"TNAS" or "PNAS?"

Is Six Months "Temporary"?

I tripped across this Minnetonka home in the course of doing a CMA ("Comparative Market Analysis") for an upcoming listing.

Originally listed on June 28 last Summer, it was switched to "TNAS" ("Temporarily Not Available for Showing") five days later -- and has remained there ever since.

Maybe that should now be "Permanently Not Available for Showing."

What appears to be going on (or not) is that the Seller is an owner-agent, and is relying on the For Sale sign -- on busy Hopkins Crossroad -- to generate drive-by interest (there's no indication on the sign that the home is "temporarily" not available for showing).

While that limits the home's marketing exposure, it also reduces the odds that the owner-agent will have to share any sales commission with a Buyer's agent.

How "Temporary" is Temporary?

Of course, that's not how TNAS is supposed to be used.

Rather, that status is intended for short-term situations like a home repair; family illness, hosting guests, or some other occasion that interferes with showings; or even a Buyer's inspection.

However, the reality is that if no one complains about a listed home being TNAS indefinitely, there's no reportable offense.

Between the lines, you'd infer that there hasn't been a ton of interest in this home.

In fact, the literature box in front is empty, and the current asking price (per a neighbor) apparently is $199,900, not the $225,000 listed on MLS.

P.S.: The most obscure MLS status? That would be "COMP."

Commonly thought to be a truncated "Comparable," it actually stands for "Came on Market Pending."

That can happen when a deal is done privately, but one of the parties is a Realtor, and wants marketing credit on MLS (as does their broker).

Why I Don't Price Other Realtors' Listings

Real Estate's "Heisenberg Uncertainty Principle"

The observer influences the thing observed.

--Heisenberg uncertainty principle

It seems self-explanatory, but as a principle, I don't price other Realtors' listings.

The issue usually comes up when I do a listing presentation -- essentially, a job interview for Realtors.

In the course of interviewing Realtors, homeowners (and prospective Sellers) naturally want to know how you'll market their home; your qualifications; and what their home is worth.

While I always come to listing presentations armed with the latest, nearby market activity (and am happy to offer a ballpark range), I decline to name a specific price until the homeowner commits to using me as their Realtor.

Rationale

There are four reasons why I take that stance.

One. Time.

Carefully pricing a home (vs. haphazardly) takes a great deal of due diligence.

At least for me, the steps include: identifying and analyzing the Comp's (Comparable Sold Properties); learning the history and condition of the client's home (vs. taking the 10 minute tour after first arriving); previewing the Active listings that the client's home will be competing against; identifying any Pending homes similar to the client's home and estimating what their likely Sold price is; and pouring all the foregoing into a CMA, or Comparative Market Analysis, then crunching the related numbers.

All of the foregoing takes . . . time. Done properly and well, lots of time.

As a Realtor, the two things I ultimately have to sell are my time and expertise.

If I spent undue amounts of time working for non-clients, my actual clients will suffer.

That hardly seems fair to them.

And spending the requisite 6-8 hours carefully pricing a home that another Realtor is ultimately going to list isn't fair . . . to me!

So, I don't invest that time . . until I'm hired.

Two. My price for any given home isn't a fixed number.

Rather, it depends not a little bit on the homeowner themselves.

So, do they need/want to sell quickly, or can they be patient waiting for an offer?

Can the home benefit from staging, strategic updating, etc. , and if so, is the client willing and able to do it?

Does the client want to price aggressively -- and take the risk that goes along with that -- or do they want to price more conservatively?

And so on, and so on.

Three. My price may not be the same as another Realtor's (call this phenomenon "Real Estate's Heisenberg Uncertainly Principle").

Whereas homeowners tend to think of their home as having a fixed, objective value, Realtors (and anyone who knows marketing) understand that the actual price is a range -- a fluid range that is influenced by the skill of the professional(s) involved in the sale.

A home that is optimally staged and photographed, then aggressively and expertly marketed by an excellent Realtor at a top-flight Broker is likely to sell for one price; a home where a less-talented and motivated Realtor simply shows up, gets the requisite signatures, then puts a "For Sale" sign in the front lawn, is likely to fetch . . . another price altogether.

Four. "Buying the Listing."

The last reason I won't casually price a home is because I don't want to get caught up in what Realtors call "buying a listing."

Pretty much what it sounds like, the practice consists of appealing to a homeowner's vanity (or ignorance) by throwing out an unrealistically high price for their home, and thereby beating other Realtors' "bids."

With the listing secured, the Realtor then focuses on getting a price reduction -- or several of them -- when the home proves unsaleable at the quoted price.

Bidding wars are great for Sellers, but not so great for Buyers.

That's true for Realtors, too.

As a prospective listing agent in an already tough market, the last thing I want to do is get into a Realtor bidding war to list what is certain to be an overpriced home.

P.S.: For the record, when prospective home Sellers interview both me and another Realtor . . . they hire me the vast majority of the time.

Fellow Realtors: (Usually) Friendly Rivals

Realtor Karma & Behind-the-Scenes Cooperation

Even though there are a couple thousand attorneys in the Twin Cities, only a fraction of them are direct competitors.

That's because lawyers' practice areas are increasingly specialized (corporate, personal injury, intellectual property, etc.). In fact, even those practice areas divide into multiple sub-specialities.

The same specialization is generally not true of local Realtors.

So, out of a couple thousand (plus!) local Realtors, hypothetically, your competition for that next listing could be . . . . a couple thousand local Realtors.

Such a hyper-competitive environment could certainly make for lots of nasty rivalry, backstabbing, and otherwise "bad behavior." And some of that definitely goes on (ask any office manager).

But in general, "relations" between Realtors are surprisingly collegial and professional.

Real-Life Examples

To pick just two examples:

In the course of doing a CMA ("Comparative Market Analysis"), it's common for Realtors to ask fellow Realtors about the features of a home they recently sold -- usually, to explain an otherwise puzzling premium or discount.

I have been on both the originating and receiving end of such calls many times.

Example #2 occurred just this week.

I'm currently representing a Buyer who's purchasing a townhome in a larger development in the west suburbs.

The inspection is Thursday, and my client wanted to know if he should pay extra for a radon test. Radon is an invisible gas caused by decomposing soil and rocks, and is a health threat at elevated levels (generally defined as over 4.0 picoliters per million).

From previous deals, I know that the incidence of radon is highly localized: one neighborhood can have an issue, and another a mile away, not.

Who to ask?

It turns out that one Realtor in particular handles a big chunk of the transactions in the complex.

So, I called him.

"Nope, not an issue," he helpfully volunteered.

The handful of tests that have been performed all passed with flying colors, he told me.

Done!

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).

Like:

"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.

"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%.

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!

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.

How Big a Premium for Small Lakefront?

The Art of Doing Comp's

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

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

Puzzle Pieces

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

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

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

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

And so on and so on.

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

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

Permutations & Interpolation

So what to do?

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

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

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

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

Conclusion

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

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

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

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

"Bracketing," explained

The Goldilocks Approach to Appraisals

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

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

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

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

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

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

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