Shelter From the (Stock Market) Storm?

Real Estate as a Haven

Conventional wisdom to date has been that a rocky stock market bodes poorly for upper bracket housing.

That's because, compared to other Buyers, upper bracket Buyers presumably have more exposure to stocks.

When stocks take a hit, so does their purchasing power.

Witnessing the latest stock market gyrations, I'm wondering whether at least some drained investors have decided that they want off the roller coaster.

Smart investors heed one maxim: 'buy low, sell high.'

Nothing is a better value in today's housing market than upper bracket homes (it doesn't hurt that mortgage rates are at record lows -- another side effect of stock and financial market turbulence).

P.S.: a half dozen or so sales do not a trend make, but in just the last two weeks, 7 homes on or near Cedar Lake, Lake Calhoun, and Lake of the Isles -- ranging in price from $900k to $3.3M -- have gone pending.

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 . . .

Today's Sellers: Biting Two Bullets

Two Bullets

Would-be Sellers of upper brackets homes now -- the slowest part of today's housing market -- often have to bite not one but two bullets.

The first is pricing their home consistently with "the comp's": similar, nearby homes that have sold recently.

In fact, better than the comp's, depending on what's currently active nearby.

Bullet #2 is ponying up for anything that's out-of-commission (or close) -- like an aging roof, badly dated flooring or walls, etc.

Sellers can certainly skip tackling any deferred projects -- but then they had better expect to price accordingly.

Often times, the needed discount is $2 or more for every $1 in repairs.

Cushioning the blow of bullet #2, especially for long-time owners: they may need to spend a few thousand on cosmetic updates . . . but it's a good bet they paid virtually nothing for their house, way back when.

For example, I recently worked with long-time owners whose home was "only" worth $800k last year (down from perhaps $1.1 million, ballpark, at the peak), but who paid $75k for it decades ago!

Last Minute Multiples

"Jilting" Buyer #1 for Buyer #2

Topic A at this morning's Exceptional Properties meeting was how to handle a deal that's been verbally signed off on, when another, significantly stronger offer materializes before all the necessary signatures are in place.

The scenario's relevant because, in today's slower market for upper bracket homes, by the time an offer eventually comes in, several other Buyers are likely familiar with the home and mulling an offer, too.

Hearing that another Buyer has jumped first can then become a catalyst for one or more others to do the same.

So, does the Seller switch to Buyer #2 or not?

It's up to them.

Legally, they have every right to, because until there's a written contract . . . there isn't. A verbal agreement to sell real estate in Minnesota and virtually everywhere else simply isn't enforceable.

That doesn't mean Buyer #1 won't be upset (and likely take it out on the Listing Agent, who actually has a legal duty to relay Buyer #2's offer).

However, all parties to a real estate deal need to know, well before negotiation begins, that it's not done till it's fully executed (that is, signed).

Once there's agreement on all the terms, everyone needs to be available to promptly sign to make that happen.

P.S.: signed offers are a two-way street: more than one Buyer has been known to change their mind and balk at signing a Purchase Agreement that they verbally committed to.

Upper Bracket Buying Strategies

Great Price + Seller-Paid Pts. = No Deal?

We may be small, but we're slow.

--Cal Tech football team slogan

If you're a Buyer contemplating an offer on an upper bracket Twin Cities home, congratulations!

You've never had more choices -- or more eager Sellers.

Just one word of caution, though:

Decide whether you want a great price, or, a generous helping of Seller-paid closing costs.

Trying for both is a tough sale -- literally . . .

Beige Elephants

"The Bigger They Are, the Slower They Sell"

That's from an article in today's Wall Street Journal titled, "High-End Homes Frozen Out of Budding Housing Rebound" (8/3/09).

The thrust of the article -- which I agree with -- is that the lower rungs of the housing market are now stable if not recovering, while the upper bracket is still suffering.

That's because of an upper bracket "triple whammy": 1) less available, more expensive "jumbo" loans, which are typically used to finance expensive home purchases; 2) higher down payment requirements for said purchases; and 3) stock market and other investment losses, which impair the purchasing power of would-be upper bracket home buyers.

"Beige Elephants"

In fact, the very weakest segment of today's housing market is a particular subset of the upper bracket: upper bracket homes that need substantial updating.

Such homes face all the obstacles that other upper bracket homes do, plus one more big one: the cost to rehab and/or update, which often has to be paid out-of-pocket (vs. financed).

For a 4,500 FSF, five bedroom house, the related cost could easily be hundreds of thousands.

Unless that cost can be rolled into a difficult-to-get rehab loan, the prospective Buyer has to have that amount lying around.

Throw in the delay and inconvenience, the myriad design decisions, and the required oversight -- and suddenly, the pool of prospective Buyers for such homes isn't so big.

In today's market, such homes may not be white elephants . . . but they're beige.

The (slim) silver lining is, now is a great time to get bids on a major rehab project.

Pricing "Catch-22"

Vicious Cycle

You’re not seeing a lot of sales activity [in part ] because people are still trying to define price. You need a certain amount of volume to be able to tell people where pricing is.

--Mary Ann Tighe, CB Richard Ellis; The New York Times (7/31/09)

Upper bracket homes in the Twin Cities?

No, actually commercial real estate in Manhattan.

But the observation, from a top commercial broker there, describes some of the unique challenges now facing would-be upper bracket home Sellers (and Buyers) in the Twin Cities.

With few good comp's, the latitude for pricing widens. In turn, the wider the price range -- the more ground Buyers and Sellers have to bridge to do a deal.

The result is fewer and slower sales . . . which serves to further undercut "price certainty."