldman Sachs

"The Aristocrats" is one of those iconic (and very off-color) jokes that every comedian of a certain stature feels compelled to put their own comedic imprimatur on.

In fact, the movie of the same name is nothing but a collection of famous comedians telling exactly the same joke, in their own, inimitable styles.

Weighing in on Goldman Sachs is fast becoming the equivalent for business journalists.

Here is an excerpt from Michael Lewis' somewhat belated (but very worthwhile) take, written from the perspective of an imagined Goldman Sachs foot soldier:

The bozos at Merrill Lynch, the dimwits at Citigroup, the nimrods at Lehman Brothers, the louts at Bear Stearns, even that momentarily useful lunatic Joe Cassano at AIG -- all of these people took risks that no non-Goldman person should ever take, in a pathetic attempt to replicate Goldman’s financial returns.

For too long we have allowed others to emulate us. Now we are working productively with Treasury Secretary Tim Geithner and the Congress to ensure that we alone are allowed to take the sort of risks that might destroy the financial system.

--Michael Lewis, "Bashing Goldman Sachs Is Simply a Game for Fools";

Read the rest of the piece . . . Lewis is superb.

Tuesday, July 28, 2009

So is it Bottoming??

May Case-Shiller Numbers: Is the Worst Over?

It's tough to make predictions, especially about the future.

--Yogi Berra

If I told you a stock that had been selling for $30 three years ago was now $20, and hadn't fallen any further in the last few months, could you confidently say that it had bottomed?

It would all depend, you'd say.

On the company's business prospects, competitive posture, service and product line(s), etc. Plus, the performance of the broader economy.

That's how I feel about forecasting housing prices from here.

Except that the applicable variables are things like (un)employment, GDP growth, interest rates, etc.

Tankers vs. Speed Boats

So, is it the bottom??

Consider this joke about CPA's:

When asked the color of a horse standing in a pasture, the CPA answered, "this side appears to be brown."

In that spirit, I'm prepared to say that, for now, the housing market appears to have bottomed.

P.S.: the best argument I'm aware of in favor of a housing bottom is that, unlike stocks, housing market cycles tend to be big, slow-turning affairs with lots of inertia. Think of it as tankers vs. speed boats.

May '09 Case-Shiller Stats

Market Snapshot: Case-Shiller vs. Ross Kaplan

According to the just-released S&P/Case-Shiller home-price index, Minneapolis home prices rose 1% in May. If you like raw statistics, the May number was 109.77, vs. 108.51 in April.

Notwithstanding the "scientific" ring of such precise numbers, my Realtor's, "boots-on-the-ground" take is that things are much more amorphous.

Here's what I can confidently report as of late July:

--the window for getting a great deal on a foreclosure is closed, at least for now. The supply is down dramatically, and anything priced below market routinely draws multiple offers, negating whatever discount there may have been.

--the top end of the Twin Cities market -- high six figures and above -- remains very soft, with supply approaching almost 3 years.

--Overall Twin Cities inventory has quietly shrunk, from a peak of 34,000 units, to about 23,000 units now. Given that a balanced market is high teens, and a Seller's market mid-teens or lower . . . downward price pressure has clearly abated. In other words, we're bottoming (I do believe the Case-Shiller numbers are correctly reflecting that).

--That said, the "wild card" now isn't supply, but demand. Specifically, stuff like wages, jobs, and consumer confidence. The Buyers I'm working with are pleasantly surprised by their choices, but still quite cautious.

As I've previously written on this blog, the "one-size-fits-all" approach to the local housing market obscures lots of nuances.

Monday, July 27, 2009

June New Home Sales

Exactly Where Are All Those $206k New Homes??

As [new home] sales rose, median prices . . . continued to fall, slipping to $206,200 from $232,100 in June a year ago.

--Jack Healy, "New U.S. Home Sales Rise Sharply as Prices Fall"; The New York Times (7/27/09)

The big financial headline today is an unexpected monthly rise in new homes sales. According to the Commerce Dept., June sales of new, single-family homes increased 11%, to a seasonally adjusted rate of 384,000.

What caught my eye, though, was the median price: $206,200.

Suffice to say that that's not the price of new homes going up in Edina, around Minneapolis' city lakes, or in Minnetonka.

Rather, that's the price of new homes in places like Albertville, Ostego, and Farmington -- areas 30 miles or further away from the city center, where developers threw up tract homes by the thousands.

Closer in, new homes are strictly custom, one-at-time "leapfrogs" from former tear-downs to, well . . . something much nicer.

A quick look on MLS confirms that.

Since 2008, 24 new "spec" homes (built for resale) were listed in MLS Areas 300 and 309 (roughly covering from Cedar Lake to Lake Harriet).

Average price: $1.03M. Median Price: just under $800k.

(The difference is explained by several, extremely high-end new homes in Lowry Hill, which pull the average up.)

From Too High to Too Low?

A Tale of Two Homes

Where: 29xx Benton Blvd, just southwest of Minneapolis' Cedar Lake
What: 4 BR/4 BA; 3,100 FSF Colonial built in 1939
How much: sold for $641k (July '09); originally listed for $925k (April, '08). Tax assessed value: $849k.

Not convinced that overshooting on asking price can boomerang on a Seller (especially in a declining market)?

Consider this classic, 1939 Colonial just southwest of Cedar Lake, in Minneapolis' Sunset Gables neighborhood ("Exhibit A").

Originally listed at $925k in April, '08, it suffered six price cuts totalling $225k over a 13 month period -- capped by the biggest one of all: a $59k discount from the last asking price of $699.9k.

Ultimate sales price: $641k.

Three blocks west, my clients listed their very similar, 1937 Colonial at almost the same time -- Spring, '08 -- for $875k. Call it "Exhibit B."

Based on the feedback and showing activity, after a month on the market, I advised (and my clients agreed) to cut the price to $829.9k.

Six weeks later, they had a signed deal, and two months after that (Aug, '08), they closed.

Selling price: $790k.

"Where the Crisis Came From"

After Almost a Year, The Fog Lifts

Maybe it's just me, but it certainly seems as though, almost one year after the financial system's September, '08 "heart attack," some clarity and consensus are emerging about exactly what happened, and why.

If you've been on a desert island, read Robert Wilmer's excellent "Where the Crisis Came From" (Washington Post; 7/27/09). Consider this wonderful synopsis:

Wall Street created, originated and sold an alphabet soup of derivative securities, and it was such synthetic instruments -- not traditional mortgage loans, small-business loans or other standard lending originated by banks -- that unleashed a flood of credit, created a vast excess of housing, weakened the capital structure of the banking industry and undermined popular confidence in banks.

Like a slalom skier expertly hitting gate after gate, Wilmer gets every key fact about the financial crisis right -- until the end.

After detailing all the ways securitized debt and its underwriters have devoured the financial system --and co-opted regulators -- the last 20 years, Wilmer essentially appeals to Wall Street's sense of decency to correct things:

Corporate leaders have an obligation to set the right tone -- a moral tone -- lest public confidence in our private enterprise system erode.

Unnh-unh. Great analysis, wrong prescription.

People who have amassed the kind of power and wealth that Wall Street -- and specifically, Goldman Sachs -- has don't typically relinquish it voluntarily.

There's a saying, "power can't be given, it must be taken."

To that, I'd propose a corollary: ceded power isn't voluntarily returned, it must be taken back."

P.S.: it's not nearly as sensational, but Joe Hagan's cover story in this week's New York magazine, "Is Goldman Sachs Evil?," covers much the same ground -- and draws similar conclusions -- that Matt Taibbi does in his now infamous Rolling Stone piece.

Sunday, July 26, 2009

Choosing a Contractor

No News is Bad News

Today's Star Tribune features a homeowner's nightmare: a plumber hired to fix a major leak collected payment, started the work -- then disappeared, leaving the homeowner marooned in a non-functioning Kitchen turned inside-out ("Learning the Hard Way").

Apparently, the homeowner never did a background check on the contractor.

Which begs the question, would she have found something if she had?

The short answer: yes, if she was sophisticated and knew where to look. Otherwise, not.

To answer the question myself, I ran a Google search on the contractor's name and company -- Rodd Hansen, Advanced Plumbing Services.


Nothing (except, of course, today's Star Tribune article).

Next, I ran a search on on the contractor's name and company on Angie's List, an increasingly popular referral service.

Results? Again, nothing.

A Bulls Eye -- After Lots of Digging

Finally, I ran a search on the State of Minnesota's Department of Labor and Industry Web site.

After some digging around, I got a bulls eye: a 2008 enforcement action against the company for almost $10,000.

Unfortunately, the foregoing hit popped up only after rummaging around on the site for about 15 minutes. Afterwards, I tried to re-create my steps . . . . . and couldn't.

The moral of the story?

You can't count on bad actors leaving a trail. They can change surnames, change business names, move from state to state, etc.

It's also the case that burned customers are seldom eager to publicize the fact that they've been ripped off. Afterwards, it's often easier to just move on than to take the time to protect others (the subject of the Star Trib article should be lauded for doing just that).

Finally, as a former attorney, I can attest to the fact that even when contractors are successfully sued, the settlement terms frequently include confidentiality agreements designed to protect the contractor's reputation (or what's left of it).

No Trail = Red Flag

Instead, it's far likelier that a good contractor will leave a positive trail from previous, satisfied customers, in the form of glowing personal references, complimentary reviews on services like Angie's List, etc.

So, when it comes to choosing a contractor, it's safe to say that no news is definitely bad news.

P.S.: what about checking the plumber's Minnesota license? A good idea, to be sure. However, in this case, Hansen didn't have one -- and had a creative alibi for why he didn't: he told the client that MN and South Dakota had reciprocity (true), and that he was licensed in South Dakota (false).

How many people would have dug further to find that out?

Saturday, July 25, 2009

Immoral Hazard

Tasty Financial Nugget

This is the best financial "nugget" I've come across discussing the current state-of-all-things financial the last few weeks. Enjoy (or not):

The failure of a few companies is not evidence that capitalism has failed but evidence that it is working. Failure sends a message to other market participants that the practices that caused the failure should be avoided. That message applies not only to private companies but to the government institutions that also failed us in this crisis. Attempting to return to the status quo rather than allowing private company failures and reforming failed government institutions does not advance us as a society. It mires us in mediocrity.

--"A Colossal Lack of Judgment"; Alhambra Investments (7/19/09)

You can't put it more succinctly than that . . .

Friday, July 24, 2009

Showing "Short Sales"

Phew! And That's Just to Take a Look . . .

With a "traditional sale" (no bank involved), here's how Realtors set up a showing:

You call the listing agent's front desk, request the showing, and wait for a confirmation with showing instructions, i.e., lockbox code, alarm location (if any), etc. (Realtors can now submit showing requests online, as well).

In a "short sale," the bank is owed more than the home is worth, so has to give its approval before a sale can be consummated.

Given the long time lag involved, it's not unusual to have multiple prospective Buyers submit offers that may or may not have already been accepted, subject to the bank's approval.

Most Realtors don't want to waste their or their clients' time showing such a home.

To find out the "short sale" home's status prior to requesting a showing, here's the recommended protocol (courtesy of the MN Assn. of Realtors):

When offers have been received and submitted to the seller for consideration, but the seller has not accepted any of the offers, that is not a mandated disclosure. However,when setting up a showing appointment, if the buyer agent or the facilitator working with a buyer is concerned whether there are outstanding offers on the property, the agent should inquire of such from the listing agent. Or, when presenting an offer to the listing agent, the buyer agent or facilitator should inquire if there are any outstanding offers on the property. When asked, REALTORS®, with the authorization from the seller, shall disclose the existence of offers on the property. Where disclosure is authorized, REALTORS® shall also disclose, if asked, whether such offers were obtained by the listing agent, another licensee in the listing firm, or by a cooperating agent. The listing agent cannot lie, and if the seller has instructed the agent not to disclose the existence of multiple offers, the agent should respond by saying the seller has not authorized him/her to disclose that information. It is important to remember that a multiple offer situation is not a mandatory disclosure; rather it is up to the buyer agent or the facilitator to make such an inquiry.

Got all that?

Phew! (or as the natives say, "Uff-dah!")

You can navigate all that . . . or you could show another home (I hear that there are plenty for sale these days).

But Are they Financial Carrots?

Name That Caption

Pick the best caption for the photo above:

a. Government incentives to investment bankers to fix the financial system.
b. Bugs Bunny's dream come true.
c. The "all carrots, no sticks" food stand.
d. A bumper crop of carrots at the St. Paul Farmer's Market this year.

Answer: credit given for any of the above, but technically "d" is correct.

Thursday, July 23, 2009

"Psst! Make Me an Offer!"

Overpriced Homes And
Phantom Negotiating Leverage

Is a too-high asking price negotiating leverage?

Apparently, some Sellers today think that it is.

Instead of pricing their homes within the range suggested by the "comp's" (comparable sold homes), they stake out a price as much as 30% above.

Why? Negotiating leverage (presumed, at least).

When their home doesn't sell, as it invariably doesn't, rather than drop their price, they then instruct their Realtor to quietly put out the word that "the price is negotiable."

Memo to these Sellers: 1) the price is always negotiable, no matter what you're asking; and 2) if you price your home 30% above market, and it then sits for 6 months (or 2 years), it's not exactly a secret that you're overpriced.

Sellers who overprice invariably shoot themselves in the foot, for two reasons.

One. Homes aren't sold in a vacuum.

Rather, they're sold in the context of a peer group -- one that the Seller picks, by dint of their asking price.

If your home is really worth $500k, but you ask $650k, guess what? You'll be compared to $650k homes for sale and found wanting.

What happens next is that the overpriced home sits. And sits.

Which leads to . . . . reason #2:

Time on the market is a home Seller's enemy.

Depending on the price range, a for-sale home starts to look shop-worn anywhere between 3-6 months. After a year, there's actually a certain stigma: 'the Jones home? It's been for sale forever.'

Instead of feeling a sense of urgency and overlooking flaws, prospective Buyers circle at their leisure, zeroing in on the smallest blemishes.

The net result?

To overcome Buyers' skepticism, not only does the overpriced home Seller ultimately drop to market value, it typically overshoots on the low side.

Realtors, Wall Street & Fiduciary Duty

Goldman to Clients: You Shouldn't Have Trusted Us

If you didn't know, Realtors' owe their clients a fiduciary duty.

What does that mean?

Actually, quite a bit.

The legal definition of fiduciary duty has two components: a duty of loyalty, and a duty of care.

By definition, your Realtor knows more than you do about the housing market -- that's what you're paying them for.

The duty of loyalty means that they won't misuse that advantage.

On the contrary, Realtors commit to use their market knowledge and professional skills to serve their customers' best interests. As opposed to, say, their own.

Now segue to Wall Street.

Already, it's clear how Goldman Sachs, et al are going to defend themselves against the tsunami of lawsuits sure to be brought over trillions in securitized, mortgage-backed securities that Goldman helped sell.

As the world now knows -- and Goldman knew at the time, as evidenced by its bets against said securities -- the securities were ticking time bombs, destined to cost the purchasers -- their clients -- grievous losses.

Goldman's likely defense?

Not that it didn't do it.

Not that the housing market bust was an unforeseeable, one-in-a million occurrence (what statisticians call a "black swan event"). After all, Goldman not only foresaw the bust, but made billions betting on it.

But rather, that its clients were "big boys" -- sophisticated institutional investors who knew, or should have known, what they were doing. Boo-hoo.

Except that that's not what fiduciary duty is about.

Whether Goldman's clients were multi-billion dollar hedge funds or Daffy Duck, it was legally obliged to use its (undeniable) information advantage to act in the clients' best interests.

Instead, it knowingly harmed its clients while acting in its own interest.

If that doesn't constitute breach of fiduciary duty . . . the term's meaningless.

Wednesday, July 22, 2009

Deal . . or No Deal?

Submit Your Offer . . . Then Wait (and Wait)

Where: 29xx Ewing Ave. South, in Minneapolis' Sunset Gables neighborhood (just southwest of of Cedar Lake)
What: 1932 Tudor with 4 BR/4BA and 3,400 FSF
How much: $425k list price
Tax assessed value: $547.5k
When: went pending 7/21/09

Yes, the Kitchen was a bit dated and the home had some deferred maintenance. And the backyard was mostly eaten up by driveway. But this handsome, rock-solid 1932 Tudor just southwest of Cedar Lake had tons of period detail, 4 large bedrooms up (a rarity), and a particularly large Master Suite.

Factor all that in, and the asking price was easily $100k low.

What happened next?

The predictable "foreclosure feeding frenzy."

Scuttlebutt was that there ultimately were at least ten offerors on this home, who then had to cool their heels the next two weeks as the listing agent continued to show and market the home.

How much behind-the-scenes maneuvering do you think was going on in those two weeks?

How much do you want to bet that whatever discount there may have been originally was whittled down (or eliminated) during that period?

"First Come, First Served" -- Not

I'm certainly not a boy scout, and see nothing wrong with maximizing the owner's selling price -- after all, that's what Sellers pay their Realtors to do.

However, as remarked on this blog previously many times, the foregoing "sales strategy" -- vs. a more open, timely and fair approach -- leaves many Buyers feeling manipulated and cynical about how the real estate business works.

At least with respect to this corner of it, you'd be hard-pressed to argue that they're wrong.

P.S.: So, the Seller was someone who foolishly overpaid at the top of the market and got what they deserved, right? Not exactly. According to tax records, they bought in 1991 for $236k. You'd guess that they took out equity by borrowing against the home, then fell behind.

Sadly, this scenario appears to be increasingly common these days.

Tuesday, July 21, 2009

Seller's Seller's Disclosure

Are 2 Seller's Disclosures Better Than 1?

By law, Minnesota home Sellers must provide prospective Buyers with a disclosure detailing the condition of their home.

If one Seller's Disclosure is good, is a second -- the previous Seller's disclosure -- even better?

If the owner has been in the home a relatively short time -- say, less than 2 years -- definitely. That's especially true if the previous owner had a long tenure in the home and/or made major changes.

However, as the previous Seller's disclosure recedes in time, so does its significance.

Which isn't to say that it's not welcome if the current Seller provides a copy, for two reasons:

1) it telegraphs that the Seller has nothing to hide; and
2) from experience, I've found that Sellers who are meticulous about their record-keeping also tend to be conscientious about things like home maintenance.

Oak Ridge Foreclosure

Want Your Own Private Skyway?*

Where: 96xx Oak Ridge Trail in Minnetonka
What: 5 BR/4 Bath, 3,800 FSF contemporary on .5 acre lot
How much: $325,900 (asking price)
Tax value: $710,700

This sprawling, bank-owned contemporary (read, foreclosure) in Oak Ridge Trails seems like a screaming bargain. Until you go in.

While it appears (to me) to be structurally sound, everything else needs repair or replacement: the Kitchen, baths, flooring, siding, pool -- and, most ominously of all, the windows. Acres and acres of custom, deteriorating windows.

Like so many foreclosures, the asking price doesn't reflect the home's actual cost, but rather the price of admission; the ultimate Buyer will easily put more than that into fix-up.

Assuming they tackle it.

Given the surrounding, upscale neighborhood and very unusual floor plan -- although the home is listed as 5 BR, functionally, it feels like 2 -- it may very well be a tear-down.

*Although it's obscured by the tree in the photo, there is a second level walkway connecting the two "halves" of this home.

"Experienced Short Sale Agent"

Short Sale Agents Try to Reassure

With short sales* proliferating the last year or so in the Twin Cities, short sale nightmares have, too.

The most common complaints: endless delays, no communication from the bank(s), Sellers who don't tell Buyers about accepted offers even as they solicit more (since they're all subject to bank approval, there's no risk of selling the home multiple times).

To counter the fear that any deal will be a time-wasting quagmire -- and otherwise reassure would-be Buyers and their agents -- more and more listing agents (representing the Sellers) are now promising that they're "experienced short sale agents" on MLS.

Which begs the question: are they?

It's certainly not hard to find out.

You simply go to the MLS database, find the agent's ID, then run a search on "closed sales" with the agent's number.

So, what did I find when I checked out the "experienced short sale agent" listing a home my clients viewed last weekend?

The agent had closed a career-total of three properties, all condo's, none of which were short sales.

*A short sale is a home where the owner owes more on their mortgage than the home is currently worth. To sell, the bank(s) holding the mortgage must agree to reduce the principal that is owed.

Monday, July 20, 2009

"Top-Heavy" Inventory

Jumbo Prices, Jumbo Selection

I'm not a big wine drinker, but I've always believed that wine prices were characterized by a "law of diminishing returns."

In other words, while an average $8 bottle might be twice as good as an average $4 bottle, a $16 bottle probably isn't twice as good as $8 -- and $32 almost certainly isn't twice as good as $16 (I'm sure there are many wine aficionado's who would beg to differ).

Today's housing market seems to be characterized by the opposite phenomenon.

That is, the higher up you go, the better value you find. (see also, "$1 Million Buys a Lot of Home - Again").

$500k as Dividing Line

So, to go back to my wine example, at the moment a $750k house seems to offers more than twice the value as $375k, and $1.5M offers more than twice the value as $750k.

Just to confirm my own, very unscientific "gut sense" about today's housing supply, I ran a search segmenting housing supply by $100k intervals up to $500k, with everything over that lumped together.

I chose $500k because that's effectively the break point between homes that can be purchased with conventional financing (under $417k), putting 20% down, vs. jumbo loans, which are more expensive and difficult to obtain.

For my search area, I chose a broad swath of Minneapolis and close-in west suburbs; the boundaries were roughly Highway 55 on the north, Minneapolis' city lakes on the east, 494 on the south, and between 494 and 169 on the west. That pulled up 866 single-family listings, including homes in Minneapolis and parts of Golden Valley, St. Louis Park, Hopkins, Minnetonka, and Edina.

Here's the distribution I found:

Single family homes under $100k: 4

$100-$200k: 71

$200k-$300k: 212

$300k-$400k: 144

$400k-$500k: 92

over $500k: 343

What are the implications of this?

If you're a Buyer, and you can afford to move up in price, you'll avail yourself of a much greater selection -- and presumably, softer prices.

If you're a Seller with a more expensive home . . . you have lots of competition.

To stand out, you'll need to out-stage, out-market -- and yes, out-price -- your peers.

Sunday, July 19, 2009

CALPERS vs. Floyd Abrams

Unadulterated Securities? No, Chutzpah

Although the ink on CALPERS' lawsuit against the credit rating agencies is barely dry, already the legal strategies being marshaled by both sides are coming into focus.

In fact, S&P has already telegraphed its strategy by hiring Floyd Abrams, the subject of an interview in today's New York Times. Abrams, the country's foremost First Amendment attorney, is set to argue that S&P and Moody's "Triple-A" ratings on trillions in toxic, securitized debt is protected "free speech."

Yup, that's right: no different than this blog post, or the TV weatherman's prediction of tomorrow's weather.

You'd certainly hope that any truth-loving court eviscerates this argument, using the following logic:

There is little chance that a meteorologist has a financial stake in saying, “It’s going to be sunny.” The rating agencies, on the other hand, essentially get paid by the people who need a prediction of clear skies, and the customers can always ask a different forecaster if they don’t hear what they like. And all sorts of financial institutions are required by law to rely on ratings. (For instance, there are plenty of money market funds that can’t buy bonds unless rated triple-A.) That elevates the commercial importance of those ratings, which gives them a different legal status than, say, a weather report.

--David Segal, "A Matter of Opinion"; The New York Times (7/19/09)

As best I can tell, the only thing unadulterated coming out of the rating agencies these days is chutzpah.

Here's my "forecast": S&P's legal arguments don't hold water.

Pre-Thanksgiving Leftovers

Sizing Up (What's Left of) the Summer Market

Maybe it's just the unseasonably cool weather prompting thoughts of Fall(!), but here's how I see the Twin Cities housing market shaping up between now and Thanksgiving, when things traditionally slow down.

Basically, I think the sub-$500k market has different qualities before and after Labor Day (housing above $500k is likely to mirror overall economic strength or weakness).

Between now and Labor Day, Buyers will have the best selection, and can expect stronger (higher) pricing.

After Labor Day, that will reverse, and Buyers can anticipate softer pricing, but smaller selection.

Swimsuits -- and Houses -- in Feb.

That's so because the Twin Cities market still has a strong seasonal component, with "Spring" (beginning mid-Feb.) the busiest, and Nov. - Jan. predictably the slowest.

Think of it this way: if you listed your home in April, and still haven't sold -- it's time to get serious. Cut the price, invest some money in fix-up, make a final marketing push.

In fact, many home Sellers are already at this point, and alert Buyers will snatch up the most enticing of these homes.

Once this process is complete, what will be left on the market?

The true "leftovers."

Such Sellers will now have to overcome three obstacles: 1) even greater accumulated market time (referred to on MLS as "CDOM," for cumulative days on market); 2) a rapidly closing window to sell before truly cold weather arrives; and 3) a depleted pool of Buyers.

Offsetting these negatives will require a truly compelling (read, low) asking price.

Saturday, July 18, 2009

"To See, or Not to See?" (that is the question)

"Sold, Subject to Inspection" -- Explained

Upper bracket Twin Cities homes may not be moving quickly (if at all), but the pace of sales for more affordable housing -- say, under $300k -- is surprisingly brisk.

Accordingly, more would-be Buyers are being told that the home that they just asked to see is already "sold, subject to inspection," even though its status on MLS is still showing "active." (There's actually a further refinement to that status -- namely, either "good to show" or "no more showings." By definition, if the latter status applies, there's nothing for other, would-be Buyers and their Realtors to discuss.)

What does that mean? And what should prospective Buyers do with that information?

"Sold, subject to inspection" means that there's already an accepted offer on the home, but that the Buyer hasn't removed the Inspection Contingency yet. Until that happens, other Buyers are welcome to view the home (assuming the contract between the Buyer and Seller provides for that).

Which prompts the next question: should other Buyers still bother looking?

"To See, Or Not to See" (That is the Question)

Standard Realtor advice is "no." The reason is that the vast majority of the time (say, 85%-plus), inspections don't scuttle deals.

That's so either because inspections don't reveal any major issues, or, if they do, the Buyer and Seller are able to successfully negotiate them.

Per Minnesota law, a Seller who learns about a material defect in the course of a Buyer's inspection is obliged to update their disclosure. So, the choice they're confronted with is, reduce the sales price an appropriate amount now, with this Buyer -- or take a similar discount with any future Buyer.

Alternatively, the Seller can elect to fix the problem themselves, then put the house back on the market.

Either way, the cost of the repairs comes effectively comes out of their pocket.

Not surprisingly, most Sellers in this situation opt to "take their lumps" now, vs. later.

Inspection Blow-Ups

So what about the other 15%?

Three types of situations account for most of the "inspection blow-up's."

First, the inspection reveals a major issue, and the Buyer and Seller can't come to terms about an appropriate discount.

Given that there are standard price ranges for things like roofs, furnaces, radon remediation, etc., there's really no reason for that to happen if both sides are negotiating in good faith.

Second, the Buyer and Seller disagree about whether there is a material defect.

Fortunately, most home issues are objective rather than subjective in nature: the roof leaks or it doesn't, the heat exchanger in the furnace is cracked or it isn't, etc. Usually, bringing in qualified third parties -- typically, knowledgeable contractors -- can get Buyers and Sellers past this impasse.

The third type of inspection failure is when the inspection is such a disaster that the would-be Buyer isn't interested in negotiating a discount (however sizable).

More than most consumer purchases, for many people, a home purchase is especially emotional.

A disastrous inspection can cause the Buyer to "fall out of love" with a home.

When that happens, often times no amount of "rational" inducements (read, financial) can un-do the damage, and the best course of action is to simply move on.

Friday, July 17, 2009

"The Joy of Sachs"*

And Then There Were Two

Goldman and Morgan were assisted in a rather violent industry consolidation. They remain, more than ever, officially “too big to fail” (TBTF), so they know they can always request tax funds directly from the Treasury Department and elevate risks above competitors. With their enormous profits they can buy out any remaining politicians and expand their direct appropriation of taxes, pensions, and anything else they might want. They really should be congratulated. It isn’t easy toppling a large nation with barely a shot fired.

--post, Floyd Norris blog , "A Great Time to be a Banker"; (NY Times; 7/16/09)

No, the author of this post isn't Matt Taibbi (the "poster" is someone named Nelson Alexander).

And, yes, his analysis of what has transpired the last 18 months or so seems startlingly accurate (and depressing, and enraging).

Or, maybe it's just that I agree with it.

Here's my post on Mr. Norris' blog in response (yes, I occasionally contribute to other blogs):

Once upon a time, corporate charters were granted stingily, directly by the sovereign, on the condition that the recipient serve the interests of the commonweal. Can anyone argue that that’s what Goldman Sachs and JP Morgan Chase are doing today? Or have done the last 2 years — or twenty?

Forget the inevitable class actions suits to come, kicked off by CALPERS’ against the credit rating agencies. The judgments will be years in the coming, then appealed even longer (think, Exxon Vadez). Maybe it’s time to go for their jugular; they sure know how to go after ours!

--"A Great Time to Be a Banker", Floyd Norris blog (see, comment #28)

Want a more succinct take on all this? Try *Paul Krugman:

Goldman is very good at what it does. Unfortunately, what it does is bad for America.

--Paul Krugman, "
The Joy of Sachs"; The NY Times (7/17/09)

Assessing Solar

Solar-Powered MN Homes:
How Cost-Effective?

Quick quiz: which locale has more solar potential?

A. Florida
B. Houston, TX
C. Minnesota.

Answer: 3-way tie

Unfortunately, solar potential is only one piece of the solar equation; the other two are local electricity costs, and the cost of a solar panel system.

Ironically, at least in Minnesota, it's the (relatively) low cost of electricity that's the deal-breaker.

Even assuming a relatively high electric bill of $200 per month (average), you'd still only spend $2,400 annually, or $24,000 in a decade.

That same amount, $24,000, would purchase only a relatively modest solar installation that would defray -- but not eliminate -- your regular electric bill.

Mix everything together, and the payback period can be as long as 20 years.

A 30% federal tax credit makes the numbers much better -- but still likely not compelling enough for most Minnesota homeowners.

What could change that equation?

Some combination of rising (conventional) electricity costs, falling cost of solar panels and/or fatter government incentives.

Thursday, July 16, 2009

$1 Million Homes in the Twin Cities

$1 Million Buys a Lot of Home -- Again

As recently as 3 years ago, a million dollar home wasn't such a big deal in the Twin Cities.

Suburbs such as Edina and Minnetonka had literally hundreds of them; closer in, in Minneapolis, a home didn't even have to be particularly impressive if it was located on a city lake (or had a view of one).

Fast forward to today.

There's now a 31 month supply of $1M-plus homes for sale in the Twin Cities. That's how long it's projected to take for the market to absorb all the $1M-plus homes currently for sale. That compares with six months or so for more modestly-priced area homes.

On a purely subjective, Realtor level, I'm amazed at how much home $1 million actually buys today.

In fact, given the economy and tighter credit, the threshold for buying what many people might call a trophy home is probably more like $800k right now.

Fern Hill "Flip"

Latest Chapter in Fern Hill Foreclosure

Where: 26xx Kipling Ave. South (St. Louis Park's Fern Hill Neighborhood)
What: 3 BR/3 Bath; almost 2,800 FSF home
How much: $429,900 (Pending)
Market time: 2 weeks

This home caught my eye because: 1) it just went pending; and 2) I didn't recognize it -- and I know the area extremely well, having sold numerous nearby homes.

Further thickening the plot: the current owner closed just four months ago.

In fact, the home has been the subject of two previous posts on this blog: "What's Selling: Fern Hill Foreclosure"; "Multiple Offers and $40k Over Asking."

If you haven't already figured it out: this one was a flip -- a supposedly extinct (or at least endangered) species in today's housing bear market. The owner won a wild bidding war, paying $40k over the $165k asking price back in February.

They then did a gut remodel, adding more than 1,000 FSF (mostly in the basement).

Did they make money?

You'd certainly guess that they did.

Wednesday, July 15, 2009

How Many Parachutes?

Pick Your (Economic) Metaphor

The real question is, now what? Government interventions are only meant to light a fire under the real economy and unleash what John Maynard Keynes called our "animal spirits." But government dollars can't sustain growth.

Like it or not, the stock market is bigger than the Federal Reserve and the U.S. Treasury. The stock market anticipates only future profits and prosperity, not government-funded starter fluid. You can only fool it for so long. Unless there are real corporate profits from sustainable economic growth, the stock market is not going to play along.

--Andy Kessler, "The Bernanke Market"; The Wall Street Journal (7/15/09)

Kessler's is one of the better takes I've seen recently on "where we're at now" (a rapidly growing genre of Op-Ed pieces lately).

Here's my, somewhat starker take:

Parachute #1, monetary policy -- the Fed's control of (short-term, wholesale) interest rates -- has been fully deployed for quite some time. Once rates are zero, you're done. (Eventually, so-called "quantitative easing" ignites inflation fears.)

Parachute #2, fiscal policy -- also known as government spending -- has now been deployed in the form of what I'll call "TARP, SCHMARP, and GARP" (sorry, lost of track of all the ad hoc acronyms some time ago -- maybe that was the point).

The economy's rate of descent now seems to be slowing.

How far away is the ground? Do we have any more parachutes?

Stay tuned . .

P.S.: if you're new to all this economic metaphor-stuff, "soft landing" seems to get recycled every 10 years or so.

$200k Deals -- Then & Now

Today's Housing Market

The general public -- and particularly Sellers -- may not have absorbed the reality of lower housing prices. But Realtors sure have.

Three years ago, a $200k deal was nothing to get excited about (to say the least).

Now, it qualifies as an above average transaction in the Twin Cities (completely true; many foreclosures, which have accounted for half of all sales for much of the last year, aren't much over $100k).

In fact, as commented here previously, the drop in prices is not as bad as the reported numbers indicate.

But the reality is, foreclosures pull down all housing prices, and there are still plenty of them on the market, both locally and nationally.

The "It's-All-I-Can-Afford" Offer

Buyer's Budget as Negotiating Leverage

I'm seeing and hearing more instances of Buyers, in the course of negotiating for a home, instruct their Realtors (including, sometimes, me!) to tell the Seller that "that's all I can afford."

Is that a smart tactic?

I discourage it, for three reasons.

One. Sellers tend not to believe such representations.

The only way to really prove that the Buyer's offer is 100% of their budget is to put the Seller in touch with the Buyer's lender, then authorize the lender to share confidential information.

Most Buyers, understandably, would be reluctant to do that.

Instead, the convention has developed for lenders to generate a pre-approval letter verifying that the home in question is within the Buyer's budget.

Two. A home's fair market value and a Buyer's budget aren't related.

Whether Bill Gates or Joe Middle Class is the prospective Buyer, a home's value is still the same: whatever the "comp's" say it is. That is, how much the three most similar, nearby homes fetched, most recently. Period.

That's how Realtors assign value. It's how appraisers determine value. And that's how the Seller's expectations will be framed.

Put it this way: imagine your reaction if the Seller raised their price because you could afford to pay more.

(Can this be a factor in negotiations? You 'betcha. How much do you want to wager that ex-Green Bay quarterback Brett Favre, who's reportedly house-hunting locally, is buying through a corporation or other third party?)

Three. It can spook Sellers.

Signaling that the Buyer is at the very top of their budget can just as easily make a Seller skip the deal as bring them to heel.

That's because any hiccup -- like a jump in interest rates, or the home not appraising -- can derail the sale.

In fact, when I represent Sellers, one of my favorite questions to ask the Buyer's lender (yes, I always call) is how "stretched" or "comfortable" the Buyer is buying the home in question.

Hearing that "it's a close call" would hardly be confidence-inspiring.

Better Tack

Instead of putting a spotlight on the Buyer's finances -- except to establish that they're qualified -- I've found that a better tactic is to focus on value.

Specifically, to make the case that, based on the home's location, features, condition, etc., the Buyer's offer represents fair market value. If not more.

And rattle off all the competing, nearby homes for sale and how they (favorably) compare (assuming that that's true; if not, it can boomerang).

As a general proposition, home sellers usually accept the price they think is the highest they're going to get -- not the highest they believe any particular Buyer can afford to pay.

P.S.: One exception to the foregoing can be when the home's price starts to move out of the range that can be financed with a "conforming" loan (up to $417k). Above that, Buyers need a jumbo loan, which is both much more expensive, and harder to obtain.

Tuesday, July 14, 2009

Homes as Meth Labs

Balancing Home Disclosure Goals

Today's New York Times has a tragic story detailing the various health (and financial) calamities that befell one Tennessee family after they unwittingly bought a home that had formerly been used as a meth lab.

As recent Minnesota home buyers and sellers can attest, Minnesota requires Sellers to disclose whether their home had ever been used to make meth.

While my general stance is, "the more disclosure, the better," the meth disclosure seems questionable, for three reasons.

One. If you turned your home into a meth lab . . . . you're probably going to lie about it (and many, many other things) on the Seller's disclosure.

That's why Buyers should never waive having their own *inspector check out the home they're negotiating to buy.

Two. Little chance of financial recovery.

If a home Seller lied about a material defect -- and the Buyer can prove it -- they have grounds for a lawsuit. The ultimate goal of such a suit would be a claim for damages, or some other judgment against the Seller.

Meth lab proprietors typically don't have assets. Nor do they have homes (any more). They're usually what lawyers call "judgment proof."

So sticking them with liability for remediating meth contamination isn't going to do anything for the Buyer.

Picking Your Battles

Three. A very small sliver of the nation's housing stock is afflicted with meth-related contamination -- less than .02% of the nation's single family homes, or 2 in 1,000.

Even that number arguably exaggerates the risk. According to the article, the problem is concentrated in the South and West, and even there, is primarily in rural areas (it's hard to have a clandestine meth lab in an apartment building).

Given the horrific consequences of meth exposure, even a minute risk might warrant making the real estate buying public aware.

However, that goal needs to be balanced against another, practical consideration that's as or more important.

Namely, if you make the Seller's disclosure sufficiently long -- which is probably already the case -- no one will pay attention to any of it.

*As part of a home buyer's inspection, I always recommend talking to at least one neighbor to get the "scoop" on the house, block, etc. In the NYT article, the home's meth lab status apparently was known to the entire neighborhood.

Monday, July 13, 2009

Skyline Views? You Judge

Get Out the Binoculars

This $1.495M home just west of Minneapolis' Cedar Lake has lots to recommend it: five bedrooms and baths, over 6,000 FSF, a deluxe Kitchen, and heated pool -- all on a double lot.

However, "spectacular views of the Minneapolis skyline" -- the caption accompanying the photo above -- certainly seems to be stretching it. (If you've got an eagle eye, you can just barely make out the IDS tower in the upper middle of the photo.)

P.S.: it's certainly possible that the photo doesn't do the view justice. I'll know after I see it tomorrow (the home's on tour).

"Like at First Sight"

How Many Showings?

Determing the right number of showings before making a purchase decision is a bit like asking, "how many dates before you get engaged?"

In both cases, the right answer is: 'until you know it's the right one' (house or person).

Some lucky Buyers know from the first instant they walk through the door (yes, there's "housing love at first sight"); others are more deliberative, and need several showings to be sure that they're making the right decision.

However, most Buyers will typically view a home 2-3 times before making an offer -- after having toured, in person (vs. online) 10-15 homes previously.

"4th Time Isn't the Charm"

From experience, the first showing is usually about "emotionally connecting" with the home; subsequent showings are about making sure that the home's size, floor plan, etc. are a good fit, and that the home's condition is as billed (the inspection focuses exclusively on that question).

Of course, every rule has exceptions.

For example, Buyers contemplating major changes, or tackling a home that needs serious renovation, may take longer to "get their arms around" things like feasibility, budgets, upside potential, etc.

However, absent those factors, lingering ambivalence after multiple showings can be a sign to move on.

In house hunting -- unlike life generally -- the fourth showing usually isn't the charm.

Sunday, July 12, 2009

Are 'Strategic Defaults' Contagious?

New Real Estate Vocabulary

Amongst other things, the current recession/financial melt-down/housing bust has inspired some new real estate terms (or at least adjectives).

So, a "normal" transaction involving one Buyer, one Seller, and two Realtors is now called a "traditional sale," to distinguish it from all the ones that are "lender-mediated" (foreclosures and short sales).

Now, get ready for "strategic defaults" -- also known as "intentional defaults" or "walkaway's."

As in, not paying your mortgage because you can't.

Rather, not paying your mortgage because you've made a rational decision not to.

According to a new academic study, fully 26% of recent mortgage defaults are now of the "strategic" kind. Unfortunately, as more people default, others' reluctance not to weakens, too:

The higher the number of foreclosures in a given Zip code, the higher owners' willingness to walk away, the researchers found, suggesting what they call a"contagion effect that reduces the social stigma associated with default as defaults become more common.

Here's hoping we don't coin too many more new terms before the housing cycle turns up.

Beached Whales -- the Real Kind

Summer Reading, cont.

No, this isn't a post about beached financial whales like Citigroup, AIG, and Fannie Mae, which all ended up bloated and marooned when the financial tide went out.

It's about real whales.

Apparently, scientists have zeroed in on the cause of mass whale strandings: nearby sonar and/or seismic tests. The noise-sensitive whales are literally trying to jump out of the water to get away from the man-made sounds invading their environment:

It might sound like something out of a bad sci-fi film: whales sent into suicidal dashes toward the ocean’s surface to escape the madness-inducing echo chamber that we humans have made of their sound-sensitive habitat.

--Charles Siebert, "Watching Whales Watching Us"; The NY Times (7/12/09)

The proof?

Necropsies of dead whales showing tissue damage consistent with "the bends," a malady associate with surfacing too fast.

Amazing . . .

Michael Jackson vs. Wall Street

Inquest for Michael Jackson, But Not Wall St

It is hard not to be dismayed by the fact that two years into our economic crisis so few perpetrators of financial misdeeds have been held accountable for their actions.

--Gretchen Morgenson, "Looking for the Lenders’ Little Helpers"; The NY Times (7/12/09)

"Dismay" is putting it mildly.

More government energy and resources have already been invested determining how Michael Jackson died, then determining what caused Wall Street's melt-down.

And yet, depending on how you're counting, $5 trillion -- or $7 billion, or $10 billion -- of taxpayers' money has already been committed trying to repair the damage.

Sure, that makes sense . . .

Saturday, July 11, 2009

Matt Taibbi v. Goldman Sachs, cont.

Rebutting Goldman Sachs' Rebuttal

If you're tired of the Goldman Sachs/Matt Taibbi-related string of posts on this blog ("Great 'Legs': Taibbi on Goldman Sachs"; "Goldman Sachs, Culprit", "Goldman Sachs' Nine-Plus Lives") . . . you'll want to skip this.

However, if you're not, here is Taibbi's reaction to the highly orchestrated, very sophisticated PR effort mounted to deflect the criticisms he made of Goldman Sachs in a now infamous Rolling Stone piece:

Even if it is true that "everyone else was doing it": so what? Who cares? To me this response is highly telling. We published a piece accusing Goldman Sachs of systematically ripping off pensioners and other retail investors by sticking them with rafts of toxic mortgages it knew were losers, of looting taxpayer reserves to cover its bad bets made with AIG, of manipulating gas prices to massive detrimental effect, of helping to explode an internet bubble that caused over $5 trillion in wealth to disappear, and numerous other crimes -- and the response isn't "You're wrong," or "We didn't do that shit, not us," but "Well, Morgan did the same stuff," and "Why aren't you writing about Morgan?" . . . .

The important thing is to pay attention to what they don't say. And what they didn't say about this piece is that it was wrong. They didn't deny any of it. They said others were just as bad, they said I was a bad guy, they said it was a conspiracy theory. But they didn't say it was mistaken, and that's the only thing that matters.

--Matt Taibbi, On "The Everyone Was Doing It" Excuse

If my stance on this wasn't already clear: Taibbi's right, Goldman Sachs is (very, very) wrong.

Friday, July 10, 2009

Mountains, Molehills & Buyer's Inspections

Hoist by Their Inspector's Petard

Smart home buyers carefully inspect the home they're about to buy to make sure that it's in the condition they (and the Seller) think it is.

Perhaps counter-intuitively, a thorough inspection isn't just in the Buyer's interest, it's in the Seller's, too.

I remember one deal where, almost exactly *two years after closing, the Buyers asked my Sellers to replace several windows that had rotted. They contended that the problem existed at the time they bought the house, and therefore my clients were liable.

Unfortunately for the Buyer, the very detailed inspection report they had done before they bought omitted any mention of window issues.

Which was significant, because the same inspection did turn up a few small -- dare I say picky -- items, which the Buyer and Seller were able to negotiate (which was how my client came by the report).

If the Buyer's own inspector takes the Seller's side . . . the Buyers don't have much of a case.

In fact, my client was adamant that the windows were in good condition when they sold, and had said so in their Seller's Disclosure (my client and I speculated that the problem resulted from a humidifier that the Buyer installed, which created condensation on the windows in winter.)

Mountains and Molehill's

Do Buyers ever make a proverbial "mountain out of a molehill?"


Fortunately, though, most inspection issues are objective and factual in nature.

So, the roof either leaks or it doesn't, the heat exchanger in the boiler is either cracked or it isn't, etc.

Once it's beyond dispute that there's a genuine problem, a few contractor quotes usually serve to establish a price range for repairs.

At that point, most Buyers and Sellers acting in good faith can reach a resolution.

*Coincidentally -- or not -- the period for bringing claims against a Seller is two years.

Thursday, July 9, 2009

Good News, Bad News on Interest Rates

Back to 5%?

The good news on mortgage interest rates?

After a steep climb the last two months or so, to around 5.5% on 30-year mortgages, they've now fallen back closer to 5%.

The bad news?

The reason is that the latest batch of economic news -- unemployment, economic activity, the housing market -- shows continued weakness.

Wednesday, July 8, 2009

A Commisson By Any Other Name

Just Don't Call it a Commission

Other Realtors charge a commission.

I, on the other hand, prefer to call it a "reality fee" (a friend passed along the email, below, from an upcoming FSBO seller -- as in "For Sale By Owner").


We are announcing the upcoming sale of our beautiful home. It will be available to see by appointment mid-July, possibly a little sooner. If you are interested in seeing the home yourself or know if someone looking to move into our area, please contact us.

We will be selling this home ourselves ask that our buyer use a lawyer or pay their own reality fees. There will still be traditional measures taken in the sale of our home such as a disclosure statement, walk-through, inspection, etc.

P.S.: my advice to FSBO sellers? In a word: 'don't.'

Just one mistake can more than offset any savings you hope to realize doing it yourself -- not to mention the time, inconvenience, etc.

As an example, I was showing a FSBO home to a client last year, and asked the Seller how long it had been in foreclosure. The owner was adamant that it was not in foreclosure -- in fact, the home was completely paid off!

I showed her the MLS printout showing that, in the box for financial status, "in foreclosure" had been checked.

Hmm, maybe that's why she hadn't had any showings the first three weeks her home was on the market.

The home finally sold 8 months later (not my Buyer), at a steep discount.

Zillow & Social Networking

Is Zillow Getting Smarter?

I've discussed third-party real estate sites such as Zillow and Trulia previously on this blog ("Trulia Hits -- and Mostly Misses"; "Zestimates Wildly Off-Target").

The verdict?

In most cases, you'd be better off throwing darts to establish your home's value.

That's because publicly available housing statistics -- and dated ones at that -- don't convey a home's condition, look and feel, updates, etc.

Not to mention key boundaries that are easy to miss on a map, such as a border between a good and bad school district -- or a a major highway. (That's also why a knowledgeable Realtor's pricing is typically better than an appraiser's).

However, at least anecdotally, I'm hearing that social networking sites (think, Facebook and My Space) are filling in Trulia and Zillow's blind spots.

The result -- at least in the biggest markets where social networking is most active -- is that the real estate sites are benefiting from a positive feedback loop that's making them more accurate.

In other words, they're getting smarter.

Will this trend travel to smaller markets such as the Twin Cities?

Stay tuned . .

Strangling "Financial Innovation"

Tighter Regulation = Less "Innovation"?

Thirty years ago credit cards were exceedingly simple. They charged high annual fees just to own them (often $40-$50), high fixed interest rates (approaching 20%), and offered no cash rebates.

Today credit cards are more complex, but they are also better. They offer no annual fees for no-frills cards, flexible interest rates, and more benefits. Competition is fierce and consumers have a wide range of choices.

--Todd Zywicki, "Let's Treat Borrowers Like Adults"; The Wall Street Journal (7/08/09)

What I find interesting about Zywicki's op-ed piece is not his (rather lame) case against creating a consumer financial products safety commission, the goal of which would be to curb predatory lending practices.

Rather, it's his pitch-perfect channeling of Wall Street's strongest argument -- being revved up and honed as we speak -- for fending off tighter financial regulation.

Namely, that it would stifle "innovation."

Let's see . . .

On one side of the ledger, we have: almost $10 trillion in financial damage (and counting); the worst recession since the Great Depression; and the spectre of runaway inflation caused by huge Federal deficits ostensibly incurred to mitigate -- if not repair -- said financial damage.

On the other side of the ledger, we have -- exactly what?

No-annual fee credit cards with frequent flier miles??

Are you kidding me? Are they?

Bring on the regulations!

P.S.: let's hear it for simple credit cards that charge only 20%.

Tuesday, July 7, 2009

Post-July 4 Lull

Slow Day for Broker Tour

It's not very scientific, but a quick way to gauge how busy the local housing market is any particular week is to pick up the list of homes on Broker tour each Tuesday (sort of like the thickness of newspapers and magazines used to indicate how strong advertising was -- and by implication, the broader economy).

Broker tour is when all the new listings are available for Realtors to check out. Usually, the printout for Minneapolis and the west suburbs is 30-40 pages; today, it was just 17.

If you have a home about to go on the market, you probably want to wait till everyone's back from vacation and actively looking . .

Great Legs: Taibbi on Goldman Sachs

Taibbi's Article: Great 'Legs'

If online articles were ranked the same way as newly-released (music) singles, Matt Taibbi's scathing attack on Goldman Sachs in the current issue of Rolling Stone (yup, Rolling Stone) would be number one -- with a bullet.

If it were a new movie, you'd say Taibbi's article has 'legs.'

If you haven't read it, Taibbi lays bare how the company has done something even worse than break the rules: it has tailored them -- rather skillfully -- to suit its (financial) interests.

In the two weeks since the article appeared, it has precipitated literally thousands of blog posts commenting on it (here's mine: "Goldman Sachs, Culprit").

The comments seem to split into two categories: the "retail" posts, from little guys like me, who are lavishing "atta-boy's" on Taibbi, and want him to run for something; and the "wholesale" posts from financial columnists, the so-called Main Stream media, and Goldman Sachs itself.

By sheer quantity, I'd put the split at 90-10. But of course, the two groups' power splits 10-90 (more like 1-99).

What I find most interesting is the most common adjectives emanating from the latter camp: 'hysterical' (Goldman Sachs' term), 'outrageous,' 'hyperbolic,' 'irresponsible,' 'simplistic and ill-informed,' etc.

The one term I haven't heard used in connection with Taibbi's piece?

"Factually wrong."

P.S.: Best blog post on the subject (besides mine)? The one suggesting that Goldman Sachs was going to put out a hit on Taibbi -- but only after buying a life insurance policy on him first.

Property Tax Appeals

'Shrunk to Fit': Tax Values in a Declining Market

Homeowners across the country are challenging their property tax bills in droves as the value of their homes drop, threatening local governments with another big drain on their budgets

--Jack Healy, "Tax Bill Appeals Take Rising Toll on Governments"; The New York Times (7/4/09).

Which would you rather have, 85% of $100, or 100% of $85?

In fact, they're exactly the same.

Add three (or four) zeroes, and that describes today's property tax environment in much of Minnesota.

Conservative No More

Until recently, most local tax authorities seemed to observe an unspoken rule that, when it came to assessing homes, conservative was better.

So, a house with a fair market value of, say, $250k might only be assessed at $200k. (Of course, another reason for conservative valuations -- at least in a rising market -- is that they're set two years ahead of time).

Today, local governments need every penny they can get. And yet, the housing market is falling, prompting homeowners to challenge their property tax assessments.

What many homeowners are finding out is that their home has "shrunk to fit" the more conservative tax assessed value. In other words, the $250k home that was taxed as though it were $200k now really is $200k. Voila! No tax refund.

Of course, tax assessed value is just one component in determining the tax owed; the other component is the tax percentage, also called the mill rate.

If the mill rate goes up more than your tax assessed value drops -- a distinct possibility these days -- your property taxes rise, not fall.

RE's Most Confusing Terms

"Who's on First?" -- RE Edition

It's not quite as confusing as Abbott and Costello's "Who's on First?" routine . . . but it's not exactly clear either. Hopefully, the following definitions shed a little light on real estate's most confusing terms.

"Buyer's Agent": the agent who represents the Buyer.

"Listing Agent": the agent who represents the Seller.

"Selling Agent": what the Buyer's agent is called after the deal has closed.

"Sold sign" (in front of house): actually means "Pending." Once the house has sold -- i.e., title has transferred -- the sign is removed and the home becomes a "closed" sale.

"Pending": a home that is under contract, but hasn't closed yet.

"Sold, subject to inspection": precedes "Pending" status. Once any inspection issues have been resolved, the home becomes "pending."

"Broker": the company who the Agent or Realtor (synonyms) works for. Some are franchises, like RE/Max, others are not (Edina Realty).

"Preview": when a Realtor tours a home without a client along.

"Showing": when a Realtor tours a home with their client(s).

"Median Sales Price": middle value in a group. For example, if a $200k, $250k, $275k, $400k and $2M home all sell, the median sales price is $275k.

"Average Sales Price": in the previous example, the average sales price is $625k.

"Condo": an apartment that is owned.

"Highest and Best": Highest offer, best terms.

"Traditional sale": a normal or routine sale (vs. one that's "lender-mediated," i.e. a bank -- or many banks -- are involved).

S&P/Case-Shiller methodology: a complete mystery to everyone but them (but widely cited nonetheless).

If you want to know what a short sale is . . . call me (the term's a complete misnomer; personally, I prefer the term, "long sale").

Monday, July 6, 2009

Origin of "Retro Look?"

"Distressed" Jeans & Exposed Duct Work

In fashion, people are known to pay up for "distressed" jeans and other new clothing made to look used.

In real estate, I suppose the equivalent would be leaving duct work, lighting, and other building "plumbing" exposed -- features that give modern buildings a "retro" look.

Of course, the reason all those things are exposed in older buildings is that plumbing, electricity, and central heat and air came later.

Whole sections of Manhattan and other, older U.S. cities were built decades (or centuries) before those amenities were available; when they appeared, the easiest way to retrofit buildings was by running conduits in front of (rather than behind) walls, ceilings, etc.

A century later, what was borne of necessity qualifies (in some circles) as trendy.

Ruth Madoff's Money

"Your Money's No Good"

Once upon a time, the expression, "your money's no good" was the highest sort of compliment.

That's what the bartender would say to a decorated vet ordering a drink, or the restaurateur to a pillar of the community.

Now, it's what New York City hair salons, restaurants -- and, apparently, would-be landlords -- are telling Ruth Madoff (all of whom are declining her business).

To be sure, what underlies this isn't moral disapprobation, but pure business considerations: no business proprietor wants to risk alienating their other customers by serving a notorious scammer, just as no one wants to run a gauntlet of paparazzi every time they leave their home (ask Madonna about trying to buy a deluxe New York co-op).

However, on some level, perhaps this attitude reflects the return of an old-fashioned response to heinous conduct: collective shunning, also known as "ostracism."

Madoff Musings

Sightseeing in NY City

So, how do you spend a week in New York City with a couple kids?

The usual: Empire State building, Statue of Liberty, Museum of Natural History, Central Park Zoo, Bernie and Ruth Madoff Penthouse.

OK, that last one I added on my own. And as of last week, it's not theirs anymore -- federal marshalls seized it (Good!).

It wasn't hard to find: the paparazzi in front gave it away.

Never having talked to one, my image of them was of a half-man, half-barracuda. In fact, they were quite amiable -- and mostly bored. When I asked one of them why Ruth Madoff would ride the subway, as she had done the previous week to a crush of humiliating publicity, he simply remarked, "stupid."

So were there any surprises?

Actually, yes.

In the Midwest, the term, "Bernie Madoff's $7 million penthouse apartment" immediately conjures up images of lavish 5th Avenue digs overlooking Central Park.

In fact, those apartments cost anywhere from $25 million to $50 million (still).

Seven million just buys you a very nice unit, at the top of an undistinguished pre-War building, a block from the 63rd and Lexington subway stop (still a high-rent neighborhood, to be sure).

Taleb on Mortgage Crisis

Alternative to "All or Nothing"?

Banks should not be sending demands for larger and larger sums from homeowners in arrears on their mortgage. Instead the bank should offer to lower the monthly payments in return for part-ownership.

--Nassim Nicholas Taleb

Hmm, there's an idea.

Instead of the bank foreclosing on your home if you can't make the payments, instead give it partial ownership in exchange for reducing your mortgage (and the monthly payments).

That sure seems preferable to today's all-or-nothing proposition, in which the bank takes title to 100% of the home through foreclosure, then takes a bath when the empty, deteriorating property sells for a huge discount -- in the process undermining the value of all the nearby homes.

It also avoids the social upheaval and adverse financial consequences that afflict foreclosed homeowners.

Homeowners may not like the idea of suddenly being "partners" (co-owners?) with their banks -- but, if they can't pay their mortgage, it beats the alternative.

Thursday, July 2, 2009

Real Estate Trivia Contest

Just some stray trivia I picked up on my trip to NY.

Enjoy! (And check back here after the 4th for fresh posts.)

1. "Apartment" came into vogue after this word became associated with overcrowding and squalor:

a. High-rise
b. Multi-family dwelling
c. Tenement
d. Digs

Answer: c

2. The Empire State building was built in a record 18 months, in the depths of the Depression. What happened to the workers next?

a. They all got bonuses.
b. They moved west to build Hoover Dam.
c. They got all-expense-paid vacations to Disneyland.
d. They spent much of the rest of the Depression unemployed.

Answer: d

3. What was the most expensive floor to rent in a tenement?

a. 1st floor
b. top floor
c. one of the middle floors

Answer: a

4. Why?

a. Immigrants were afraid of heights.
b. It was the most convenient, because tenements originally had no running water or elevators.
c. The first floor units were the nicest.
d. They were coolest in the Summer.
e. They were the easiest to evacuate in case of fire.

Answer: b (but d. and e. were also true)

Wednesday, July 1, 2009

"Bracketing," explained

The Goldilocks Approach to Appraisals

Just like Goldilocks preferred the porridge that was neither too hot nor too cold, appraisers like to see a home that prices in the middle of its peer group.

In appraiser lingo, such a home is said to "bracket."

In plain English, that means it's priced more than a slightly inferior home, and less than a slightly superior home.

For purposes of doing a Comparative Market Analysis ("CMA"), the subject home's peer group typically consists of the three, most similar closed sales, ideally no further back than six months. Depending on the part of town and activity, sometimes three months is now considered the max.

In fact, the subject home is supposed to "bracket" twice: before the comp's have been adjusted -- and after.

Adjustments are all the things that differentiate the comp from the subject home. It can be another bathroom, more (or less) finished square feet, a new Kitchen, better (or worse) condition.

Regardless, if the subject home doesn't "bracket" a second time, after the comp's have been adjusted . . the deal can be in trouble.