Year-End Pick-Up in Activity

The Limits of Statistics
in Valuing Homes

It's only Wednesday, and I've already fielded three calls this week from appraisers wanting "scoop" on recent, closed sales that I've handled.

A year-end pick-up in deals?

Well, that, too.

However, in each case the appraiser was working on a refinancing application.

To approve the new loan, the lender needed to establish current market value, which in turn means performing an appraisal and identifying/analyzing the Comp's -- just like they would for a sale.

The fact that appraisers need to talk to actual, live Realtors -- who can fill them in on floor plans, updates (or not), and other home features not otherwise captured in statistics -- should give anyone relying on Trulia, Zillow, etc. for home values pause.

P.S.: Time permitting, I'm happy to talk to appraisers. Often times, something I know can be the difference between a deal (or refinancing) happening -- or not.

In an environment where banks are looking for any excuse to shoot down a deal, as a plugged-in, on-the-ground expert, I'm ideally positioned to serve as a counter-balance.

Of course, a healthier, more active market benefits everyone.

Why Do Sellers Misprice?

Lack of Information & Objectivity

Not all Home Sellers misprice -- or would if their Realtor didn't convince them not to -- but enough do that it begs the question: why?

From my perspective, it's usually a combination of three factors (none of which involve vanity or ego).

One. Lack of information (about the Comp's, or comparable sold properties).

A client of mine last year was adamant that his home was worth more than another on his block that had sold for $40,000 more than I recommended pricing his at.

So I asked him, "Did you see your neighbor's updated Kitchen? The new master bathroom? All the new windows in the back of the house?

Answers: 'no,' 'no,' and 'no' -- he'd never been inside. (Memo to fans of Trulia, Zillow, CyberHomes, etc.: they suffer from the same shortcomings.)

Two. Lack of objectivity.

This one especially comes up with homeowners who haven't moved in a long time.

Anything you look at day after day -- let alone year after year -- gradually becomes . . . invisible.

Once upon a time, when I lived in Manhattan, I had a 35th floor apartment with sweeping views of upper Broadway and the Hudson (at least until a developer put up a new, 50 story building across the street).

Yet after a few months, the only time I really noticed it anymore was when guests would visit and be mesmerized by the view.

Or, after I'd been away for longer than a week and returned, the views once again registered for a few days, before turning back into wallpaper (albeit very attractive wallpaper).

The same phenomenon explains my initial meeting with a client a ways back, as we toured her home.

When we got to the master bedroom, I pointed out a conspicuous stain in the ceiling that I recommended fixing.

"What stain?" was her first, incredulous (and honest) response.

Then a second later: 'Oh, that stain . . .'

(Sidebar: the one exception to becoming inured to one's everyday environment: natural light. At least in my experience, you never get tired of natural light -- or used to its absence.)

Three. Lack of information -- about Buyer tastes, market trends, etc.

Another recent client of mine took umbrage at the (rather deafening) chorus of feedback all zeroing in on the home's dated feel.

The windows, the carpet, the Kitchen counter tops, the color scheme, the home's siding -- and on and on.

The owner had spent good money periodically updating those things and keeping them in good repair, but after 30 years in their home, they simply weren't able to relate to Buyers' comments.

Which leaves it to a Realtor they trust to (gently) tell them -- ideally, before they come on the market.

THAT Sure Went Fast (Too Fast??)

"Now You See it . . .
Now You Don't"

In a post last month, I posed the question, "Did the Seller Leave Money on the Table? Four Ways to Tell."

That post came to mind as I scanned the particulars of 2900 Chowen Ave. South, which came on MLS this afternoon -- I'm not kidding -- as "Active" at 1:45 p.m.; was switched to "Pending" at 1:47 p.m.; then was switched from "Pending" to "Closed" at 1:49 p.m.

Total elapsed time?

Four minutes.

Sale Postmortem

Well, at least other Buyers (and their agents) had a "heads up" that 2900 Chowen was coming on the market, right?

Wrong.

I can only speak for myself -- but I live 2 blocks away, have sold over a dozen properties worth $6 million-plus within a mile, and have an extensive local network of contacts.

And I didn't hear a peep.

OK, so at least the Seller got a good price, right?

Draw your own conclusion, but the asking price was $200,000, and the selling price was $150,000. (As a percentage of market time, that just might be the world's biggest price reduction --ever.)

That compares with a tax assessed value for just the land of $196,700.

Oh . . . and a couple doors down, the lot at 2822 Chowen is now "Pending." List price: $285k -- for a lot that is 21% smaller than 2900 Chowen (6,050 square feet vs. 7,623).

Single Agent Dual Agency: Exhibit A

OK, well at least the Seller's agent negotiated hard for them, right?

Hard to say, because the Seller's agent . . . . was also the Buyer's agent.

Called "single agent dual agency," such deals are notorious for conflicts of interest.

If you're keeping track, that's 4-for-4 on my "four ways to tell" if the Seller left money on the table.

As I say . . . draw your own conclusions.

P.S.: So guess what 2900 Chowen is worth according to Zillow? (Called a "zestimate")

Give up?

Try, $406k.

"Know Your Customer" Rule -- Real Estate Version

Googling (Facebooking? Zillow-ing?)

Your Buyer/Seller

Financial institutions are subject to something called the "Know Your Customer" rule, to prevent identity theft fraud, money laundering and terrorist financing.

I'm starting to think that real estate has something equivalent, called the "Know Your Buyer (or Seller)" rule.

By that, I mean that I'm increasingly seeing clients "Google" -- not to mention "Facebook" (is that a verb yet?) -- their transaction counterparts to glean important, personal tidbits.

Like, what kind of job do they have?

Where are they from?

Where do they currently live -- and what's it worth?

I haven't encountered the following yet, but I'm sure it's just a matter of time: "They're only offering $X for my house!?! But he/she just made partner!!"

Misgivings -- and Misinformation

The trend is clearly accelerating, so it hardly matters that I have misgivings about it.

But I do -- two, in particular.

One. It feels voyeuristic and intrusive.

OK, it is voyeuristic and intrusive.

But I suppose that's precisely what's driving the exponential growth in social networking sites generally.

If you don't want your personal information out there, don't participate -- or, take steps to safeguard it.

Two. Publicly available information yields only a partial -- if not misleading -- picture of someone's finances.

As I've blogged before ("Taking Trulia for a Spin", "Automated Valuations on CyberHomes, Zillow, etc.), third party Web sites are notoriously unreliable when it comes to appraising homes.

They rely on stale tax data; don't know the interior of a home (floor plan, aesthetics, etc.); and are clueless about things like updates (or not), additions (or not), and local price trends.

Even if they were spot on, they still don't tell you what someone owes on their home -- or what they have in their bank account.

Plenty of people who look flush are actually maxed out, living on their credit cards; conversely, others without big jobs, homes, and cars have perfect credit scores and can borrow whatever they want. Or can pay cash.

Which is why, ultimately, all the personal info in the world matters much less than what a lender, vetting an actual Buyer, has to say.

For now, at least to a Realtor, the rest is just (occasionally titillating) noise.

Back in (Realtor) Fashion: Ties, Sport Coats & Scarves

Realtor Dress Code Upgrade?

No, I'm not seeing any Realtors don formal wear (like tuxedo's) just yet.

But there do seem to be more men wearing ties and sports coats lately, and women wearing fancy scarves and the like.

What's going on?

"Dress for Success"

I'd guess a couple things:

--Older, more established Realtors are reacting to the "grunge" look infiltrating the new, younger ranks of Realtors.

--In a rough real estate market, it's a self-esteem thing: if you look more professional, you feel more professional -- and clients perceive you that way.

--With the proliferation of online real estate information such as Zillow, Trulia, etc., there's a (mistaken) impression that Realtors no longer add value, or are simply "middlemen" who can be cut out (you can, of course, but you're almost certainly going to end up worse off than if you enlisted a skilled Realtor's help -- and by more than the 6% or 7% you're going to "save").

Dressing professionally helps rebut that conception.

--More competition. In a slow market, especially for upper bracket homes, there are more Realtors chasing fewer listings. Long before prospective clients check out your references or track record, they form an opinion of you based on your appearance.

Looking in the Mirror

That's always been the case, of course.

However, clients contemplating listing their $1 million-plus homes are themselves more likely to be successful professionally (and dress like it!).

It's only natural to gravitate to Realtors who they can identify with and relate to.

In other words, who look like they do.

P.S.: Yes, it's a bit cynical, but I remember reading a book on interviewing that was strongly recommended by a friend on the eve of my first major interview with a "Big Eight" public accounting firm (WAY back when).

Whereas most books on the subject basically advise "being yourself" -- this one recommended being like the people you want to work with. In other words, reflect their look, dress, values, etc.

I got the job . . .

Twitter Converts --- and Skeptics

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

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

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

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

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

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

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

And so and so on.

Count me firmly in the . . . undecided camp.

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

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

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

Automated Valuations on Cyberhomes, Zillow, etc.

Wrong Number(s)

Real estate Web sites like Trulia, Zillow, and Cyberhomes now all offer some version of what are called "automated valuations."

That is, they crunch publicly available records and generate an estimated fair market value for millions of homes nationally.

How accurate are they?

Put it this way: if you can find a Seller who'll actually accept what Cyberhomes -- to pick just one example -- says their home is worth . . . pay it!

Case Study

At least, that's my take after checking out 2818 Sunset Boulevard just southwest of Cedar Lake in Minneapolis (pictured above, in its "before" condition).

An extreme fixer-upper when I sold it last Fall for $405k, the new owners have spent the better part of the last year painstakingly restoring and expanding it.

You name it, they did it:

Deluxe, new Kitchen? Check.

Brand new sunken Living Room where the attached garage had been? Check.

All-new windows, mechanical's, updated baths -- not to mention a new, 600 square foot detached garage?

Check, check, check.

So, what does Cyberhomes say the home is worth?

$383k.

What is the home actually worth?

I'd put it at $900k, give or take 5%.

How should I know?

Besides being a professional Realtor who's sold more than a dozen, nearby homes . . . I live two doors away.

P.S.: Cyberhomes' aerial shot of my home still shows the backyard tree we cut down when we moved in . . . 3 1/2 years ago!

Zillow & Social Networking

Is Zillow Getting Smarter?

I've discussed third-party real estate sites such as Zillow and Trulia previously on this blog ("Trulia Hits -- and Mostly Misses"; "Zestimates Wildly Off-Target").

The verdict?

In most cases, you'd be better off throwing darts to establish your home's value.

That's because publicly available housing statistics -- and dated ones at that -- don't convey a home's condition, look and feel, updates, etc.

Not to mention key boundaries that are easy to miss on a map, such as a border between a good and bad school district -- or a a major highway. (That's also why a knowledgeable Realtor's pricing is typically better than an appraiser's).

However, at least anecdotally, I'm hearing that social networking sites (think, Facebook and My Space) are filling in Trulia and Zillow's blind spots.

The result -- at least in the biggest markets where social networking is most active -- is that the real estate sites are benefiting from a positive feedback loop that's making them more accurate.

In other words, they're getting smarter.

Will this trend travel to smaller markets such as the Twin Cities?

Stay tuned . .

Taking Trulia for a Spin

Trulia.com Hits -- and (Mostly) Misses

Like Zillow.com, Trulia.com promises to arm prospective home buyers with reams of data about homes for sale.

Buyers can search by property type, price, square footage, zip code, etc.; get information about schools and other community info; and even pose questions to the Trulia. com "community" that generate email notices as responses come in.

The site's pro's and con's are discussed in an article in Tuesday's Wall Street Journal, "A Go-To Web Site for Home Buyers: Trulia.com offers an Insider's View of Real Estate."

So does Trulia work as advertised? And make no mistake -- advertising, not great market data or insider real estate scoop -- is what Trulia is selling. Ditto for Zillow ("Zillow for ditto??").

To test it, I ran a search (early Wed. am, 2/18) on zip code 55410 (Southwest Minneapolis) for single family homes between $400,000 to $500,000 to see what would come up.

Not coincidentally, I have a very active listing in that price bracket and area -- a high profile and aggressively marketed listing, I might add. The home is just two blocks south of Minneapolis' Lake Calhoun, and has been generating tons of (non-Trulia) traffic (see, next).

(Still) Not Ready for Prime Time

I originally listed 3929 Washburn Ave. South in early December; my client just reduced the price Monday from $479,900 to $429,900. Here's what I found -- and didn't:

--My search query generated 11 hits on Trulia.com . . . but did not include 3929 Washburn!

--Included on the list: the closest comp ("comparable sold property") for my listing, 4155 Drew Ave. According to Trulia, this home was still for sale for $475,000. In fact, Drew dropped from $475,000 to $450,000 on Oct. 29, went off the market December 8 as a "Pending" sale, and closed January 16.

--The closest (Active) competitor to my listing, 4128 Beard, was identified as "Address Not Disclosed," with an accompanying picture. Curiously, though, clicking on "listing preview" generated a map showing the block where the home is located. Trulia did have the correct price and home stat's.

--Another home, 4404 Abbott for $475,000, is identified as a Coldwell Banker Burnet listing. Which may come as a surprise to the owners -- because it does not appear to be for sale. If it is, it's a non-MLS listed For Sale By Owner, which is quite rare these days.

--Notwithstanding my "single-family" search criterion, one of the eleven hits was a nearby condo.

That's probably a long enough list for most readers (and all the time I have to parse Trulia's "hits").

Conclusion: if you want to really know what's really going on in the market, you'd better talk to someone who's got access to the Multiple Listing Service, and knows the inventory on it.

That would be . . . an experienced, local Realtor (Preferably, me!).

Has the Internet Peaked?

Old-Fashioned Technology
Makes Real Estate Comeback

"Nobody goes to that restaurant anymore. It's too crowded."
--Yogi Berra

Yogi Berra could easily say the same things about the Internet today, especially with respect to real estate. Consider:

--Online photos are now routinely so overly-flattering, you literally don't recognize the home when you're standing in it.

--Facebook and MySpace are crawling with Realtors, job seekers, and people selling . .. something.

--Sites like Zillow -- never very accurate at pricing homes -- are actually getting worse (their business model isn't to displace Realtors, but to attract eyeballs and advertising dollars).

--Interest rates quoted online are virtually meaningless because they don't take into account the borrowers' unique circumstances. Or, they're loss leaders that 1% of the borrowing public qualifies for (in retail, this is called "bait and switch").

Given all the clutter, distortion, and sheer noise on the Internet today, it seems fair to ask, "Has the Internet's utility peaked?"

For many people, the answer is "yes." That's true even as an estimated 80% percentage of all prospective home Buyers now begin their home search online.

Underwhelming -- and Overwhelming

Unfortunately, once they get there, they're likely to be both underwhelmed -- and overwhelmed.

Overwhelmed by the sheer number of real estate sites and information out there. Underwhelmed by how little of it is actually useful, if not outright misleading.

What's taking the Internet's place? "Low tech," and in some cases, "no tech" (John Naisbitt anticipated this phenomenon years ago with a 1999 book titled, "High Tech, High Touch"):

--Old-fashioned shoe leather and tire-kicking: if you really want to know what a property's like, go look.
--For Realtors marketing a home: personal networking, word-of-mouth, and an especially low tech tool: the phone.
--For prospective Buyers looking for a Realtor: referrals and personal interviews. Plenty of newbie Realtors are great at technology, including Facebook, but don't have a clue about selling real estate (how would they? They've never done it).
--For borrowers looking for a loan: one-on-one contact with a lender.

So is the Internet going away?

Hardly. Once I'm working with a client, the Internet's various productivity tools (email, online forms, government Web sites) greatly expedite communication, work flow, and access to information.

However, purely as a marketing medium, the Internet's value arguably has peaked.

Just like junk mail, the more ubiquitous it becomes, the less it seems to register with people (this blog notwithstanding, of course!).