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Sunday, February 28, 2010

The Gold Tax

The $64 Trillion Question

What do rational savers and investors do in an environment of zero percent interest rates, where the daily headlines speculate how long major currencies (like the U.S. dollar) will hold their value as national debts mount?

Switch (at least) a little of their holdings to gold.

Even if that amount is relatively small -- say, 5% of liquid assets -- the effect on global commerce could be huge.

That's because 5% of global liquidity is still a huge number, and it's magnified many times that by something called a "fractional reserve banking system."

"Fractional reserve what???"

If you're not an economics wonk, stop here; however, if you can handle a little bit of brain teasing . . . . read on.

Global Money Supply: How Much?

To figure out how much 5% of the world's money supply is, one first has to estimate . . . the world's money supply.

If you know, send me an email.

However, as best I can tell, a working estimate is about $30 trillion.

That consists of both coins and legal tender, as well as short-term banking deposits, money market funds, CD's, and the like.

While definitions vary, to be included in the foregoing number, the instrument must be liquid -- that is, easily converted to cash and spendable.

Bottom line, defensive savers reaching for financial insurance conceivably could switch something like $1 - $2 trillion of their former paper money reserves into gold.

Or already have.

That's against a backdrop of recession-anxious consumers already upping their "rainy day" funds in case of extended unemployment, unexpected (and uncovered) medical bills, etc.

Cash vs. Gold

What's the big deal if people effectively put a trillion (or two) in their mattress?

Due to something called "fractional reserve" banking -- the system in developed countries today -- $1 on deposit at a bank theoretically can support $20 of loans. That's because banks typically only need to keep $1 in reserve for every $20 they lend.

So, a $1 trillion withdrawal potentially has the effect of reducing lending activity by $20 trillion.

That, in an economy where assets like stocks and housing have already taken multi-trillion dollar hits the last two years or so.

Missing Drain Plug?

To combat this contractionary dynamic, the Federal Reserve and other central banks have been, shall we say, "aggressively" increasing liquidity -- printing money.

Unfortunately, as central bankers have poured money into the global currency "bath tub," they haven't seem to notice that there's a big hole in the drain plug -- if indeed there still is a drain plug.

Ironically, it may even be the case that the more "fiat" (paper) money central bankers create, the more people defensively convert that money to non-fiat forms -- like gold -- to protect themselves.

Addressing this vicious circle -- and removing the "gold tax" -- would seem to be the biggest imperative for today's monetary policy makers.

P.S.: economists have various terms for times -- like now -- when monetary policy seems to be impotent (or worse). They include "pushing on a string," "liquidity trap," etc.

Friday, February 26, 2010

Saving States & Countries vs. Investment Banks

Discretionary vs. Non-Discretionary Bailouts

Watching the latest round of debt problems emerge -- this time involving sovereign states like Greece -- reminds me of my not-so-happy experience as a "newbie" landlord a few years ago (turned off by the experience, I quickly sold the property).

Immediately after taking title, my (long-term, holdover) renter started presenting me with a long list of not-so-dire problems: a squeaky shower door one week, worn (but still decent) carpeting the next, etc.

Interested in keeping her happy, I erred on the side of being accommodating. Too accommodating.

No sooner were the "discretionary" items addressed, than the real, non-discretionary items showed up: a major plumbing issue that was brewing, an expensive HVAC problem that the former owner had thoughtfully deferred, etc.

It could just have been my imagination, but I quickly discerned a strategy: my renter "led" with the discretionary items, because she knew my patience (and money) would be depleted by the "big ticket" items if those were addressed first.

Cue Greece

What's all that got to do with Greece, and broke U.S. states (like California and New York)?

In the big scheme of things, "recapitalizing" (translation: showering with money) then-teetering banks like Goldman Sachs and J.P. Morgan Chase was akin to fixing a squeaky shower door: a nice thing to do -- for them -- but certainly not required for the long-term health of the world financial system.

As numerous financial experts have opined, there were many, less expensive alternatives to shoring up the financial system, starting with actually focusing on saving the system, rather than individual entities. A system which, trillions later, arguably still needs fixing.

Of course, now that trillions have been committed (borrowed, really) toward making Wall Street whole -- surprise, surprise! -- the truly systemic threats to the global financial system have come into plain(er) view.

Those include the plight of sovereigns like Greece, and over-a-barrel states like California and New York -- entities whose duress, incredibly, have been exacerbated by shady credit instruments created by guess who?

Maybe we tell the latest busted entities -- truthfully -- that Wall Street already got their bailout money.

Call it the "I gave at the office" excuse.

Past Tense of "Sightsee?"

"Sightsaw?" "Sightseen?"

As may or may not be apparent from my posts this week, I'm winding down a (rare) week off -- mostly -- with my family in Scottsdale.

So here's a quick conundrum:

What's the past tense of "sight-seeing?"



Best I can come up with is, "we've done a lot of sight-seeing this week!"

New Feedback Forms: Now Twice as Annoying!

The Real Purpose of Showing Feedback

For the uninitiated, every time a Buyer's Agent takes a client through a property, they subsequently receive an online feedback form debriefing them on how it went.

Once upon a time -- like two years ago -- they all basically asked the same thing(s): 'tell us whether your client liked the home or not -- and, if not, why not."

Now, I'm seeing "custom" feedback forms with more -- and more demanding -- questions (my knee-jerk response follows in italics).


"What listings do you consider the closest competitors?" You did the Comparative Market Analysis ("CMA"), you tell me.

Or this one:

"What could we change/improve to get this house on your list?" Don't ask me to do your job . . . . mine is to find a home for my client that already has what they want.

Of course, the perennial favorite remains some variation of the following:

"Please indicate whether the home is priced above, below, or at market."

a) unless my client has serious interest, I'm not going to carefully price it; and b) if my client does have serious interest . . . that's the last thing I'm going to share.

Making these questions even more annoying is the fact that you can't get rid of the form until you fill in all the fields (a single punctuation mark suffices, I quickly discovered).

If you simply try to ignore the form -- it'll magically keep re-appearing in your in-box until you do.

Full disclosure: Edina Realty's feedback forms do this, too.

Feedback's True Purpose

As a Listing Agent, I like to tell my selling clients that "the only feedback I really care about is a full-price offer from a well-qualified Buyer -- or even better, two such offers."

Which is the truth.

It's also the case that providing thoughtful feedback is a courtesy shown to colleagues, and that if you want to have a reasonable expectation of receiving constructive feedback on your listings, it's incumbent upon you to fill in their feedback forms.

Call it "feedback karma."

Which gets to what feedback forms are really all about.

Not Shooting the Messenger

If you really need feedback forms to tell you how the market views your client's home (price, condition, floor plan, etc.) . . . you probably haven't been selling real estate that long.

Rather, the real purpose of feedback forms is to help wrest needed price reductions from resistant Sellers, without the Listing Agent being "the bad guy."

Put it this way: it's one thing for the Seller's agent to say their home is overpriced. After all, don't Listing Agents just want the price to be as low as possible, to consummate a sale??

However, when a parade of strangers all zero in on the same 3-4 shortcomings, then promptly disappear . . . the message tends to be a little more credible -- and potent.

How Long Should a Listing Contract Be?

Realtors' Investment?
Skill, Time, & Marketing $$

How long should a listing contract be?

The short answer:

Long enough to sell the property being listed.

How long that is -- assuming that the home is well-priced, staged, and marketed -- is typically a function of price.

Under $200k in the Twin Cities today, you'd estimate 2-3 months of market time.

For a move-up home ($250k - $450k), 3 - 5 months.

As homes cross mid-six figures ($500k-plus), average market time locally can easily be six months now; double that for homes over $1 million.

For each of the above categories, add extra time for properties that are especially unique, or only appeal to a narrow slice of the market (automatically the case for homes over $1 million).

Step 2

Step 2 of calculating a contract term is to allow additional time for the home to close, once it's under contract.

From the time the last addendum on the Purchase Agreement is signed off on, that's typically about 10 days to remove the Inspection Contingency, than another 4-6 weeks for the home to appraise and the Buyer's loan to be finalized.

Bottom line: to sell a $399k Twin Cities home today, just as an example, I'd typically ask for a six month listing.

Listing Contract "Subtext"

Why not a shorter listing contract?

Or none at all?

That's certainly possible, but that really isn't fair to the Realtor -- at least one who is conscientiously doing their job.

That's because much of the Realtor's investment of their time (and marketing dollars) is made upfront.

That's when the Realtor conceives and implements their marketing plan -- making sure the home is staged to maximum effect; professionally photographed; and all the marketing materials proofed (and re-proofed a couple more times).

Of course, before any of those things happen, many Realtors work closely with their clients making sure that their home is in good repair, and advising "strategic" (cost-effective) updates, if that's indicated.

While all that's going on, a good Realtor is already doing what's called "pre-list marketing," i.e., promoting the home to prospective Buyers, and building market awareness.

Sprint -- or Marathon?

Hopefully, all those efforts produce a quick sale at a good price.

If they don't, however, it is the Realtor's job to support the listing with ongoing marketing.

That means making sure that the home continues to look fresh -- both online and in-person; and keeping the home in front of prospective Buyers by continuing to "plug" it at Realtor meetings, through email, ads, etc.

Too, it is incumbent upon the Realtor to tell clients when a price reduction is indicated -- then aggressively market the new, lower price.

It's certainly possible to have a client extend an about-to-expire listing in the middle of all that.

But it's preferable -- and easier -- to simply ask for the right amount of time in the first place.

Thursday, February 25, 2010

Functionally Obsolete Built-in's

"What Were They Thinking?" Department

What's worse than a home with a wall of built-in's designed to accommodate a too-small (35" or less) TV?

When the built-in's are also recessed two feet (!), because TV's of that era still had picture tubes, which had a huge footprint.

And the wall of built-in's is in a room with a vaulted ceiling, so it extends 14' floor-to-ceiling, instead of just 8' or so.

And the wall of built-in's isn't just in one home, but in 1,000 (!) that were all built in the early '90's!

Functional Obsolescence

The foregoing pretty much describes Stonegate, a 1,000 unit development in Scottsdale built in the early '90's.

While the complex has much to recommend it -- great location, well-built homes, beautiful grounds, etc. -- the developers had no way of knowing that what seemed like impossibly generous proportions for a TV less than 20 years ago would be superseded by today's huge, flat-screen TV's (and lots of them!).

Think of it as the technological equivalent of a one-car garage.

By now, you'd guess that a majority of those built-in's have been (expensively) retrofitted to fit today's technology.

On the list of holdouts: my parents, still watching their (perfectly functioning) 33", picture tube TV.

Wednesday, February 24, 2010

Phoenix Sprawl: Myth & Reality

"Hopscotch" Phoenix Development

Like a lot of people, my stereotypical image of the Phoenix metro area was a sprawling city gobbling up desert, in every direction.

The reality is a bit different.

While there is certainly plenty of undeveloped desert surrounding the city, it's also the case that natural and legal barriers limit development much more than you'd expect.

The result is a "hopscotch" development pattern with lots of skips and jumps.

The biggest "jumps":

--Numerous Indian communities (formerly "reservations"), which occupy thousands of acres of Phoenix proper, and remain largely undeveloped.

--Mountain ranges in every direction, giving the area its nickname, "Valley of the Sun."

You do see homes -- expensive homes -- extending up the flanks of mountains (like Camelback), but you'd guess building costs are much higher.

--Thousands of acres of protected Federal and state land.

In fact, 85%(!) of Arizona is public forest and park land, state trust land, and Native American reservations.

One thing that does not seem in short supply: water.

Everywhere you look, there are (very green) golf courses!

Highway "Quirks": Not Unique to MN

Phoenix vs. Twin Cities Freeways

As incoherent freeway systems go, the Twin Cities has some stiff competition from . . . the Phoenix area.

Any list of Twin Cities oddities and incongruities would have to include the following:

--Whether you're on Highway 7 or Highway 25 depends on whether you're east or west of Highway 100 (years ago, someone apparently decided that the eastern-most stretch -- from 100 to France Ave. -- should be called Highway 25).

--The Twin Cities' beltway or "loop" is either called 494 and 694, depending on whether you're in the northern or southern half of the metro area.

--And the two Interstate 35's -- 35W and 35E -- actually have (almost) nothing to do with one another (they intersect south of the Twin Cities, in Burnsville).

Oh, and 35W skips a quarter-mile in South Minneapolis, then resumes in Richfield.

None of the foregoing throws the locals, but I imagine it causes untold headaches for visitors.

Driving on a Mobius Strip

In Arizona . . . it's me who's the (discombobulated) visitor.

After a few days of driving -- and getting lost -- in metro Phoenix, I have now learned that:

--The cobbled-together Phoenix beltway goes by at least 4 different names, depending on where you are (NW, SW, NE, SE) on the perimeter.

--There are two highway 202's, running parallel to each other, about 4 miles apart.

--Interstate 10 runs east-west through downtown Phoenix -- except where it runs north-south. It, too, briefly forks into a northern and southern route that, conveniently for visitors, share the same name.

The cumulative effect leaves you feeling like you're driving on a mobius strip: a twisted loop of paper that appears to have two sides, but in reality is only one.

Clearly, the area's growth simply overran its highway grid.

So, you see band aids and stop-gaps everywhere -- like the 35W-Highway 62 bottleneck that the Twin Cities is only now just correcting, some 40 years later!

Tuesday, February 23, 2010

Shhh!! Don't Tell the Tea Partiers

"Hands Off My Mortga . . . Oops! Never Mind!"

As best I can tell, the tea party movement is angry about out-of-control government intrusion into people's lives.

Apparently, they're not aware of the following factoid:

There were $390 billion in new mortgage origination's in the last quarter of 2009. Excluding home equity lines, Fannie Mae, Freddie Mac, the FHA, and the VA stood behind up to 95% of those mortgages.

"Anyone who looks at the numbers says, 'My God, look what it's come to,'" said Guy Cecala, publisher of Inside Mortgage Finance.

--"Paul Volcker Says Mortgage Market Will 'Have to be Reconstructed"; The Huffington Post (2/19/2010)

The predicament reminds me of a scene from Annie Hall, an early Woodie Allen movie.

A woman is lamenting to a friend that her uncle thinks he's a chicken.

"Send him to a shrink," the friend advises.

"We can't," the niece replies. "We need the eggs."

"Look, Ma, No Hands!"

Just Another Day at the (Virtual) Office

Based on market time, showing feedback, etc., I advised my client that a price reduction on her home was in order, and she agreed.

So I got her the necessary paperwork, she signed it, and I forwarded it (via my front desk) to MLS for them to input.

Happens every day, right?

Except this time, I was in Arizona, my client was in Florida, and her home (and my office) are in Minnesota.

Complicating matters just a little bit: I don't travel with a scanner, and wi-fi connections proved a little less ubiquitous in Arizona than in big cities on the east coast.

Real Estate "Parents" & "Children"

So, I dropped into the Scottsdale office of Long Realty, a sister company to Edina Realty (both are subsidiaries of Berkshire Hathaway).

Thanks to Long Realty agent Kim Grabovich for letting me borrow her password to do the necessary scanning, printing, etc.

P.S.: Just like real-life siblings resemble one another, so do real estate siblings -- or more accurately, their Web sites.

The reason is that Home Services of America, the immediate parent company of Long Realty and Edina Realty, handles the agent Web site software for both brokers.

Gauging Sunday Open Traffic

Actions Speak Louder Than Words

What does a Realtor with some spare time in a new city do on a Sunday afternoon?

Check out some open houses!

In fact, I just had time to go through a few, but here are a couple stray observations:

--The Southwestern equivalent to the Midwestern "ranch" or "rambler" is a "villa-style" one story (Spanish architecture, tile roof, open floor plan, lots of patio's and sliding doors, etc.).

However, with no basement or upper level, a Scottsdale home (pictured above) with 4,000 finished square feet actually has a foundation size of . . . . 4,000 square feet!

By contrast, in the Midwest, a typical 4,000 square foot home would be a two-story, with perhaps a 1,700 square foot foundation.

The much more vertical floor plan would then typically have about 800 FSF in the lower level, 1,700 on the main, and the remaining 1,500 up.

--How do you tell if the agent hosting the open is accurately reporting traffic?

Put it this way: if the open is advertised as 2 p.m. to 4 p.m., and you arrive at 3:40 p.m. to find the Realtor hitting all the lights . . . it wasn't great, no matter what they say.

That's especially the case if they don't appear to be especially stressed or rushing somewhere -- in other words, you can rule out an emergency for their having to leave early.

Monday, February 22, 2010

Endangered Species: the Phoenix (Building) Crane

Arizona Travelogue:
Recession Catches Up to Phoenix

What a difference 2 years makes.

The last time I visited Phoenix, "the Valley of the Sun," all you saw were cranes, cranes, cranes.

That, despite the fact by February, 2008, real estate was very much on the downside of its record run, and the nation was already in recession (not that it really matters, but the official start date was retroactively determined by the National Bureau of Economic Research to be December, '07).

Now, the only in-progress construction I noted locally was road construction (your tax dollars at work!); a handful of cranes on the south side of downtown Phoenix; and a huge, new hotel going up on an Indian Reservation near Scottsdale (you'd think the term would be banned as not sufficiently PC, but that doesn't appear to be the case here).

Real Estate 101

The explanation for those cranes, then and now, is why real estate -- especially commercial -- is inherently cyclical: big, commercial projects take years to come to fruition.

Once developers break ground, the only way to recoup their investment is to "see it through," and finish the project.

In good times, this leads to overdevelopment.

In lean times, it means too few projects are conceived, assuring that commercial real estate supply will initially lag demand when things eventually rebound -- and setting the stage for the next boom (and overshoot).

Sunday, February 21, 2010

Voting Rights in America: 200-plus Years in a Nutshell

The Supreme Court's Ruling on "Citizens United"

Does anyone -- besides the Supreme Court -- really believe that the problem with contemporary American politics is that there's too little corporate money driving the nation's political agenda?

To the point where whole industries -- like Wall Street and the financial sector -- quite transparently now have a de facto veto over how (and whether) the government should regulate them?

No, I didn't think so.

Yet, with the Supreme Court's decision last month in the Citizens United case, the prospect of any of this getting better any time soon just got dimmer.

Herewith is my take on, how over some 200-plus years of democracy, the idea of universal franchise is still . . . very much imperfect.

A 200 Year Recap

Once upon a time in America, only property-owning, white men got to vote.

Gradually, all white men got to vote, as the states dropped their property ownership requirement in the early 19th century.

Then, in the wake of the Civil War and the passage of 13th, 14th, and 15th Amendments, African American men were enfranchised.

From there, it took another half-century before women finally got the right to vote nationally, when the 21st Amendment was passed in 1919.

Almost another half-century passed before African-Americans really got the right to vote -- especially in the South -- when Congress passed the Civil Rights Act of 1964, and outlawed poll taxes.

"The More Things Change"

So where are we today?

If you're 18 years old, a U.S. citizen, and comply with local voter registration laws . . . you are legally entitled to vote. Regardless of your gender, race, or creed.

Unfortunately, however, in our current, media-driven political system, voters no longer control who gets elected to national office, and what they do once they're there -- campaign contributors do.

In the wake of the Supreme Court's ruling last week invalidating any limits on corporate campaign finance contributions, we've finally come full circle.

Namely, the only people who get a real say in our elections -- not to mention the laws enacted by the winners of those elections -- would once again appear to be rich, property-owning white men.

Except that today, they are the ones who head the nation's largest corporations.

The more things change . . .

Chilling Reads

"Basically, It's Over: A Parable About How One Nation Came to Financial Ruin."

--Charles Munger; Slate (2/19/2010)

"The Fat Lady Has Sung."

--Thomas L. Friedman; The New York Times (2/20/2010)

Anyone else note the eerily similar notes struck by Thomas Friedman and Charles Munger?

If you didn't know, Munger is Warren Buffett's long-time right-hand man and sidekick at Berkshire Hathaway.

Buffett, of course, is better-known as the the Wizard of Omaha, the nation's most successful investor, and it's second-wealthiest citizen.

One last little tidbit: Edina Realty is owned by a chain of companies that ultimately are owned by . . . you guessed it!

Munger's piece is harrowing, sobering, and extremely cautionary.

The tone is leavened only a little bit when you realize the title is a play on the "mythical" country, "Basicland," that Munger describes.

Too bad there's not an easy way to dismiss Friedman's headline.

P.S.: And no, I couldn't bring myself to post this at 11:59 p.m. -- I changed it to 12:01 a.m.

Saturday, February 20, 2010

Tom Friedman: 'Nation Building in America'

Best Tom Friedman piece I've read in awhile in today's Sunday NY Times.

I liked everything but the title, "The Fat Lady Has Sung."

My alternative: 'Nation Building in America.'

Gail Collins on "T-Paw"

Pawlenty Makes The NY Times

It's always a kick when a national columnist takes a poke at local, Minnesota politician.

In this case, The New York Times' Gail Collins has a little fun in her column this morning contrasting Governor Tim Pawlenty's angry, "red meat" rhetoric to conservatives with his decidedly mild manner -- and not-so-fearsome nickname, "T-Paw" ("The Wages of Rages").

Except that I'm not aware of anyone who actually calls him that (admittedly, I'm not exactly in the Governor's inner circle).

Sort of like people who've never lived in the Bay Area referring to San Francisco as "Frisco" (the locals refer to it simply as "the city").

P.S.: sure glad no one told Collins that the state university's mascot is a gopher. Make that "golden gopher."

Friday, February 19, 2010

Wholesale Price of Money Goes Up (A Little)

Fed Rate Bump

Today's leading financial stories are: a) the Federal Reserve's apparently surprise decision to raise interest rates on short-term bank borrowing; and b) the market's reaction to same (playing out now).

My take?

The action itself is relatively trivial: hiking rates on some arcane, overnight interest rate from .5% to .75% (yes, that's less than 1%) does not suddenly make money expensive (the same rates have been as high as 6%(!) in recent years, before "the deluge").

Clearly, then, the concern is that there are more increases to follow.

Given the hair-trigger nature of today's markets ("Explanation for Jumpy Markets"), you'd expect traders to overreact to the news -- like they now do to all news -- then settle down rather quickly.

As far as mortgage rates go, what the Federal Reserve and Treasury are doing (or not) with respect to funding Freddie Mac, Fannie Mae, FHA are much more significant than a trivial bump in banks' overnight borrowing costs.

Thursday, February 18, 2010

Are Newspapers Stealing a Page From Banks' Playbook?

Don't Hold Your Breath
Waiting for the Newspaper Expose

I first noticed it when my Wall Street Journal subscription continued -- and continued -- well past the renewal date (I didn't).

Then, a client whose home I'm listing reported that he couldn't terminate his New York Times subscription, despite repeated efforts.

Are newspapers stealing a page from the banks' playbook?

Accounting Games

Banks, you'll recall, were able to defer mortgage losses simply by acting as if borrowers were temporarily in arrears.

So, instead of writing down their increasingly impaired loans, the banks kept adding accrued (but unpaid) interest to the loan balance.

The result: "healthy" bank revenues, "healthy" bank balance sheets (in fact, growing!) -- just no cash coming in the door.

Eventually, the accounting fiction caught up to the banks, and the tide of red ink and write-offs engulfed them (at least until the government rode to the rescue).

Phantom Subscribers?

Newspapers, of course, live and die by their circulation statistics.

Pretending that ex-subscribers are still current keeps those statistics -- and therefore advertising revenues -- artificially high.

Just like the banks, it also lets newspapers continue accruing subscription revenue today that they will have to reverse tomorrow.

Ultimately, sending newspapers to people who don't want them could very well be a testament to newspapers' current business model: they're not selling papers to subscribers, they're selling subscribers . . . to advertisers.

Ten Million Multiplied by $.0145

Isn't extrapolating from a sample size of two risky? Perhaps.

And it's certainly possible that the problem is nothing more than sloppy customer service on the newspapers' part.

But it reminds me of a 1980's bank fraud in California that was detected by an especially persistent grandmother.

Determined to balance her monthly statement exactly, she insisted that the bank was shortchanging her one penny . . . every seven months!

It turns out that the perpetrators were lifting an infinitesimal amount from millions of accounts monthly.

P.S.: And who should call on my home line, at 9 p.m, just as I'm typing the last keystrokes on this post? Telemarketing for the local newspaper!

Are You "Salad Bar Savvy?"

The World's Most Expensive Mac 'n Cheese

OK, I will confess to eating more than my share of lunches at the $8/lb. salad bar directly across the street from my office (if the company wants a plug, they can pay me for it, but it's known to many as "Whole Paycheck").

If only to feel less self-indulgent, I pride myself on being "salad bar savvy."

That means:

--Never load up on the carbs -- not a bad idea, anyway, but for $8/lb. you can buy enough potatoes for a month.

--Do home in on the high "value-added" items: main dishes with a lot of meat and labor-intensive prep.

--Never go after 1 p.m. In fact, before 11:30 a.m., when everything is freshly put out, is best.

It never ceases to amaze me, grocery shopping mid-afternoon, to see someone going through a very picked over salad bar loading up on macaroni and cheese, potatoes, etc.

"Nurse! I Need a Price Reduction, Stat!!"

How Big a Price Reduction?

If an otherwise well-staged, well-marketed home isn't selling after a reasonable interval on the market, a price reduction is invariably indicated.

How big?

It all depends on how overpriced the home appears to be.

Toss Out the CMA

Once a home is actually on the market, interest from prospective Buyers -- or lack thereof, if there are few or no showings -- trumps pre-market research.

So, even if the listing agent's Comparative Market Analysis ("CMA") suggests that a given home is a good value, if there are dozens of showings and no offers (or even second showings!) . . . cold, hard empirical reality would strongly suggest otherwise.

How much to cut is very much a subjective call, and based on experience. Practically, it also depends on the Seller, who may not be willing to reduce the price at all.

However, in my experience, just like every deal negotiation has its own rhythm and feel, so does every listing.

How Strong a "Pulse?"

At one end of the continuum are listings that just feel primed to sell.

Interest is strong and immediate, first showings quickly progress to second showings, and second showings progress to . . . offers.

At the other extreme are homes that, for lack of a better term, lack any perceptible pulse (that's never happened to me personally, mind you, but so I hear from other Realtors).

Showings are few and far between, and follow-up interest is zip.

In between are listings that are attracting good attention, but just can't seem to elicit an offer.

Cold Splash of Water -- or Defibrillator Paddles?

For a truly lifeless listing, a dramatic price concession ("paddles") is usually in order.

Depending on the aforementioned factors, that can be anywhere from 5% to 15% or more.

For a listing that just seems to need a reviving nudge, a less extreme price reduction is obviously appropriate -- call it a "cold splash of water" (it certainly feels that way to the Seller!)

That can be as little as 2%, or, if the Seller wants to "bite the bullet" and significantly raise their chances of selling quickly, as much as 5%.

"White Cement"

Is That Like 'Sierra Cement?"

White Cements His Status With 2nd Gold

--Headline, NYT (2/18/10)

Combine quickly skimming hundreds of online articles daily with sloppily written headlines and (very mild) dyslexia and -- Voila! -- you get the occasional malaprop or just strange juxtaposition.

As for the above, ski buffs are fond of calling the wet, heavy snow that blankets the Sierra Nevada mountains around Lake Tahoe "sierra cement."

Quick! Name Everyone on the 1969 Vikings Roster

"Dear Technorati: Please Check Your Classifications"

Well, yes, as a matter of fact I can rattle off practically every player from the 1969 Minnesota Vikings' football roster, starting with Joe Kapp and Alan Page.

Still, I'm pretty sure that's not why -- at least according to Technorati -- this blog is ranked in the top 1,000 football blogs worldwide (#747 to be exact, as of this morning . . . )

Funny, I always thought this blog was real estate-related . . .

Top 100 -- Really!

In fact, going by Technorati's "authority ranking," this blog is now ranked just outside the top 100 real estate blogs -- in the world!

IMHO, even that is misleading.

As *Lloyd Bentsen might say if he were a blogger, "I've read most of the top 100 real estate blogs, put up more frequent and better posts than they do -- and they're no City Lakes Real Estate blog."

As for the occasional anti-Wall Street rant by yours truly, as Bill Maher would say, "But I'm not wrong . . ."

*If you're under 30, Texas Senator (and '88 Democratic VP nominee) Lloyd Bentsen famously put down Dan Quayle when the latter had the temerity to compare himself to JFK.

Taibbi on Wall Street, Addicts & Con Men

Guess Who the Addict Is?

No, Matt Taibbi hasn't mellowed since his infamous Rolling Stone article last summer ("Inside the Great American Bubble Machine").

Here's an excerpt from the sequel:

Instead of liquidating and prosecuting the insolvent institutions that took us all down with them in a giant Ponzi scheme, we have showered them with money and guarantees and all sorts of other enabling gestures.

Instituting a bailout policy that stressed recapitalizing bad banks was like the addict coming back to the con man to get his lost money back.

--Matt Taibbi, "Wall Street's Bailout Hustle"; Rolling Stone

Elsewhere in the piece, Taibbi poses a question that I've also addressed on this blog ("Dealing with the Devil: Why be a Goldman Sachs Client?"):

Why big institutional investors like pension funds continually come to Wall Street to get raped is the million-dollar question that many experienced observers puzzle over.

I think my explanation is still the most plausible:

Presumably, Goldman Sachs' clients have decided that it is better to be on the inside of whatever scam(s) Goldman is running -- presumably benefiting from them -- than being on the outside, victimized like everyone else.

--Ross Kaplan, "Dealing with the Devil"; City Lakes Blog (9/25/2009)

Key word from the above: 'presumably.'

Even if you don't like Taibbi, read his piece for his primer on street scams and hustles.

Wednesday, February 17, 2010

The Half-Price House

Maplewood Foreclosure

Where: 23xx Hillwood, in Maplewood
What: 3 BR/3BA split-level (1984) with almost 1,700 FSF on a .38 acre lot
Who: listed by Carol Bromen (RE/MAX); selling agent: Ross Kaplan (Edina Realty)
How (much): just sold for $175k
When: listed - July, '09; closed - Feb, 2010

[Note to Readers: I NEVER divulge details of an in-process transaction that I'm handling, for obvious reasons. However, once a deal is closed and a matter of public record, I may cite otherwise publicly available information as evidence of particular market activity, trends, etc.]

This home and the couple who bought it (my clients) are the flip side of today's distressed housing market.

First-time Buyers who qualify for a tax credit, they paid the bank-owner $175k -- just about half what the previous owners paid in March, 2006.

Even after the fix-up time and money the Buyers will now have to invest . . . that's a whale of a discount!

Today's Investing Strategies: Buy & Hold, FIFO & LIFO

Explanation for Jumpy Markets

Want a(nother) reason for heightened stock market volatility?

More investors are switching from buy-and-hold to "FIFO": first in, first out -- and ask questions later.

Such is the aftermath of a decade-plus of negative overall stock market returns. And that's before inflation.

As I've blogged before, welcome to "risk without return."

Risk Without Return

When stocks are trading on momentum and liquidity rather than fundamentals -- as now appears to be the case -- you never know when the "jig" is going to be up.

All you know is that the exits are narrow, and that the penalty for getting out late is horrific (ask tech stock investors from a decade ago).

So, every "dip" and reversal sends skittish investors looking for daylight.

When the scare passes, these same, jumpy traders have to buy back in again.

LIFO: FIFO for Experts

Of course, there's an even higher stakes trading strategy than FIFO for profiting from precarious markets -- albeit one best practiced only by experts: 'LIFO,' or last in, first out.

Also known as short selling, it consists of betting against bubbles just as they're about to deflate.

Whereas investors who "go long" make money when something goes up, short sellers profit when whatever they short goes down.

In fact, little-known hedge fund investor John Paulson (no relation to Henry) pocketed something like $20 billion the last three years betting that housing would collapse.

As Wall Street has just demonstrated (again), the best way to profitably short-sell a bubble is to know when it's about to pop, for real.*

And the best way to do that is to have helped inflate it.

*What do you call a short-seller who is right but early (like all the pro's who shorted overvalued tech stocks in '98 and '99)?

Wrong . . . and busted.

That's because if you short-sell something that keeps going up, you face wave after wave of margin calls requiring you to put up more money.

Realtor Sales Secrets

Best Way to Jump Start Sales? Keep Reading

Want Realtors' most closely guarded sales secret?

No, it's not baking chocolate chip cookies in the oven (to save time, buy store-made, then heat at 350 for 10 minutes).

Nor is it to hire a mascot in a 6' bear suit to hold up "Open House" signs at a nearby, busy intersection (tried it -- unfortunately, bad weather depressed traffic).

Rather, as every experienced Realtor knows, the single best way to jump start sales is . . . to go on vacation!

Especially effective: doing a showing just before you need to head to the airport to catch your plane.

If there's any truth to the foregoing-- and there's actually some anecdotal evidence supporting it -- it likely has to do with reverse psychology (and perhaps overaggressive sales tactics).

In other words, people are most apt to buy when they're not feeling pressured to do so.

Tuesday, February 16, 2010

"5 o'clock . .. Somewhere"

Next Hot Spot? How About . . . Nicaragua

Pour me somethin' tall and strong
Make it a hurricane before I go insane
It's only half past twelve but I don't care
It's 5 o'clock somewhere

--Jimmy Buffett, "It's 5 o'clock Somewhere" lyrics

It's always 5 o'clock somewhere -- and somewhere, it's a bull market for real estate development.

No, I'm not talking about China.

Coincidence or not, I've run into three local Realtor/developer types in the last two weeks who are involved in projects in . . . Mexico, Costa Rica, and -- would you believe -- Nicaragua(!).

Horace Greeley famously said, "Go West, young man!"

Maybe the equivalent now for real estate development is, "go south . . . to emerging markets in Latin America."

(And no, as an investor, I wouldn't sink your retirement money into one of these projects, just yet.)

Edina Realty 2010 Ad Campaign

"Finding 'the one'"

Soon to debut on billboards all over town: Edina Realty's 2010 ad campaign.

This year's mantra: 'Find the one.'

As in:

Buyer (if you're a Seller).

Home (if you're a Buyer).

Realtor and broker, if you're either one.

Not bad . . .

P.S.: Might not have been a bad idea to pick a Minnesota locale, though (which the inset picture clearly isn't!).

What Happens at 3:01 P.M.??

Define, "On Tour"

Readers will recall my post last Tuesday lamenting (kind of) the dwindling number of free lunches at Broker open houses ("No More Free Lunch -- Really").

As I noted then, Tuesday tour is when Realtors view, often by "caravan," all the new listings on the market.

By convention, the time window is almost always 11 a.m to 1 p.m.

So the following blurb, from today's tour sheet, caught my eye:

On Tour 10 a.m. to 3 p.m. Easy View with Electronic lockbox on the front door inside the porch.

In other words . . . Realtors can let themselves in with their electronic key -- pretty much like they can every other day of the week (minus, I suppose, the showing request and confirmation).

I'd file this one in the "nice try" category.

Financial "Miranda Warning" for Goldman Sachs Clients?

Oops, They Did it Again!

If we're not going to shut down rogue investment banks like Goldman Sachs, or break them up into smaller, less economy-threatening pieces, how about at least requiring that they give their clients (hard to believe they still have any) the equivalent of a financial "Miranda warning."

Something like this perhaps:

You have the right not to borrow or otherwise do business with us. However, if you do, everything we learn about your financial condition can and will be used against you, by us or our affiliates, to maximize our profit. Oh . . . and the financial products we sell you . . . may be dangerous to your financial health (and everyone else's!)

In the unfolding saga of Greece's sovereign debt mess, consider -- once again -- who seems to be at the dirty little epicenter (and apparently, cashing in again):

Goldman Sachs and J.P. Morgan, and perhaps others, sold financial instruments to Greece that were designed to artificially depress its borrowing and budget deficits.
Goldman and Morgan declined to comment. Greece says what it did was legal at the time.

Now Greece is under attack in the markets, and the major countries in the euro zone are trying to force it to clean up its act and to keep it from defaulting. There is little agreement on how to do that. Traders who bet against Greece — by shorting Greek bonds while buying German ones, for example — have made a lot of money as the market realized just how much trouble Greece was in.

The European Union is now asking Greece for details of what it did. But it should go further. It should seek to find out if the banks that helped Greece lie — and thus knew its numbers were false — made money betting against it. If so, do those banks deserve to keep those profits?

--Floyd Norris, "Helping Governments Deceive"; The New York Times (2/16/2010)

One more time, louder and all together:


Parking Meters & President's Day

Looking (in vain) for a Parking Spot

In today's post-crash, Alice-in-Wonderland financial world (zero percent interest rates, the biggest financial culprits commandeer the most government aid, etc.), it's nice to see that not all economic laws have been repealed.

Like supply and demand.

Headed to a downtown appointment yesterday -- President's Day, a holiday for many businesses --I figured it would be a slow business day, and therefore parking would be ample.


On block after block, the spaces alongside every single parking meter were taken.

Then I realized: free parking! All day!

If you want to stimulate demand for something . . . lower the price.

It doesn't get any cheaper than free.

Monday, February 15, 2010

Showing Feedback & "Minnesota Nice"

"Minnesota Nice" for Non-Minnesotans

For non-Minnesotans reading this blog, first a definition:

"Minnesota Nice" refers to the locals' custom of being preternaturally pleasant on the surface . . . and seeming to be chilly and unavailable just below.

Non-natives, especially from bigger cities (like New York) invariably find the practice off-putting if not outright annoying; the most common complaint I hear is, "you never know where you stand."

The runner-up? 'it's passive-aggressive.'

Meanwhile, natives like myself understand "Minnesota Nice" for what it is: a collective agreement to . . . be polite, at least on the surface.

How different in principle is that, really, than 100 strangers jammed into a subway car all tacitly agreeing not to make eye contact?

Ultimately, "Minnesota Nice" is really just a regional preference -- a "default mechanism" -- for managing social interaction on a mass scale.

As such, it's no better, no worse (and certainly much less confrontational) than social styles in other parts of the country . . . or world.

What would you expect from a couple million, *stoic Scandinavians?? (still the most dominant ethnic heritage locally).

Minnesota Nice & Showing Feedback

So how does "Minnesota Nice" play out between Realtors?

A good example is the showing feedback form that Buyer's agents are asked to complete after taking a client through a home.

I would say that some variation of the following easily represents 25% of the responses I get from Buyer's agents on homes that I'm listing (representing the Seller):

How did your Buyer like the home overall? "Good."

On a scale of 1-10, what was your opinion of the home's condition? "7"

Floor plan? "8"

What did you think of the home's price (pick one): Above market/at market/below market (this one always cracks me up) "at market"

Any future interest? "No"

Social Conventions

Obviously, anyone who had continuing interest in my client's home would be communicating that, in a variety of ways.

So, I don't take umbrage at the above, or email or call the other agent hostilely asking for more.

I understand it for what it is: a "no thank you" -- politely conveyed, to be sure.

*the joke about the long-time local Congressman (and quintessential Scandinavian) Martin Olav Sabo was that he once got so worked up over an issue that . . he almost spoke up about it!

Sunday, February 14, 2010

"Perfectly Legal": AIG Redux

Goldman Sachs & the 4 Not-So-Little PIIG's

Wall Street did not create Europe’s debt problem. But bankers enabled Greece and others to borrow beyond their means, in deals that were perfectly legal.

--"Wall St. Helped Greece to Mask Debt Fueling Europe’s Crisis"; The New York Times(2/14/2010)

We all know the basic story line by now.

Some systemically-important entity is left, hemorrhaging and in financial shock, on the side of the road, the victim of (yet another) financial hit-and-run.

Yesterday, it was AIG; now, it's Greece.

Tomorrow, it will be one or more of the other "PIIGS" (Portugal, Italy, Ireland, Spain).

The license plate of the well-appointed, luxury car just disappearing over the crest clearly reads "Goldman Sachs." The forensic evidence at the crime scene (make that "non-crime scene") further implicates it.

Yet when the cops pull over the speeding, inexplicably damaged vehicle, the driver explains, quite calmly and rationally, that "no laws were broken."

And the cops -- and the rest of us -- are left scratching our collective heads.

(Actually, that last part about the financial cops is wishful thinking -- it turns out that they work for Goldman Sachs, used to . . . or want to).

"Non-Crime Scene"

As always, Goldman Sachs' defense is a bit more subtle and multi-layered (see the "It's Not My Dog Defense.")

Appearances notwithstanding, Goldman Sachs was actually speeding to get help.

Oh, and the injured pedestrian was carelessly walking in the road.

Or they suddenly ran in front of the car, deer-like, and there wasn't time to stop.

Because, after all, driving conditions were terrible.

Which brings up the possibility (likelihood?) that other cars may have been involved.

Which doesn't really matter, anyways, because the patient, now lying near death, was already suffering from terminal cancer.

And even that doesn't matter, because Goldman Sachs had Greek law changed to make committing financial hit-and-run . . . perfectly legal (Oops! That would be U.S. law).

And so on.

A-r-g-g-h-h!! Enough already!!

Chapter 2: Different this Time?

What's different this time is that apparently it's up to ordinary Germans to decide whether to front Greece the money it foolishly promised to re-pay its Wall Street loan sharks, led by Goldman Sachs.

Of course, when the prey was AIG, Goldman Sachs merely had to pick up the phone (walk down the hall?) to make sure that it's predatory bets were made good by the U.S. government (and the taxpayers standing behind it).

But what sway does Goldman Sachs have over 80 million German taxpayers?

Perhaps more to the point, what leverage does Goldman Sachs have over the German government?

Here's a guess: its best instrument and lever is none other than the very same, bought-and-sold U.S. government that delivered Goldman Sachs -- rather amply -- from the fallout resulting from its disastrous AIG hit-and-run.

How much more of this does anyone possibly need before revoking Goldman Sachs' driver's license, for good??

How and whether to save the PIIG's remains to be seen.

This time, however, the entity that should be presented with the clean-up bill -- whether it's for the funeral or the hospital -- is Goldman Sachs.

Saturday, February 13, 2010

Hirsute Conceits

"Grunge-Cool" vs. "Grunge-Gross"

It seemed to start with A-list stars like George Clooney and Brad Pitt.

Then, it spread to younger, "brat-packy" actors like Ashton Kutcher, James Franco, and Ethan Hawke.

What am I talking about?

The two (or three?) day stubble look.

Unfortunately, it now seems to have spread to the general male population, without regard for age, dress, or -- shall we say -- "over all attractiveness."

Let's just put it this way: if you're over 40, a little (or a lot) overweight, neither especially handsome nor a fashion plate AND haven't shaved for a few days, you don't look hip or cool -- you look . . . unemployed.

Housing Trends 2010 (Cont.): 'Cranking up the Volume'

Beyond Finished Square Feet

In a tight economy, builders and homeowners alike must figure out how to make their houses live and feel bigger without increasing their finished square feet (and therefore cost).

How do you do that?

Increase the volume.


Whereas square footage is two-dimensional, volume is three dimensional.

Consider two identical homes, except one has 10' ceilings throughout, the other 8' ceilings: the former literally has 25% more volume!

Other techniques to make homes feel bigger without increasing their footprint include:

--Wider halls and staircases;

--More (and larger) windows;

--Turning unfinished dark, interior basement space --now an afterthought in many homes -- into very finished, high tech space (typically, a media room with lots of wires and cables, recessed lighting, and even in-floor heat)

--A modified "Great Room" design (few interior walls) featuring a combined Kitchen/Family Room -- typically with a fireplace and elaborate surround as the focal point of the latter.

Take all this extra volume; add formerly wasted but now "technologically re-purposed" space (like the media room); and suddenly an already big, 4,000 square foot can feel positively huge!

Or, a 2,500 square foot can easily suffice instead of a 3,500 square foot home.

Friday, February 12, 2010

"Married to the Listing" (vs. . . .

"Dating," "Going Steady," & "Engaged"

If you're a homeowner whose house is on the market, here's a quick way to characterize your relationship with your (listing) agent:

Less than 3 months on the market: Dating
3-6 months on the market: Going Steady
6-12 months on the market: Engaged
Over 1 year on the market: Married

Unlike in real life, in real estate, there's no such thing as "happily married" clients and Realtors.

Instead, almost all such real estate "marriages" end in . . . divorce.

Changing Sales Mix Blurs Housing Price Changes

2010 Housing Market:
More Toyotas (er, Chevy's), fewer BMW's

Confused by the cacophony of statistics purporting to describe today's housing market?

The root of the problem is that the statistics are really capturing two things: 1) the change in housing prices; and 2) the changing mix of homes that are being sold.

(The exception to the foregoing is the Case-Shiller index, which purports to isolate factor #1, changing prices, by only looking at "matched" sales pairs -- that is, the same house. However, Case-Shiller is susceptible to other weaknesses, at least in my opinion.)

Chevy's vs. BMW's

To illustrate the problem, imagine if auto sales were measured the same way as home sales.

In a recession, people buy more, uh . . . Chevy's; in good times, more BMW's and Lexuses.

That doesn't mean auto prices fall dramatically in a recession -- it means that economy cars are more popular.

Similarly, when bank-owned foreclosures dominate the housing market -- like in 2009 -- the "average" and "median" home selling prices fall, too.

That doesn't necessarily mean that home prices have dropped dramatically.

Rather, it means that smaller, less expensive homes are . . . smaller and less expensive.

Smart Phone Overload

Shopping for a Smart Phone? Better Have a Spreadsheet

You can have any color you want, as long as it's black.

--Henry Ford, describing the colors that the Model-T came in.

We've certainly come a long way since Ford's day -- maybe too far.

As part of my due diligence picking a successor to my trusty (but very old) Sprint Treo, I've now checked out the "Bold," "Curve," "Storm," "Tour," and the "Storm II" (you know you've been shopping awhile when you start to get "lapped" by the sequels and knock-off's).

And that's just the lineup of smart phones from one maker, Blackberry.

For one carrier, Verizon.

(Apparently, Blackberry makes different models for the other carriers -- or was it just that they go by different names??).

And I haven't even gotten to the equally labyrinthine coverage plans (voice, text, data and various permutations of same).

You literally need a spreadsheet to keep track of it all -- which increasingly seems like the point.


The downside of all this "choice" is that consumers are left overwhelmed -- and paralyzed.

Paralyzed customers keep what they have, delivering the carriers a fat, monthly annuity.

Maybe that explains the tsunami of advertising by Verizon, AT&T, T-Mobile, etc. touting their advantages.

P.S.: Oddly, the cell phone companies' marketing strategy is starting to resemble the mattress companies' (Simmons, Serta, etc.), who make it virtually impossible to compare one model at one retailer with another model at a competing retailer.

Thursday, February 11, 2010

Not-So-Flattering Photos -- Exhibit A

"They're Asking How Much??"

Quick multiple choice:

The asking price for the Minneapolis home pictured above -- just re-listed today -- is:

A. $249k
B. $375k
C. $599k
D. $1.249M

Answer: D

And no, this exterior shot isn't going to help fetch that price . . .

Stuck in "Housing Pergatory"

Too Many Shortcuts Add Up

What makes a home "stuck in Pergatory?"

Too much Pergo, for one thing (sorry, bad pun).

For those who don't know, Pergo is a laminate made to look like hardwood floors, and is about half the price per square foot as the real thing.

The problem is that Pergo doesn't really fool anyone; on the contrary, the minute I see an ocean of Pergo, I immediately look for other shortcuts. Like:

--Cheap replacement windows (usually vinyl)
--Off-brand appliances and plumbing fixtures
--Bargain Kitchen cabinets and counters
--Cheap mill work and doors (millwork is all the wood and wood trim in a home, including doors, mouldings, baseboards, arches, etc.).

Penny Wise, Pound Foolish

That last one in particular always strikes me as penny wise, pound foolish: nothing torpedoes the feel of an otherwise well-built home than opening a cheap (and hollow) aluminum front door.

Once you've toted up all the visible shortcuts, your attention (legitimately) turns towards what you can't see (or don't initially focus on).

Like, the status of the home's plumbing and electrical systems; the condition of the roof (if it's winter and covered with a foot of snow); the furnace, a/c, and water heater; and the home's light fixtures.

I still remember one of the most devastating -- and succinct -- comments I got from a prospective Buyer while holding a Sunday open years ago: 'looks like too many trips to Menard's.'

P.S.: Stagers and home sellers love Ikea because it's so stylish and cheap. Long-term homeowners . . . usually don't.

In Praise of the Underappreciated Vestibule

"Pin-drop" Front Entries

If you're a busy Realtor, it's not unusual to get to large, group meetings a couple minutes late (like the weekly Edina Realty Exceptional Properties meeting).

Which is fine -- unless the meeting is being hosted in a home where the entry and front door seem to open directly into the Kitchen, where 30 (or 50) of your colleagues are gathered, talking.

Then, everyone stops talking -- the proverbial "pin drop" moment -- and notes your (belated) arrival.

Too Much of a Good Thing?

What seems to be going on in these (not inexpensive) homes is that the owners and their architects, in their zeal to create more opened-up floor plans, neglected to enclose any private spaces.

Personally, at least, I think that's a mistake, for two reasons:

One. Physical comfort.

Minnesota's climate is not exactly benign.

Compounding the faux pas of arriving late was the gust of cold air and snow that I inadvertently brought in with me. Substitute blast of heat and humidity in the summer.

Two. Privacy.

There's something to be said for a home that actually has an entrance: a defined, transitional point where you leave the outside world behind and enter the home of the family you're visiting.

No, you don't need to be met at the door by a butler, but a place to dry off, remove your coat, etc. without bringing in the elements to the rest of the house is nice.

Actually, isn't that what mudrooms are all about? (although they're typically located off the garage or side door, as opposed to where "company" comes and goes).

Wednesday, February 10, 2010

Why is the Buyer's Agent Called the "Selling Agent?"

"Real Estate Terminology 101"

One of the confusing things about real estate is that, once a deal closes, the Buyer's Agent is called the "Selling Agent."

Isn't the Listing Agent, representing the Seller, the "Selling Agent?"

Well, no.

Think of it this way: the Buyer's agent is selling something (besides the house) -- namely, the Buyer's offer.

Just like every home, every offer has strengths and weaknesses.

It's the job of the Buyer's -- er, Selling -- agent to play up the strengths, and defuse and/or minimize the weaknesses.

Seller's Comp's vs. Buyer's Comp's

"East is East and West is West"

From experience, here are two good rules of real estate negotiation:

Rule #1. Never argue the "comp's" with the other side.

A comp, or comparable sold property, is a similar, nearby home that has sold recently.

To determine fair market value, Realtors and appraisers alike typically look for three good ones, then go through a "compare-and-contrast" process with the subject home to arrive at an adjusted value.

The first person to do the comp's is the listing agent, in the course of preparing a "market," or Comparative Market Analysis, for the homeowner.

Subsequently, the prospective Buyer's agent will also scrutinize the comp's.

Then, once there's a deal and the Inspection Contingency has been removed, so will the appraiser hired by the Buyer's lender (unless it's a cash deal).

In almost nine years of selling real estate, I've yet to encounter a situation where the Buyer's agent, in the course of negotiating an offer, made the case that the Seller's comp's were unrealistically low.

Nor have I seen an instance where the Listing agent, representing the Seller, readily conceded that their comp's were too high ("You got me! What was I thinking!?!").

In fact, the agendas of each side are so manifestly clear and self-serving -- not to mention transparent -- that it's almost always a waste of breath to engage on this.

Rule #2. If you're going to break Rule #1, you'd better make sure that you know the comp's -- or comp, if there's one in particular that looms large -- better than your negotiating counterpart.

I recently had a deal where the other agent was adamant that, "based on the comp's," my Seller's asking price was out of line.

He placed particular significance on one property in particular.

It turns out that the other agent had never been in the home.

Guess who had?

In fact, I'd shown the home to 3(!) clients, and knew every square foot of the house by heart.

So, I knew that the flattering Kitchen shots masked what was easily $100k in needed updating; the floor plan was off; and that the master bath was tiny -- and couldn't be expanded.

The upshot?

The Buyer significantly raised their offer, and ultimately reached agreement with my client.

P.S.: Trial lawyers have a saying, "never ask a witness on cross-examination a question that you don't already know the answer to." Good advice for Realtors "debating" the virtues of various comp's!

"I Want What They Got"

Ordering Off the Real Estate "Menu"

No, it's not what waiters in restaurants are hearing.

It's what would-be Sellers are telling their Realtors. "They," of course, are the owners of a neighboring home that sold a year -- or three -- earlier.

Aside from selling in similar market conditions, if you "want what they got," you also need to "have what they had": same condition, finished square feet, floor plan, curb appeal, etc.

Tuesday, February 9, 2010

No More Free Lunch -- Really

It's not exactly true that "there's no free lunch"; if you're a Realtor, you could almost always count on at least a few homes on the Tuesday Broker tour having some sort of spread.

Well, not today, and very little lately, generally -- not even at upper bracket properties where putting out a lunch is most common.

The explanation?

I'd guess mostly the economy: listings are taking longer to sell, which means Realtor marketing budgets have to stretch further.

But it's also the case that there's not much connection between catering a broker open and selling the house (at least in my experience).

Bare Ground -- For Now

Waiting for the Next Wave -- Part 1

When the economy comes back, where will Twin Cities developers pick up?

Most likely, where they left off when the recession and downturn arrived.

Here are six now-idled, high profiles sites in the Twin Cities that would appear to have better days ahead of them once credit eases and real estate prices firm.

Whether the developer and project stays the same, however, remains to be seen.

One. "2626 West Lake" (pictured above).

Don't recognize the sleek, contemporary buildings at the north end of Lake Calhoun, and just east of The Calhoun Beach Club?

It's because they were never built.

Unfortunately, Michael Lander's four building, luxury condo development is no more; a victim of disappointing pre-construction sales, the site now appears to be bank-owned.

I saw the (very impressive) 3-D sales presentation, and would have loved to see the buildings go up. Too bad.

My guess: either Lander or another developer takes another crack in the future. This is way too expensive a location for an empty lot to sit indefinitely.

Two. 36th and Wooddale Ave. in St. Louis Park.

This empty lot is sandwiched between two new condo/townhouse developments: Village in the Park Lofts, and Hoigaard Village.

Short-term, the immediate area may have some absorption issues to deal with, i.e., all the nearby new supply is ahead of demand.

Long term, however, the area is an affordable alternative to Excelsior & Grand, about a half-mile southeast (if you can give up proximity to Trader Joe's). Plus, it's just 2 blocks to a planned light-rail station at Wooddale and Highway 7.

. "The Bancroft."

Located at Chowen and 50th St. in South Minneapolis on the site of a former funeral home, The Bancroft targeted more affluent condo buyers looking for bigger spaces: over 2,500 square feet, at prices starting north of $500k.

You'd speculate that both those numbers are likely to shrink before any revived project breaks ground.

Part 2: Projects #4, 5, & 6

"Where's the Rest of Me?"

The Phantom Cellphone Vibration

I think Wall-E, the futuristic Pixar movie (2008) is right about the human race integrating built-in features and functions -- just wrong about which one.

If you didn't see the movie, it's set in the year 2805. Earth is trashed, and what's left of mankind orbits the planet in a high-tech colony.

Oh . . . and the people are all fat, their limbs have atrophied from disuse, and they all move around in high-tech Barcaloungers with built-in cup holders.

Aside from noting the ubiquity of cup holders -- I'm now starting to see them in grocery shopping carts! -- the obvious high tech function destined to become part of our DNA is the smart phone.

That epiphany occurred to me when I instinctively reached to check the vibration on my right hip (that's where I clip my cell phone) . . . . in the shower.

(And yes, I was alone -- my wife was in back shoveling snow, per my earlier post).

P.S.: There's feeling incomplete, and then there's really feeling incomplete: movie buffs will recall one of Ronald Reagan's most famous lines, "where's the rest of me?," when he wakes up from surgery and discovers his legs have been amputated.

Early Morning "Pushing & Shoving"

"Was it Good for You, Too?"

It's always a treat to be able to engage in a little early morning, "pushing and shoving" :) with my wife.

"Grunt!" . . . . "Push!" . . ."I'm getting closer!" . . ."Just a little more!!"

Finally, the combination of salt and my yeoman pushing freed our minivan from the snowdrift at the mouth of our driveway.

What did you think I was talking about??

Monday, February 8, 2010

Twitter Converts --- and Skeptics

To Twitter or Not to Twitter (that is the question)

Non-Realtors wouldn't necessarily know it, but there's a huge debate going on within the Realtor community at the moment about the need to get up to speed with -- "re-tool" for, if you will -- so-called social media such as Facebook, Twitter, LinkedIn, etc.

Here's a quick summary of the points each camp is making:

Twitter converts: everyone's using social media. "Be there or be square."

Twitter skeptics: actually, it seems like the most avid Twitter demographic is . . . teenagers. And not many teenagers buy homes.

Twitter converts: Not true (about the demographics). The common denominator is technological sophistication: people whose jobs require it (marketing, high tech, computer-related generally) are embracing social media, too.

Twitter skeptics: Yeah, those folks are so busy checking out sites like Zillow and Trulia they think they don't need a Realtor. And tell me again, how does someone who has time to Twitter all day hold down the kind of job that pays a big mortgage?

And so and so on.

Count me firmly in the . . . undecided camp.

I remember having a spirited conversation with someone, way back before anyone had even heard of Netscape, about why the Internet wasn't merely "CB radio's with typing" (I was right, they were wrong).

And yet, I have to confess, even I have doubts that Twitter represents a seminal, culture-changing shift: somehow, I just don't see my target market tweeting (or posting on Facebook), "I wish I hadn't just eaten that second hot and spicy burrito at lunch."

My best guess is that two considerations will prove paramount for Realtors weighing the "to Twitter -- or not?" question: 1) no one wants to be labeled a "Luddite," "behind the curve," etc.; and 2) you become proficient in whatever medium or mode of communication your client(s) prefer.

The "Too-Fast Offer"

"Love at First Sight?" Probably Not

Is there such a thing as a "too-fast offer," especially in a Buyer's market where lots of homes are sitting?

The short answer: actually, yes.

Most Buyers seriously contemplating a home will go through at least twice, just to double-check their first impressions, see it with fresh eyes (vs. 5th on a list of 8 showings), etc.

If they are contemplating major work, a 3rd visit, accompanied by contractors, may even be in order.

So what does it mean when you get word that an offer is coming in barely hours after a first showing?

It could mean that it was "love at first sight," and the Buyer knows all they need to know to make an offer, then and there.

Or . . . . the prospective Buyer is looking a for a deal. A very good deal.

In my experience, such Buyers don't invest much, emotionally or time-wise, in the properties they're scouting because it's all about the price.

If one Seller rebuffs them, they just move on to the next. And the next, and the next. . .

Sunday, February 7, 2010

Does the Twin Cities Have an Alter Ego?

Which City is Most Like the "Mini-Apple?"

Having lived in both the Twin Cities and Manhattan, I don't see much resemblance between the two.

If I had to come up with a metro area most like the Twin Cities, it would be . . . Seattle.


--They're both about the same size (Greater Seattle is about 3.35 million; the Twin Cities, just over 3.2 million);

--Both cities are known for their culture and specifically, their music scenes.

--They're both what many people consider "weather-challenged" (the Twin Cities has perpetual winter; Seattle, perpetual gray)

--Both cities are politically progressive; the surrounding areas . . . less so (Michelle Bachmann hails from a northern Twin Cities suburb).

--Both cities are home to a cluster of Fortune 500-type companies (Seattle's include Microsoft, Costco,, and Nordstrom; the Twin Cites, Target, 3M, Cargill, Medtronic, and General Mills); and a highly educated, white collar work force. According to Mpls - St. Paul Business Journal, Minneapolis and Seattle are tied as America's "most literate city."

Speaking of "white-collar" . . .

--Both cities and metro areas are predominantly white: out of the 40 largest metro areas, the core cities of Seattle and Minneapolis rank #2 and #5, respectively, in the percentage of white residents (though Minneapolis has surprisingly large Somali and Hmong communities).

Many of the parallels extend to the state-level.

Washington has the original "soccer mom" Senator, Patty Murray; Minnesota has soccer mom cum county attorney (and now Senator) Amy Klobuchar.

In fact, both states' political leadership count a disproportionate number of women.

I know it's heresy, but personally I'd trade Minnesota's 10,000 lakes and the BWCA for the Pacific Ocean and the Cascade mountains.

P.S.: Local civic leaders apparently seem to think that Omaha is the Twin Cities' closest doppelganger: every time a pro sports team threatens to leave, they warn that the Twin Cities will just be a "cold Omaha" if they let that happen.

South Tyrol Open House -- Stop By!

Where: 1340 Fairlawn Way in Golden Valley's South Tyrol Hills
What: 4 BR/3BA mid-century split level with almost 3,600 FSF
Who: listed (and hosted) by . . . yours truly
When: 1 p.m to 3 p.m today
How much: list price -- $444,900

This is a lot of house, in a great neighborhood.

I hate to use the term, "not a drive by," but . . . it isn't.

(Realtors use the term when the curb appeal doesn't do the interior justice.)

"Hand me Down" Political Slogans

Somebody's Got it Wrong

If you don't live in Minnesota, you're excused for not knowing that our Governor, Tim Pawlenty, is not standing for re-election, and is instead running for President.

His platform: he cleaned up the mess at the (state) Capitol, imposed fiscal discipline, and united both parties -- and can do the same for the country.

So, who just won the Minneapolis precinct caucuses to replace Pawlenty?

Minneapolis Mayor RT Rybak.

His message?

The state needs someone who . . . wait for it . . . "can clean up the mess at the Capitol, impose fiscal discipline, and unite both parties" (I just saw Rybak interviewed on the local public TV station, and he uttered that line verbatim).

Must be a popular slogan!

(For the record, I haven't endorsed a candidate for either President or Governor.)

Realtor Dreams -- and Nightmares!

Don't wait -- procrastinate now!

--Ellen Degeneres

In college, I used to dream that I was barely halfway through an impossibly long and difficult final exam, and time was just about to run out (sort of the academic "running in quicksand" nightmare).

As a lawyer, I used to dream that I hadn't done my time sheets for months.

(Note to non-lawyers: lawyers track their time in increments of one-tenth of an hour -- literally, 6 minutes -- and typically turn their timesheets in weekly (or did, way back when I practiced).

So what do Realtors dream about? (At least, that I can tell you about)

I dreamt that I had signed a listing (home for sale), but couldn't remember where it was, find my interview notes, or even the house key I'd been given!

Note to clients: Don't worry, I've never really done that!

P.S.: my favorite college test story was about a student in a huge, entry-level math class who repeatedly ignored the Professor's announcement that time was up, and to hand in his exam.

He finally complied, and raced to the front to turn in his exam.

Mary Sunseri, the Professor (and a Stanford icon) said, "I'm sorry, I can't accept this --- it wouldn't be fair to all the other students."

The student paused and asked her, "do you know who I am?"

Sunseri shook her head "no."

The student shoved his exam into the stack of hundreds she was carrying, and ran out!

(Give him an "A," at least, for quick thinking -- and no, it wasn't me; I distinctly remember getting a "B-" in the class.)

Saturday, February 6, 2010

"Restraint," Wall Street-Style

Wall St. Pay: the (Dis)Honor System Lives!

So, how do people on Wall Street -- and their defenders, like The Wall Street Journal -- define "restraint?"

A. Turning down the heat to 65 degrees.
B. Cancelling their cable subscription.
C. Taking public transportation to work, instead of the car.
D. Paying one's self only $9 million, instead of $68.5 million like in 2007 (when A LOT fewer people were paying attention).

If you need an answer key . . . you're a newcomer to this blog!

And exactly who is this paragon of virtue and self-restraint?

None other than Lloyd Blankfein, CEO of Goldman Sachs.

The Journal was quick to paint Blankfein's 2009 bonus (yes, we're talking about a bonus -- not base pay, not benefits, not lots of other goodies) . . . . as an act of sublime selflessness.

The steep drop from 2007 pay was a "bow" to public pressure, it declared in its headline.

Not only that, the compensation was all-stock.

The Journal's not-so-subtle (or convincing) defense of Blankfein's pay continues:

As Goldman rebounded in 2009 to its most profitable year ever, the 55-year-old Mr. Blankfein became the focus of anger about sky-high bonuses on Wall Street. That criticism continued even after Goldman said last month that it would make the smallest employee payouts relative to to revenue since the firm went public in 19999.

--"Goldman CEO Bows on Pay"; The Wall Street Journal (Feb. 6-7, 2010)

How reasonable of Goldman and Blankfein.

How fair of them.

How disgusting.

Party Like It's 2007

The truth is, Goldman and Blankfein's record 2007 compensation was a lot like popping champagne on the Titanic at midnight the night it sank.

Incredibly, instead of feeling horror and shame for steering the financial system into an iceberg -- and make no mistake, Wall Street was doing the steering -- Wall Street effectively engineered a bailout that made itself (more than?) whole.

At the taxpayers' expense.

And they're still at the helm! (versus, say, in jail, or, banned from the financial industry for life, like disgraced Merrill Lynch analyst Henry Blodget was for causing .000001% of the havoc.)

As I said before, "disgusting."

Pro Athletes' Pay

I remember a cartoon that ran several months into the last baseball players' strike (in the early '90's?), when ballplayers made a whole lot less than they do now.

The cartoon showed an unshaved, unwashed baseball player knocking on a suburban front door, with the caption, "mow your lawn for $25,000, Ma' am?"

In fact, I don't begrudge pro athletes a dime of what they make, because: a) it's not coming out of my pocket; and b) it's truly set by the marketplace.

For the vast majority of pro athletes, stratospheric pay is also extremely short-lived, and limited to a handful of truly gifted, high-performing individuals.

None of the above is true of Wall Street pay.

Friday, February 5, 2010

Free Business Idea

My Kingdom for a . . . Winter Coat

As a native Minnesotan, I honestly don't know whether to attribute the phenomenon to retail "fashion-forwardness" (is that a word?), "mind over matter" denial, Scandinavian stoicism, or some other character/behavioral quirk.

What am I referring to?

My inability to find a winter-weight men's overcoat anywhere in the Twin Cities -- in early February!

Yes, it's now getting dark at 5:30 p.m. instead of 4:30 p.m, and the average temperature is creeping up from the teen's(!) into the 20's.

But we've easily still got 2 months-plus of below-freezing weather to contend with locally.

So, here's the idea:

Open a clothing store that rents winter clothing.

Target audience: anyone relocating to Minnesota during the "second half" of winter from a warmer climate, or, out-of-towners coming in for a winter-time occasion (wedding? Christening? Bar mitzvah?) who don't want to freeze their rear-ends off.

Bonus advice: locate the business by the airport (Mall of America?), for extra convenience; and carry a nice line of gloves and mittens (also curiously missing from local stores beginning in mid-January).

The Trickle-Down Case for Indulging Wall Street

Colbert Interview with Eliot Spitzer

I'm not a Stephen Colbert regular, but I did catch his interview the other night with "disgraced former New York Governor Eliot Spitzer" (that's now Spitzer's official moniker, by the way).

Colbert's cut-to the chase question: even if Wall Street is full of inept crooks and greedheads, as most everyone outside of Wall Street now agrees, isn't short-circuiting their gaudy gravy train just a case of "cutting off our noses to spite our faces?"

In other words, Colbert asked, don't Wall Street-types spend their multi-million dollar bonuses on drivers, cooks, tailored clothes, second (and third, and fourth) homes, expensive restaurants, etc. ???

And if that spending vanished, wouldn't all those other individuals and businesses suffer?

I have a two-part answer to that.

First, to the extent that it's necessary to stimulate our economy (to offset the catastrophic financial damage Wall Street engineered), my preferred instruments for doing so . . . would hardly be the very same people who caused the catastrophe.

Not only does that offend any moral person's sense of justice, it literally encourages more of the very same behavior!

Personally, I would like to now spend a few years without the term "moral hazard" dominating the Op-Ed pages and blogosphere.

Give it to "the Bernie's!"

If the goal is simply to put money in the hands of people who will spend it, why not pluck Bernie Madoff, Bernie Ebbers (Worldcom), Jeff Skilling (Enron), and other scoundrels from their jail cells and bestow upon them the billions being showered on Wall Street?

To paraphrase Ben Stein's stump speech, let's instead lavish the money on the people who are the true backbone of this country: the servicemen and women serving abroad, and especially their families sacrificing back home.

And while we're at it, let's earmark a little of Wall Street's money to care for soldiers who've sustained life-altering combat injuries.

Second, it's far from clear that handing out financial "goodies" -- to anyone -- is advisable.

Just as there's no free lunch, there's no such thing as "free stimulus."

Basically, it's just added to our national credit card -- a credit card balance that already comes to something like $35,000 for every man, woman, and child in the U.S.

If open-ended, poorly targeted stimulus (deficit) spending worked, Japan's economy would be the world's most robust now.

Instead, Japan is entering its second (or third) "lost decade," depending on who's counting.

The bottom line?

Saddling our economy with crushing debt to enable -- and then mitigate the consequences of -- still more Wall Street greed and misbehavior is to compound one mistake with a second, equally big one.

Ignoring the Asking Price

Mispriced Properties: Exhibit A

Where: 46xx 1st Ave. South in Minneapolis
What: Bank-owned (foreclosure) 3 BR/2 BA 1917 stucco home with 2,000 square feet.
How (much): asking price -- $72,900; sold price -- $130,000
When: listed -- 4/19/2009; closed --8/18/2009

In my post yesterday (Seller's Motivation: Is it Relevant?"), I made the case that the Seller's motivation (usually) isn't nearly as important as most prospective Buyers think it is.

Often times, neither is the Seller's asking price.

At one extreme, Banks selling foreclosures have been known to price ridiculously low to foment bidding wars (at least, you'd assume it was purposeful; the other alternative is that they truly have no clue. Hmm . . . ). See Exhibit A (above).

At the other extreme, lots of Sellers today have been known to pick asking prices that reflect, shall we say, "wishful thinking."

Either they've been in their home for decades, and are genuinely oblivious to how dated it has become, or, they feel the need to "pad" their asking price, to give themselves "negotiating leverage."

Unfortunately, that's not how it works.

Realtors (and appraisers) know that home prices are set exactly one way: by identifying the 3 best Comp's (similar, nearby homes that have sold the most recently), then doing a detailed compare-and-contrast between the subject home and each of the Comp's to arrive at an adjusted value.