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Wednesday, September 30, 2009

"An Inconvenient [Housing Market) Truth"

Framing the Choices

In politics, it's often said that "whoever defines the terms of debate, wins."

The equivalent in real estate appraising would be, "whoever decides the geographic area for choosing the comp's, defines home values."

What does that mean?

One of the challenges choosing and analyzing "comparable sold properties" (comp's) is coming up with three, similar properties nearby that have sold recently. Traditionally, Realtors and bank appraisers look back no more than six months; lately, there is a preference for three months or even less.

Unfortunately, that requirement bumps up against what might be called an "inconvenient housing market truth": there are many, many small neighborhoods in the Twin Cities -- some with as few as 100 homes -- that have their own distinct character and identity -- and not a lot of turnover.

If you want to intelligently price a home in one of these smaller neighborhoods, you have to consult previous neighborhood sales. However, because the neighborhoods are so small, there may not be 3 good comp's. In fact, it's not unusual to have to go back a year or even longer to find a similar, nearby sale.

But then, by definition, the previous sale is no longer a comp.

Comparing (Honey Crisp) Apples to (Cortland) Apples

What then?

You have to go farther afield.

Just to illustrate the challenges, consider the Lion's Park neighborhood in Golden Valley.

Lion's Park is located between 169 on the west, 394 on the south, Hiway 100 on the east, and Hiway 55 on the north. Built mainly in the '50's and '60's (with a sprinkling of recent tear-down's), the neighborhood includes perhaps 100 homes that encompass a surprising range of styles and sizes.

So, if you're trying to price a Lion's Park home, the odds are good you'll have to go outside of Lion's Park to find one or more comp's.

But which direction?

Northern Golden Valley, just to the north across Highway 55, borders Crystal and New Hope and is perhaps 20% less expensive than Lion's Park.

Meanwhile, North Tyrol Hills, just to the east of Lion's Park (across Highway 100) is perhaps 20% more expensive.

My guess is that a majority of the time, when a home doesn't appraise, it's because the appraiser is doing the equivalent of pulling comp's from the equivalent of Northern Golden Valley rather than the counterpart to Tyrol Hills.

"Cedar Lake Specialist" . . . Really?

Inflated Realtor Claims

Does one sale make you an "area specialist"?

That's the claim being made by a Coldwell Banker Burnet agent who just sold a home about a block from where I live near Cedar Lake in Minneapolis.

The agent's flyer, which was just left on my door, trumpets "Just Sold" above a photo of the home, with "Cedar Lake Specialist" beneath the agent's headshot.

Neighborhood Specialist . . . Everywhere

The agent, who represented the Buyer, is trying to capitalize on the sale. Nothing wrong with that -- Realtors do it all the time.

However, wouldn't a "Cedar Lake Specialist" logically work out of CBB's Minneapolis Lakes office, just a few blocks away?

Or at least Burnet's Minneapolis Parkway office, a few miles southeast but still close to the lakes?


In small type, the agent's flyer indicates that he's in Burnet's Edina Regional Office, a good 10 miles south (and a lot closer to Bloomington than Cedar Lake, Lake Calhoun, etc.)

How much do you want to bet that this agent is soliciting business in Bloomington, Eden Prairie, etc. claiming to be a "neighborhood specialist" in those areas, too?

Tuesday, September 29, 2009

John Paulson's Billions

How the Billions Are Made Today

John who?

If you didn't know, John Paulson (no relation to former Treasury Secretary and Goldman Sachs chief Henry Paulson), apparently is the guy who's made the most money the last two years or so. In the world.

After making $4 billion or so in 2007, Paulson made another $4 billion last year. Himself. As in one person.

For that kind of dough, you'd figure Paulson must have done something truly amazing.

Like cure a disease. Or design a better, faster computer. Or come up with a more productive, pest-resistant strain of rice (like Norman Borlaug, who just past away, did).

So, is that what Paulson did?


Paulson made his money running a Wall Street hedge fund that figured out how to use exotic credit instruments ("collateralized debt obligations," "structured asset-backed securities," and the like) to bet on falling housing prices.

Needless to say, his ship came in, big-time.

Paulson's certainly better off.

Are we?

P.S.: Show me an economy where the big winners create nothing of real value -- or worse, benefit from exploiting market excesses and dysfunction -- and I'll show you a dysfunctional economy.

Kooky Climate & Conked Out Batteries

Schizophrenic State Weather

Friday, I was racing to find the a/c controls at my listings, which all seemed to be roasting (not the impression you want prospective Buyers to come away with).

Today, I ran the same drill in reverse, trying to find the heat controls.

Only in Minnesota (or maybe, Siberia).

It won't be long before I'm using my car high beams to illuminate the lockbox of the house I'm trying to show.

(Half the year in MN, you don't need a flashlight to show homes before 6 p.m. or so. However, each Fall, right after the daylight savings switch, I get caught out with clients when it's dark at 5 p.m. and discover my flashlight batteries from Spring konked out).

Monday, September 28, 2009

Marketing to Neighbors

Open Houses and "Nosy Neighbors"

When I hold Sunday open houses, one of my top, target audiences -- at least the first weekend -- are the neighbors.

Not because a neighbor is likely to buy the home, but because they might know someone who will. Sometimes, an especially motivated neighbor will even recruit a Buyer.

Even if neither is true, there are still other reasons to enlist the neighbors' help.

I can think of two, really good ones:

One. They're more credible selling the neighborhood to prospective Buyers. Think about it -- who would you more readily believe about locals schools, restaurants, etc., someone who lives on the block, or a Realtor trying to sell the home?

I've hosted more than a few open houses when a neighbor will literally interrupt me answering a question about nearby parks, kids on the block, etc. and give their own, enthusiastic and informed answer.

Two. Neighbors help fill up the open house and create "buzz."

The neighbors know who they are, and you know who they are (they always tell you) . . . . but prospective Buyers don't (that is, unless they start fielding questions, per above).

All prospective Buyers know is that the the house is full of people. If they like the house, their natural inclination is to think that the other people going through are prospective Buyers, too.

That kind of nervousness makes people hurry up and write offers.

Sunday, September 27, 2009

"Full Service," Defined

Attention to Detail + Hands On Role

What exactly do Realtors mean when they say they're "full service?"

It's certainly a fair question, because a full service commission in the Twin Cities these days typically ranges from 6% - 7%. By contrast, "discount" Realtors charge 5% or even less ("limited service" is actually a better label).

My full explanation takes about 90 minutes, which I cover as part of a formal listing presentation that I make to prospective clients.

Suffice to say, I play a "hands on" role -- starting weeks (and even months) before my listings ever hit the market, to well beyond closing.

That includes knowing all there is to know about both recently sold properties (the "comp's") and competing "Active" listings, so I can give expert guidance on pricing; suggesting cost-effective improvements to maximize the home's value; and building market awareness -- well before the home formally debuts on MLS -- both with other agents and the general public.

"Full Service" . . . in Practice

In fact, my input goes well beyond simply recommending value-adding improvements.

As an example from just this week, my client was in the process of painting their home -- at my recommendation -- to get it ready for sale. However, the paint colors they selected just didn't seem right.

I knew, because I was in daily contact with both the client and the painters.

As part of "full service," I asked two stagers I regularly work with to interrupt their schedules and come to the house, ASAP, to make suggestions from their color palettes.

Which they did. They both recommended near-identical colors, which my client OK'd, and the (waiting) painters immediately substituted.

Example #2

The second illustration of what "full service" involves was . . . today.

The key to my client's just-listed home is the Kitchen, and the Kitchen has a prominent light fixture with 3 halogen bulbs. Unfortunately, 2 of them didn't work.

Normally, my client would attend to that, but they timed their vacation to be out of the way the first week their home is on the market.

So, I went to the hardware store to find replacements. "Not so fast," the salesperson I talked to said. The bulbs were specialty bulbs, and I needed to go to a specialty store for replacements.

Which I did.

After I finished, I had just enough time to join my family on an apple-picking outing.

P.S.: And no, "full service" does not include getting my clients' dry cleaning, babysitting their kids, etc.

Saturday, September 26, 2009

Cedar Lake Contemporary

Open Sunday 1-3 p.m.

Where: 2812 Sunset Blvd, two blocks from Cedar Lake in Minneapolis
What: Architect-designed Contemporary with dramatic vaulted ceilings, 4BR/4BA and 4,000-plus FSF. Perfect for empty nesters who don't want to squeeze into a townhome, or families with teenage kids who'll love the huge, finished lower level. Compares well with million-plus homes just a little bit closer to the lake.
How much: $599,000
When: market time = two days (came on Friday)
Who: listing agent - Ross Kaplan (612-925-7701); broker - Edina Realty

It's a cliche when Realtors use phrases like "Outstanding opportunity," "Hurry! Don't Miss Out," "Priced to Sell," etc. (ever see a home where the Realtor admitted that it wasn't "priced to sell"??)

So I don't.

But what I do tell prospective Buyers is that my track record speaks for itself: I've sold a dozen homes within a few blocks of Cedar Lake the last few years, and my statistics are the equal (or better!) of any Realtor active in the area: my clients' homes sold for, on average, 98%-plus of list price, and took an average of 11(!) days to sell.

So, if you're looking for something like this home, you may want to stop by tomorrow, or call me to set up an appointment.

Sooner, rather than later.

Friday, September 25, 2009

Deal(ing) with the Devil

Why Be a Goldman Sachs Client?

I'd rather have the SOB in the tent and pissing out, then the other way around.

--Lyndon Baines Johnson

He may be a son of a bitch, but he's our son of a bitch.


It's a question that's been gnawing at me since at least last December, when Bernie Madoff was arrested, and has only grown stronger as various and sundry accounts of Goldman Sachs' machinations have come to light.

Namely, if you suspect (or worse) that someone you have business dealings with is "ethically challenged," why hang around? Why not simply run for the exit, like a rational person would?


You'd have to have been in a cave the last six months not to be at least dimly aware of the charges and recriminations hurled at Goldman Sachs.

Namely, that Goldman Sachs wields undue influence over U.S. financial and monetary policy, and benefits mightily from same; that it has inside information that it uses to game the markets; and that the firm, in Matt Taibbi's infamous words, is a "great vampire squid wrapped around the face of humanity."

If you were a Goldman Sachs client, you'd think that all that might at least give you pause.


Unless you actually believed the allegations, in which case you might rationally decide that it was better to be on the inside of whatever scam(s) Goldman was running -- presumably benefiting from them -- than being on the outside, victimized like everyone else.

Doing Business with the Devil

Interestingly, a similar theory emerged around the time Bernie Madoff was arrested.

According to some news accounts, at least a few Madoff clients suspected that his returns were too consistent to be legitimate. In fact, they believed Madoff was actually engaged in "front-running," i.e., illegally trading ahead of his (brokerage firm) clients to snag guaranteed profits.

Whether true or a canard, it would explain why at least some putatively sophisticated (but ethically deficient) Madoff clients stuck with him.

At least until it all blew up.

Then, they discovered another lesson: sometimes, even people supposedly "inside the tent" end up getting pissed on, too.

Thursday, September 24, 2009

Realtors & Angie's List

"Loved Working with Clark . . . er, Joseph"

[Note to Readers: Who knew that Angie's List had a "Brand Enforcement Coordinator?" I didn't, at least until I got an email from her today asking me to remove the Realtor review I originally excerpted in my 8/13 post titled, "Realtors & Angie's List."

Apparently, that runs afoul of Angie's "brand enforcement," so at their -- ahem -- request, I'm removing it, and paraphrasing it instead. The "new-and-improved" post follows, below.]

As I've posted before, I use Angie's List personally, and increasingly recommend it to clients; it's a great way to get lots of info on literally thousands of local contractors.

However, its utility still varies by category.

For plumbers and electricians, by all means; for Realtors . . . maybe not just yet (the most popular contractors in the former categories can have hundreds of reviews; the latter, ten at the most).

Exhibit A would be a glowing report full of superlatives from the client about their Realtor, Clark ("We had a great experience with Clark" . . . "Clark worked very hard to get to know us and our needs" . . . "The trait that I liked most about Clark was his very quick response time," etc.)

The catch?

The name of the Realtor at the top of the report isn't Clark -- it's Joseph (got to love that personal touch!).

Wednesday, September 23, 2009

The World's Most Powerful Realtor

Realtors' Water Carrier in Chief

Who is the world's most powerful Realtor?

No, it's not the head of the National Association of Realtors, a local Board president, or the top-selling Realtor nationally.

Hint: he's actually the world's most powerful ex-Realtor.

I don't think I'd get much argument that it's Georgia Senator Johnny Isakson.

Isakson was instrumental in getting the $8,000 tax credit for first-time home buyers passed, and has been leading the effort to extend and even raise it.

Another couple dozen officials like him in high office, and Realtors might even start to approach the influence wielded by Goldman Sachs.

P.S.: leaving the merits of the $8,000 tax credit aside, it amounts to less than 10% of what was flushed down just one company, AIG. And the tax credit has had a HUGE effect on stabilizing the housing market, particularly at the bottom rungs.

Tuesday, September 22, 2009

Murmurs of "Coiled Springs"

More Half-Full Glasses

The deeper the slump, the zippier the recovery.

--The Wall Street Journal (9/19-20, 2009)

Just six months ago, the mantra of the hour was, "the bigger the party, the nastier the hangover."

That was succeeded by the "green shoots" metaphor.

Now, I am seeing variations on "the steeper the fall, the more robust the recovery" (also known as the "V-shaped" recovery scenario).

Do I hear any murmurs of economic "coiled springs" about to be unsprung?

(Yes, I do -- that's the metaphor being pushed by Charles Schwab's chief investment strategist, Liz Ann Sonders).

Green Shoots -- Housing Market Version

More Demand Coming Off the Sidelines?

I wouldn't say its a trend, at least not yet, but at my Sunday open house I encountered an encouraging sign for the housing market: a couple in their late '50's - early '60's, now renters, contemplating buying my client's (very nice) townhome.

Their credit was (more than) fine, they both had jobs, and they weren't particularly rattled about the economy.

Having rented for the last 3 years, they had no particular beef with their landlord -- at least beyond the usual, garden variety inattention. But their rent was going up for the second time in three years, and their location was noisy and crowded rather than private and residential.

Too, the now-renters wanted to plant flowers and a garden.

Even if their rented townhome had the space, it wouldn't feel the same.

Just as no one washes a rental car, few renters put a lot of TLC into improving their rentals.

vs. 2006

Contrast the aforementioned, ultra-conservative profile with what Realtors were seeing just three years ago: waves of renters, many with dubious (or no) credit, wanting in on the housing boom.

In the stock market, it's a strong bullish indicator when people are defensive, and there's a lot of cash on the sidelines.

At least in theory, the pool of cash represents buying fuel for another upswing.

Similarly, a large pool of former owners-now renters bodes well for future housing demand.

Monday, September 21, 2009

Multiplication-Challenged Realtors?

Real Estate Pet Peeves

Acres: 0
Lot Size: 132' x 120'

It's admittedly a pretty fussy pet peeve, but here goes: if you're selling a home on an unremarkable, 40' x 120' city lot, I don't really care or need to know that that's .110 acres (some Realtors tell you, anyways).

However, if you're selling a home on a huge, 132' x 120' lot -- literally triple the standard city lot -- how about actually telling someone that that's .36 acre??!!

The "O acre, 132' x 120'" (above) appears verbatim in a listing for a Hopkins home that just came on MLS tonight.

Giving the acreage (if it's meaningful) is important information for prospective Buyers.

It also is important to Sellers -- because it makes their home more valuable.

For anyone who doesn't know the math, here it is:

1. Multiply width x length
2. Divide product by 43,560'

Next: trigonometry lessons for especially challenging lot sizes.


The Anti-Rambler

Where: 3504 W. 22nd St, just west of Cedar Lake
How much: $799,000
What: 4 BR/2 Bath Contemporary with 2,433 FSF
Listed by: Cotty Lowry (broker: Keller Williams)
When: on market since June 18

Frequently, the best way to market a home is to visualize who the likely Buyer is -- then market to them.

Sometimes, the opposite works, too: imagine who isn't going to buy the home.

That's easy in the case of 3504 West 22nd st. (pictured above), just west of Minneapolis' Cedar Lake: anyone not in great shape, or who's already dealing with middle age aches and pains.

That's because this house is the most "vertical" home I've ever been in; I had to stop to catch my breath climbing stairs before I even got in the home -- and there were at least as many more inside.

Call it the "anti-rambler."

To the listing agent's credit, he acknowledges the issue with a little humor ("OK, so it has a few steps -- all the better to keep you in shape").

And even though the range of prospective Buyers is narrower for a home like this, frequently the effect isn't so much a huge discount, but longer market time.

It certainly helps that this home is less than a block from Minneapolis' Cedar Lake, and has stunning views of downtown.

Sunday, September 20, 2009

1930's vs. 1990's

Fascinating Juxtaposition

The two photos above, from today's New York Times, present a fascinating juxtaposition.

The photo on the left shows FDR signing legislation -- known as The Glass-Steagall Act -- separating the nation's investment banks from its commercial banks. It was the latter that held ordinary Americans' savings deposits, and it was the former's plundering of same that played a big role in causing The Great Depression.

The photo on the right shows Bill Clinton signing legislation in 1999 dismantling Glass-Steagall.

Study in Contrasts

But for the fact that the people in the two photos are exclusively older, white males, the contrasts couldn't be more startling.

The Congressmen and senior government officials surrounding FDR look sombre, if not grim. Their demeanor suggests that they had just witnessed a horrific financial accident (if not crime) -- one which they are determined not to ever let happen again.

Of couse, they had, and they (mostly) did. To their credit, their efforts to safeguard the nation's financial system succeeded for more than three-quarters of a century.

By contrast, Bill Clinton and the officials around him -- luminaries such as Fed Chairman Alan Greenspan, SEC Chairman Arthur Levitt, Texas Senator Phil Gramm, and Treasury Secretary Robert Rubin -- look like they're re-filling the punch bowl at an especially raucous party.

Which of course, they were.

Less than 2 years later, the stock market cratered.

Less than a decade later, a lethal combination of investment bank risk and leverage -- just like in The Great Depression -- created the greatest financial crisis since the 1930's.

Once a Super Realtor . . .

Always a Super Realtor

Before making Mpls - St. Paul Magazine's Super Realtor list, I'd never really paid much attention.

However, now that I'm a repeat pick, it does seem like there are a lot of, well, "us" out there. That's despite the fact that supposedly less than 2% of Minnesota's Realtors are chosen annually.

The explanation?

It turns out that the Super Realtor decal that Realtors can put on their marketing materials -- for a fee, of course -- contains an embedded calendar date. A very small, embedded calendar date.

I was made aware of that recently by another "Super Realtor" whose current business cards contain the decal . . . from 2005. I had to look at the card three times, squinting closely, before I could (just barely) make out the "2005."

I promised I wouldn't divulge his identity.

Saturday, September 19, 2009

Obamas' Hyde Park Home

Now That's a Tough Comp

Not since Richard M. Nixon lived in a New York City apartment has the market tried to assess the value of immediate proximity to the president in a dense, urban neighborhood.

--Susan Saulny, "Hyde Park House for Sale Comes With a View: The Obamas; The NY Times (9/15/09)

As I've been posting recently, pricing a home -- whether it's done by a Buyer, Seller, or appraiser -- is all about the comp's.

The magic number is three -- as in three, recently closed homes similar in style, size, and condition to what's called the "subject home."

To clients, their home is always "one of a kind"; to them, there's nothing as inviting, beautiful, functional, etc.

Usually, they're wrong about that.

Not this time.

Complicating matters further in the case of the Obamas' neighbor (pictured above): the home is a complete 'fixer (as in fixer upper).

Friday, September 18, 2009

Overdue Vacation?

Florida vs. Nevada

I was puzzled when my office receptionist asked if I was going on vacation.

It took a second to figure out, but it turns out they'd overheard me say I was "going to Florida" to meet my client.

As in Florida Avenue South, in St. Louis Park's 2nd alphabet.

I told them that if I had the time, I'd much rather go to Nevada (about a half-mile west).

Choosing a Title Company

A Realtor's Perspective

While the Realtor serves as the deal "quarterback," there are many other professionals involved with a residential home sale.

They typically include a lender or mortgage broker; a home inspector; and a title company and closer.

Of the three, title is easily the most obscure, but hardly any less important: a defect in title can be just as expensive as a defective roof or foundation.


If a client has a title company preference, great.

If not, I recommend they use Edina Title (which is an affiliated company of Edina Realty).

I used to get bogged down in the minutiae of what title does, and explain terms such as "gap coverage," "ALTA," "encroachments," "easements," "lien searches," etc. (I'm still happy to explain if a client has interest).

However, now I simply say, if they use Edina Title and there's a problem or mistake, I'll make sure it gets taken care of.

If they don't and there are problems, I'll certainly do what I can, but I can't promise anything.

Thursday, September 17, 2009

San Francisco Déjà Vu

Weather Déjà Vu

Ever been curious about San Francisco's weather?

If you've been in the Twin Cities the last few months, you've been treated to a fair approximation: cool, wet summer, followed by warm, dry Sept. and (hopefully) October.

Unfortunately, by Halloween, no one will be confusing our climate for the Bay Area's.

Deconstructing AIG: define, 'Almost'

"It Depends on What the Definition of 'Is,' Is"

Too much risk is just as bad [as too little]. Just ask the financial wizards at American International Group who ended up on the wrong side of tens of billions of dollars in financial contracts, almost bringing down the world’s biggest insurer.

--Andrew Ross Sorkin, "Taking a Chance on Risk, Again"; The NY Times (9/17/09)

Here's a thought: when a rogue subsidiary blows a hole the size of Singapore's economy -- $175 billion, to be exact -- in your company's balance sheet, you're way past "almost" bringing down the company.

You're not "almost down." You're very down.

In fact, in the history of capitalism, it really doesn't get much "downer" than that, at least for an individual company.

AIG exists today only because it received a $175 billion infusion (so far).

It got that money from the U.S. government -- which means us, which means our kids -- for exactly one reason: it owed it to so-called Too Big to Fail institutions like Goldman Sachs.

Realtor-to-Realtor Letters

"X" Factor: Realtor's Credibility

First there was the "Dear Seller" letter, drafted by the Buyer ("We loved your home from the minute we walked in . . .")

Then came the "experienced short-sale agent" claims on MLS, dangled by listing agents trying to convince prospective Buyers that the odds of a deal will be better (better, but still not good).

Call it a "Dear Buyer" letter.

Now, there's the "Dear Listing Agent" letter, drafted by the Buyer's Agent to reassure the bank-owner of a foreclosure.

Who would write such a letter?


I'm currently representing clients competing for a foreclosed property that, due to its advanced deterioration, is in fact a tear-down.

Because the local municipality is known for strict oversight, that could create headaches for the bank trying to unload the property.

So, how -- besides price and terms -- do you make your client's offer stand out?

By letting the Bank and its Realtor know that, because you and your client have existing relationships with city staff, know the required procedures, and have already had contractors assess the property's condition (all true) . . . the odds of a consummated deal are much better.

Tuesday, September 15, 2009

Catching Mistakes -- Or Not

Nice Save by Edina's Front Desk

The difference between good and not-so-good Realtors isn't just the Realtor -- it's often the quality of the support staff around them. Assuming the Realtor has support staff.

I was reminded of that when Edina Realty's front desk caught a mistake I made on a "tour request" form I turned in yesterday -- the first mistake I've ever made :)

On the line that asked for the three digit MLS area, I inadvertently transposed a number. So, instead of appearing in the Bloomington section of the Broker tour printout where it belonged, my new listing would have shown up in South Minneapolis.

Then, instead of having 17 Realtors at my broker open today . . . I would have had none (and my client's townhome would have had no exposure).

Fortunately, Mary, one of my office's two listing coordinators, noticed the mistake, corrected it, and left me a voicemail letting me know that it had been taken care of. Nice.

Team Effort vs. FSBO

Contrast that with what can happen when no one's looking over your shoulder.

As I discussed in Classic FSBO Mistakes, I previewed a home where "Foreclosure" had been checked on the MLS information sheet.

When I asked the (for-sale-by) owner how long the home had been in foreclosure, she got upset, and was adamant that, in fact, the home was completely paid off.

So I handed her the MLS report.


The home had been on the market three weeks at that point, and my guess is that it hadn't attracted a single showing because the list price made no sense for a foreclosure.

That one mistake alone probably cost the owner 5%, or in her case $20k.

P.S.: the grainy photos, poorly written ad copy, and missing disclosures probably added up to another 5%.

Big Rate Drop

The Fed's "Mortgage Shopping Spree"

Drowned out in all the health care reform discussion is a quiet -- but big -- drop in mortgage rates.

As of this morning, rates on 30-year mortgages are being quoted at 5%.

That's a big improvement over just six weeks ago, when rates were in the mid-5's -- and thought to be heading higher -- based on excess liquidity-driven inflation fears.

Now, the mortgage market and long-term rates appear to be driven by two things:

One. Relatively weak demand, due to the soggy economy; and

Two. The Fed's concerted program to buy up mortgages and keep the market liquid (it has a cool, $1.25 trillion (!!) war chest to do exactly that).

Not necessarily in that order . . .

"Chubby Hubby" Competitor


Breyer's Ice Cream may want its marketing types to revisit the font choice for their new line of ice cream.

It's supposed to read "Double Churn."

Unfortunately, at least from more than five feet away, it looks a lot like "Double Chin" (at least to me).

Or, maybe it's just truth in advertising . . .

P.S.: my daughter refers to her favorite ice cream place as "Tom & Jerry's" (guess what her favorite cartoon is).

Monday, September 14, 2009

"It's Not a Comp If . . ."

Misconceptions About "Comp's"

Perhaps no other term in real estate seems so straightforward, yet is so commonly misunderstood, as the term, "comparable sold property ("comp" for short).

As Realtors and appraisers use the term, a comp has a very specific -- and narrow -- definition: namely, a recently sold, similar property that can be used to price the "subject" home (i.e., the one you're trying to sell).

In practice, to be a comp, a property must have sold within the last six months (preferably, three); be physically nearby (in a densely populated city, usually within a mile); and be relatively similar in style, size, and condition.

Take away any of the foregoing attributes . . . and it's not a comp.

So, in that spirit, I offer the following:

"It's not a comp if . . .

--It sold 4 years ago (even if it's your next-door neighbor)

--It's more than twice as big as --or less than half the size of -- your home

--It's in dramatically different condition

--The styles are different (rambler vs. 2-story Colonial vs. suburban split-level vs. Tudor, etc.)

--It's the same size and condition, just sold --- but is across town

--It's a bank-owned foreclosure (at least it's not a comp until there are lots of them nearby).

Realtors, feel free to send this to your clients anonymously (you're welcome!).

City Lakes "Hits"

"Top Ten" Google Hits . . . Worldwide!

OK, so no one would confuse the traffic on this blog with The Drudge Report or The Huffington Post.

Still, run a Google search on any of the following 56(!) key terms, and you'll find the related City Lakes blog post ranked in the top 10 hits . . . worldwide! In fact, many of the posts are ranked in the top three.

Go ahead, try it (posts with an asterisk* have been especially popular):

"Financial-Industrial Complex"
"Real Estate & Inflation"*
"Freakonomics Rebuttal"*
"Realtor Demographics"
"Realogy Bankruptcy"*

"The Loop Calhoun"
"Westin Galleria Edina"
"Highest & Best - Explained"
"Lakefront Premium"
"'As Is' Misconceptions"

"Realtors & Angie's List"
"Zillow & Social Networking"
"Bracketing, explained"
"Bernie Madoff & the Path to Recovery"*
"Price Reductions: A Realtor's Take"

"Foreclosure Feeding Frenzies"
"Contractor Etiquette"
"Real Estate Auction Checklist"
"George Soros on CDS"
"Firing Your Realtor"

"Dear Client Letter"*
"Financial Son of Sam Law"
"Peggy Noonan Recession Trends"
"Marooned in the Exurbs"
"Vanishing FSBO's"

"Defending Sodom & Gomorrah"
"Warren Buffett's Crystal Ball"
"Taking Trulia for a Spin"
"Light Rail Impact on Property Values"
"Underwater vs. Drowned Mortgages"

"Consumer Payment Hierarchy"
"Rehab Mistake"
"Investing in New Windows"
"Mpls St. Paul magazine super real estate agent"
"Title in a Nutshell"

"Worshipping Villains"
"Price Reductions -- A Realtor's Take"
"Highest & Best - Games & Abuses"
"Home Buyer Incentives Multiply"
"Moral Hazard, Illustrated"

"Hijacked Listings"
"The Bob Newhart Economy"
"Enron Just Ahead of Its Time?"
"Bear Market Winners: First-Time Buyers"
"Is There Capitalism Without Capital?"

"Foreclosure Bait & Switch"
"Real Estate Misunderstandings"
"The World's Most Powerful Realtor"
"Deconstructing AIG"
"Realtor-to-Realtor Letters"

"You Know It's a Tear-Down When"
"Lying Realtors"
"Financial Reptiles vs. Mammals"
"John Paulson's Billons"
"Lake Calhoun Visitor"

"Cedar Lake Specialist"

Not bad for a blog ranked 1,603,173 by Technorati! (the Nielsen's of the blogosphere).

Sunday, September 13, 2009

TCF Stadium

"Wrigley Field for Football"

Along with about 49,000 Minnesotans (and perhaps 1,000 people from Colorado Springs), I attended the Gopher football team's season opener against Air Force last night.

The unqualified star of the game?

The new stadium.

Much smaller than I expected, the stadium only seats 50,000. That compares favorably -- at least from a fan's perspective -- with the giant bowls at Ann Arbor (University of Michigan) and Columbus, OH (Ohio State), both of which hold about double that.

The effect is a bit like Wrigley Field for football.

The stands are smaller, and much closer to the field. At the west end, the stadium is open, offering a view of downtown Minneapolis. The only nod to the modern sports palaces now in vogue is the phalanx of luxury boxes above the second deck on the stadium's south side.

Runner-up status to the stadium itself was the giant scoreboard, the size of a (large) drive-in movie theater (and billed as the world's third-biggest).

Even the weather complied: an almost sultry, early fall evening.

Oh, and the game? The home team won.

P.S.: how many other places would my Dad, a retired social worker, have better seats than a former Governor? (As an adjunct "U" professor and long-time season ticket holder, he had a lot of seniority). Former Gov. Arne Carlson, who seemed to be holding court, was down a row with his wife.

Chris Snowbeck on Price Reductions

Twin Cities Motivated Sellers

The Twin Cities ranked seventh among the 50 largest cities in the U.S. in terms of the share of reduced-price listings, with 34% of for-sale listings in the 13-county metro area [seeing] price reductions as of Sept. 1. The size of the average price reduction in the Twin Cities was 9 percent.

--Chris Snowbeck, "Twin Cities a Hotbed of Discounted Homes this Season"; Pioneer Press (9/12/09)

Snowbeck's article does a nice job summarizing the mindset of home sellers faced with discounting their asking price to get a deal. Locally, that anxiety definitely kicks up after Labor Day, as Sellers contemplate cooler weather, and the seasonal slow-down that comes with it.

That's particularly true for homes that have been on the market since Spring (or before!).

Snowbeck also quotes me, and cites the Minnetonka home I've been discussing the last week or so for its serial price reductions.

My take on price reductions is that, while they can show Seller motivation, they don't necessarily tell you if a home is well-priced ("Cheaper -- Not Necessarily Cheap"). That's because the initial asking price could have been inflated.

When it comes to establishing value, only three things matter: the comp's, the comp's, and the comp's.

Saturday, September 12, 2009

Creating A Sense of Urgency or . . .

. . . Capitulation?

Here's the latest pricing activity at what I'll call "Motivated in Minnetonka":

7/17/09: old price - $595k; new price - $585k
8/7/09: old price - $585k; new price - $575k
8/19/09: old price- $575k; new price - $565k
8/26/09: old price - $565k; new price - $555k
9/3/09: old price - $555k; new price - $545k
9/9/09: old price - $545k; new price; $535k

So what happened next?

Three hours after dropping the price $10k on Wednesday, the Sellers did something unexpected: they took a whopping, $35k price cut -- to $500k.

"Motivated in Minnetonka"

Only the listing agent and Seller know for sure, but you'd guess one of two things is going on: the Seller is out of time, and is capitulating on price in order to get a deal; or, there are a couple of prospective Buyers circling but "sitting on the fence."

If the latter scenario applies, the rationale for taking one, last dramatic price cut is to create a sense of urgency amongst the "fence-sitters."

Often times, the ensuing competition for the home results in the Seller recouping at least some of the last price drop -- a phenomenon I refer to as "bouncing off the bottom."

Hyphenated Calendar Years

"2009" or '09 -'10"?

I've blogged previously about how real estate can blur one's sense of time -- and specifically, days of the week.

When you work weekends and evenings, Sunday equals Monday, and Wednesday (at least for some Realtors) equals Sunday.

Got that?

Having a couple school-age kids also does a number on your sense of the calendar.

So, I find myself increasingly thinking not in terms of calendar years ('09, '10, etc.), but hypenates: '08 -'09, '09 -'10, etc.

As every parent knows, '09 -'10 is now blessedly underway.

Friday, September 11, 2009

Golden State (CA) Buyers in MN

Not So Golden -- Or Plentiful

Once upon a time -- like three years ago -- having an out-of-town Buyer, especially from an expensive market like California, could be like winning the lottery for Minnesota Sellers.

After all, it's just human nature for Buyers to bid more freely in a market where everything seems cheap by comparison.

Not surprisingly, the converse is also true: it can be tough for local Sellers when the Buyer is coming in from a less expensive market.

Often times, such Buyers need to lose out on a few, coveted properties before they reconcile themselves to paying (higher) local market prices.

CA Downturn Contagious

While the housing downturn and recession have certainly knocked the Twin Cities, they've absolutely clobbered formerly white-hot (and ridiculously overpriced) markets like Southern California.

The result is a one-two punch locally: not only are there fewer, incoming transfers from more expensive housing markets, but the ones who are coming are not nearly as flush as they were just a few years ago.

Just one more reason why it's been an especially challenging market for Sellers of upper bracket homes in the Twin Cities . . .

Thursday, September 10, 2009

Confused by Contingencies

Contingencies: 'Small c' or 'Capital C?'

One of the most confusing things about residential real estate -- and there are plenty -- is exactly what it means for an offer to be "contingent."

As Realtors use the term, a "Contingent" offer is one that's contingent upon the would-be Buyer selling their current home, which is what Realtors call "the backup home."

So when is a Contingent offer no longer contingent?

It's not what you might guess, i.e., when the Seller's home has closed and the Seller has been paid.

Rather, by convention, it's much earlier -- namely, when the Buyer's Inspection Contingency has been removed.

Even though a deal at that point is still far from done -- the Buyer's financing is still tentative, the appraisal hasn't been done, etc. -- the presumption is that the odds are good.

"Small c" Contingencies

Adding to the confusion associated with Contingent offers is all the other contingencies (with a small "c") than can be built into an offer.

In theory, a Purchase Agreement can be made contingent on any event happening (or not).

If the Buyer and Seller wanted to make the Purchase Agreement contingent on the Seller leaving a bottle of champagne in the fridge for them, they could (and at the right price, I'd recommend my Seller do it!).

It's also the case that, from the Lender's perspective, there are always contingencies right up until the time the closing documents are signed.

Like, the Buyer keeps their job, hasn't wrecked their credit (say, by filing for bankruptcy), etc.

In practice, the two big contingencies are the ones involving the Buyer's inspection and financing.

The key to keeping contingencies straight is distinguishing between Contingent and Non-Contingent offers on the one hand, and offers that are subject to various contingencies -- at least other than the Buyer selling their current home -- on the other.

For advanced beginners: how the contingency in Contingent offers is removed.

Wednesday, September 9, 2009

"Motivated Seller" -- The Update

Latest Price Cut: Right on Time

Want to guess when -- and how much -- the next price cut will be, if it still hasn't sold?

--"What Does a Motivated Seller Look Like?"; City Lakes Blog (9/3/09)

A week ago, I posed the question above after noting this series of price reductions on a Minnetonka home currently on the market:

7/17/09: old price - $595k; new price - $585k
8/7/09: old price - $585k; new price - $575k
8/19/09: old price- $575k; new price - $565k
8/26/09: old price - $565k; new price - $555k
9/3/09: old price - $555k; new price - $545k

Sure enough, the listing history has a new entry as of this afternoon:

9/9/09: old price - $545k; new price --$535k

"Need an Open/Have an Open"

Fewer, More Seasoned Realtors

It's more anecdotal than scientific, but a useful insight into exactly how many Realtors are out there chasing business at any given moment is what I'll call the "Need an Open/Have an Open" index ("open" as in "open house").

If you didn't know, holding (Sunday) open houses is a time-tested way for new(er) Realtors to find clients, and generally establish themselves.

Unbeknownst to the general public, most of the time, the Realtor hosting the open house is "pinch hitting" for the listing agent, who is representing the Seller. The hosting agent only gets a commission if someone coming through the open house -- and who doesn't already have an agent -- decides to buy it. Or, more realistically, hires them to represent them and ends up buying another house at some later point.

A few years ago, when the market was at its frothiest, the open house "ratio" was heavily lopsided in favor of Realtors seeking open houses.

Today, it's the reverse: many established agents can't find enough less experienced agents to hold their open houses.

So exactly what does that mean?

My read, at least, is that the real estate downturn has now winnowed out a big chunk of newer Realtors (which I define as having less than two years experience). Too, there have now been enough stories about Realtors eking out a living, pulling their hair out handling short sales, etc. that the industry hasn't attracted much new blood the last 2-3 years.

That leaves the "survivors": experienced, more seasoned Realtors, who are accumulating listings and are finding themselves spread too thin on Sunday's.

Or, maybe the newer Realtors just took off most of August . . .

Tuesday, September 8, 2009

Worshipping Villains

Wall Street Self-Selection

The continued resonance of [Gordon] Gekko has “probably been the biggest surprise of my career, that people say that this seductive villain has motivated me to go into this business.”

--Michael Douglas, talking about his character, Gordon Gekko, in the 1987 film "Wall Street"; The NY Times (9/7/09)

“I can’t tell you how many young people have come up to me in these years and said, ‘I went to Wall Street because of that movie."

--Oliver Stone, "Wall Street" director; The NY Times (9/7/09)

It's startling to hear Douglas and Stone recount their startled reactions to the effect that their movie, "Wall Street," had on a generation of Wall Streeters: it inspired them.

In fact, Michael Lewis, author of "Liar's Poker," another insider's account of sordid Wall Street behavior, has reported the same phenomenon: instead of serving as objects of scorn and disgust, the villains in his book were embraced as heroes and role models.

And these are the people whose interests and morals are effectively steering U.S. financial policy??

Showing Feedback

Anticipating Feedback Before Showings

I recall a saying from my (long ago) days practicing law regarding attorneys cross-examining witnesses: never ask a question you don't already know the answer to.

The equivalent for real estate is, "a good Realtor should (almost) never be surprised by showing feedback."

What do I mean by that?

One of the key skills clients pay me for is the ability to spot a property's strengths and weaknesses, then showcase the former -- in photos, marketing literature, on MLS, etc. -- while defusing the latter.

Many times, weaknesses can be addressed cosmetically: a new coat of paint, a couple hours of handyman time, etc.

However, if a weakness can't be corrected or minimized, ultimately the home's price needs to reflect that.

What's that got to do with showing feedback?

By the time the listing agent (representing the Seller) is hearing (negative) feedback from other agents, the best chance to anticipate and correct for issues is already gone.

It's still possible to make mid-course corrections, but the chance for a quick sale, while the listing is still hot, are greatly reduced.

P.S.: as my clients know, I'm fond of saying that "the only feedback I really care about is a full-price offer from a well-qualified Buyer."

Monday, September 7, 2009

Star Trib Typo's

Star Trib: Quality Control Issues

A Richfield neighborhood was told redevelopment would raze homes -- almost 10 years ago. The wait it taking its toll.

--Article summary, Star Trib (9/7/08)

No, this isn't a blog post about real estate. It's about the decline of newspapers -- and specifically, the Star Tribune (now in bankruptcy).

A decade ago, it would have been inconceivable to spot typo's, punctuation errors, etc. in the major newspapers; now, they seem increasingly routine.

(Yeah, it's subtle, but the headline above should read: 'the wait is taking its toll.')

Withdrawal Pangs

Today's "Socialist" Housing Market

Nice summary (below) of the challenges facing the housing market in the years -- and decades -- ahead.

After the last 18 months, arguably the same issue is confronting the banking system, the auto industry, the installment credit (credit card) market, the commercial paper market, etc.

Government officials generally agree that it would be better for private lenders to resume their traditional role as major providers of finance for home loans. But policymakers now face some tough choices. They must decide how to reduce support for the mortgage market without letting it collapse. And they must decide what kind of support the government should provide in the long run.

--"Mortgage Market Bound By Major U.S. Role"; The Washington Post

P.S.: Against creeping socialism? Consider this: according to the Post, nearly 90(!) percent of all new home loans are now funded or guaranteed by taxpayers.

Sunday, September 6, 2009

Investing in New Windows

Return on Windows: Higher in Cold Climates

Being a Realtor can have a warping effect on your sense of the calendar (it certainly warps your sense of weekends and weekdays).

So, the season that's approaching isn't Fall, it's "furnace tune-up's" and "new windows."

For whatever reason, I've been fielding an inordinate number of questions about the latter this year.

If I were to venture a guess, it's because, if you're fortunate to have an extra $20k lying around and own an older, bigger home -- and aren't thrilled about earning 1.49% on your money, or trusting it to the vagaries of Wall Street -- it's smart to think about investing it in yourself. Or your home.

Nationally, the real estate studies that track such things say that the best "bang" for one's remodeling buck is Kitchens and bathrooms. The same studies rank windows much lower as a good investment.

However, such studies lump the Twin Cities together with more temperate cities (in the U.S., that would be virtually everywhere).

Anecdotally, what I've seen and heard is that windows add much more to resale value here than other places.

So, go ahead and get those new windows -- and don't feel guilty about it!

P.S.: I know a local window company whose marketing slogan is, "only a rich man can afford poor windows." Not exactly true -- the lower heat bills pay you back only after several years. However, as a capital item, it's certainly a good investment.

Saturday, September 5, 2009

"Highest & Best" -- Games & Abuses

The "Highest-and-Best, I-Really-Mean-it-This-Time" Offer

I've previously blogged about the practice of "highest and best" offers ("Highest and Best, Explained.") Typically used by banks selling foreclosures, "highest and best" is a way to efficiently sort out multiple offers and identify a winning bidder.

Implicit in "highest and best" is a quid pro quo between the bank and would-be Buyers: Buyers "cut to the chase" and put their highest offer -- with the best terms (closing date, contingencies, etc.) -- on the table.

In exchange, the bank agrees to select the best offer -- one more round, no counters.

Except in practice, that's not what the banks have been doing (at least in many cases).

"Highest & Best" Redux

I've been in at least five deals the last few months where my client was told, after submitting an offer, to re-submit their "highest and best" offer -- which they did.

After a few days elapsed, guess what the listing agent (representing the bank) called to tell me?

There was still no clear winner, so my client was invited to -- you guessed it -- "submit their 'highest and best' offer" once again. (I suppose this would be their "really-highest-and-best-I'm-not-kidding" offer.)

Since my client already submitted their (genuinely) highest and best offer the first time . . . they dropped out.

Feeling manipulated, no doubt other bidders did as well.

No wonder you see so many foreclosure deals fall apart, start over, and otherwise stagger across the finish line.

Thursday, September 3, 2009

What Does a Motivated Seller Look Like?

Weekly Price Reductions . . Till it Sells

What does a motivated seller look like?

This pattern of price reductions comes about as close as anything you're likely to see:

7/17/09: old price - $595k; new price - $585k
8/7/09: old price - $585k; new price - $575k
8/19/09: old price- $575k; new price - $565k
8/26/09: old price - $565k; new price - $555k
9/3/09: old price - $555k; new price - $545k

You could practically set a metronome looking at this Minnetonka home's pricing history.

Want to guess when -- and how much -- the next price cut will be, if it still hasn't sold?

FDR, Obama & the Cost of Consensus

The Age of Regulatory Capture

Millions of Americans lose their homes and jobs, Wall Street devours trillions in government bailouts while its leaders pay themselves billions . . . and there's still no discussion of meaningful financial reform?


Here's a quote from one of the best Op-Ed piece I've seen this Summer, contrasting the style and attitude of FDR then and Obama now:

The principal legislative innovations of the 1930s were enacted over the vigorous opposition of a deeply entrenched minority. Majority rule, as Roosevelt saw it, did not require his opponents’ permission.

When Roosevelt asked Congress to establish the Tennessee Valley Authority to provide cheap electric power for the impoverished South, he did not consult with utility giants like Commonwealth and Southern. When he asked for the creation of a Securities and Exchange Commission to curb the excesses of Wall Street, he did not request the cooperation of those about to be regulated. When Congress passed the Glass-Steagall Act divesting investment houses of their commercial banking functions, the Democrats did not need the approval of J. P. Morgan, Goldman Sachs or Lehman Brothers.

--Jean Edward Smith, "Roosevelt: The Great Divider"; The New York Times (9/3/09)

Too many details?

How about, "you can't make an omelette without breaking some eggs."

Wednesday, September 2, 2009

Downpayment Disparities

Market for Jumbo Loans Thaws (a Bit)

The weakest part of the housing market right now is the upper end -- specifically, homes in the upper six figures and above.


The soft economy, the stock market, 9.4% unemployment (make that 9.7% as of Fri.).

However, arguably an even bigger factor is financing.

Two Mortgage Markets

All you really need to know about mortgages at the moment is one number: $417,000.

That's the ceiling (at least in most parts of the country) for what's called a "conforming" mortgage.

Conforming mortgages are insured by the U.S. government, and therefore are considered safe.

"Jumbo" mortgages above $417k are not insured, and therefore are considered much riskier.

Jumbo Mortgage, Jumbo Risk?

To protect themselves, jumbo lenders typically require both a higher interest rate -- as much as 1.5% above conforming loans -- and a much higher down payment.

Whereas home buyers using conforming mortgages can get by with down payments as small as 5%, depending on their profile, "jumbo" lenders can require as much as 30% down.

How significant is that?


On a $400k home, a Buyer with strong credit could conceivably put down as little as $20k, or 5%.

On a $1M home, a 25% down payment comes to . . . a cool $250k.

From "All or Nothing" to "Trade-Off's"

Since mid-Summer, there are some signs that the jumbo market is evolving from an "all or nothing" proposition to something more nuanced.

So, at least some lenders are willing to relax their down payment requirements in exchange for a higher interest rate.

Other lenders are differentiating more amongst borrowers based on their credit scores, offering lower rates to the strongest borrowers.

Too, lenders are increasingly willing to "staple" a conforming mortgage to a second, non-conforming mortgage.

All of the foregoing are helping to thaw the market for upper bracket homes.

Now, if only the economy cooperates . . .

Tuesday, September 1, 2009

"Price Onion??"

Red, Yellow, Vidalia, etc.

I've heard of yellow onions, red onions, Vidalia onions, etc.

However, I've never heard of a "price onion."

If you see one, there's a Realtor in Golden Valley who's looking for it . .

(Or, maybe she just wants a price opinion -- sorry, couldn't resist).

How Big a Premium for Small Lakefront?

The Art of Doing Comp's

I'm working on an assignment for a client now that's proving devilishly difficult: identify the premium associated with a home on a small, metro lake so that it can be priced appropriately for sale.

The lake in question isn't Lake Minnetonka, Lake of the Isles, or other "marquee" name. Rather, it's just one of hundreds of small lakes -- picturesque, but not really big enough for boating or other water sports -- that dot the Twin Cities.

Puzzle Pieces

In theory, answering the question is easy: just find two identical homes, one on a small lake and another across the street, that sold at the same time -- then calculate the percentage difference.

Of course, that's nearly impossible to do: after screening upwards of 200 home sales on six different metro lakes over a five-year period, there's always one -- if not multiple -- differences.

If the homes sold in the same market (roughly defined as within six months of one another), the size, style, and condition were different.

If the size and style were similar, the sales dates and condition were different.

And so on and so on.

Further complicating matters: some homes across the street from lakes have views (because they're on a hill), while others don't. As you'd expect, the premium between "lakefront" and "lakeview" is smaller than between lakefront and "no lakeview."

The number of permutations, distinctions, etc. would make anyone but a statistician (and I'm not) throw up their hands.

Permutations & Interpolation

So what to do?

Find the closest match(es), then use "interpolation" to close the gap between the dissimilar traits.

So, in one case, I found two, quite similar homes -- one on a lake, the other across the street -- that sold 18 months apart. To determine the lakefront premium, I calculated the change in market prices for the area over that period.

In a second case, I took two homes that sold within a few months of each other, and were in similar (good) condition -- but were quite different in both size and style.

In that case, the challenge was to appropriately adjust for style and size.


Needless to say, the premium is necessarily a range: some homeowners especially prize lakefront, others actually consider it a drawback (families with small children, for example).

It's also true that in many cases, much of what appears to be a lakefront premium is actually explained by the difference in the neighboring homes themselves: the one backing up to the lake is much bigger and ritzier than its neighbor across the street (surprise, surprise).

Factor all of the foregoing in, what do you find?

The premium for small lakefront property would appear to be between 20% and 30%.