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Wednesday, March 31, 2010

Realtor "April Fool's'" Jokes

"Can I Please Speak to Myra Mains?"

Courtesy of City Lakes office manager Josh Kaplan, here is a classic April Fool's joke for -- make that on -- Realtors, especially "newbie" Realtors.

Here's the set-up:

The front desk leaves a voicemail for the intended Realtor-victim (plural, ideally), telling them that they have a lead for them. The prospect's name is "Myra Mains"; her number is 612-927-01x7.

Here's what happens next:

Realtor: 'This is Jane Doe at Edina Realty. Can I please speak to Myra Mains?"
Other line: . . . .'click' (sometimes preceded by a "Ha! Ha! Very funny!")

It's funniest when the Realtor persists and re-dials a couple times before catching on.

The phone number, of course, belongs to a local funeral home.

Obama Seeks White House "Short Sale"; Creditors Balk

White House "Short Sale"

Washington, D.C. (April 1, 2010) --President Barack Obama today announced plans to sell the White House as part of the government's ongoing efforts to reduce the national debt. However, with an estimated fair market value of $200 million, secured by a $13 trillion mortgage, President Obama acknowledged that, at present, the White House was deeply "underwater."

"We believe it is in the best interests of our creditors -- China, Japan, and various OPEC members -- to reduce the principal balance on the White House, rather than risk an even greater loss by forcing the property into foreclosure," President Obama said.

Representatives of the various creditor governments were reportedly studying the proposal. A spokesman for Chinese Premier Wen Jiabao said, "Before we consider such a dramatic write-off, we, of course, will require the United States to provide a complete and candid picture of its financial situation -- something that it has not offered to date," the spokesman said.

Ross Kaplan, Edina Realty City Lakes, has the listing.

Tuesday, March 30, 2010

Interviewing Neighbors

"How Much Do the Neighbors Trust Each Other?"

One of the standard pieces of advice I give to my Buyer clients is to chat up prospective neighbors (also mail carriers, but only if they've been on the route at least six months).

Who knows better than them if the neighborhood is safe, the local schools are good, people are friendly, etc.?

It's also my experience that people who like where they live are more than happy (if not eager) to "sell" their neighborhood to prospective Buyers -- as long as they introduce themselves properly and don't knock on the door at 10 p.m.

In his column today, New York Times columnist David Brooks corroborates this approach, and adds this gloss:

If you want to find a good place to live, just ask people if they trust their neighbors. Levels of social trust vary enormously, but countries with high social trust have happier people, better health, more efficient government, more economic growth, and less fear of crime (regardless of whether actual crime rates are increasing or decreasing).

--David Brooks, "The Sandra Bullock Trade"; The New York Times (3/30/2010)

The only question I have is of the "chicken and egg" variety: which comes first -- "high social trust, " or happier people, better health, more economic growth, etc.?

Monday, March 29, 2010

What Killed the Woolly Mammoths?

"Mammoths & Mastodons" Exhibit at Field Museum

I always learn something new at a great museum like Chicago's Field Museum, and today's visit was no different.

Going through the new "Mammoths and Mastodon" exhibit, I learned that there are five primary theories about what killed the mammoths and mastodons, the last of which disappeared in Siberia about 3,000 years ago:

1. Climate Change
2. Disease
3. Over hunting
4. A meteorite
5. Goldman Sachs

Apparently, scientific evidence is leaning towards theory #5.

Sunday, March 28, 2010

Trading Parking "Birthright" for a Mess of Pottage?

Chicago & Privatized Parking

In an effort to streamline unethical practices and boost illegal profiteering, Mayor Richard M. Daley announced sweeping new plans Monday to overhaul his city's "antiquated" system of graft.

According to Daley, Chicago's once-great fraudulent institutions have grown obsolete, and City Hall is no longer bilking taxpayers out of as much money as it once did.

"It's been business as usual for too long in Chicago, and now it's time to find more efficient ways to misuse authority for personal gain," said Daley, who has served as Chicago's mayor since 1989. "We must modernize our illegitimate activities right now, today, before it becomes impossible for public officials to act in my best self-interests."

--"City 0f Chicago to Modernize Outdated Graft Programs"; The Onion (3/27/2010)

So, a financially strapped government facing a yawning budget deficit enters into a deal -- brokered by Wall Street -- to sell its rights to a steady stream of cash payments in perpetuity for a one-time, lump sum payment.

Greece, right?

Try, the City of Chicago and its parking system.

Since striking the extremely unpopular deal last year, Mayor Richard Daley has been castigated for selling the rights to the parking system for a relative pittance.

Exacerbating matters: the private corporation now in charge immediately raised parking rates city-wide, and extended metered hours (they now include Sundays, till 9 p.m.!).

Except instead of parking meters -- which were all removed -- there are now kiosks in the middle of each block (pictured above) that dispense stickers with timed expiration dates.

What's the significance of that?

With no more marked parking spaces, you can squeeze in more cars. And it does away with driver #2 inheriting any "unused time" left on driver #1's meter.

Good thing Minneapolis is running a budget surplus, and won't be tempted by such short-term gimmicks!

Saturday, March 27, 2010

Realtors & Unemployment Insurance

Working Without a Safety Net

If you work for an employer, and your company has to lay you off because business is down -- you qualify for unemployment benefits.

If you're a Realtor whose business dries up . . . you're SOL.

Just one more reason that Realtors -- and other independent contractors -- are entitled to every penny of compensation they earn when times are good.

Cheap Toupee?

"The Chicago Uniform" (at least for Guys)

When one person does it, it's an expression of one's individuality, a fashion statement, etc.

However, when everyone does it -- or at least the male of the species -- it instead becomes something else entirely: a de facto uniform. An act of conformity. A cliche.

What am I talking about?

The requirement, apparently, that every guy in Chicago between the ages of 15 and 75 goes around wearing a baseball cap.

(And no, if you're bald and have a paunch, simply wearing a baseball cap doesn't suddenly make you young and hip.)

Oak -- the "Chicken" of Hardwood Floors

"Tastes Like Chicken"

If you can't identify a food you've never tasted before, the cliche answer is that it "tastes like chicken."

That's usually a safe answer, because, depending on how it's prepared, chicken can taste like anything.

Oak floors are a bit the same way (at least to my eye).

I just previewed a home with what appeared to be striking walnut floors.

In fact, they were oak, just stained darker to look like (more expensive) walnut.

Nice way to save some money -- and I'm guessing 9 out of 10 prospective Buyers can't tell the difference (and won't care!).

Time Zone Magic

The Secret to Conflict-Free
Family Gatherings

I'm writing this post from Chicago, where my (large) extended family is congregating for a long weekend gathering (no, no open houses this Sunday).

The logistics are a bit daunting:

16 people total, 5 couples/families, located in 5 different cities, encompassing three different time zones.

One of the silver linings to all of the above is that it solves some scheduling issues.

Like, normally my parents -- the early birds of the family -- like to rise before 7 a.m.

Meanwhile my (40 year-old) baby sister likes to "get going" around 10 a.m. (she crashes around 3 a.m.).

If everyone lived in the same city, there would inevitably be tension about when to meet for breakfast.

Not in Chicago.

Nine a.m. local is actually 7 a.m. for my parents (on Phoenix time), and 10 a.m. for my nocturnal sister on "Manhattan time."

Voila! Everyone's happy!

At least the first day . . .

Friday, March 26, 2010

The Serenity Prayer -- Realtor's Version

Passing on Overpriced Listings

Everyone knows this famous passage from The Serenity Prayer:

God, grant me the serenity
to accept the things I cannot change;
the courage to change the things I can;
and the wisdom to know the difference.”

--Reinhold Niebuhr

Here's my version for listing agents (Realtors representing home sellers):

God, grant me the serenity
to accept the listings I can sell;
the courage to refuse the listings I cannot;
and the wisdom to know the difference.

--Ross Kaplan

So what makes a listing unsellable?

Ultimately, just one thing: price.

Everything else -- condition, curb appeal, location, floor plan, etc. -- can be overcome if a home is sufficiently discounted.

Counting Down to "The Deadline"

Mortgage Rates: Moving Up

Everyone in the housing business seems to be counting down to the approaching deadline with baited breath.

No, not April 30, when the home buyer tax credits expire.

March 31, when the Federal Reserve stops buying mortgages and mortgage-backed securities -- reportedly, anywhere from $10 to $25 billion, per week, since at least last Fall.

Those purchases act like a huge subsidy, keeping rates down and the mortgage securities market liquid.

The Fed Exits

How big a subsidy?

We're about to find out.

No doubt anticipating the Fed's exit, interest rates have been rising this week; just this Wednesday, according to Edina Mortgage's Lala Brosz, rates on jumbo mortgage re-set four times, from around 5.25% at the beginning of the day, to 5.5% at the end.

The potential updraft in mortgage rates makes it more imperative that prospective Buyers lock in good rates while they're still low (vs. float, in the hopes that they'll drift down).

It may also be a good time to inquire about whether your lender offers a re-lock option, which can be cheap insurance in an environment of rising rates.

Housing Trend 2010: Grand(er) Entries


From More Square Feet to More Volume, Cont.

I've discussed previously the trend toward homes not necessarily with more square feet, but more "volume" (higher ceilings, more and larger windows, wider stairs and halls, etc. -- see, "Not More Square Feet, More per Square Foot"; "Cranking Up the Volume").

That trend applies to the exterior of homes, too.

So, builders (and their clients) are designing homes with wider and more generous front doors, steps, porticoes (if consistent with the house style), and even wider walkways from the sidewalk to the front door.

The cumulative effect is enhanced curb appeal -- and the suggestion of grand, sweeping spaces inside.

All those features are vividly on display at 3812 Chowen Avenue, in Minneapolis' Linden Hills neighborhood (pictured above).

The home was built by Elevation, a division of Streeter, and is being listed by Edina Realty's Sheila Cronin for $1.449M.

(Oh -- and the inside's stunning, too!)

Thursday, March 25, 2010

Listings and Pots of Water

Quickening Pace Signals Approaching Deal

My clients know that my favorite metaphor for how a listing is doing is a pot of water.

Usually, there is a palpable progression from room temperature, to warm, to hot . . . to a deal!

Typically, that corresponds to the pace of inquiries and first showings picking up; some of the first showings progressing to second showings; then a prospect who's done a second (or third) showing making an offer.

Exceptions

Are there exceptions to the foregoing?

Sure.

Sometimes, the pot seems warms (or hot) for what seems like an eternity, but prospects just don't seem to want to go that last step.

At the other extreme, there are listings that are the real estate equivalent of liquid nitrogen (if you don't remember high school physics, liquid nitrogen goes directly from a solid to a vapor without first going through liquid form).

Translation: one day, nothing's happening; the next, you've got a deal.

That doesn't happen very often -- but it's sure nice when it does!

No More "No Doc" Loans? Think Again

Reverse Mortgages Gain in Popularity

So, after all the fiascoes with subprime mortgages and lax underwriting standards (if you can call them that), "no doc" loans are a thing of the past, right?

For the most part.

However, there's still a niche of the market where lenders are approving borrowers with virtually no paperwork: reverse mortgages.

The catch, of course, is that with a reverse mortgage, the bank is making monthly payments to the borrower, not the other way around.

Reverse mortgages are particularly suitable for older, long-time homeowners who have modest income, but a ton of equity in their existing home.

Lenders are more than happy to let such "borrowers" tap that equity to make a reverse mortgage on the purchase of a "downsized" property.

Even more than with traditional mortgages, fees and terms on a reverse mortgage are key.

In other words, do your homework!

Wednesday, March 24, 2010

Friedman Endorses "Ranked Choice" Voting

Taking Away the "Spoiler Factor"

"Ranked Choice" voting, which I strongly support ("Ranked Choice Voice: Cure for What Ails Us?"), picked up a big endorsement today: from NYT columnist Thomas Friedman.

Here's Friedman's case for what he calls "alternative voting" (also referred to as "instant run-off voting"):

One reason independent, third-party, centrist candidates can’t get elected is because if, in a three-person race, a Democrat votes for an independent, and the independent loses, the Democrat fears his vote will have actually helped the Republican win, or vice versa. Alternative voting allows you to rank the independent candidate your No. 1 choice, and the Democrat or Republican No. 2. Therefore, if the independent does not win, your vote is immediately transferred to your second choice.

--Thomas Friedman, "A Tea Party Without Nuts"; The New York Times (3/24/10)

In other words, ranked choice voting takes away the "spoiler factor" that has always dogged third-party candidates.

As such, it has tremendous potential to open up our sclerotic, dysfunctional two-party political system.

Why is that important?

Friedman again, quoting Stanford University's Larry Diamond: 'If you don’t get governance right, it is very hard to get anything else right that government needs to deal with.'

Lots of things have changed in the several (?) centuries since the paper ballot was introduced.

Maybe it's time that we use modern technology to start to fix our broken political system.

"Speak Now or Forever Hold Your Peace"

The Real Estate Walk-Thru

OK, so it's not as dramatic as the point in the wedding ceremony where the officiating clergy asks the assembled guests to "speak now or forever hold your peace."

But functionally, the walk-thru performed by the Buyer just before closing plays much the same role in a residential real estate deal.

That's because the standard for recovery from a Seller past the point of closing requires that the Buyer prove: 1) that the problem existed at the time of closing; and 2) that the Seller knew about it -- or should have.

So, the furnace that worked at closing, but failed the next day?

Yup, the Buyer's obligation.

Ditto for any number of maintenance-related items (appliances, wet basements, etc.) where timing, as the saying goes, is everything.

Exceptions

Of course, the Buyers have a strong case for pursuing a Seller who clearly knew of a problem at the time of sale.

It may just be a Realtor version of an urban myth, but the classic example is the Buyer who has a sewer backup soon after closing (a very unpleasant, and memorable, problem to have!).

The new homeowner calls Roto Rooter, which promptly dispatches a repairman.

On the way into the basement, the repairman -- who tellingly needs no directions -- tells the new owners, "I told the Smith's they needed to have those pipes looked at before it backed up again."

"Parenting Over 40"

Which of These Books Would You Buy?

[Editor's Note: This post originally ran last September. I'm updating and re-running it now because Google search no longer retrieves it, even though a number of visitors to this blog have queried "parenting over 40." Not enough tags, perhaps??]

For years, I've been threatening to write a book -- not about selling real estate ("What the Pro's Know . . . and You Don't"); cleaning up Wall Street ("Fixing Wall Street," "Separation of Business and State," "The Wall Street Dividend"); or accounting for economic production in a more organic and accurate way ("Accounting for Earth").

Rather, it would be a book about parenting children past the age of 40.

As in the parents being over 40, not the children (although the latter could very well be another book -- for my parents to write).

My stock line is that such a book doesn't exist, because no one who's qualified to write it has the time.

Even if they did, there'd be no point, because no one in the intended audience has time to read it.

But as a friend pointed out recently, maybe that's, well, besides the point.

"Of course people won't read it," she said. "But maybe they'll buy it, anyways" (as gifts, for summer reading they'll never get to, etc.).

Hmmm . . .

P.S.: While having 3 kids past the age of 40 has aged my wife, Laura, and I -- no, that's neither us nor our kids in the photo at the upper right. Phew!

Realtor "True Confessions"

"My Client's Home is a Dump"

You're so vain, you probably think this song is about you
You're so vain, I'll bet you think this song is about you
Don't you? Don't You? Don't You?

--Carly Simon, "You're So Vain" lyrics*

Which of the following admissions can actually serve a client's interests?

A. "My client's home has had three showings in the last four months."
B. "My client's home is a dump."
C. "Everyone says my client's home is overpriced."
D. "My client is very anal."

Answer: D.

Although I wouldn't put it in the MLS "remarks" field, I've heard more than one agent -- trying to convey how meticulously maintained and updated a home is -- let slip how fussy ("anal") their client is.

Personally, I might use "perfectionist."

(And no, I don't have a picture for this one.)

*After perhaps Watergate's "Deep Throat," the most speculated-about identity is the object of Carly Simon's "You're So Vain" lyrics. So who is it? Not Warren Beatty, as lots of people assumed. Try Jeffrey Katzenberg (he's a Hollywood-type).

Tuesday, March 23, 2010

"Drip" Marketing? How about "Spray?"

Synonyms for "Drip":
'Spray,' 'Drizzle,' 'Bombard'

Thanks to technology, I can now automatically send everyone whose email address I know -- and my Rolodex has 1,900 names -- a weekly (or daily, or hourly!) real estate "update."

But I don't.

That's because they're annoying and impersonal.

Speaking (only?) for myself, I like to practice what I'll call the "Golden Rule" of marketing: if I don't want to receive something myself, I won't subject others to it.

NYT Profile of "Curbed" Founder

Meet the "Realtor - Social Worker" *

The Sunday New York Times has a lengthy profile of Lockhart Steele (yes, that's his real name), the founder of real estate blog "Curbed."

If you didn't know -- and I was only vaguely aware -- Curbed (and other blogs like it) apparently are now integral to how New Yorkers (at least the ones not in the Bronx) buy and sell real estate. Oh, and the properties they're buying are exclusively over $500k -- frequently, a lot over.

Here's what Steele says blogs -- and technology in general -- are doing to the real estate business:

The broker’s job is no longer to tell people what a house is worth, or what nearby properties have sold for — everybody knows that now. Instead, a broker is more useful calming down a buyer agitated by a proliferation of Web gossip. The broker is less salesman, more therapist, or oracle. And by professional obligation, a daily reader of real estate blogs.

--Mark Oppenheimer, "The Optimist's Blogger"; The New York Times (3/15/2010)

So, is Steele right?

Partly.

He's definitely right that prospective Buyers engage with Realtors much "later" in the process.

It's not uncommon now for my clients, at a first meeting (!), to hand me a lengthy list of properties they want to check out (or have already seen!).

Thanks to the Internet, there is exponentially more information available about real estate.

However, in my experience, that doesn't necessarily make Buyers and Sellers more knowledgeable about how the process works.

As far as the "emotional" side of the business, there's no denying that technology makes an already close relationship even closer.

You don't invite your lawyer or dentist into your home, and share intimate details about your family, finances, and lifestyle; trusted Realtors are privy to all that (and more).

Where I think the article misfires, though, is extrapolating from Manhattan to other markets generally -- markets that don't have Manhattan's demographics, density, or money.

At least in the Midwest, not everybody is a Gen-Y'er who lives and breathes Twitter, Facebook, and blogs (at least not yet). Nor are they in the market for $1 million-plus Soho (or NoHo or NoLita or TriBeCa) lofts.

So, maybe the world Steele describes is coming . . . but it's not here yet.

*When Josh Kaplan, a former social worker and now long-time City Lakes office manager, is asked why he got out of social work, his standard reply is, "what make you think I got out of social work??"

Monday, March 22, 2010

"Lunch Will Be Served"

"I'll Just Have the Sub, Thanks!"

Maybe it's just because I missed lunch and my stomach is growling, but I couldn't help notice this (very) tantalizing hook to attend a Broker Open house tomorrow (see below).

Which, of course, was the whole point (getting a jump start on April 1?):

Lunch will be served:

Buttercup Squash Ravioli with Black Truffle and 12 Year Balsamic King Crab and Artichoke Fazzoletti with Saffron and Dried Tomato

Truffle Poached Rabbit with Celeryroot, Wild Mushrooms and Port Braised Chestnuts

Grilled Beef Tenderloin with Red Wine Farro, Porcini Mushrooms, Marrow and Balsamic-Alspice Gastrique

Sautéed Sea Scallops with Romesco, Braised Salsify and Leeks

Or ... Jimmy John's Sandwich Platter

File this one under the "Made 'Ya Look" Dept. (it did!).

When the Comp's Are "Thin" -- Or Non-Existent

"Active's" Loom Larger in Pricing Decisions

Realtors and Appraisers alike rely on "Comp's" -- comparable sold properties -- to estimate fair market value for any given home.

By definition, a Comp is similar in style, condition, and size as the "subject property" (the one you're trying to price); is physically nearby; and has sold in the same market.

Given that interest rates, economic conditions, listing inventory, etc. are constantly in flux, the "same market" typically means going back no further than six months -- and sometimes three, depending on the lender and price point.

"One of a Kind"

So what happens if there aren't any homes that meet those criteria?

That's especially the case for "upper, upper" bracket homes in the Twin Cities (and elsewhere) right now, which: a) are moving very slowly in today's market; and b) by virtue of their price, size, and finishes, tend to be more unique, anyways. (To be fair, the expected market time for expensive homes is always significantly longer than for more modestly-priced homes.)

By necessity, you then have to rely more on what you're competing against.

Typically, that means scrutinizing the dozen or so "Active" listings that prospective Buyers are most likely to consider along with the to-be-priced home -- then picking a price that beats all of them!

The virtue of that approach is that it (also) satisfies prospective Buyers' insistence on getting what they perceive to be a great value -- a requirement at the top of most Buyers' lists today.

Next!

On to Financial Reform!

With Health Care now out of the way, we can get to what I consider to be the more important issue: Reforming Wall Street and the banking sector . . . Essentially, I am advocating a “Do Over.” Reverse the past 3 decades of radical deregulation. The alternative is an even bigger financial crisis, and sooner than you imagine. The next time around, I plan on watching it all unfold from St. Barts.

--Barry Ritholtz, The Big Picture

My sentiments, exactly.

The only thing I would substitute in Ritholtz's quote is "Palm Springs" for "St. Barts" (I prefer the desert -- and U.S. soil!).

P.S.: stray tidbit -- St. Bart's was named after Christopher Columbus' younger brother, Bartolomeo.

Sunday, March 21, 2010

Realtor "Blocking & Tackling"

Key to Successful Listing: Attending to Basics

This blog's classification on Technorati not under "Real Estate" but "Football" ("Dear Technorati") has had me thinking in terms of -- you guessed it! -- football metaphors.

Like this one: just as football games are supposedly won "in the trenches," with good blocking and tackling, so, too, are successful listings characterized by attending to the basics.

Here's my (partial) list of what constitutes good Realtor -- and homeowner -- "blocking and tackling":

--For sale homes should always be "showing-ready": clean and orderly, well-staged, everything in good repair, and generally welcoming.

--Whenever possible, make sure all the lights are on for showings. And for second showings, absolutely!

--The Minnesota Seller's Disclosure and any municipal point-of-sale inspection paperwork should be completed and readily available, both in the home and online.

--The MLS allows 10 photos per listing. Use them! (and make sure they're good! --flattering angles, in focus, well-lit with no shadows, etc.).

--The Listing Agent should be be readily accessible to field inquiries, arrange access to the home, and be in regular communication with the owner.

--The home should be available to Realtors via Broker Tour (at the commencement of the listing), and thereafter to the public through Sunday open houses at regular intervals. (Note: there's a difference between "good exposure" and "overexposure.")

--Literature Box: if the curb appeal is deceiving, provide a literature box in front of the home so that prospective Buyers can see interior photos.

--All the information about the home on MLS should be accurate and proofed for typo's (you'd be surprised how often this one is violated). Is the MLS area correct? Are appropriate boxes for foreclosures and short sales marked?


So what other parallels are there between football and selling homes?

The team -- and Realtor -- that makes the fewest unforced errors and turnovers often wins.

Case in point: I viewed a home last month with a spectacular unfinished expansion -- great overhead, wide stairs with excellent risers, two dormers already in place -- that I discovered completely by accident: I thought I was opening a door to a closet!

The listing agent finally updated her marketing materials to showcase the expansion potential several weeks into the listing (and also conspicuously marked the stairway door!), but by then the first (and most serious) wave of Buyers had already been through.

P.S.: of course, great football teams -- and Realtors -- excel at both blocking and tackling and the big flourishes, like the acrobatic, one-handed touchdown catches (in real estate, think, the blow-away photos and marketing literature).

Saturday, March 20, 2010

Intel Science Winners & Real Estate

Good Schools = Buyer Demand (What's New?)

Local San Jose Realtors are running ads in newspapers in China and India telling potential immigrants to “buy a home” in [San Jose's] Lynbrook school district because it produced “two Intel science winners."

--Thomas Friedman, "America's Real Dream Team"; The New York Times (3/21/2010)

Nice piece by Tom Friedman in today's Times, with a real estate angle to boot: immigrant home buyers so value education that San Jose Realtors are promoting a local school district as home to not one but two Intel Science Talent Search finalists.

So, can any Minnesota school districts make that boast?

Not any time recently.

None of the 40 Intel finalists were from Minnesota this year. In 2009, one finalist was from Edina; another finalist last year was from Chaska, and attended Breck, a private school.

Fixing Things on the Way Out (The Door)

"No Time Like the Present"
for Home Repairs

One of the things I've repeatedly seen over the years is Sellers, in preparation for going on the market, finally tackle all the projects they put off while they lived in the home.

Like replacing an especially stained Living Room carpet; refinishing that horribly scratched hardwood floor in the Dining Room; and getting a handyman to fix all the broken sashes in the double-hung windows.

No sooner than all those projects are complete, than the owners will invariably: a) remark how much more pleasant their home is to live in; and b) kick themselves for not having done it earlier, for themselves, rather than for the benefit of the next owners.

So, if you happen to be in this category, here's my advice: fix it -- and enjoy it -- now!

"Bob & Sue Seller??" Better Make That, "Tom & Barb"

Realtor Freudian Slip?

One of the things I do in a Listing Presentation -- basically, a job interview for Realtors -- is give prospective clients a quick overview of the contracts that go into a deal (as a former corporate lawyer, I actually truly enjoy this part!).

Typically, I'll drop in "dummy" names for illustrative purposes, just to flesh out the forms a little bit.

Tired of "John and Jane Doe," without thinking I picked "Bob and Sue Seller."

Oops!

The listing presentation isn't till Monday night, so fortunately I had plenty of time to pick two other names.

P.S. For the record, after almost nine years doing this, I can tell prospective Sellers that my track record avoiding litigation (and arbitration, for that matter) is a perfect 100%!

Snowy Shots in March -- What Gives?

Waiting on Leaves, Not Green Grass

Snowy exterior shots in July are definitely a no-no.

It either means the Realtor is out to lunch, the owner is -- or often, both.

However, snow shots in March --at least in Minnesota -- are another matter.

The holdup isn't that the (now uncovered) grass is brown; that can be colorized.

Rather, all the trees are still bare.

Even another week or two from here makes a big difference, which is why most Realtors (myself included) are waiting a bit longer to update their exterior shots.

(And no, the home pictured in the upper right isn't one of my listings!)

Friday, March 19, 2010

City Lakes Too Crowded? Try a Park Instead

Where: 17xx Morgan Ave. South in Minneapolis' Kenwood neighborhood
What: 4 BR/4BA home with 4,337 FSF built in 1925 (and completely renovated since)
When: listed March 8 (11 days on market)
How much: $1.9 million
Who: listed by Mike Nash and Sherrill Kruse (broker: Edina Realty)

Minneapolis doesn't have a Park or Fifth Avenue, where people who "have arrived" live in glorious penthouses.

Instead, it has lakes -- specifically, Lake of the Isles, Lake Calhoun, Cedar Lake and Lake Harriet.

The homes overlooking these lakes are amongst the nicest in the area, and can (still) easily fetch $3 million or more.

(Note: other city lakes include Lake Nokomis, Lake Hiawatha, Brownie Lake, Wirth Lake, Grass Lake, and Diamond Lake. However, homes on these lakes typically don't trip seven figures.)

The only catch -- besides the price tag and property taxes -- is that such lakeside homes come with lots of traffic, particularly in the summer months when everyone else likes to enjoy the lakes, too.

So, a nice alternative to overlooking a lake is overlooking a park -- like the home pictured above.

The park in question, Kenwood Park, is located just north of Lake of the Isles, and about a mile southwest of downtown Minneapolis.

Oh -- and the glorious grounds in back in back of the home -- including an architect-designd summer home -- are just as impressive as the view in front.

Thursday, March 18, 2010

Realtors, Barbers & "Haircuts"

Is it "Always a Good Time to Buy?"

Never ask a barber if you need a haircut.

--anonymous

Barber's corollary: never waste time on someone who isn't sure they need a haircut.

--Ross Kaplan

So, The New York Times ran a piece last week basically saying that -- surprise, surprise -- Realtors always think "now" is a great time to buy. See, "Great Time to Buy (Famous Last Words)."

No doubt there are some Realtors who do.

But for every Realtor who proffers such advice, there are probably at least three would-be Buyers who don't really know whether they want to buy something -- and are happy to eat up Realtors' valuable time while they decide.

In my experience, Buyers buy when they're ready -- not when their Realtors convince them to.

If it were otherwise, you wouldn't hear so many stories of Realtors spending months (or years) working with "clients" who decided they really didn't want to buy, after all -- or who "just couldn't find what they were looking for" after viewing dozens -- or hundreds -- of homes (effectively, the same thing as deciding not to buy).

Discerning Motivation

Which is why one of the most important things for a Realtor to do is determine Buyer motivation.

In my experience, here's how motivation shakes out:

Real: Job transfer to another city; change in family size (bigger, smaller); newly married (or divorced); change in financial circumstances (worse, better); health/mobility issues.

Not Real: curious about "how much house 'x' can buy"; will buy only if they can get 'y' for their current home; current home needs remodeling or updating that they've been putting off (this can be a real motivation, but just as often it's a red herring -- especially if they've been mulling it over for years).

Market Predictions

"Yeah, yeah," I can hear you say, but, "is it a good time to buy??"

If Warren Buffett, the world's greatest investor, can't forecast short-term stock market moves (he's explicitly said so, many times), I'm not about to forecast short-term moves in the housing market.

And anyone who says otherwise is full of it.

Instead, my standard comeback is, "you tell me what interest rates, GDP, unemployment and inflation are going to be . . . and I'll give you an educated guess about housing prices."

While I can't predict future housing prices, I can (and do) promise to help my Buyers find the best home for their budget and criteria.

Or, if they're Sellers, I promise to help them get the most money that current market conditions allow.

Chainsmoking . . . with Emphysema

Sizing Up Financial Reform To Date*

No, I haven't been commenting on the Lehman Bros. bankruptcy expose, which has been a big deal in the financial blogosphere the last week or so.

Having declined to read the entire 2,000-plus page study, my quick take is that everything people suspected that Lehman did, it actually did -- only worse.

(Make, that people away from Wall Street, where people knew for fact what Lehman was doing, i.e., quarter-end financial engineering, hiding debt, and pervasive Enron-like accounting generally).

Beyond the particulars of Lehman, though, what's my take on financial reform generally, up to and including the (lame) legislation just introduced by lameduck Christopher Dodd?

The newly diagnosed emphysema patient has resumed (chain)smoking.

Except that: a) the patient never really stopped smoking; and b) given all the hacking the last few years, the diagnosis wasn't exactly a surprise.

No, the recovery won't be easy, but an obvious first start would seem to be to switch doctors!!

*That's actually a trick headline; 18 months after the crash, there hasn't been any perceptible financial reform.

Great Service - Exhibit A

"No Problem, I'll Take Care of It"

If you're going to call out examples of especially poor or indifferent service (Sprint vs. Horizon), it seems only fair to recognize instances of superior service.

Which I've previously done on this blog (Catching Mistakes -- Or Not). (Note: it's especially nice when the person or people you cite work for your company!).

The most recent example of exemplary service I encountered was my experience with Kathy Niemczyk at Spartan Promotional Group.

I ordered a couple t-shirts online last week, only to discover after they were delivered that they were a size too small.

I called the phone number on the invoice, and Kathy picked up quickly, the first time.

No annoying phone tree ("press #1 if you are calling about 'x,' press #2 if you are calling about 'y'," etc.), no voicemail, no phone tag.

And no argument or red tape.

Just a very pleasant, "no problem, I'll take care of it." ("I'll take care of it" -- A-h-h-h, those 5 magic words. How often you do hear -- and really believe -- them these days?)

"I'll Take Care of It"

Kathy told me how to return the order, and said she'd check to see if they had the right size.

She called back 30 minutes later to say that they did, and that she would set them aside.

This Saturday, I mailed the original order back.

Tuesday, the replacement arrived (OK, it was local, but that still qualifies as lightning fast!).

Total charge (shipping and handling, re-stocking, etc.) for correcting what was arguably my mistake?

$0.

Hey, Kathy, can we put you in charge of health care reform??

Wednesday, March 17, 2010

Price Opinion -- or "Pot Shot?"

Informed vs. Uninformed Feedback

"Pot shot": a critical remark made in a random or sporadic manner.

--Merriam-Webster Dictionary

As I've blogged previously, experienced Realtors usually welcome feedback from other Realtors (even if they can and should anticipate what it's going to be).

Ultimately, of course, that feedback is shared with the homeowner/client.

Even when a property is overpriced -- make that, especially when a property is overpriced --hearing it directly "from the horse's mouth" (prospective Buyers via their agents) can be more compelling than hearing it from your own agent.

Exception to the Rule

So, when is that not the case?

When the Realtor(s) offering the price opinion don't know the area -- and make their remarks publicly, in front of a large group of other Realtors.

Both those things occurred the other week, at a Realtor meeting in an upper bracket home being hosted by the listing agent (representing the home owner).

As the listing agent (properly) pointed out, for sale homes can get a "rep," just like people do.

All it takes for a perception to take hold that a given home is overpriced is for a relative handful of Realtors to say so.

Even if they don't know what they're talking about . . . .

Twin Cities Market Snapshot -- March, 2010

Today's Buyers: Looking for (Affordable) Cream Puffs

My quick "snapshot" on the Twin Cities housing market as of St. Patrick's Day, 2010?

It continues to be a schizophrenic market, in which the lower end -- defined as under $200k for single family detached -- is selling (too?) briskly, and values are hard to find.

I attribute that to: 1) tax incentives (due to expire April 30) that loom larger for entry-level homes; 2) a preponderance of first-time Buyers unencumbered by existing homes they have to sell; and 3) a pronounced drop in bank foreclosures (down more than 50% locally the last six months).

Meanwhile, upper bracket homes (say, $800k and above) continue to languish, and are being aggressively discounted to move.

Two Contests: Pricing & Beauty

Another phenomenon of this market: Buyers are looking for "cream puff's"; that is, homes in mint -- or at least move-in -- condition that show great . . . and are priced great.

Or as Edina agent Jonathan Spar puts it, would-be Sellers in today's market have to win two contests: a pricing contest, and a beauty contest.

Perhaps that's why I'm seeing more listings that have been sitting, unsold, "re-debut" on the market touting the fact that they are "newly staged" (often with a price reduction, for added "oomph").

That's a tacit acknowledgement that they weren't so beautiful before -- but now they are!

P.S.: sometimes I wonder whether Buyers who fall in love with a home realize that they're buying the home, not the staging!

"Bidding War" Dynamics Shift

Sellers Fret Over Scaring Off Buyers

Interesting tidbit from today's Wall Street Journal (my paraphrase):

Whereas a few years ago the two rival Buyers might have been drawn into competitive bidding, this time the Seller "concluded that the risk of the first Buyer terminating its discussions with the Seller outweighed the benefits" of soliciting an offer from another Buyer.

A would-be home Seller trying not to scare off a prospective Buyer?

Not exactly.

The article, titled "Gap Widens Between Tech Richest and the Rest," discusses Starent Networks Corp. and its decision not to jeopardize an offer on the table from Cisco by soliciting a competing bid from Juniper Networks.

Starent accepted Cisco's $2.9 billion offer last October.

Subtract 5 zeroes, and the foregoing applies pretty well to today's housing market.

Tuesday, March 16, 2010

SuperFreakonomics on Realtors

Still Casting Stones . . . But Now With (Lots of) Caveats

An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today.

—Laurence J. Peter

[Editor's note: to see my rebuttal to Freakonomics, the predecessor to SuperFreakonomics, click here]

So, I finally finished off the (surprisingly short) section on Realtors in SuperFreakonomics.

Two things jumped out at me: 1) the authors, both economists, clearly have bored with attacking Realtors, and have moved on to other, fatter targets; and 2) they still think people who hire Realtors (as opposed to selling their homes themselves) are idiots, but this time they offer a lot of caveats.

Five, to be specific.

Here they are (my commentary follows in italics):

One. Even though Realtors don't do anything you couldn't do -- this seems to be the authors' mantra, by the way -- you still may want to hire one, anyway, if you don't have the time.

I spend anywhere from 40 to 100(!) hours per listing professionally staging my clients' homes, advising on disclosures, putting together professional marketing materials, doing pre-list networking -- and literally 37 other things.

And that's before their homes ever come on the market!

The professionals (and non-professionals) I work for would literally have to take a leave of absence from their day jobs to do what I do. Assuming they knew how.

Which leads to Caveat #2 . . .

Two. "Realtors don't do anything you couldn't do for yourself."

Oh, really? I've been selling real estate for almost 9 years. Before that, I was a corporate attorney and CPA, and have a Stanford economics degree. I have been successfully buying and selling stocks since I was 12 years old, and have started 3 companies.

I say none of that to brag (OK, a little), but to make the point that I'm not a dummy.

And yet every deal I do -- and I've now done about 70 -- I invariably learn something new.

It can be a contractual fine point; a negotiating insight; some arcane feature of a home that comes up on inspection; or even something as simple as "upgrading" to an especially talented, new photographer I heard about through the grapevine (in real estate like other fields, "who you know" can matter as much as "what you know").

The bigger point?

Suggesting that a novice could handle all the phases of a real estate transaction as expertly as a seasoned Realtor can is: a) uninformed; and b) insulting.

How much better?

It depends on the deal, the market, and who the ultimate Buyer is (assuming that I'm the selling, or listing agent).

But industry statistics (and common sense) suggest that the swing between having superior counsel and none at all (or poor counsel) easily exceeds 10%.

Which makes my commission -- substantially less than that -- a bargain.

Three. Madison, Wisconsin -- the market the authors cite as evidence that FSBO ("For Sale by Owner") Sellers do as well as Realtor-assisted ones -- may not be representative (call it the "your mileage may vary" caveat).

Yuh think!?!

Madison is a highly educated, college town with a metro population just over 200,000. It is about as representative of broader America as Manhattan is -- or Hollywood.

Notwithstanding Madison's experience with FSBO's, no other metro area has followed suit.

And even in Madison, FSBO's only account for 26% of home sales. That means almost three-quarters(!) of all homeowners there still list with traditional brokers.

In my experience, if something truly is a "better mousetrap," sooner or later people tend to discover it . . . and switch (assuming they have a choice, i.e., there's no monopoly provider).

Instead, FSBO's are now declining as a percentage of the market place nationally (about 12%).

Four. Self-selection. Or, as the authors put it, "the kind of people who choose to sell their own houses without a Realtor may have a better business head to start with."

At least in my experience, that statement is categorically wrong -- which, ironically, actually supports the authors' argument that FSBO's can do better, net of commission, selling themselves.

From what I've observed, what invariably characterizes FSBO Sellers isn't a "better head for business" -- it's a simple (if uninformed) desire to net more on the sale of their home, coupled with having some "extra time" on their hands (in economic-speak, their perceived "opportunity cost" is low).

Unfortunately, the vast majority of FSBO's don't have a clue as to how to go about doing it.

So, something like 9 out of 10 FSBO's egregiously overprice, while the 10th literally gives their home away (then brags that they "sold without a Realtor").

Which gets to caveat #5 . . .

Five. The authors' data and conclusions may be flawed.

To recap, the authors allege that Realtors selling their own homes (vs. clients') are more patient waiting for a deal, and (therefore) sell for more. They base that conclusion on a study of 100,000 homes sales in suburban Chicago -- 3,000 of which were sold by owner-agents.

Charge #2 is that FSBO Sellers fetch the same price that Realtor-listed homes do -- they just take a little longer (20 days on average) to sell. That's based on the aforementioned study of FSBO Sellers in Madison.

I couldn't find the Chicago study the authors refer to (anyone who knows, please feel free to point me in the right direction).

However, the study of FSBO Sellers in Madison was conducted between 1998 and 2004 -- a Seller's market there (and most of the rest of the country, too).

I doubt that FSBO sellers in Madison today would fare nearly as well.

Meanwhile, the authors' contention that more market time equals higher price contradicts what I've observed over thousands of deals covering the better part of a decade -- namely, the longer a given home is on the market, the lower the selling price. Period.

And that relationship holds whether the Seller is an owner-agent, a FSBO . . . or the man from Mars.

But the most significant weakness in the authors' argument is their assumption that it's possible to isolate differences between Realtor and non-Realtor sold homes by "carefully controlling along several dimensions -- price; house and neighborhood characteristics; time on market; and so on."

Unfortunately, that's notoriously difficult to do in practice.

Precisely to avoid such an "apples-to-oranges" problem, the housing market's leading price index, Case-Shiller, opts in favor of tracking "sale pairs" -- the same home across multiple transactions.

Echoes of Peter Lynch

The arguments in Freakonomics and now SuperFreakonomics ultimately recall Peter Lynch's best-selling book, "One Up on Wall Street," in which Lynch disingenuously tells retail investors -- "Mom & Pop" types -- that they can outsmart the pro's.

How?

By following their spouses and kids to the mall, being the first to notice the hot new, retail trends, then buying the companies positioned to profit.

Unfortunately, for every Apple Computer discovered that way, there are 10 -- or 100 -- "Krispy Kremes" (busts, flame outs, and one-hit wonders).

What Lynch omits is that, in his hey day, he traveled 300-plus days a year, personally talking to senior managers at thousands of companies; checking out their facilities; quizzing their employees and competitors; and relying on a battery of Fidelity analysts to analyze thousands of companies' financial statements.

Level playing field, indeed.

"If You Don't Know Who the Patsy Is . . " *

The authors of Freakonomics (and now SuperFreakonomics) perpetuate the same myth about real estate -- namely, that amateurs who do their homework can outsmart the pro's.

Who ultimately profits from that misconception?

Just as in the stock market, in the housing market the beneficiaries are the pro's on the other side of the transaction.

So, on behalf of Realtors everywhere, I suppose I should say: 'Thank you, Freakonomics!'

*It was Warren Buffet who said, "if you've been playing poker for 30 minutes, and you don't know who the pasty is . . . it's you."

Suicide and Seller Disclosure

Disclosing, But on a "Need to Know" Basis

[Editor's Note: thanks to Henry Brandis, Edina Realty Senior Vice President, for providing background on this post.]

Currently under Minnesota law, home Sellers have no obligation to tell prospective Buyers that a suicide occurred on the premises (originally, there was no disclosure requirement; then there was; now there isn't again).

Yet experienced Realtors will often advise Sellers to disclose that fact, anyways, for two reasons: 1) the Buyer is inevitably going to find out; and 2) given #1, it's better for the Seller to get ahead of the issue, and defuse it.

"Need to Know" Basis

So, what is the preferred strategy?

Given the sensitivity of the subject, the most appropriate way to handle it is to wait until a prospect shows serious interest in the home -- typically, when they do a second showing.

Then, the listing agent will provide the prospective Buyer with an informal but written disclosure, and ask them to initial it.

"New Roof in 1998!"

Real Estate Oxymorons

Well, yes, that "new roof in 1998" would be a selling feature -- if it were 1999 or 2000.

Twelve years later, however, what the listing agent is really telling prospective Buyers is that the roof is now middle-aged (expected life for most roofs is 20-25 years).

In the same category are phrases like "$100,000 in improvements since 2000."

Invariably, most -- if not all -- of the boasted improvements date back to . . . you guessed it . . . 2000 (as opposed to say, last year).

Monday, March 15, 2010

Pledge of Allegiance

Just Wondering . . .

I attended a real estate industry function last week (no, that's not what's pictured at right) where the first order of business -- after breakfast but before the formal presentation -- was to recite the Pledge of Allegiance.

Call it corny, quaint, naive, theistic (yes, the pledge includes the line "under God" -- call the ACLU, whatever).

But the underlying sentiment was unmistakably pure -- and patriotic.

Do you think any Wall Street firms interrupt their breakfasts to recite the Pledge??

Maybe that's the problem (theirs and ours, both).

Sunday, March 14, 2010

Blast from the Past, or, the "Hail Mary" Call

Turning Up the Heat on a (Very) Cold Trail

Once every month or so, I get a voicemail like the one I got today:
"Hi, this is Bob Smith at Smith Realty. I don't know if you remember or not, but you showed my client's home at 123 Elm Street in December(!), when it was $179,900. I don't know if your client is still looking or not, but we just dropped the price today."

While I always admire a hardworking, proactive agent, such calls -- especially at that price point -- are almost always a waste of time.

For one thing, if my client has serious, continuing interest in a listing, the other agent will know well before three-plus months have elapsed.

For another, I've probably shown or previewed several hundred homes since December. Jogging my memory on a December showing is like asking me what I had for lunch last July 17.

Sitting -- For a Reason (or Several)

But perhaps most importantly, three months of market time for a listing under $200k is an eternity -- for both Buyers and Sellers.

While the market for upper bracket homes is sluggish (to say the least), well-priced, well-marketed entry-level homes have been selling briskly, typically in less than 90 days.

That's due both to who's buying them -- first-time Buyers who by definition don't first have to sell -- but also because of the tax incentives available ($8,000 for first-time Buyers, $6,500 for move-up Buyers).

Those numbers loom much larger for homes under $200k than for $600k or $1 million homes.

So, bottom line, the only reason an entry-level home would be sitting in today's market is because of condition, price -- or both.

Which undoubtedly is what my client thought way back in December (I honestly don't recall the home; they subsequently bought something else shortly thereafter).

Oh, and the new price that the listing agent wanted me to know about?

A dramatic drop down to . . . $175,000.

Saturday, March 13, 2010

Open House Sunday 12:30 p.m. - 2:30 p.m.


Gorgeous Fern Hill Colonial

When: Sunday (3/14); 12:30 p.m. to 2:30 p.m.
Where: 4121 W. 28th St (28th & Inglewood Ave. So.), in St. Louis Park's Fern Hill neighborhood
What: 4 Bedrooms (all up), 3 Bath 1937 Colonial with 3,000 square feet
How much: $579,900
Who: listed by Ross Kaplan, Edina Realty City Lakes

This Fern Hill Colonial has a lot going for it: one of the most beautiful Family Rooms I've been in -- at any price point; four Bedrooms up; formal Living and Dining Rooms; and a ton of charm and character throughout.

Oh, yes: and a heated, 3-car garage!

Don't miss the Gazebo in back.

Please call directly (612-925-7701) to set up a private showing if tomorrow doesn't work . . .

More Pressure on Mortgage Interest Deduction?

Strapped Governments
Look for "Honey Pots"


"Because that's where the money is."

--bank robber Willie Sutton, explaining why he targeted banks

For the same reason Willie Sutton robbed banks, financially strapped governments (federal and state) inevitably are going to revisit the home mortgage interest deduction as they seek to close record deficits. (Also getting scrutiny: deductions for state property taxes.)

According to some estimates, doing away with the mortgage interest deduction completely could raise as much as $100 billion in additional revenue annually (read, taxes).

As policymakers try to restrain themselves, though, they should ask: what will that do to housing prices?

Given that the cumulative value of all U.S. housing is something like $16.5 trillion, according to Freddie Mac, even a 1% drop would destroy $165 billion in value, swamping the "benefit" of increased tax revenues.

Even that arguably understates the damage, due to a phenomenon called the "wealth effect" -- basically, economic-speak for people consuming more (or less) as their wealth fluctuates.

So, the ultimate economic hit would likely be a multiple of the $165 billion drop in home prices.

In view of the foregoing, what's far more likely is some combination of a cap on deductions, means testing, and the like.

P.S.: our legal system has a principle, called stare decisis, that requires judges to defer to -- rather than disturb -- established precedent. Literally tens of millions of Americans going back decades have bought homes with the expectation that the mortgage interest deduction would be respected.

If that isn't long-established precedent -- I don't know what is!

Contrarian Real Estate Bet

Which Way Mortgage Rates?

According to a certain (contrarian) school of thought, whatever everyone expects to happen . . . won't.

In the housing market, there seems to be almost universal agreement at the moment that mortgage rates are going to be higher -- perhaps dramatically -- in the second half of 2010 and beyond.

That's based on: 1) the expectation that the Federal Reserve will be removing the foot it has had firmly planted on the mortgage market "scales" the last year, as it purchased $1.2 trillion of mortgage securities on the open market; and 2) concerns about excessive liquidity -- courtesy of the Federal Reserve again -- reviving inflation.

Is everybody wrong?

It wouldn't be the first time . . . (and if they are, you'd guess that Nov. elections might have something to do with it).

Senator Ted Kaufman on Wall Street Reform

"Hard Lines, Not Regulatory Discretion"

Senator Ted Kaufman (D-Del) has a SUPERB analysis, titled "Wall Street Reform That Will Prevent The Next Financial Crisis," detailing exactly what caused the financial system to melt down in 2008 -- and what should be done about it.

Even better: he actually has a say in deciding the latter.

Here's a quick summary of the highlights:

--"Too Big to Fail": too big to fail equals too big to exist. Period.

As Sen. Kaufman notes, dismantling trillion-dollar behemoths is difficult in the best of times -- and impossible in a crisis.

So much for relying on a to-be-created "resolution authority" to step into the breach the next time there is a systemic crisis.

--The "more and better regulation" myth: the financial system melted down not because regulators lacked power, but because they didn't use the power they had. Ergo, giving them more power, now, isn't the solution.

Here is Sen. Kaufman's especially damning indictment of regulators:

The regulators sat idly by as our financial institutions bulked up on short-term debt to finance large inventories of collateralized debt obligations backed by subprime loans and leveraged loans that financed speculative buyouts in the corporate sector.

They could have sounded the alarm bells and restricted this behavior, but they did not. They could have raised capital requirements, but instead farmed out this function to credit rating agencies and the banks themselves. They could have imposed consumer-related protections sooner and to a greater degree, but they did not. The sad reality is that regulators had substantial powers, but chose to abdicate their responsibilities.

What is more, regulators are almost completely dependent on the information, analysis and evidence as presented to them by those with whom they are charged with regulating. Last year, former Federal Reserve Chairman Alan Greenspan, once the paragon of laissez faire capitalism, stated that “it is clear that the levels of complexity to which market practitioners, at the height of their euphoria, carried risk management techniques and risk-product design were too much for even the most sophisticated market players to handle properly and prudently.”

I submit that if these institutions that employ such techniques are too complex to manage, then they are surely too complex to regulate.

--Sen. Ted Kaufman

Add Senator Kaufman to the (short) list of public officials -- led by Paul Volcker -- who "get it" when it comes to reforming Wall Street and the financial system.

Friday, March 12, 2010

WSJ headline: 'Americans Pare Down Debt'

So THAT's What *Lehman Bros. Did

If all you did was skim The Wall Street Journal's headlines today, you could be mistaken for thinking that the average American's financial health was improving -- sort of like a dieter finally losing those pesky, excess pounds.

The reality is a bit different.

As the Journal article makes clear a couple paragraphs in, the reason household debt is falling dramatically at the moment isn't because consumers are taking out less debt, or repaying what they owe. Rather, it's because they're filing bankruptcy and defaulting, in record numbers, on their mortgages.

If that's nuance (spin?), so is the difference between successfully completing Weight Watchers and having your stomach stapled.

Or having no food to eat (the "ultimate diet," or what used to be called "starving").

*If you didn't know (or already forgot), Lehman Bros. filed for bankruptcy -- the largest in U.S. history -- in September, 2008.

HAFA, HAMP, MHA . . . . Huh??

New Program to Streamline Short Sales Debuts April 5

HAMP: Home Affordable Modification Program
HAFA: Home Affordable Foreclosure Alternatives
RASS: Request for Approval of a Short Sale
SSA: Short Sale Agreement
MHA: Making Homes Affordable Program

As far as I know, "Huh" isn't an acronmyn for anything -- yet.

But all the other acronyms are for real.

Beginning April 5, the Obama administration is rolling out its latest program to help especially distressed housing markets.

Called HAFA, for "Home Affordable Foreclosure Alternatives," the (voluntary) program seeks to streamline short sales by dangling various financial carrots in front of lenders.

In exchange, the lenders agree to forego deficiency judgments (the difference between the mortgage balance and what they're actually re-paid), and to expedite their short sale response times.

From 120 Days to . . 10?

So, for example, instead of taking 3-4 months to respond to offers on short sale properties now, lenders participating in HAFA agree to respond in less than 10 days.

But what will their answer be?

One can imagine overwhelmed, bureaucratic banks, facing the new deadline, simply saying "no" when they're out of time to respond.

P.S.: 'HAFA . . . HAMP . . . Hut!" -- also sounds like Brett Favre at the line of scrimmage.

Strategic Default Like Pre-'70's Divorce?

From Stigma to "the Norm"

I was at an industry conference yesterday where the speaker compared "strategic default" -- making a business decision to walk away from an "underwater" mortgage -- to society's notion of divorce up until the 1970's.

Back then, relatively few people divorced, so there was a stigma attached to it.

Fast forward a couple decades, when more than half of all marriages end in divorce.

Voila! No more stigma.

Similarly, "strategic default" is a big deal -- until everybody does it.

With millions of homeowners deeply underwater in markets like Las Vegas, Southern California, and Arizona, you'd guess that a similar evolution is in store for the housing market.

And yes, if enough people strategically default, you'd expect the lending rules to change: the same speaker speculated that FHA will face pressure to reduce its "rehabilitation period" for defaulting borrowers from the current 7 years to 3 years.

Home Buyer Tax Credits -- The Sequel

What Happens May 1 (and Beyond)?

The word amongst Realtors is that the tax credits for home Buyers -- $8,000 for first-time Buyers, $6,500 for move-up -- is a dud.

Unlike the first round of incentives which expired Nov. 30, the sequel -- scheduled to expire April 30 -- does not appear to be catalyzing a major surge in purchases, especially in the lower price brackets.

That said, lots of eyes are focused on May housing activity, to discern signs that the cumulative incentives effectively "sold forward" housing activity, with the result that the second half of 2010 will experience a (more) pronounced drop-off.

And, no, unlike last Fall, there does not appear to be an extension in the cards . . .

Thursday, March 11, 2010

Market Activity By Price Point

If a picture is worth a thousand words, take a look at the third slide in the presentation below:


The takeaway? Twin Cities housing sales over the last 12 months are correlated almost 100% with price point.

In other words, the lower the better -- and "upper, upper bracket" is the worst .. .

Real Estate & the "Miley Cyrus Factor"

"30 Under 30?"
How About "50 Over 50??"

The overwhelming question that arises from the 82nd Annual Academy Awards goes like this: what level of respect should we accord to an industry that finds a place onstage for Miley Cyrus, but not for Lauren Bacall?

Resplendent and omniscient, sat Ms. Bacall, long since blessed with a place among the gods, on the empyrean heights of movie history, yet consigned, for the purposes of Sunday night, with a lowly place in the stalls.

When her name was announced, she stood and waved, like the Queen, and was pleased to note that her subjects rose to pay appropriate homage; but she was forbidden, nonetheless, to mount the sacred stairs, where Miley had gone before.

--Anthony Lane, "The Anxiety of Age"; The New Yorker (3/8/10)

"Ageism" may be most pronounced in Hollywood, but it's also abundantly evident in other professions, too.

Like real estate.

To take just one example, Realtor magazine has an annual piece called "30 under 30," that features 30 up-and-coming Realtors nationally under the age of -- you guessed it -- 30 years old.

How about celebrating some of the more "mature" members of the profession?

Dear Realtor magazine -- here's a thought: how about an annual feature called "50 over 50?"

After you're done profiling me, you just need to find 49 more Realtors over 50 (I now make the cut by 3 months).

P.S.: At least in my opinion, it's easier to teach an "older" Realtor how to use Facebook, Twitter, instant messaging, etc. than to impart judgement and experience to a "newbie" Realtor.

Biggest Source of Housing Fraud?

Extending Buyers a Helping Hand (& Leg & Arm)

(One more) pop quiz: what's the biggest source of fraud in today's housing market?

A. Inflated appraisals
B. Seller downpayment "gifts" to their Buyers
C. Borrowers falsifying data -- including income --on their mortgage applications
D. Shaky mortgages bundled into securitized debt and re-sold to investors

Answer: B.

Think of it as "seller-paid points on steroids."

Paying points -- the Seller contributing up to 3% towards the Buyer's closing costs -- is a common feature of today's buyer's market; as long as the lender knows about it, it's perfectly legitimate.

Unfortunately, it appears that many home Buyers need more help than that -- and at least some Sellers, eager to consummate a transaction, are obliging.

The catch is that lenders forbade such "gifts," for a couple reasons: notwithstanding appearances, such Buyers have little or no "skin" in the game; Seller gifts can mask Buyer credit risks; and such gifts effectively inflate the value of the home being sold, which serves as the bank's collateral if the Buyer defaults.

To crack down on the practice, lenders are stepping up their documentation requirements, big-time.

Thanks to Steve Mohabir, City Lakes' resident mortgage expert, for providing background on this post.

Wednesday, March 10, 2010

Comparing the U.S. and Iceland

Quick Quiz: Who Said It? (Keep Reading)

[Almost two years after the financial melt-down] precious little has changed about Wall Street's massive gravitational pull in the U.S. and the world.

Our banks are still too big to fail, their boards are still poorly composed, we have no Consumer Financial Protection Agency, no systemic regulator, no resolution authority, and no reform of mortgage securitization or ratings agencies, two of the institutions that most enabled the crisis to occur.

We've been distracted from the task of preventing another crisis from happening by the task of minimizing the current one, and as a result, we've done neither, while allowing our other domestic problems to snowball.

My sentiments -- and many others' -- exactly (sadly).

So, in which lefty, rabble-rousing rag did the above quote appear?

A. Mother Jones
B. The Nation
C. Rolling Stone
D. Fortune

Answer: D.

And just in case you didn't know, Fortune magazine is about as left-wing as Dwight D. Eisenhower (make that Ronald Reagan).

The excerpt above is from an article titled, "Welcome to the United States of Iceland."

From Gunslinging to Data Slinging

Still Working on My "Draw"

While I break in my new Smart phone, I'm temporarily carrying around my old one, too.

So, for the time being, I've got smart phones holstered on either hip.

Fortunately, whereas gun slingers slow on the draw . . . got killed -- I just miss a phone call (Phew!).

Oh, Yeah: There's a House, Too

Where: 28xx Benton Blvd.
What: 4BR/3BA home with 3,400 FSF; built in 1921
How much: asking price $1.050M
When: originally listed July 20, 2009
Who: listed by Coldwell Banker Burnet

Normally, the land underneath a home accounts for one-quarter to one-third of a home's tax assessed value.

So, for a home worth $300k, the land would likely be valued at $75k - $100k.

And then there's this home, set on an almost one acre lot backing up to the Kenilworth Channel (connecting Cedar Lake and Lake of the Isles, southwest of downtown Minneapolis):

Land value: $819k
Building value: $214k
Total tax assessed value: $1.033M

If there's a (habitable) home in the Twin Cities with a higher land-to-building ratio . . . I'm not personally aware of it.

Tuesday, March 9, 2010

Sprint vs. Verizon


Great Customer Service -- Not

So, after a month of research ("Smart Phone Overload"), I finally picked a carrier (Sprint) and a model (Samsung Moment, pictured above).

While there were many factors, including the proximity of the Sprint store to my office; varying corporate discounts; competing monthly plans and features, etc., the clincher was my experience with the Verizon sales rep assigned to Edina Realty.

I called at the beginning of last week to ask a few questions, and got the sales rep's voicemail.

At the end of the week, I got a voicemail message in response, which I quickly returned.

And that was it from them. Nada.

Not another voicemail, not an email -- nothing.

If that's how much attention I get as a prospective customer . . . I'm not waiting around to see how well I'll be treated once I've committed!

"The C.O.D. Society?"

In G.O.D. ("Gold on Delivery") We Trust

What happens in a tough economy where more people are paying their bills late (and some, not at all)?

Creditors start insisting on being paid upfront.

I don't know about other fields, but for Realtors, "C.O.D." seems to be the order of the day -- and has been for about a year now.

So, instead of letting Realtors charge their marketing expenses, then deducting the accumulated balance against future commission checks, the brokers are invoicing Realtors monthly.

For the full balance owed.

"Pay As You Go"

Why?

That next commission check may be a ways off.

And certainly, some Realtors have gotten so deep in the hole on their expense accounts that they simply quit the business, leaving their Broker with a big -- and noncollectable -- balance.

The local Board of Realtors now seems to have adopted a C.O.D. policy regarding member dues as well.

Instead of billing Realtors through their broker, starting April 1 the Minneapolis Area Association of Realtors ("MAAR") will now invoice Realtors directly.

While that's certainly a more transparent way of doing things, you'd guess it also shines a brighter --and faster -- spotlight on delinquent balances. (Coming next: mandatory automatic debits??)

C.O.D. Writ Large

Of course, the ultimate COD policy is at the level of international trade.

As various sovereign debts start to reach nosebleed levels, creditors naturally look for ways to hedge their risk.

Unfortunately, the various currency hedges -- synthetic and otherwise -- favored by traders and speculators alike ultimately suffer from the same defect: they pay off in fiat (paper) currency.

Structured finance expert Janet Tavakoli assesses the problem thusly:

Credit derivatives now settle in euros -- after all, if the U.S. defaults, who will want payment in devalued U.S. dollars? However, with the euro now weakening relative to the dollar, market participants are calling for contracts that require payment in gold.

This is so ripe for speculative manipulation that you might as well cover the U.S. map with a bull’s-eye.

--Janet Tavakoli, "Washington Must Ban U.S. Credit Derivatives as Traders Demand Gold"; The Huffington Post (3/8/2010)

Need the foregoing translated?

The ultimate pay-as-you-go customer potentially is . . . the U.S. government.