Matrix Blog

Homebuying Process

…and the Home Seller will give you a Free Tesla!

July 12, 2014 | 7:26 pm | nymaglogo |

SodFarmtractor

Back when I was in college, a good friend of mine owned a large Michigan sod farm with his father – acres and acres of putting green quality sod. They wanted to upgrade their big tractor so I joined him on his visit to the local tractor dealership – International Harvester (my parents tell me I am a distant – really distant – relative of John Deere).

1979IHscout

[Source: Hemmings]

The tractor they were looking at included air conditioning and a surround sound stereo system. It was impressive. The salesman said that if they bought the tractor that month the dealership would throw in an International Harvester truck.

My friend’s comment to me under his breath was something along the lines of “looks like we are actually buying the truck too.”

Jhoanna Robeledo’s New York Magazine piece on the guy who throws in a Tesla if you buy his condo talks about this marketing technique.  Using a Tesla is buzz worthy as a well thought of brand – after all marketing is about getting eyeballs on the listing – but is it effective?  Does this technique actual sell properties?

In my view throwing in such a large concession is a red flag signifying the property is over priced enough to cover the seller’s cost of the “gift.”

Econ 101:  There is no such thing as a free lunch.

We’ve seen this marketing gimmick attempted with other cars such as a Prius, a Porsche, a Cadillac and Ferrari.

The funny thing is, you never read a follow-up article that shows how this marketing technique/gimmick was successful.

JohnDeereLM

A buyer for the condo in Jhoanna’s article would have the financial wherewithal to buy their own Tesla and likely isn’t thinking about buying a car during their visit to the property.

We don’t see these extreme marketing gimmicks tried with low margin properties. “If I buy this $75,000 condo I get a free Tesla!” Of course not – the condo seller in this “Tesla” story is telegraphing to a potential buyer the listing is over priced.

Yes, in a typical suburban transaction, a seller may throw in a used lawnmower to close the sale, but this is not something that is usually promoted during the actual marketing of the property.

NEWSFLASH Buyers are a lot smarter than this Tesla-giving away seller is giving them given credit for.

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We’re at “Peak Anti-Homeownership”

May 21, 2014 | 11:00 am |

Joe Weisenthal, Executive Editor of Business Insider, pronounced we’re at “Peak Anti-Homeownership” after reading Barry Ritholtz’ Bloomberg View piece on homeownership a few weeks ago.

If financial journalists and housing pundits today truly reflect the US sentiment about housing and homeownership, then we’re clearly manic about our largest asset class.

The conversation by a number of financial journalists and a particular Nobel Prize winning economist has morphed into a homeownership-is-a-false-aspiration pronouncement, almost entirely supported by treating this asset class as a stock. Didn’t we learn the hard way that this was flawed thinking during the prior boom? And unless I’m mistaken, the majority of US homebuyers, aside from investors, used leverage for much of the last 50 years. How about we estimate the ROI on what real people actually do and stop thinking about homeownership as a stock transaction? Good grief.

2012-2013 – Last year’s housing market “recovery” pronouncement was based on nothing fundamental, merely Fed policy of QE and years of pent-up demand released after the “fiscal cliff” came and went without a major catastrophe. Pundits caught up in the price euphoria said the housing market was firing on all cylinders. Yet surging price growth was largely based on sales mix-shifting, less distressed sale buying, tight credit causing, lack of inventory inducing, fear of rate rising, double-digit price growth. Positive housing news was refreshing news to many, but there was nothing fundamental driving the market’s performance to such incredible rates of growth. I couldn’t wrap my arms around 13% price growth with tight credit, stagnant income growth and unacceptably high under-unemployment as economic fundamentals.

2014 – This year’s housing market, which is being compared to the year ago frenzy, is showing weaker results. The housing recovery “stall” is being blamed on the weather, falling affordability and weaker first time buyer activity. This has brought some in the financial media to conclude that homeownership is over rated.

An aside about the weather – a homebuyer last January didn’t say “Gee, since it is 0 degrees outside, let’s cancel our appointment with the real estate agent and delay our home buying plans for 5 years.” Of course not – the harsh weather merely delayed the market for a month or two. However since it hasn’t “sprung back” yet, then clearly there is something else going on besides the weather.

Falling homeownership and anemic household formation is the result of a lackluster economy and a global credit crisis hangover. I can’t make the connection how these weaker metrics have anything to do with a flaw in the homeownership aspiration. Homeownership is falling because it rose to artificial highs (Fannie Mae was shooting for 75% during the housing boom) and is now overcorrecting because credit is unusually tight, the byproduct of a lackluster economy, the legacy of terrible lending decisions and fear over additional forced buybacks of flawed mortgages among other reasons.

I’m quite confident that a significant, sustained economic recovery will go a long way to ease credit conditions and eventually revert homeownership to the mean and we can stop with the “cart before the horse” orientation. While homeownership has never been right for everyone, recent calls that it’s not right for anybody is just as flawed.

Then we’ll pronounce “Peak-Homeownership” in our own manic way.

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Demanding More: terms of sale are now as important as the price

May 18, 2014 | 7:00 pm | delogo | Articles |

demandingmoreEMarticle
[click to open article]

Sellers and their real estate brokers are more focused on the qualifications of the buyer than ever before. “Flexibility of terms,” “limited contingencies,” and “paying with cash” have become well-used phrases in the current home-buying process.

Here’s an article I penned for the current issue of Elliman Magazine. It’s about the concept that the terms of a sale are now just as important as the price.

The latest issue of Elliman Magazine, including my article, as well as the most recent market reports we author are available in the Elliman App.

AppStorelogo


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[Book] Next Generation Real Estate by Brendon DeSimone

May 4, 2014 | 5:10 pm | Books |

next_gen_real_estate_v4

My friend Brendon DeSimone has penned a tome on today’s relevant issues in the home buying and home selling process. Yes, there are a lot of real estate “how to” books out there, but his presentation is refreshingly straightforward. He provides a slew of tips from well regarded people in various walks of real estate life.

Even better, Brendan allowed me to rant about the current state of the appraisal industry and how buyers and sellers can navigate through the process in today’s challenging and confusing market conditions.

And yet even better, here’s my back cover quote for Brendon’s book:

nextgenbook

You can pick up a copy in a bunch of places, and here’s one:

Next Generation Real Estate: New Rules for Smarter Home Buying & Faster Selling [Amazon]

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How Real Estate Brokers Can Negotiate With Foreign Buyers, Illustrated

March 29, 2014 | 12:33 pm |

Saw this visual over at Business Insider that shows how communication patterns differ around the world – from Richard D. Lewis’s book “When Cultures Collide“.

3-14communicationpatterns
[Source: Crossculture.com Click to expand]

I haven’t read the Lewis book yet but I’ve always been fascinated by the topic of communication and linguistics – another book got me interested in the topic: That’s Not What I Meant!: How Conversational Style Makes or Breaks Your Relations with Others by Deborah Tannen circa 1992. I’ve read it three times.

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[Leverage] Calculating Your Home Investment Return Realistically

March 16, 2014 | 9:00 am | Infographics |

leverageinfographic
[click to expand]

I think many, if not most people calculate the return on their home as an investment as this CNN/Money calculator does. After seeing this, I whipped up a theoretical infographic illustrating how the use of leverage in a home purchase factors in to your return. It’s super simplistic, not factoring in opportunity cost, use and enjoyment, tax deductions, improvements and other factors because I wanted to show the power of leverage.

Forget about price indices like Case Shiller or similar. I can’t tell you how many times I have seen a home price index paired up against a stock price index as a way to determine which investment is better. Apples and oranges.

Measure your ROI using what you invested (down payment) and what your home equity expanded (or contracted) to.

The CNN/Money rate of return calculator is really only a measurement of home price appreciation compared to the same period for stocks and bonds as an opportunity cost – comparing different asset types side by side – yet that’s not how the majority of homebuyers interact with their home as an investment.

It’s most often about leverage.

UPDATE
An appraisal colleague and friend of mine pointed out that in my original version, I incorrectly used the word “profit” within the infographic rather than what I was actually talking about: “equity” ie return on investment (ROI) – how much the original down payment gained over time. The numbers all remained unchanged.

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[Appraisal Infographic] Common Myths About The Homebuying Process

March 15, 2014 | 1:07 pm |

The Appraisal Foundation published an appraisal infographic that attempts to clarify common misconceptions by the borrowers about the appraiser’s role in the home buying process. The content is amazingly simplistic, but that’s the point.

I continue to be amazed at how so few people don’t understand what the appraiser’s role is in the home buying process. Perhaps this is why the appraisal industry continues to be marginalized in the lending process (ie appraisal management companies, Appraiser Independence Requirements) and the exodus of competent appraisers into other disciplines outside of residential mortgages continues.

2014-03-06-BorrowersinfographicTAF

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[In The Media] WNBC Channel 4 “Tightest Squeeze In Years” 2-11-2013

February 12, 2013 | 5:00 pm | Public |

Andrew Siff, a reporter for WNBC Channel 4 in New York did a great job articulating the tight inventory phenomenon we are seeing in both the region and nationally.



Tri-State Real Estate Market Under Tightest Squeeze in Years [WNBC Channel 4]
Listing Inventory Is, Well, Listing [Matrix]

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Falling Inventory Has Created a Housing “Pre-Covery,” not “Recovery”

January 28, 2013 | 9:00 am | nytlogo |

I was speaking at the New York Real Estate Bar Camp recently and asked the audience what to call the state of housing market right now, since I objected to the use of the word “recovery” and “a period of better stats without underlying fundamentals” wasn’t catchy. Philip Faranda came up (more like shouted out) a brilliant suggestion. We’re in a “Pre-Covery!” I loved it and it stuck.

I thought about the new word when I read a great Robert Shiller piece in the New York Times this weekend called: A New Housing Boom? Don’t Count on It.

Shiller questions the substance of the happy housing news we’ve all been reading about:

It’s hard to pin down, because nothing drastically different occurred in the economy from March to September. Yes, there was economic improvement: the unemployment rate, for example, dropped to 7.8 percent from 8.2 percent. But that extended a trend in place since 2009. There was also a decline in foreclosure activity, but for the most part that is also a continuing trend, as reported by RealtyTrac.

What’s missing from all the metrics being tracked and discussed is sharply falling inventory - that’s what is driving prices higher even though little else has changed.

The reason for falling inventory? Sellers, when they sell, become buyers (or renters) and with >40% of mortgage holders having low or negative equity, they don’t qualify for the trade up. We have been so focused on negative equity that we’ve paid short shrift to the impact of low equity.

Not only don’t many sellers qualify – they simply aren’t under duress i.e. they haven’t lost their job, don’t need to move, etc. so what will they do when they realize they don’t qualify?

Nothing.

They expect/hope hope the market improves eventually.

This has created yet another form of “shadow inventory.”

Although I certainly agree that the long term trend of mortgage rates doesn’t really correlate with housing prices since rates have been falling for years, weak employment and personal income are not justifying the last 6 months of housing market improvement.

I see falling mortgage rates as simply keeping demand steady (but rates can’t fall much further) and falling inventory is either pressing prices higher or to stabilization depending on the market.

Here is a simplistic generic but typical scenario in most of the markets I follow over a 2 year window:

  • The number of sales in a market rises 2%.
  • The number of listings in same market falls 30%.

In this scenario the rise in sales is NOT working off inventory – the math doesn’t work so something else is in play – low or negative equity is choking off new listings entering the market against steady demand caused by falling rates.

Since low inventory is not a local market phenomenon but is happening in nearly every housing market I can think of (sales rising modestly and listing inventory falling sharply) it makes this a credit phenomenon. I like to say “housing is local but credit is national.”

To make this discussion really crazy we could even say that tight credit conditions are actually prompting the pre-recovery something that on the surface is very counterintuitive. But in reality, tight credit is choking off supply and low rates are keeping demand constant. Then prices rise.

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Having Fits With Appraisal In Home Buying Process

January 13, 2013 | 9:27 pm | nytlogo | Public |

The New York Times Real Estate goes gonzo this weekend with a nice write-up AND a large color artwork on perhaps the least understood part of the home buying process.

No not the radon test…

The appraisal. Can’t live with them, can’t live without them.

Here’s my stream of consciousness on the topics brought up in the article:

  • “Sale and “Comparable” are not interchangeable terms. Really.
  • There is no ratings category for (like totally) “super excellent.” The checkboxes provide good average fair poor with “good” at top end (but fear not, “super excellent” is marked “good” and like total adjusted for).
  • Not all amenity nuances that are important to you as a seller (ie chrome plated doorknobs), are important to the buyer.
  • Not all amenity nuances that are important to you as a seller, are measurable in the market given the limited precision that may exist.
  • Not all appraisers have actually been anywhere near your market before they were asked to appraise your home, so technically they shouldn’t be called appraisers. Since their clients don’t seem too concerned about this, something like “form-filler” seems more appropriate.
  • Most appraisers who work for appraisal management companies are not very good, but some actually are.
  • When an appraiser makes a time-adjustment for a rising market, understanding whether a bank will accept that adjustment or not is (should be) completely irrelevant and quite ridiculous (unless they are “form-fillers” and not actual appraisers). I have always believed that the appraiser’s role is to provide an opinion of the value and that occurs in either flat, rising or falling markets.
  • HVCC was a created with best intentions by former NY AG Cuomo by attempting to protect the appraiser from lender pressure, but it has literally destroyed the credibility of the appraisal profession by enabling the AMC Industry.
  • The 12% deal kill average of an AMC an arm’s length sale properly exposed to the market is absolutely an unacceptably high amount and a major red flag for appraiser cluelessness about local markets.
  • I’ve never heard of a major bank since the credit crunch began who would throw out the original appraisal found to have glaring errors that would severely impact the result. My quote on this nailed that sentiment with brutal precision, if I do say so:
“You have a better chance of winning Powerball than getting a lender to abandon the first appraisal.”



Understanding the Home Appraisal Process [NY Times]

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