My New Favorite Neighborhood

Real Estate Guessing Game

OK, which Twin Cities neighborhood am I describing?

--It's in Edina, east of Highway 100;
--With its blend of rolling hills, wetlands, and manor-like homes on big lots (rules out Country Club), it feels like Minnetonka;
--It's an easy, five minute walk to both the Convention Grill and 50th & France.

Give up?

Edina's White Oaks neighborhood.

With all of 60 homes and its tucked-away location and numerous cul-de-sac's, it can be easy to miss.

However, once you've found it -- it's a revelation.

P.S.: the home pictured above, 4703 Townes Road, is one of the most impressive homes I've seen in White Oaks -- or anywhere else in the Twin Cities.

The listing agent is Edina Realty's Sue Wahman; it will be on the market after Labor Day. Asking price is $2.849 million.

Housing Market "Beached Whales"

What's Wrong With This Picture?

You don't know who's swimming naked until the tide runs out.

--Warren Buffett

So, what's wrong with this Minnetonka home (pictured above)?

That is, besides that fact that the front (and most important) photo on MLS looks like the home is stuck in a winter time warp, and it's now almost May.

Actually, nothing.

I just showed the home, and it's very impressive.

Great floor plan; open, spacious Kitchen; great owner's suite (and three more bedrooms up).

So what is it, then?

The rest of the block.

Whereas this home, built in 2006, is selling for $649.9k, all the other homes on the block are easily 50 years older, less than half the size, and worth hundreds of thousands less.

As the locals say, "uff da!"

Housing Market Time Machine

What happened?

This home -- and hundreds of other homes like it in the Twin Cities -- was built in 2006 at the height of the market.

At the time, homes were appreciating 15% annually, and the sky was a(n almost) cloudless blue.

Developers were getting ever-more aggressive putting up "spec" homes, venturing from "sure bet" neighborhoods to ones (like this one) where prevailing home prices were dramatically lower and nothing had turned over yet.

Their thinking, no doubt, was that the whole block was a candidate for redevelopment, and that their smart, new home would soon be surrounded by other, similar homes.

But then all of a sudden . . . the tide went out.

For now, this is the only new home on the block.

From the street, it's hard to escape the image of a beached whale, now stranded a long way from the receding ocean.

"Out of Bounds" Showing Directions

Showing Directions as
Marketing Strategy

One of the most famous lines in sales is "always be closing" ("ABC").

Less well-known -- but equally important -- is "always be marketing."

I was reminded of that yesterday when I was showing homes to Buyers yesterday in the West suburbs.

"Out of Bounds" Showing Directions

Prior to meeting clients to tour "For Sale" homes, Realtors will typically print a map with all the homes they'll be visiting.

However, once the Realtor gets close to a particular home, it's common to consult the MLS listing info and follow the listing agent's directions.

Which I did.

About halfway through my (especially scenic) drive through Cedar Pass -- a newer, upper bracket neighborhood in Minnetonka -- I realized what the listing agent was up to.

On the west side of the "For Sale" home -- the more convenient and closer approach -- is a neighborhood of older, more modest homes.

On the east side is Cedar Pass.

Best foot forward, indeed.

P.S.: And no, I don't think such a tactic is out-of-bounds (pun intended); it's actually very good marketing!

Now that's a Discount!

Was: $1.5 Million; Now: $599k

Where: 142xx Trace Ridge Road in Minnetonka, just west of 484

What: 4 BR/5 BA with 4,650 square feet on a .79 acre lot

How (much): list price is $599k

When: originally listed at $1.5 million in 2005

Who: co-listed by Mark Jelinek and Michael Mohs of Edina Realty (Mark is a colleague in the City Lakes office)

There may be a home on the market in the Twin Cities that's listed at a lower percentage of its tax assessed value (47%) or at a deeper discount from its original asking price (more than 60% off) -- but I'm not personally aware of it.

Two caveats for prospective Buyers:

One. It's a short sale. That means one or more banks have to agree to reduce the mortgage(s) on the home.

Short sales can be a long shot (sorry, bad pun), but if the listing agent has lots of experience dealing with them (Mark does) . . . the odds go up considerably.

Two. At least until a lower purchase price knocks down the annual property taxes, the current tax bill is a whopper (over $16k, about double what would typically go with a $600k house).

New Trader Joe's in Minnetonka: Retail Home Run

Just checked out the new Trader Joe's in Minnetonka, located just northwest of 394 and Hopkins Crossroads. The store opened last Fri. (Nov. 6).

Quick first impressions:

1. It's huge. In fact, my cashier said that it's supposed to be the 2nd biggest of 300 Trader Joe's nationally.

2. There's ample parking (makes a big difference if there's not, like at the St. Louis Park location).

3. It's going to be a boon for the surrounding (strip) shopping center and residential neighborhoods.

I've got a client looking in the area now, who perked up when I mentioned that there was now a Trader Joe's in the neighborhood.

Three other clients who have bought homes from me nearby are also thrilled.

Chris Snowbeck on Price Reductions

Twin Cities Motivated Sellers

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

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

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

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

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

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

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

What's a "Preview"?

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

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

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

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

One. It saves me time.

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

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

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

Four bedrooms up? Check.

Bigger, updated Kitchen? Check.

Relatively modern, open floor plan? Check.

And so on.

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

Best of Class

Two. It saves my clients time.

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

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

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

Oak Ridge Foreclosure

Want Your Own Private Skyway?*

Where: 96xx Oak Ridge Trail in Minnetonka
What: 5 BR/4 Bath, 3,800 FSF contemporary on .5 acre lot
How much: $325,900 (asking price)
Tax value: $710,700

This sprawling, bank-owned contemporary (read, foreclosure) in Oak Ridge Trails seems like a screaming bargain. Until you go in.

While it appears (to me) to be structurally sound, everything else needs repair or replacement: the Kitchen, baths, flooring, siding, pool -- and, most ominously of all, the windows. Acres and acres of custom, deteriorating windows.

Like so many foreclosures, the asking price doesn't reflect the home's actual cost, but rather the price of admission; the ultimate Buyer will easily put more than that into fix-up.

Assuming they tackle it.

Given the surrounding, upscale neighborhood and very unusual floor plan -- although the home is listed as 5 BR, functionally, it feels like 2 -- it may very well be a tear-down.

*Although it's obscured by the tree in the photo, there is a second level walkway connecting the two "halves" of this home.

"Top-Heavy" Inventory

Jumbo Prices, Jumbo Selection

I'm not a big wine drinker, but I've always believed that wine prices were characterized by a "law of diminishing returns."

In other words, while an average $8 bottle might be twice as good as an average $4 bottle, a $16 bottle probably isn't twice as good as $8 -- and $32 almost certainly isn't twice as good as $16 (I'm sure there are many wine aficionado's who would beg to differ).

Today's housing market seems to be characterized by the opposite phenomenon.

That is, the higher up you go, the better value you find. (see also, "$1 Million Buys a Lot of Home - Again").

$500k as Dividing Line

So, to go back to my wine example, at the moment a $750k house seems to offers more than twice the value as $375k, and $1.5M offers more than twice the value as $750k.

Just to confirm my own, very unscientific "gut sense" about today's housing supply, I ran a search segmenting housing supply by $100k intervals up to $500k, with everything over that lumped together.

I chose $500k because that's effectively the break point between homes that can be purchased with conventional financing (under $417k), putting 20% down, vs. jumbo loans, which are more expensive and difficult to obtain.

For my search area, I chose a broad swath of Minneapolis and close-in west suburbs; the boundaries were roughly Highway 55 on the north, Minneapolis' city lakes on the east, 494 on the south, and between 494 and 169 on the west. That pulled up 866 single-family listings, including homes in Minneapolis and parts of Golden Valley, St. Louis Park, Hopkins, Minnetonka, and Edina.

Here's the distribution I found:

Single family homes under $100k: 4

$100-$200k: 71

$200k-$300k: 212

$300k-$400k: 144

$400k-$500k: 92

over $500k: 343

What are the implications of this?

If you're a Buyer, and you can afford to move up in price, you'll avail yourself of a much greater selection -- and presumably, softer prices.

If you're a Seller with a more expensive home . . . you have lots of competition.

To stand out, you'll need to out-stage, out-market -- and yes, out-price -- your peers.