Matrix Blog

Archive for March, 2006

[Commercial Grade] Slicing Up The Pie Really Fast

March 31, 2006 | 9:45 am |

Commercial Grade is a weekly post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. Today John talks about how the compensation formula is, in all reality, based on speed. Thats why the post is a day late – he had to get a flurry of assignments out the door yesterday.

Disclosure: John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, when its not raining, one of the smartest guys I know. …Jonathan Miller

Imagine hospital interns getting paid a percentage of the fee for every patient they sawor associates in major law firms paid 40% of their gross billings. Take it a step further, your mail deliverer getting a cut of the postage for every house he delivers toengineers getting paid based on how quickly they can churn out new plans and designs.

The “fee split” compensation system has become the standard for commercial appraisers. Under this system, professional staff appraisers are paid a percentage of their gross billings, usually on a sliding scale.the higher the gross billings, the higher the compensation. So there is a built-in incentive to do it fastoften very fast. As a result, there are junior appraisers able to churn out appraisal reports who earn in the six figures; the irony is that the professional who is thorough, cautious and methodical in his research and analysis will put out a much better appraisal, and serve his clients interests far better, but earn only a fraction of what the appraiser that churns out reports earns.

According to, the median salary plus bonus of the commercial real estate appraiser is $76,237, nationally. Though they call this a “salary” to my knowledge, the only appraisers (excluding trainees) paid on a salary basis work for financial institutions or accounting firms.

Salesman, of course, get paid on a commission basis, and partners and principals of professional practices will benefit from both their professional and entrepreneurial skills in running their practices. But I can think of no other “profession” in which junior or mid-level staff are paid essentially on a commission basis.

In other professions associates are paid based on their experience and knowledge, often with a merit bonus at year end. In the appraisal business, a 3-year associate could earn well in excess of the 20-year professional.

What’s wrong with this picture?

[More importantly, where’s my slice? -ed]

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Selling Out: The High Stakes Game Of Spin

March 31, 2006 | 9:06 am | | Public |

Troy McMullen’s thorough article today Condos With a Name: ‘Available’: The Architect May Be A-List, But the Location Often Isn’t; Meier, Libeskind Languish [WSJ] talks about the Starchitect phenomenon and how thats not necessarily the panacea for real estate developers trying to move their product. [and my firm is cited as a source in the article – excessively shameless plug]

I recently wrote an article about Starchitects in New York Living and concluded that while it was an effective way to differentiate a new offering, the initial motivation for their services is now diluted as it becomes the norm and the efforts don’t tend to stand out as much any more.

Its definitely an exciting time for lovers of architecture.

One of the most difficult aspects of rating the success of a new development is how rapidly the units are being absorbed. Having been on both sides of the fence, first as a condo sales director more than 20 years ago, and since then as an appraiser, I can appreciate the dilemma that all parties go through in this process. There is a lot of money at stake and much of the success of the project depends the timing of its entry to the market. Its all about keeping the momentum going in the initial concentrated marketing effort.

The data is not verifiable in public record until closings begin and rumors among the brokerage community can spread like wildfire. The speed of absorption tells us how accurately the property is priced and how well the mix of units matches the neighborhood. The exageration of sales success can backfire as the development moves closer to completion. The gap between actual sales and “told” sales gets more and more difficult to explain as evidenced in this article and can result in a consumer backlash.

At the end of the day, its still all about price and its relationship to the amenities provided. And in a less frenzied market, price becomes even more critical and the market less forgiving.

Here is another article I wrote on the problems appraisers face in valuations within new developments:
Appraising “New” New York Real Estate [New York Living]


Housing Going Dutch In Taking The Long Term View

March 31, 2006 | 12:01 am |

A hat tip to [Calculated Risk] for pointing me to this post on [Economist’s View] that discusses Shiller’s long-term views on the current housing boom and presents much of his recent paper Long-Term Perspectives on the Current Boom in Home Prices.

Robert Shiller looks at over 100 years of data and asks the question every homeowner wants to know: what is the short-term and long-term prognosis for real estate values? The news isn’t reassuring, but luckily risk markets are being developed to help people hedge or buy insurance against the risk that Shiller unveils. His controlled series using housing along a canal is fascinating.

For the free full version of Shiller’s work as a download which requires registration, go here.

Professor Shiller has been calling for crash of housing for the past 5-6 years and he has focused on more pyschological reasons. He is consisent with his point, similar the way the Economist magazine is on this position. Bearish on housing.

Dean Baker, Center for Economic and Policy Researh also has a paper out: The Menace of an Unchecked Housing Bubble

An unprecedented run-up in the stock market propelled the U.S. economy in the late nineties and now an unprecedented run-up in house prices is propelling the current recovery. According to Dean Baker, like the stock bubble, the housing bubble will burst. Eventually, it must. When it does, the economy will be thrown into a severe recession, and tens of millions of homeowners, who never imagined that house prices could fall, likely will face serious hardships.

For the free full version of Baker’s work as a download which requires registration, go here.

I subscribe to me Baker’s email list and find much of the publication very informative as well. He’s bearish on housing too.


To digress a bit:

Although Austin Powers made a case against the Dutch, (wink) here’s one to invoke sympathy. In Lisa Chamberlain’s article Pressing a Claim for Dutch History [NYT] she discusses the eminent domain taking of land by the Metropolitan Transit Authority from the Collegiate Church Corporation which has owned it for 282 years.

The controversies covering eminent domain takings appear to be on the rise as government authorities have more lattitude than ever before. More to come.

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Super-Sized Does Not Equal Family-Sized

March 30, 2006 | 12:50 pm | Articles |

The idea of a having a larger apartment than the one you reside in is the dream of many in urban markets. Whether or not they have children or are planning to have children in the future, there is a premium on more space. That additional bedroom for guests, an extra room for an office, larger living areas, or more storage capacity are driving those who wish to trade up.

I wrote an article [Miller Samuel] on the concept of family-sized in the current issue of New York Living magazine which I periodically write articles for. [another shameless plug -ed]

Making bigger apartments is not just about adding square footage and adding on another bedroom or bath.

Here’s an excerpt:

A new real estate term entered the cluttered landscape of real estate speak in the new millennium: family-sized apartments. To me, that means family-style dining: casual, shared, roomy. However, in prior incarnations of making larger apartments, developers simply added additional bedrooms and bathrooms to an apartment but did not change the sizes of the living areas such as the kitchen, living and dining rooms…


Parsing Bernankespeak Into Transparency

March 30, 2006 | 12:44 am | |

Click here for larger version[WSJ]

The WSJ always does a great job parsing the FOMC press release after each meeting. During the Greenspan era, it was a science. With Bernanke at the reigns, he seems to be placing the Fed in the position of being more transparent and he got a unanimous vote in his first meeting.

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Outstanding On Our Soapbox: A Badge Of Honor: My HP 12c And Reverse Polish Notation

March 30, 2006 | 12:17 am |

In today’s Soapbox I marvel at the 25th anniversary of the HP12c [Soapbox].

A Badge Of Honor: My HP 12c And Reverse Polish Notation

March 30, 2006 | 12:09 am |

This year is the 25th anniversary of the launch of the HP 12c. I have had mine for about 20 years. The logo has been chipped off, two of the foot pads are missing, its scratched, dented and scuffed.

But it still works like a charm. I have purchased more powerful upgrades to the 12c by HP but I was soon back to my baby. Billions of numbers have shown through the dirty display and a whole lot of appraisals got done using this nifty tool. I have become protective of it, getting concerned when it gets swapped accidentally in the office with a newer one thats shiny, clean and unweathered. Its just not the same.

I have only changed my battery once in twenty years. I remember taking a Cap A class offered by the Appraisal Institute and the logic given for learning the J-Factor and K-Factor was that it would come in handy if you were on the witness stand as an expert and your HP 12c battery died. I kid you not.

The HP 12C was the world’s first horizontal financial calculator. Its innovative design and breakthrough Reverse Polish Notation (RPN) entry forever changed the way students and professionals reach their goals. After 25 years, this iconic calculator is still sold under its original name and model number and retains its world-famous horizontal design.

I even use the software equivalent on my laptop. In addition, my Mac OSX operating system allows me thankfully, to change the system calculator to use reverse polish notation (RPN)

Remember: 1 enter 1 +

Should I finally break down and buy a new one?



Curbed: Three Cents Worth: Manhattan Gets Zipped & Ranked

March 29, 2006 | 4:27 pm | | Columns |

Here is my Wednesday post for Curbed, the great uncle’s second cousin twice removed of all real estate web logs.

Curbed: Manhattan Gets Zipped & Ranked

An archive of previous posts can be found here.

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FOMC Alienates The One More Time Crowd

March 29, 2006 | 12:02 am | |

The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 4-3/4 percent.


…possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures. Press Release

There were no real surprises today [NYT] so the Greenspan era lives on.

Fed economists have argued that a slowing housing market is likely to dampen overall economic growth. Housing, however, is not sinking yet. Sales of existing homes rose in February, housing starts remain strong and by some measures home prices are still rising.

While it is true that housing is strong in many markets, there are many markets not rising any more. Because the connection between housing and the economy is connected by the consumer, the economy may unravel faster than the Fed can react to.

It looks like at least one more increase is in store for us, perhaps more.


[Getting Graphic] A Lot Of Millionaires Despite Excluding Primary Residences

March 29, 2006 | 12:02 am |

Getting Graphic is a semi-sort-of-irregular collection of our favorite real estate-related images(s).

If we included primary residences, I would bet that 25% of home owners would qualify. It kind of surprised me that the most expensive housing market in the United States, Manhattan, only ranked 13th, but perhaps that can be explained by the debt service required to buy an apartment.

Click here for full graphic [NYT] and the original article

Source: NYT


Another Possible Mortgage Oversight Agency And More Acronyms Than A Bowl Of Alphabet Soup

March 29, 2006 | 12:01 am |

[apology in advance – this post has more acronyms than you deserve.]

HUD says GSE reform would not affect housing prices [MW]. U.S. Housing and Urban Development Secretary Alphonso Jackson said Tuesday that the cost of housing would not change if Congress created a new regulator for Fannie Mae and Freddie Mac.

“HUD is supporting legislation that allows a regulator to limit the GSE’s portfolio to those investments necessary to carry out its mission, without trying to cripple or put it out of business,” Jackson said in a speech to the National Association of Mortgage Brokers.

Firstly, how can anyone say that with such confidence, especially a housing-related government employee? Even if you believe what he says, it makes me suspicious at the naivete.

You are tinkering with the GSE’s investments and that can have a potential affect on mortgage rates. Availability, pricing and volatility are all fair game.

This is a very delicate path to walk, I would think. Its not clear why OFHEO would not have this repsonsibility since they are responsible for the GSE’s. Although they were asleep at the wheel when former Fannie Mae executives supposedly did some things they were not supposed to, the last thing we need is another federal agency.

Why not gut, revamp or empower OFHEO to provide meaningful oversight to the GSE’s?

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Broker-Bashing For The Sake Of Broker-Bashing®

March 29, 2006 | 12:01 am | |

I had heard about the ABC spot through the rumor mill and then Curbed laid it out for me in its full glory: Corcoran Gets Real, Offends REALTOR®

What Your Broker Won’t Tell You [ABC News] is more of a promo for her series on Good Morning America [] but I think that the message in the piece is just plain wrong. Who does it help? The consumer? Thats really not fair for BC to frame the piece this way, even to the cynical and it only appeals to the lowest common denominator. But then again, its the sensational stuff that draws viewer eyeballs. -sigh.

Barbara Corcoran’s segment on Good Morning America piece essentially stereotypes ALL real estate brokers as liars.

In fact, the comments in the Curbed post were mainly pile-ons and broker-bashing. Granted, brokers can be an easy target because of their visibility, marketing intensity, the dollars involved and the emotional aspects of real estate. Admittedly, I get annoyed when I see the Code of Ethics shoved in my face in the NAR’s recent advertising campaign, but its all about the people and most brokers I have met are nice and decent people.

Barbara Corcoran came to the New York real estate market, she innovated the real estate brokerage profession, conquered it, was well compensated and moved on. She is effectively out of the business but continues to try to stay relevant by “stirring it up” as she was known to do throughout her career.

I have been critical of the NAR of late, especially in the way their public relations machine handled the phraseology associated with the cooling housing market. For example: Housing Expansion, but in this case, I find myself agreeing with the NAR (kind of). Here is the NAR take on this matter.

Although you have to admit, Curbed’s curiousity about whether NAR President Thomas M. Stevens would actually would say: ‘”registered trademark!” after every time he utters the word “realtor?” Because that would be pretty damn weird.’

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