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Monday, August 31, 2009

Rehab Mistake #27

Rehab "Misses" All Unique

Happy families are all alike; every unhappy family is unhappy in its own way.
--Leo Tolstoy

I'm reminded of that quote every time I see a rehab that just seems "off," for what could be any number of reasons (and often more than one).

At least online, it looked promising:

More than 4,000 FSF? Check.

Updated Kitchen? Check.

Big yard, great location, nice curb appeal? Check, check, and check.

So what was the problem?

The house, billed as 4,000 FSF, was all of that. Unfortunately, it felt like a little house with a lot of rooms, rather than a big house. Worse, the "lot of rooms" were mostly small rooms.

The overall effect?

The house felt claustrophobic -- not exactly the reaction the Sellers are hoping and looking for.

Saturday, August 29, 2009

MN's Chance to 'Power' Ahead?

MN's Next-Door Neighbor: 'The Saudi Arabia of Wind'

What made New England the center of the Industrial Revolution -- and specifically, the textile industry -- more than 150 years ago?

Two things: technology, and cheap energy (specifically, hydroelectric power from the area's many rivers).

A century ago, what made the Twin Cities the nation's milling capital? Technology, and cheap energy and transportation costs (both of the latter courtesy of the Mississippi).

Turning on the 'Wind Spigot'

Fast forward to today.

Minnesota is located downwind, quite literally, from North Dakota -- often billed as "The Saudi Arabia of Wind."

Thanks to the Internet and the area's investment in education, the Twin Cities has access to word-class technology and technology workers.

In an era when everyone's scrambling to deal with volatile, mostly-rising energy costs, the Twin Cities has practically on its doorstep the best imaginable solution: a supply of relatively cheap, green -- and inexhaustible -- energy.

All that's needed is a way to turn on the spigot.

Anyone else see a screaming opportunity here?? (Or, care to point out what I'm missing)

Tax Trial Balloons

Gov't. Financial Squeeze = Homeowner Squeeze?

The mortgage-interest deduction has been a political no-go zone for decades. The same for local property-tax write-offs. But with billowing deficits and the need to raise trillions to help pay for health-care reform and the economic stimulus bills, somewhere, somehow, Congress is going to be pressed to raise revenue.

--Kenneth Harney, "Going Where Congress Hasn't Gone"; The Washington Post (8/29/09)

Kenneth Harney's column today makes the (valid) point that just because Congress is in recess, doesn't mean that policy shifts aren't afoot.

In fact, Congressional staff are right now busily proposing all sorts of revenue-raising ideas to close gaping budget deficits as far as the eye can see.

"That's Where the Money is"

At the top of the list: various proposals to limit the size of mortgages that qualify for interest deductions; eliminating the itemized deduction for state property taxes; and raising capital gains taxes.

To "lessen" the impact of the foregoing, Congress would employ incremental phase-in's (for higher taxes) and phase-out's (for deductions).

Locally, the City of Minneapolis is floating the idea of annual, 10%-15% property tax increases practically off into the sunset.

Why are homeowners such fat targets?

To paraphrase what Willie Sutton said when asked why he robbed banks: 'because that's where the deductions are.'

Friday, August 28, 2009

Upper Bracket Buying Strategies

Great Price + Seller-Paid Pts. = No Deal?

We may be small, but we're slow.

--Cal Tech football team slogan

If you're a Buyer contemplating an offer on an upper bracket Twin Cities home, congratulations!

You've never had more choices -- or more eager Sellers.

Just one word of caution, though:

Decide whether you want a great price, or, a generous helping of Seller-paid closing costs.

Trying for both is a tough sale -- literally . . .

"Karlen's Karma"

Sebastian Joe's Menu

I can't say I discovered Neal Karlen, a Twin Cities writer well-known for his various books and pieces in The Rolling Stone, NY Times, etc.

But I was one of the first to know about him.

Specifically, way back in 1977, when I was a page editor for the St. Louis Park High newspaper, The Echo, and Neal wrote a hit column called "Oriole Cookies" (the school's mascot was the oriole).

Sample musings: 'what it's like after you die is exactly the same as what it's like before you're born. And for just as long."

I remember people would literally wait for the new issue, just to read Neal.

At any rate, bylines in The Rolling Stone, etc. don't make you famous -- having a drink named after you at Sebastian Joe's does.

Neal's is called "Karlen's Karma."

P.S.: Neal and I were also neighbors. When we missed the bus -- which was often -- we'd have "hitchhiking contests" to see who could get to school first (one would stand alongside Highway 7, the other on Minnetonka Blvd.). If our mothers had known, I'm sure they would have offered to drive.

Want Buyers? First, find their Realtors

Real Estate Brokers & Technology

What's the best way to find Buyers today?

First, find their Realtors.

To do that, it helps to have great technology and a strong market presence.

With a market-leading 20% of the Twin Cities' housing market, Edina Realty has lots of listings. Every time an agent shows one of those listings, Edina tracks who it is.

One of the latest applications is assembling all that data and making it available to other Edina Realty agents.

So, if you own a home in, say, Edina's Country Club neighborhood, and list with Edina Realty, your Edina agent can determine which Buyer's agents are showing similar, nearby homes -- then contact them.

On a scale of 1-10, with 10 being a financially well-qualified, motivated Buyer, prospects already working with a Realtor and actively looking in your neighborhood are a 9.8.

By contrast, the online lurker who anonymous clicks on your listing photos -- usually to see what your Living Room looks like -- is about a 1.2 on a 1-10 scale.

P.S.: Edina's technology tracks both Edina and non-Edina agents. Does that raise privacy issues? I doubt it, because if you're an agent scouring a neighborhood for a client, you want to know about upcoming, nearby listings.

Thursday, August 27, 2009

Online Shorthand, or, "Joke #37!"

Tweets, Grunters & Grimacers

Every day, it seems like online communication is devolving into ever more succinct, real-time "bursts" of information.

Other bloggers have noted this phenomenon as well:

Perhaps [Twitter] is just the first step. The text-based Twitter will be replaced with an audio-based “Grunter.” Rather than spend a full 140 characters, you have your choice of 10 gutteral grunts registering surprise, anger, sadness, joy, etc. Then we can move to the next phase: Grimacer. Just pictures depicting how you feel.

--Barry Ritholtz, The Big Picture

"Joke #37!"

Personally, I think it's more analogous to physics.

First there were blogs, which would be the equivalent of molecules.

Then came Twitter (and "tweets"), which would be the "atoms" of the online world.

For awhile, that was it; nothing was supposed to be more elemental than atoms.

Of course, physicists went on to discover all manner of sub-atomic particles, including quarks, electrons, and neutrino's (this effectively exhausts my physics vocabulary).

So, perhaps Ritholtz is right.

P.S.: Natan Sharansky, the Soviet dissident, tells an anecdote about how he and his fellow prisoners killed time while enduring long stretches of solitary confinement. Through Morse code, they would take turns "telling" their favorite jokes.

As the years went by, everyone knew everyone's repertoire by heart. So, instead of tapping the whole joke, they would just tap the punch line. Eventually, even that became truncated. So, one prisoner would tap to the others: "[joke] #37."

New Construction: Condo's vs. Rentals

Pendulum Swings Towards Rentals

[Editor's note:  this piece was originally posted last weekend.  I'm "popping" to the top of the list because it was lightly read before being buried by subsequent posts.  If you read it then, please just skip.]

It's time to accept that home ownership is not a realistic goal for many people and to curtail the enormous government programs fueling this ambition.

--Thomas J. Sugrue, "The New American Dream: Renting"; The Wall Street Journal (Aug. 15-16, 2009)

Five years ago, the project (pictured above) now taking shape at Excelsior Blvd. and France Ave. in St. Louis Park, called "The Ellipse on Excelsior," would have been condo's.

So would a new, six story apartment building called "Solhem" in the middle of Uptown. In fact, Solhem originally was a condo project.

Less than a mile west, "2626 West Lake," developer Michael Lander's 4 building, 70-unit condo project, never broke ground, due to disappointing pre-sales. The lot sits empty today.

Across the Twin Cities, there are countless more examples of the housing pendulum swinging from condo's back to rentals.

What's going on?

I think there are three factors:

. It's easy to forget, but there were thousands of condo conversions locally from roughly 2002-2006.

Outfits like Financial Freedom Realty are long gone, but they effectively drained a good chunk of top-tier apartments from desirable neighborhoods near the City Lakes (unfortunately, then they kept going, and started converting increasingly mediocre apartments to condo's).

So, in a sense, the new rentals being built now are merely replacing inventory that was previously lost.

. Setbacks in the stock and housing markets have left many people -- particularly older people -- gun-shy (if not shell-shocked) about holding big-ticket assets.

By contrast, renters don't have to worry about the value of their assets tanking. Nor do they have to worry about not being able to move when they want, because they can't afford to write their mortgage company a big check at closing (I've yet to hear of an "underwater" renter).

Unfortunately, avoiding an asset class after the bust smacks of "buying high and selling low."

. New rentals are what the banks are financing.
Which really just begs the question: 'why?'

Because there's demand for rentals, while condo sales are soft.

Seeking "Financial Freedom"

I think Sugrue and others are wrong that renting has replaced owning as "the new American dream." Just as "no one washes a rental car," no one takes the same pride in a home that isn't really theirs.

Rather, the mindset of the "rental converts" I know is that they simply want less risk in their lives, and to be off the financial roller coaster.

But Sugrue is right that single family ownership has been the beneficiary of a welter of government programs, dating back to the 1930's, that have collectively stimulated demand for housing.

Removing those, whether for financial or philosophical reasons, would make home ownership less attractive.

P.S.: I always thought a more fitting name for "Financial Freedom Realty" was "Financial Slavery Realty." At least, that's what I'd call owing more on your mortgage than your condo is worth, and not being able to afford to move.

"As Is" Misconceptions

No Free Lunch

Selling "As Is" is a popular choice for banks, estates and other third parties who don't know the condition of a property (because they haven't lived in it), and don't want to be responsible for any repairs.

Occasionally, however, "owner-occupant" sellers -- especially ones with deferred maintenance -- view selling "as is" as a panacea for making costly repairs.

Yes and no.

Yes, in the sense that they can certainly avoid having to do the repairs themselves.

No, in the sense that they'll pay a steep price for having the Buyer assume responsibility for whatever needs to be fixed.

No Shortcuts

Perhaps the biggest misconception is that selling "as is" avoids a Buyer's inspection.


Buyers who agree to buy "as is" still want to know what they're buying, which typically means doing a very thorough inspection.

The second misconception is that selling "as is" will net sellers more money.

Wrong again.

For every $1 in repairs that Buyers assume, they'll typically deduct $2 or even $3 from their offering price.

That's not just because of the time and inconvenience, but to cover the risk that the necessary repairs will be more extensive than appears. In fact, especially when the issue involves (hidden) plumbing, wiring, and any related contractor permits, such "padding" is often warranted.

To avoid such "3-for-1" discounts, Sellers -- at least ones who can afford to -- are often well-advised to tackle the repairs themselves.

P.S.: I remember taking a class in college "pass/fail," only to find out that my grade would have been a "B+." Selling a home in good condition "as is" is like that.

Wednesday, August 26, 2009

Cracked Crystal Ball

I'm a Contrarian Indicator (at least on stocks)

On March 9, I wrote:

Until investors are satisfied that the Madoff's of the world have been dealt with appropriately, and convincing steps have been taken to assure that there won't be any more . . . don't hold your breath waiting for a sustainable stock market rally.

--Ross Kaplan, "Bernie Madoff & the Path to Recovery"; City Lakes Real Estate Blog

So when did the Dow Jones bottom?

On March 6, at 6443.27 (intraday). Of course, it's up more than 50% since then.

On the other hand, Bernie Madoff has now been sentenced to 150 years in prison, and it appears to only be a matter of time before his inner circle is also behind bars.

P.S.: contrary (no pun intended) to popular opinion, contrarian indicators can be extremely valuable prognosticators.

Like "Opposite George" on Seinfeld, you just do the opposite. In fact, that's how I decide what movies to see: I simply ask my sister what she's seen lately that she hated.

Closings Up, Showings Down

Typical Late August

My office, Edina Realty City Lakes, tracks weekly statistics by several categories: new listings, showings, pending sales, closings, etc.

From a peak of almost 300 showings earlier this month, weekly showings are down about 50%. Meanwhile, closings -- which reflect activity 6-8 weeks earlier -- are WAY up.

Typical late August . . .

P.S.: to Realtors, the market sometimes feels like one big pipeline, with new prospects at the beginning, and closed sales at the end.

Malcolm Gladwell's "Outliers"

The 10,000 Hour Apprenticeship

Malcolm Gladwell, in his excellent book "Outliers," postulates that society's overachievers parlay what is often a negligible, early advantage in a particular endeavor or sport into an insurmountable lead.

In fact, Gladwell calls this "The Matthew Principle," after the notion that more will be given to those that already have.

Gladwell's contribution is highlighting how small -- and often arbitrary -- the initial advantage actually is.

So, in the top circles of Canadian junior hockey, a startling number of premier players also happen to be . . . the oldest. The calendar cut-off for each level is Dec. 31, so the oldest -- and most mature -- players have birthdays falling disproportionately in January, February, etc.

Given that Canadian hockey is a giant winnowing system, it is the slightly more advanced youth who move up to the elite levels, where their skills are honed even further. And so on.

Before readers can smugly dismiss the phenomenon, Gladwell notes that it also characterizes most organized sports around the world, higher education, the creative arts, and myriad other fields.

10,000 Hours

According to Gladwell, simply being put on the "high achievement" escalator doesn't assure success; staying on it does.

Gladwell argues that in fields as diverse as nuclear physics, rock 'n roll, computer programming and championship golf, empirical evidence suggests that true virtuosity requires an "apprenticeship" of about 10,000 hours.

Does the same principle apply to real estate?

Kind of.

Unlike Canadian youth hockey, it's not simply the case that all the top Realtors simply started the earliest; in fact, the field is famously popular as a second career (I was north of 40 when I got in).

However, it's undeniably true that the more deals you do, the better you get, and the better you get . . . the more deals you do.

Assuming that the average residential deal takes 200 hours, if Gladwell's right, real estate "outliers" need to have handled about 50 deals (50 x 200 hrs = 10,000 hrs) to crack the upper echelon.

Sounds about right to me . . .

Monday, August 24, 2009

Health Care Debate

The Virtue of Playing Leapfrog

[Note to readers: more real estate-related posts to come . . . this is only a temporary departure. Or, if you missed it, check out the (too?) long weekend post discussing the Southwest light rail line, "How Close is Too Close?"]

# # # # # # # # # #

While this blog isn't about health care, and I'm certifiably not a health care expert . . . that doesn't seem to have stopped any other bloggers from weighing in about it (and I am a health care consumer, so maybe that makes me qualified).

So, here's my (relatively agnostic) take:

Apparently, the U.S. is the last developed, Western nation that doesn't provide its citizens with some version of national health care.

In theory, being a laggard could be an advantage.

While Honda and Toyota ceded a huge head start to General Motors, Ford, and Chrysler, they also were free to redesign and improve upon Detroit's business and manufacturing model.

The result: they eventually caught up -- and arguably have now left Detroit in the dust.

Another example is computers.

IBM, wedded to mainframes, practically gifted Microsoft the personal computer market.

Today, we talk about Bill Gates' wealth, not the Watsons' (the founding family of IBM).

Regulatory Capture (Again)

At least hypothetically, then, the ability to study how every other industrialized country has handled health care, then learn from their mistakes, would seem to be an opportunity.

The problem seems to be wresting control of the decision-making process from the "incumbents": the insurance companies, pharmaceuticals, etc. who effectively now run and control U.S. health care.

In fact, you could say the same thing about Wall Street and the financial system.

Too often, the regulatory "debate" seems to get short-circuited, because it's all about who sets the agenda.

As I've blogged before, this malady has a formal diagnosis: it's called 'regulatory capture.'

"Not Packing," Circa 2009

Social Mores, Then & Now

In the 19th Century west, rivals apparently would check their weapons at the door to show that they "weren't packing."

Without a gun, there was some semblance of trust, and with trust there was the potential for mutually profitable dealings.

The modern-day weapon of choice -- at least in middle class, suburban circles -- isn't a Colt-45, it's a Blackberry.

What's the equivalent of "not carrying" today?

Turning off your Blackberry at a meeting -- or leaving it behind altogether.

P.S.: just met an old friend who does real estate (mostly commercial) in Baltimore. An orthodox Jew, he promises to "work hard for clients 24/6" (the 7th day being Saturday).

Sunday, August 23, 2009

"Monster Movies," Then & Now

Cinematic Zeitgeist

The last time I remember big, Hollywood movies being this dark and disturbing was the mid-'70's.

If you're too young to remember, that was the period after Watergate but before Jimmy Carter (and his "misery index," melding inflation and unemployment); after Vietnam (just); between the two oil shocks and resulting energy crises; and a time of high unemployment and general economic dislocation and malaise -- much like today.

About all that's missing from today's economic mix is inflation (at least for now).

Moviegoers who wanted to be scared out of their wits then could choose amongst "Carrie," "The Omen," and "The Exorcist."

Even the PG-rated "Jaws," one of the biggest hits of that era, was hardly tame (I know it was PG because I was 15 then and saw it with friends).

Of course, just around the corner were equally dark films like "The Deer Hunter" and "Midnight Express."

Monster Movies & Movie Monsters

Fast forward to today.

Waiting for "Inglorious Bastards," Quentin Tarantino's new movie, to start last night, I was treated to previews of the following cinematic "parade of horribles":

--"Shutter Island," a Martin Scorcese - Leonardo DiCaprio collaboration, about a mental asylum with terrible secrets that DiCaprio apparently uncovers and wishes he hadn't (me, too);

--"Halloween II," featuring even more gore and violence than its predecessors, mostly inflicted on vulnerable, young women in the most graphic way(s) imaginable (did they make so many "Halloween" sequels that they simply started to re-number? I thought they were up to at least 7 by now).

--"Avatars," perhaps the most disturbing of all, a completely creepy movie about pseudo and imaginary humans preying on the real thing, with the latter apparently in extreme and perpetual peril.

Tarantino's Latest

All these were just the under card for the main event: Tarantino's re-imagining of World War II as a foreshortened affair, primarily due to the exploits of what one reviewer called "the dirty half-dozen."

Suffice to say that Tarantino, the auteur behind "Pulp Fiction," "Kill Bill," and other gore-fests, doesn't disappoint.

I don't pretend to know whether movies help set the national mood, or are a product of it.

Either way, it would appear that there are some major league demons in the air at the moment.

If only they were all imaginary . . .

Saturday, August 22, 2009

Extra Innings for Tax Credit?

Big Bump in July Housing Sales

The federal government's $8,000 tax credit for first-time home buyers appears to be doing its job: according to NAR, sales of single-family homes increased 7.2% in July from a month earlier.

So, what will happen come Nov. 30, when the credit is set to expire?

I'm hearing -- and reading -- increasing speculation that the credit will be extended, or even increased.

While that would provide continued support for the housing market, especially at the low end, policymakers have to be careful about any such extension.

That's because prospective buyers who are expecting even bigger carrots down the road are likely to wait rather than buy now.

Era of Come-on's & Chippy Fee's

It's All About the ***Asterisk***

I usually let it pass unremarked, but the latest come-on in my mailbox is too good (bad?) to not pass along. (I won't reveal the name of the company, but it rhymes with Schmifetime Schmitness.)

In big, bold letters at the top of the letter:

Rejoin for $0 Enrollment Fee and get a Free $85 gift voucher when you rejoin by Monday, August 31.*

So, what does the *asterisk, in microscopic type at the bottom of the letter, say? "An administrative fee applies to all memberships."

Just coincidentally, it happens to be . . . $85!

Gee, I wonder if they offer credit cards???

Southwest Light Rail Line & Property Values

How Close is Too Close?

I expected the question sooner or later, but I officially received my first, "how is the [Southwest] light rail line going to affect my property value?" inquiry from a Cedar Lake-area homeowner this week.

No doubt, the impetus was a series of public hearings the last few weeks that seemingly increase the odds that the likely route will run between Cedar Lake and Lakes of the Isles on its way to Eden Prairie.

The principal alternative, which now seems to be receding, would go through a more densely populated part of Minneapolis well to the east.

Three Variables

To answer the property value question, I think it's useful to first identify the variables.

I see three: 1) timetable; 2) proximity; and 3) number and location of stations.

One. Timetable. The Southwest line is projected to open between 2015 and 2017. Factor in budget and building delays, and the actual start date could well be later.

Given that the average homeowner moves every 7 years, it's likely that many affected homes will change hands once or even twice before the line is finished. So, at least as of Fall, '09, the impact is relatively remote.

Two. Proximity. While we're talking about light rail, an active rail line is still going to be noticeable to nearby homeowners (noise, vibration, etc.).

So, how close is too close?

Nuisance vs. Convenience

The answer is partly subjective -- note all the people under flight paths near the airport. And yes, supposedly there are people who think hearing trains is "romantic" (personally, I've always thought that was an urban myth).

However, my guess is that closer than 150 feet or so would be a negative for most homeowners.

Put it this way: if you can see the tracks from your house . . . you might be too close, at least for some Buyers.

Beyond that, proximity is likely to be a plus -- assuming that the corridor is not simply a thoroughfare. Which leads to . .

Three. Number and location of stations.

If there are stations located at reasonable intervals, so that light rail actually serves the surrounding neighborhoods, the effect is likely to be a boon for the area -- if not the immediate homes.

Imagine: you can step out your front door, and be minutes from the lakes, uptown, downtown, a job in the suburbs -- without a car!

Additionally, in many cities that already have light rail (think, Washington, DC and the Metro; the Bay Area and BART; Chicago and the L, etc.), the stations spur surrounding development and services, becoming magnets themselves.

All Aboard?

However, if the Southwest light rail line is simply an express thoroughfare to and from the 'burbs, the effect on adjacent areas of Minneapolis will be much more negative.

I doubt it would be as dramatic (traumatic?) -- light rail lines have a smaller footprint than freeways -- but the construction of 35W in South Minneapolis in the '60's bisected whole neighborhoods and started a cycle of blight that continues through today.

It's hard to imagine that happening near Cedar Lake and Lake of the Isles, because the area's character and demographics are much, much different than the corridor along 35W.

However, it's certainly something for urban planners to take note of.

P.S.: Want a more systematic approach? This paper examined the effect of the Hiawatha Line, running between Downtown Minneapolis and the Mall of America, on surrounding property values.

Friday, August 21, 2009

Name Games, Cont.

'Non-Distressed,' 'Unforced,' 'Optional'

A continuing thread on this blog has been the so-far lurching efforts to label key features of today's economic landscape ("We Have Some With Ham, Too")

So, while it's certainly not a household term yet, "The Great Recession" looks increasingly likely to be what we collectively call what's happened the last two years or so (vs. the more unwieldy, "The Worst Recession Since the 1930's").

On the real estate front, the industry still hasn't agreed what to call a "normal" sale.

Of course, until recently, that's what the vast majority of residential housing transactions were.

However, the last year or so -- longer in places like AZ, FL, and So. CA -- the market has been dominated by so-called lender-mediated sales.

These include both foreclosures, where the bank has title, and short sales, where the homeowner still has title, but needs the bank to reduce the mortgage balance to be able to sell (in the majority of cases, the bank(s) refuse, and home progresses to foreclosure).

Locally, Realtors have been using the term "traditional" sale to describe a plain vanilla deal with no lender in the mix.

Elsewhere, popular synonyms include "non-distressed," "unforced," and "optional" sales.

You can see why there's no consensus yet . . .

Thursday, August 20, 2009

The Whitney

Where: The Whitney (downtown Minneapolis)
What: 2,400 FSF condo with 3 BR/3BA
How (much): ask price - $1.075M; sold price - $675k
When: listed June 4; closed Aug. 13

Asking prices mean a lot less to Realtors than to the general public.

Case in point: this 2,400 FSF condo at The Whitney, a high-end boutique hotel that was converted to condo's in 2006 (a little bit like Minneapolis' version of The Plaza Hotel in NY, except for The Whitney's history as a 19th-century grain mill).

When a condo that lists for $1.075M in June sells for $675k in July (closed last week), you can surmise that the asking price was inflated and/or the Seller was extremely motivated.

I haven't done the comp's, so I'm not going to wager which explanation applies . .

"You Know It's a Tear-Down When . . "

Metastasized Mold

Jeff Foxworthy, the comedian, has a well-worn bit called "You know you're a redneck when . . ."

I suppose the real estate equivalent would be, "you know it's a tear-down when . . ."

In that spirit:

You know it's a tear-down when . . . the mold in the home has advanced so far that the nails in the home's framing are either missing or completely rusted out.

In fact, that describes the home I just took clients through this morning.

Once that has happened, even "gutting to the studs" is problematic -- because the integrity of the studs is in doubt.

P.S.: whether the home is an "economic" tear-down vs. a "functional" tear-down are two separate questions.

An economic tear-down is typically an undersized home on a big lot, in an expensive location. There may be absolutely nothing wrong with the home itself. Rather, the location simply supports a much more expensive home.

A functional tear-down is when the home's condition is so far gone that rehabbing is no longer an option.

"Hijacked" Listings

"Craig's List" Rental Scam

[Note to readers: the Twin Cities MLS now has a message to Realtors on its home page regarding hijacked listings. Click here for the post discussing it]

No, not many people trying to sell the Brooklyn Bridge these days.

However, there appear to be at least a few people trying to rent out homes they don't own.

The practice, called "hijacking a listing," consists of posting a "For Rent" ad on Craig's List, with much of the house info lifted straight from the local Multiple Listing Service ("MLS"), where the home is listed for sale.

The home isn't available to view -- after all, the scammer doesn't have a key.

However, they have a good cover story for that: typically, they're overseas on a business assignment (personally, I wasn't aware that Cargill, 3M, etc. had so many executives temporarily stationed in places like Zimbabwe and Nigeria).

To get renters to bite, sight unseen, the scammer dangles a way below market rental rate.

The would-be renter is asked to complete a background questionnaire, then mail in a "refundable security deposit payment."

As the natives would say, "Yah, sure!"

The proper response if you encounter such a situation?

Contact the police, Craig's List, and the Realtor listing the home, in that order.

Wednesday, August 19, 2009

The "Places-Rated" Sweepstakes

Money Magazine: Chanhassen #2

I don't put much stock in the "Places Rated" literary genre.

Like college rankings, which have become a full-blown industry, the various self-anointed "place raters" (Money Magazine, USA Today, etc.) are mostly interested in selling ads or books -- and providing fodder for local chambers of commerce.

Maybe that's why the lists seem so formulaic, shuffling some combination of the usual (admittedly desirable) criteria: plentiful jobs, safe streets, good schools, nice physical setting, access to culture and entertainment.

Places such as Gary, Indiana, and Detroit obviously don't score well on the foregoing criteria, but at the top, any number of cities and towns could stand in for one another -- and do (note the year-to-year rotation).

Case in point: Chanhassen, Money Magazine's #2 small city this year, is certainly a very nice place to live, but exactly what differentiates it from Eagan, Maple Grove, Woodbury or any number of other appealing Twin Cities suburbs?

So I skip the lists, right?

Well, actually . . no.

Like People magazine or a bag of potato chips, they're pretty hard to ignore -- that's the point.

Weather Chauvinism

So, if such lists are going to proliferate, it's at least good to see Minnesota cities and towns get their due.

In fact, they seem to be.

Besides Chanhassen's selection this year, Plymouth was Money's top pick in its "weight class" (cities around 50,000 people) last year.

One of the nice things to see is an end to what could only be called "weather chauvinism": until recently, cities had to have a mild climate to score well.

It still helps, but besides Minnesota's rotating representatives, Madison, WI and the suburbs around it -- not exactly tropical -- also seem to get recognized frequently.

P.S.: Personally, I'm waiting for the list of "Most Unheralded Places in America."

Tuesday, August 18, 2009

Short Sale -- 1 Yr Anniversary

Where: 41xx Pillsbury Ave. South, in Minneapolis' Kingfield neighborhood
What: 3BR/1BA, two-story built in 1910. Condition: rough
How much: asking $155k
When: originally on market Aug, '08

Most homes, when they don't sell, eventually drop their price.

Not this one.

After coming on the market exactly one year(!) ago at $150k, the Seller raised their price this June, to $155k.


It's a short sale, unless the owner gets $155k.

Yup, after almost a year on the market, the asking price went up, presumably because the owner's mortgage balance did, too.

Which captures at least one of the problems with short sales in a nutshell:

Too often, the asking price has nothing to do with fair market value, and everything to do with what the Seller owes the bank(s).

Low Interest Rates for Savers

1.5% in Really Big Type is Still . . . 1.5%

Just a heads up to whoever writes the marketing copy for banks advertising "fat" interest rates on their saving deposits, CD's, etc.:

1.5% in really big type is still just 1.5%.

And it doesn't matter how pleased the actors in the ads look.

Nov. 30 "Witching Hour"

Guess Which Day Not to Close??

How much of the strength in the lower end of the housing market is due to the $8,000 tax credit being dangled by the government? The credit, available to first-time home buyers, expires Nov. 30.

We'll see in the next 30-60 days.

That's because anyone who wants to close by Nov. 30 had better get going now.

Tick . . Tick . . Tick

Assuming 45-60 days to close, and another 45-60 days to identify a home and negotiate a deal -- you needed to start looking . . . yesterday (actually, 3 days ago, or Aug. 15).

Given the seasonality in the Twin Cities market, you'd expect a drop-off in activity as the holidays approach.

However, my guess is there will be a spike mid-Fall, with Dec. and January even slacker than usual.

Manhattan vs. Minneapolis

You'd further guess that there are regional differences in the influence and timing of the $8,000 credit.

For example, it's hard to believe that a measly $8,000 tax credit is going to spur much buying in Manhattan, where the average, two-bedroom apartment still fetches something like $750k.

Another difference: punctual Midwesterners don't wait for the last minute to do things, so perhaps the spike is earlier here. In fact, judging by all the bidding wars for foreclosures, it may have already happened . . .

P.S.: And no, there are no "doctor's notes" or other sanctioned excuses. If your Nov. 30 closing (or 27th -- the 28th and 29th are weekend days) has an unexpected glitch . . . you're out of luck.

Monday, August 17, 2009

"Just the Facts (Fax?), Ma'am"

Presenting Offers

Old-time Realtors -- my definition is anyone in the business before there were faxes -- may not know how to twitter or blog, but there is one skill that they excel at relative to newer Realtors: presenting offers.

Once upon a time, Buyer's agents would actually meet the Seller and their agent to personally present the offer (imagine!).

Then, if the Buyer was available nearby, all the parties could convene and hash out any differences.

Weaker Glue

Now, of course, Facebook has supplanted face-to-face. Offers are electronically submitted with the click of a button or keystroke.

The result?

Often times, deals with less give-and-take, that come together slower and break apart more easily.

Ripple-Free Mortgage Markets

The Fed and Interest Rates

If you follow markets -- stocks, housing, you name it -- two things catch your attention: too volatile, and too calm.

The former is usually associated with rapidly changing, "macro" events that the markets are struggling to make sense of; the latter, somebody's got their "hand on the scale" (at an extreme, you get government wage and price controls).

So, how do you explain the almost ripple-free calm in the mortgage markets that last six weeks or so?

The Fed has clearly targeted a 30-year rate in the low 5's, and has been spending hundreds of billions to keep it there . .

Sunday, August 16, 2009

Why It's Impossible for a Good Realtor to Underprice

Meticulous Prep + Market Exposure = Full Price

The corollary to "Overpriced? How to Tell," is that it is impossible for a good Realtor to underprice.


Because good Realtors make sure that the homes they list are in optimal condition before they hit the market, then benefit from a tsunami of marketing exposure before, during, and after their market debut (especially just before).

Step #1: Meticulous Prep

Meticulous prep means that the home is in good repair, well-staged, and -- regardless of whether the home is an estate that hasn't changed hands in decades, or a newer home with all the bells-and-whistles -- presented in the best possible light.

If the home has untapped potential, prospective Buyers know that as well.

Too, the Seller's disclosures are all in order; any municipal inspection requirements have been satisfied; the photos are especially flattering (after all, they were professionally taken!); and the copy in the marketing literature skillfully shines a spotlight on all the home's strengths, while acknowledging -- but defusing -- any weaknesses. (Call that, "good offense/good defense.")

Step #2: Market Exposure

Once all those things are in place, a good Realtor makes sure that the home is well-marketed -- that is, the world knows about it.

A good Realtor, supported by an effective broker, has a huge repertoire of tools to make other Realtors and the general public aware of a new listing.

That includes pre-list networking on an internal company bulletin board (Edina Realty's is called "Network One"); prime exposure on the listing agent's personal and company Web site; blast emails and flyers; personal networking at various company meetings; direct mail; paid and unpaid ads; trumpeting the Broker's open, when new listings typically debut; and myriad other marketing tools.

Do all those things . . . and there's guaranteed to be a line waiting to get in the home when it hits the market.

If, by some quirk, the home happens to be underpriced, the foregoing marketing campaign ensures that multiple agents and their Buyers will know about it -- and be poised to make a move.

A good listing agent will leverage the resulting, intense interest -- in a fair, transparent way -- into a premium that more than recoups any list price "discount."

Overpriced? How to Tell

Real Estate "Natural Laws"

Every Realtor with any experience can echo the following sentiments:

If your home is on the market and no one is looking at it, it is priced too high.

If Buyers are looking at it, but no offers are coming in, it is priced too high.

If it is priced too high, and by some miracle a Buyer does make an offer . . . it will be a low offer.

--Teresa Boardman, "Low Appraisal . . . But Why?"; St Paul Real Estate blog (8/13/09)

Real estate "natural laws" are not as immutable as the ones in physics (gravity, inertia, etc.) . . . but the above come pretty close.

Saturday, August 15, 2009


Realtors, Prize Fighters & Hockey Teams

Boxing and hockey fans know that records in those sports are tabulated in three columns, corresponding to wins, losses, and ties.

So, a fighter who has a record of 38-7-4 won 38 fights, lost 7, and had 4 end in ties.

I'm starting to think that a similar scoring system should apply to real estate listing agents (representing Sellers).

Keeping Score

In that vein . . . here's my proposed score keeping short hand:

A "win" is a listing that leads to a consummated transaction in relatively quick order, at a good price.

A "loss" is a listing that fails to sell, either because it cancelled or expired.

A "tie" is a listing that finally sells, but only after serial price reductions and (too) lengthy market time.

Similar to boxing, listing agents can also be grouped into "divisions."

So, "Heavyweight," "Middleweight," and "Lightweight" would roughly correspond to Realtors whose average deal is over $600k; between $200k and $600k; and under $200k, respectively.

Typically, the higher the average price, the fewer transactions a Realtor closes.

Sellers' Role

Of course, Sellers themselves have a huge influence on how their homes fare on the market.

Their price expectations, their cooperation prepping the home for sale, their willingness to reduce the price if/when the showing feedback (or lack thereof) indicates that that's necessary -- all those factors affect the sale price, or even whether the home sells at all.

Which is why more Realtors are passing up listings where they don't like the odds (it's the losses and ties that eat up all your time and money).

Picking your battles, indeed.

Friday, August 14, 2009

Floyd Norris: 'Save This Store'

Trickle-Down Economics, Wall Street-Style

Floyd Norris, one of my favorite financial writers, ran a post earlier this week noting a recent London jewelry store burglary where the average bauble cost $1.5 million.

That prompted this observation, "It will be hard for stores like this to stay in business if governments refuse to support bankers in the style to which they have become accustomed."

In response, I posted this comment:

I used to think that obscene Wall Street pay would finally be stopped when shareholders stood up and said “no more.”

Then I thought it would be stopped once Wall Street had effectively emptied the government’s coffers.

Now I think it will stop only when the government’s coffers have been emptied, its debt is maxed out, and no creditor countries will lend it any more.

How far away is that point?

Do we really want to find out?

--Ross Kaplan, Comment on "Save This Store"; Floyd Norris, The NY Times (8/12/09)

The beauty of the Internet is that there's always a "last, last word," after the previous "last word."

Here's mine:

I'm starting to think that Wall Street VIP's will be obscenely paid until the last sun in the last solar system flames out.

Broken Deals -- "Traditional" Sales

Picking Up the Pieces After a Fall-Through

Fools rush in where angels fears to tread.
--Alexander Pope

"Sale Fell Through!" "Back on the Market!" Great house!

You don't have to spend much time on MLS these days to see evidence of busted deals.

So what exactly is going on? Do any of these deals represent opportunities for future Buyers? (Note: I address broken foreclosure deals in my previous post; this post addresses "traditional" or non-lender mediated sales.)

As economists like to say, it all depends.

"Active" to "Pending"

The first thing to know about a home that was formerly "Pending" on MLS, and that is once again "Active," is that it most likely does not have to do with inspection issues.

That's because the convention is not to switch a home from "Active" to "Pending" until the Inspection Contingency is removed.

So, if the inspection turned up multiple, material defects that caused the Buyer to walk, the home's MLS status likely never would have been switched from Active to Pending.

The second thing to know is that if the deal fell apart because the inspection was a disaster, the Seller is legally obliged to update their disclosure.

So, if the inspection revealed a failing roof and a cracked foundation, the Seller would have to disclose that information to future Buyers.

In fact, that requirement is why Sellers have a strong incentive to resolve any issues with the Buyer at-hand -- and often do.

Financing Failures

So what does that leave?

In the vast majority of cases: the Buyer's financing.

Realtor convention is to switch a home's status to Pending after the Inspection but before the Buyer's financing is finalized, which can take a couple weeks.

The key step in that process is the appraisal, but the bank also needs time to finish vetting the Buyer's finances.

I like to characterize the gulf between a lender's pre-approval letter and a final underwriting commitment as comparable to the one between dating and getting married -- in other words, it's big.

In a rocky economy, there are lots of prospective Buyers who superficially look good on paper, but have credit blemishes (or worse) that pop up when the bank does its due diligence.

Of course, it's also possible that Buyer's finances were fine, but the home didn't appraise; when that happens, the parties can either re-negotiate the price, or the Buyer can increase their downpayment.

If neither happens . . the deal's off, and the house comes back on the market.

Taking Stock

Does that spell opportunity for other Buyers?

It certainly can, for two reasons: 1) to overcome market skepticism, Sellers frequently have to discount the price; and 2) due to the delay in selling, the owner may now have a time deadline that makes them more motivated.

However, the single biggest question after a busted deal (still) is, "how well-priced is the home given its location, size, and condition?" In turn, that depends on the "comp's."

A home that was overpriced before a sale fell through is not automatically a bargain afterwards.

Broken Deals -- Foreclosures

Feeding Frenzy Aftermath: Broken Deals

Broken lines, broken strings,
Broken threads, broken springs,
Broken idols, broken heads,
People sleeping in broken beds.
Ain't no use jiving
Ain't no use joking
Everything is broken.

--lyrics, "Everything is Broken" (Bob Dylan)

Lo and behold, four to six weeks after some of the wildest bidding wars for foreclosure properties this Spring and early Summer, what do you see?

Broken deals, with the properties put back on the market.

(No, no broken hearts in any of these transactions.)

In many, many cases, the banks knowingly fomented Buyer feeding frenzies by listing the homes anywhere from 20% to 50% below market (I've personally documented many such cases on this blog).

The predictable result was 5, 10, and sometimes even 20-plus offers for the same, derelict foreclosed home.

Seller Games Beget Buyer Games

At some point, many of these runners-up decided to fight fire with fire.

So, at least anecdotally, I've heard stories of Buyer submitting simultaneous offers on multiple homes, committing to unrealistic closing timetables, and representing themselves as all-cash Buyers or financially qualified even though they weren't.

It's not exactly a shock, then, when the banks find that they've been stood up.

Maybe they'll conduct all these "rebound" listings more responsibly.

Next post: 'Broken Deals -- Traditional Sales' (non-lender mediated)

Thursday, August 13, 2009

Banks on the Take

"Assisted Living"

Are the too-big-to-fail banks suddenly healthy? Call me skeptical, for all the reasons listed below:

Take any industry you like, eliminate half of the combatants, and give the remainder fat government guarantees, free money and relaxed accounting standards, and JPMorgan Chase & Co’s second-quarter profit of $2.7 billion doesn’t look so remarkable. Even a U.S. automaker could make a buck or three under those conditions.

Mark Gilbert, "Goldman Toaster Alone Can't Re-Heat Global Economy"; Bloomberg (8/13/09)

Wednesday, August 12, 2009

Flip-flop? Not!

Spring Foreclosures Make Their (Re)Debut

Sorry for the Dr. Seuss-inspired headline (guess who's got little kids they read to?).

My point was, enough time has now elapsed since this Spring's flurry of deeply discounted foreclosure sales that several are now re-appearing on the market as for-sale rehab's. And selling -- quickly.

A good example is this Cape Cod-style home in Minneapolis' Powderhorn Park.

It came on the market in early April for a ridiculously low $88,900, and immediately attracted more than 15 offers (my client's was one of them).

Ultimate selling price? $121,500.

The Buyer, apparently a real estate agent (at least, the same agent represented the Buyer and now-Seller) put new roofs on the house and garage, refinished the hardwood floors, and cleaned up the Kitchen.

New asking price: $199,900.

Did she get it?

Yup, and then some: it just closed for $213,000, which it fetched almost immediately after coming back on the market in July.

Public Loss, Private Gain

So all's well that ends well, right?

I think it's good for the housing market that foreclosures are being absorbed, fixed up, and re-sold.

And it's certainly good for the foreclosure Buyer cum Re-Seller who made a quick $50k (my estimate -- let's hear it for the profit motive!).

And it might even be good for the Buyer's Buyer, who got a nice, cleaned-up house (having been through with my client twice, I can attest to its quality).

So who loses?

All the taxpayers -- us -- who effectively ate the loss on the defaulted mortgage, and never saw the upside on the re-sale.

Add nine zeroes, and that's what just happened with taxpayers and their multiple bailouts of Wall Street investment banks.

Tuesday, August 11, 2009

Buyer's Agents and Inspections

The Virtue of Being There

I know that some Buyer's agents stay away from home inspections because of "liability concerns."

However, as a former attorney, I've never understood that.

The representations about the home's condition are the Seller's. If their disclosure omits a material fact that they knew or should have known about, their Buyer potentially has a cause of action.

Additionally, under Minnesota law, the Seller's agent has their own, independent disclosure duty -- namely, if they know of a material fact about the home's condition, they are obliged to disclose it themselves if the Seller doesn't.

Meanwhile, the inspector, an independent contractor, is vetted by the Buyer, paid by the Buyer, and accountable to the Buyer. When asked, I'll certainly make referrals, but am scrupulous about giving out multiple, reputable names to preserve my independence.

As best I can tell, none of the foregoing makes me responsible for the condition of the home.

Hands-on Approach

When I represent Buyers, I typically show up at the end of the inspection to get the "wrap-up."

One of the best feelings you can have is to arrive and see everyone relaxed and happy -- you know the inspection went well, and that the deal is on track.

However, that's not always the case.

When the inspection uncovers a major issue, my job is to make sure that my client's interests are well-represented.

So, for example, if the boiler turns out to have a cracked heat exchanger, the usual outcome would be for the Seller to either replace the boiler, or make an allowance for the Buyer to.

To resolve any inspection issues, you first have to know what they are, and to know what they are, it helps to physically be there.

So I am.

What's a "Preview"?

Casing a Home in 10 Minutes Flat
(In a Good Way)

One of the many, behind-the-scenes things that good Realtors do for their clients is preview.

Whereas a showing is when a Realtor views a for-sale home with their client, a preview is when they look without the client along.

Schedule permitting, I preview as much as I can, for two reasons:

One. It saves me time.

Within 5 minutes of stepping foot in a home, I can tell whether the home is more or less than billed on MLS; whether the floor plan is coherent; and how updated the home is (memo to Realtors: the homes that exceed expectations sell).

I can also note any obvious deal breakers not disclosed on MLS -- like, the half-acre lot is actually a steep hill that stops at the home's back door.

If the home is still in the running, I then note how well it meets my clients' criteria.

Four bedrooms up? Check.

Bigger, updated Kitchen? Check.

Relatively modern, open floor plan? Check.

And so on.

In an age of instant, ubiquitous information, one of the big surprises is how much is not apparent online.

Best of Class

Two. It saves my clients time.

One of the most helpful things a Realtor can do for their busy clients is to synthesize and summarize what could otherwise be an overwhelming number of choices.

So, instead of showing clients 20 (or 50) homes in Minnetonka and Plymouth selling for $500k- $550k with around 3,500 FSF, I can show them the 4-6 standouts (and there always are).

The result of strategically previewing -- at least if the Realtor's good, and knows their clients -- is a faster, better housing decision.

Monday, August 10, 2009

Puffing vs. Lying

Subjective vs. Objective

See if you can spot the difference between the following, two groups of statements:

Group 1: "The prettiest house on the block!"; "character-filled"; "one of Southwest Minneapolis' most desirable neighborhoods"

Group 2: "2,650 finished square feet"; "1 1/2 story bungalow"; "4 BR/3BA"

If you can't tell, the first group consists of subjective statements; the latter, objective.

I just previewed a Southwest Minneapolis home that the Realtor billed as 1 1/2 stories.


The "second story" was an unfinished, basically inaccessible attic.

Is my client going to buy it? Probably not, because I'm not going to show it to them.

Learning a New Home

Two "Do's" and One "Don't"

You just closed on your new home, and can't wait to put your "signature" on it.

What do you do first?

Smaller things, like paint and carpet -- by all means. Other projects, like refinishing hardwood floors, are also best tackled before you move in, due to the smell, dust, and general dislocation.

However, my advice to clients contemplating bigger projects (opening -- or closing -- load-bearing walls; doing a major expansion, etc.) is to wait until you've lived in the house for a period of time.

That way, you can learn the home a bit better, and prioritize what your needs are. You can also obtain contractor quotes at your leisure, instead of doing a "fire drill" to line up everything right after you close.

Two other recommendations:

One. Until you've learned the homes' mechanicals (furnace or boiler, water heater, a/c, kitchen appliances, etc.), consider getting an insurance policy to cover break-downs. Local utilities offer plans, as do companies affiliated with brokers (Edina Realty offers one through a company called HMS).

If nothing breaks, you've (wisely) spent a couple hundreds bucks on an insurance premium.

However, just one or two major malfunctions, and you're well ahead. After a calendar year covering the full range of seasons and weather extremes, you'll know whether to continue the policy.

Two. Don't switch contractors, at least right away.

Your Seller likely gave you the names of the various contractors who have taken care of their home (if not, the neighbors likely use the same people).

You may want to consider staying with the same vendors, at least initially.

A least for awhile, it's a good bet that the handyman who's been patching the sidewalk; the irrigation company that's been blowing out your sprinkler system every fall, etc. know your home better than you do.

That can save them time -- and you money -- when it comes to maintaining and fixing things.

Economic "Weather Forecast": Cool & Soggy

Flash Floods & Run-Off

Tired of all the "green shoots" metaphors?

As in, "the weak-but-recovering economy is starting to sprout green shoots."

My alternative analogy: the economy is likely to remain cool and soggy.

That's what you get when you combine unprecedented monetary and fiscal stimulus (water), and cool conditions (recession).

At some point, the ground becomes saturated.

What happens when the ground can't absorb any more water, yet it keeps raining?

You get run-off and even flash floods -- that is, hyper-liquidity chasing finite investment opportunities.

That's my take on the stock market's dramatic run-up since March, and the volatility roiling the commodities markets (oil, gold, copper, etc.).

P.S.: want another analogy? The (economic) patient's fever has broken -- but his body is still showing the after-effects of years of abuse and neglect.

"Half-Decade" Mentality

"Obama Saw Successes, Then Harder Times"

I've read (or skimmed) Barack Obama's two autobiographical books, and followed his political rise, so the above headline in today's Wall Street Journal caught my eye: was there some, heretofore hidden chapter in his life?


The "successes" referred to Obama's first three months in office; the "harder times" the second three months.

Glad the journalist has a sense of perspective . . .

P.S.: Once upon a time, a "half-decade" referred to 5 years.

Saturday, August 8, 2009

Martin Feldstein's Housing Rx

Smaller Mortgage, But Full Recourse

If you haven't been paying attention, the administration has tacitly adopted a Japan-style, "muddle through" strategy to deal with the housing (and banking) bust.

Namely, instead of forcing banks to take massive write-downs and pushing for regulatory overhaul, the government has ushered in an era of super-cheap money (at least for banks) that gooses bank profits and slowly nurses them back to health.

In fact, bank earnings are up dramatically. Even the banks thought to be sickest, like Citigroup and Bank of America, are now reporting billions in quarterly profits.

So what's the problem?

A weak economy is creating millions of additional foreclosures, which is putting renewed pressure on home prices, which in turn is undermining the banks' recovery:

Despite a slight uptick in house prices in some markets recently, the sales of foreclosed properties continue to dampen house prices and weaken banks’ balance sheets. The uncertain pace of future losses makes banks nervous about the adequacy of their capital, which discourages bank lending and economic growth.

--Martin Feldstein, "How to Save an ‘Underwater’ Mortgage"; The Wall Street Journal (8/8/09)

Feldstein's prescription?

Take the pressure off both underwater homeowners and ailing banks by striking a quid pro quo: reduce the balance of the mortgage borrowers owe, but in return, make the rest full recourse (now, mortgages are non-recourse). To make such "medicine" easier for the banks to swallow, the government would reimburse the bank for part of the write-off.

Here's how it would work (Feldstein again):

Consider someone with a home worth $200,000 and a mortgage of $280,000, i.e., a loan-to-value ratio of 140%. If the borrower and the creditor both agree, the loan could be reduced by $40,000 to $240,000 (120% of the home value.) The government would give the creditor $20,000 to offset half of the write-down. The homeowner would convert the remaining $240,000 mortgage to a bank loan with full recourse that could not be discharged in bankruptcy. The bank takes a $20,000 loss (as part of the $40,000 mortgage write-down). But it would be better off, because it has a more legally secure loan of $240,000. The homeowner owes less, but he is now personally responsible to repay the loan in full.

Makes sense to me.

However, the catch with all such "rational" solutions to the housing mess -- and there have now been several -- seems to be getting the banks to sign on.

Friday, August 7, 2009

Defending Sodom & Gomorrah

Goldman Sachs: 'Bad, But Not the Worst'

Based on the drivel I've read the last six weeks, I'm convinced that if Matt Taibbi had chosen to rail against, say, the mayor of Sodom & Gomorrah -- instead of Wall Street and its undisputed kingpin, Goldman Sachs -- the same pack of apologists would have jumped to the mayor's defense.

Who are these people? Seriously.

Consider the latest non-defense defense:

What about Taibbi's charge that Goldman engaged in "laddering," or promising shares of hot IPOs to insiders or "friends and family" who would buy more later? And "spinning," or giving company executives super-cheap shares in exchange for the promise that they would buy more?

Yes, Goldman may have been involved in something like that. It helps, however, to point out that the class-action lawsuit on laddering included 55 underwriters as defendants. Including Goldman, yes, but also Morgan Stanley, Credit Suisse, Deutsche Bank, Salomon Brothers, Robertson Stephens, and literally every bank on Wall Street. The lawsuit -- launched in 2001 --was just settled this year, and it was all of $586 million for all of the banks as well as 300 of the failed companies they took public. That was an amount those banks and companies earned before afternoon tea on tech stocks during the boom year. The whole point of the lawsuits, however, is that the banks and companies were in it together-at least 355 entities in all. To single out one bank of 355 as particularly rapacious is ridiculous. What were the other 354 doing, then?

--Heidi Moore, "Matt Taibbi is Just Plain Wrong"; The Big Money (8/6/09)

Where to start . . .

How about with, "Yes, Goldman may have been involved in something like that"??

There's really no need to continue.

Just because Goldman wasn't the ringleader, just because it didn't invent the egregious practices described, isn't really a defense. It's an indictment of the entire Wall Street culture -- one which, if you don't recall, made billions off the Internet bubble before it blew up in investors' faces and tanked the economy.

Sound familiar?

Which raises point #2: they got away with it.

Moore is certainly right about one thing: $586 million is a small amount to pay for the aforementioned misdeeds.

Hmm . . . huge profits, nominal civil fine imposed almost a decade later -- "Let's do it again!" And they did.

The only real difference I see is that the resulting conflagration grew so big that it consumed practically all of Wall Street.

Except for . . . you guessed it: Goldman Sachs.

Why? Because it effectively built itself a bomb shelter. Namely, it bet against the same toxic mortgage-backed securities that it sold its customers.

To Moore, this isn't the height of deceit, or fraud, or breach of fiduciary duty, it's . . . prudence.

In fact, we should be grateful that Goldman's bets against their own customers paid off so prodigiously because if they hadn't, U.S. taxpayers would have had to have given the firm an even bigger bailout.

Sadly, amazingly, infuratingly -- she's probably right.

So, there you have it: Goldman Sachs, looking out for the best interests of the U.S. taxpayer.

Thursday, August 6, 2009

"Priced for Immediate Sale"

As Opposed to . . .?

"Priced for immediate sale" is one of those real estate cliches -- like, "not a drive-by," or, "in move-in condition" -- that has been overused to the point of meaninglessness.

Consider: are there really any homes on the market that are priced to sell in three months? Next year?

(There are, but that's the subject of another post.)

"It's Too Nice for Us"

Quirks of a Buyer's Market

One of the more surprising things Buyer's agents are hearing in today's market is clients who say, "it's too nice for us" (or at least, I'm hearing it).


What I think is happening is actually a couple things.

One, prices of bigger homes, in very nice neighborhoods, have now dropped enough that there really are some steals out there. And Buyers viewing these homes know it.

However, the home represents such a big step up for the Buyer, it would literally swallow all their existing furniture and not even burp.

So, the prospective Buyers have to factor in a small fortune to furnish and re-decorate the home.

That contemplated expense, plus the much higher mortgage payment and property tax bill they'll be assuming, can be a deal-breaker.

"Our kids will trash it"

Another, more practical consideration is what their kids will do to an impeccably maintained, fine home (assuming it is).

I think there's a legitimate debate about whether kids today have worse manners, or, their parents are both working so hard that they have less time to supervise them.

Regardless, my clients who have several, young kids want homes that they can "let their hair down" in.

Homes that are owned by down-sizing empty nesters, full of lots of fragile collectibles and fine art, make them nervous -- really.

As objections go, that's certainly a good one ("the location stinks" is tough).

However, I think it's something for prospective Sellers -- and their stagers -- to consider.

What's All That Noise?

Shlitt! Rip! Crinkle! Shlitt!

What are those sounds?

Millions of unopened monthly brokerage statements, heaped in a pile, finally being sifted and opened.

Just a guess, but with stocks now up more than 40% from the March lows, lots of people now have the courage to tackle all that unopened mail . . .

Title in a Nutshell

What Buyers Need to Know About Title*

With terms like "Torrens," "warranty deed," "ALTA," "registered property abstract," etc., title is no one's idea of scintillating.

However, problems with a home's title -- the document that shows you are the legal owner -- can be every bit as expensive as a defective roof or cracked foundation.

In a nutshell, here are the 4 things home Buyers need to know about title:

One. Exactly what does the Seller own? (Call this "the Brooklyn Bridge" test.)

Lawyers colloquially refer to the various property rights as a "bundle of sticks" (right to use, right to exclude, right to convey, etc.)

Two. How many of those "sticks" are they conveying to you? (You want all of them)

Three. Is anyone else contesting the Owner's claim?

Like, ex-spouses, rival heirs, encroaching neighbors, etc.

Four. Are there any unpaid creditors who are entitled to get paid from the Seller's proceeds?

This last question is especially critical for foreclosures, where unpaid liens, property taxes, city fines, etc. can be piling up, and the Bank that owns the property has zero motivation to discover -- let alone disclose -- their existence.

You'll pay $500 or so to a good title company to carefully address these questions. Then, depending on your home's value, another $1,000 - $2,000 to buy a home owner's policy protecting you from any defects in title.

Good investment.

*From a former attorney not giving legal advice.

Wednesday, August 5, 2009

Obstruction Permits

"Clear a Path" (He said)

Spend too much time in traffic, and you start to notice odd, little details.

Like, the utility truck idling in front of me actually had something called an "obstruction permit," posted in its rear window.

I've heard of "construction permits," but never "obstruction permits."

Brilliant idea!

Imagine the next time someone tries to deny your (legitimate) insurance claim, blocks you at the gas pump, or holds up the express check-out line:

"Excuse me, Sir/Madame, do you have a permit for that?


Then get with the #%!&@# program!"

Home on a Diet

Inflated FSF: 'Told You So'

Where: 29xx Quentin Ave. South, in St. Louis Park's Fern Hill neighborhood
What: 3 BR/3BA Cape Cod built in 1936
How much: asking $349.9k
When: (re-)listed Mon. (Aug. 3)

You've probably heard of home expansions. But have you ever heard of home contractions?

This one did.

When the home pictured above first came on the market more than a year ago, it was billed as 3,937 FSF. After showing the home, I opined that that was dramatically high ("Too Good To Be True"; 7/26/2008).

Well, I was was right.

After six months on the market, the listing expired in January.

Then, yesterday, it re-appeared.

New Realtor. New asking price ($349,900). And, drum roll . . . new FSF: 2,754 -- or 30%(!) less.

Tuesday, August 4, 2009

TARP as Ultimate Sting?

TARP Mystery . . . Solved!

OK, it's taken me almost a year to puzzle out, but I think I've finally got it:

Superficially, the hundreds of billions in TARP money handed over to the financial sector's worst actors only looks like a stupendous reward for failure -- and not a little like ransom money, paid to keep the rest of the economy from cratering.

Ah, but that's only appearances.

What the TARP money really is . . . shhh! . . . is a super-sophisticated government sting, brilliantly designed to smoke out and then nab society's greediest and sneakiest operators.

Follow the Money

Think of the TARP money as bait.

Sort of like what banks do when they put invisible dye on cash in tellers' drawers, so that they can catch robbers red-handed after-the-fact (actually, blue-handed). Or, if you want a more graphic (but apt) analogy, like the dye you ingest as part of a colonoscopy.

Once the plan is put in motion, you wait, and watch; then, as the malefactors convert the cash to their own, private benefit . . . you pounce! You confiscate the ill-gotten plunder, return it to its rightful owners (taxpayers), and apprehend the perpetrators.

Memo to government "handlers": any time now, guys . . .

P.S.: of course, even if all this were true, you'd expect Wall Street to beat the charges. Their likely defense? Entrapment. (EnTARPment?)

The Low-End is HOT!

No "Extra Innings" -- Promise

Where: 38xx 37th Ave. South, in Minneapolis' Longfellow neighborhood
When: listed yesterday (Aug. 3)
What: 2 BR, 1 BA home built in 1914.
Who: listed by Kathleen Doyle, Edina Realty City Lakes
How much: $91,900

Want an indication of how intense Buyer activity is at the lower end of the Twin Cities housing market at the moment?

This modest, 1914 Longfellow home -- all of 2 Bedrooms and 912 square feet, asking $91,900 -- has already elicited multiple offers, in less than 24 hours on the market. Another 20-30 Buyers are planning to see it today.

The listing agent, Kathleen Doyle (612-802-9066), who's out of my office, is advising everyone that all offers are due by tomorrow (Wed.) at 5 p.m.

P.S.: And no, it's not a foreclosure -- it's an estate sale. If Kathleen's handling it, you'll get a prompt response, and if your offer is the best -- you'll actually get it, no games or "extra innings"! Imagine . . .

The Scoop on the 'Loop (Calhoun)

Shadow Inventory . . . in the Same Building

There's been much talk of "shadow inventory" that wanna-be Sellers are poised to put on the market once conditions strengthen.

We're about to find out, because there are increasing signs that the lower end of the market is stabilizing, if not rising.

In the meantime, the Loop Calhoun, a 124 unit condo-and-townhome development just northwest of Minneapolis' Lake Calhoun, is making what might be called a market "re-debut."

Out of Bankruptcy

Tied up in bankruptcy the last 18 months or so, the owner, M&I Bank, is rolling out the first batch of ten units for sale.

I just took some clients through, and was very impressed: solid building, nice design, high end finishes, etc. And that's on top of a great location.

I was also surprised by the state of completion. I'd heard varying stories about work being stopped abruptly, but the three units I toured (one townhouse and 2 condo's) were easily more than 95% complete.

The two wild cards -- and they're big ones -- are: 1) the soft condo market, especially in the upper price brackets; and 2) the overhang of supply elsewhere in the building.

In that vein . . . once the first 10 units are under contract, another 55 will ultimately be made available for sale. (The balance were purchased pre-bankruptcy.)

Early Deals?

In fact, new construction always faces this problem of shadow inventory.

To surmount it, developers (and banks who take title in bankruptcy) typically dangle lots of carrots (read: attractive pricing) to entice the first wave of Buyers and generate sales momentum.

Once supply shrinks, the pricing on subsequent units firms up and the incentives go away.

Will that happen at Calhoun Loop?

Stay tuned.

Monday, August 3, 2009

Modifying Mortgages -- Why So Few?

Greedy, Stubborn & Stupid? No, Just Greedy

I'm sure like a lot of people (and almost all *Realtors), I assumed that banks' unwillingness to modify underwater mortgages en masse was due to greed, stubbornness, or stupidity -- or a combination of all three.

And while I think that there's plenty of evidence to support that view, at least there's now a wisp of a counter-argument, made by The New Yorker's James Surowiecki ("Not Home Yet").

According to Surowiecki, banks don't modify mortgages because -- surprise -- it's not in their self-interest to:

Foreclosing is often more profitable for lenders than renegotiating is. There are two reasons for this. First, about thirty per cent of delinquent borrowers “self-cure” after missing a payment or two, they get back on track without any help from the bank. Second, between thirty and forty-five per cent of people who do have their mortgages modified end up defaulting eventually anyway.

Don't worry, there are still plenty of reasons to hate the banks (at least the too-big-to-fail ones).

*Like many Realtors, I'm personally aware of hundreds of short sales that languished for lack of bank approval, only to re-appear on the market at some later date -- significantly the worse for wear -- as foreclosures.

Beige Elephants

"The Bigger They Are, the Slower They Sell"

That's from an article in today's Wall Street Journal titled, "High-End Homes Frozen Out of Budding Housing Rebound" (8/3/09).

The thrust of the article -- which I agree with -- is that the lower rungs of the housing market are now stable if not recovering, while the upper bracket is still suffering.

That's because of an upper bracket "triple whammy": 1) less available, more expensive "jumbo" loans, which are typically used to finance expensive home purchases; 2) higher down payment requirements for said purchases; and 3) stock market and other investment losses, which impair the purchasing power of would-be upper bracket home buyers.

"Beige Elephants"

In fact, the very weakest segment of today's housing market is a particular subset of the upper bracket: upper bracket homes that need substantial updating.

Such homes face all the obstacles that other upper bracket homes do, plus one more big one: the cost to rehab and/or update, which often has to be paid out-of-pocket (vs. financed).

For a 4,500 FSF, five bedroom house, the related cost could easily be hundreds of thousands.

Unless that cost can be rolled into a difficult-to-get rehab loan, the prospective Buyer has to have that amount lying around.

Throw in the delay and inconvenience, the myriad design decisions, and the required oversight -- and suddenly, the pool of prospective Buyers for such homes isn't so big.

In today's market, such homes may not be white elephants . . . but they're beige.

The (slim) silver lining is, now is a great time to get bids on a major rehab project.

Sunday, August 2, 2009

Pricing "Catch-22"

Vicious Cycle

You’re not seeing a lot of sales activity [in part ] because people are still trying to define price. You need a certain amount of volume to be able to tell people where pricing is.

--Mary Ann Tighe, CB Richard Ellis; The New York Times (7/31/09)

Upper bracket homes in the Twin Cities?

No, actually commercial real estate in Manhattan.

But the observation, from a top commercial broker there, describes some of the unique challenges now facing would-be upper bracket home Sellers (and Buyers) in the Twin Cities.

With few good comp's, the latitude for pricing widens. In turn, the wider the price range -- the more ground Buyers and Sellers have to bridge to do a deal.

The result is fewer and slower sales . . . which serves to further undercut "price certainty."

"Washington as a Ghost Town" -- Really

Closer to Constituents, Further From Lobbyists

What if Washington Were a Ghost Town?

--Headline, Peggy Noonan Op-Ed piece; The Wall Street Journal (8/1/09)

My thoughts exactly . . . almost 16 years ago.

In fact, that was the thrust of my own 1993(!) Op-Ed piece:

Here's an excerpt:

In an era of jet travel, teleconferencing, and faxes, why not bring Washington to the people? Specifically, let members of Congress work out of their home districts, under their constituents' watchful eye. Such an approach would have several benefits, and surprisingly few drawbacks.

First, it would make members of Congress less accessible to lobbyists and special interests. Lobbying Congress now is like shooting fish in a barrel: All you need is a Washington branch office staffed by a few employees, and a well-heeled political action committee ("PAC") . .

Conversely, locally-based members of Congress would be more accessible to constituents. The most successful businesses are the ones that "get closest" to their "customers." Politicians' "customers," the voters, are scattered across the United States, not based in Washington.

--Ross Kaplan, "Congress Come Home: Faxes Can Do the Talking on Capitol Hill"; Star Tribune (9/27/1993)

Little did I anticipate that in the intervening almost two(!) decades, advancing technology would make the aforementioned proposal even more feasible -- and Washington-Wall Street dysfunction make it even more necessary.

Nor did I anticipate that the presumed reason for bringing legislators together -- that proximity would promote comity, consensus, etc. -- would have even less sway.

So, is that what Peggy Noonan is championing?

Unfortunately, no.

The headline of her piece has to do with imagined advice that FDR and Richard Nixon would give President Obama dealing with today's myriad policy "challenges."