Property Grunt

Monday, December 26, 2005

Oscar winner cooling off in the housing market

Oscar winner Jessica Lange is another casualty in waiting of the real estate downturn.

According to the Star Tribune the esteemed Oscar winner's Stillwater home has been on the market for a year and a half. It was originally priced at $3.3 million and has now been reduced to $1.995 million.

Below are a series of interesting points from the article.

"That's a spectacular property," said Mark Berthelsen of Keller Williams Premier Realty, who said Lange bought the former bed and breakfast in 1994 for $415,000. Back then, he said, "Everyone thought she overpaid for it."

So what? If she makes a million she will make a decent profit right? Not quite.

J.L. Family Trust of Beverly Hills, Calif., is listed as the house's owner. Records indicate the home's taxable value in 2006, without the guest house property, will be $809,700.


Sharon O'Flannigan, the property's principal real estate agent, said that sales of more expensive houses are "extremely slow," caught in a downturn that might be a result of a saturated buyer's market.

Double yikes. But if Ms. Lange's property was located in Manahattan she would have an easier time to selling it since there is more demand to live in Manhattan than Minnesota. No offense Ms. Lange.

Unlike others, of course, the Lange-Shepard house on the "North Hill" has the advantage of its celebrity image. At first, everyone wanted to see 903 N. 4th St., which is largely hidden behind tall trees and two board fences, and where Lange and Shepard raised three children for nine years. "Interest that was displayed was directly proportional to the name behind the house," said O'Flannigan, who explained that curiosity seekers had to be screened.

The same protocols are instituted when celebrities are selling their homes in Manhattan. When Gwenyth Paltrow was selling her home in the West Village, buyers were all screened and were required to sign a confidentiality agreement before stepping one foot into the premises.

The New York Times reported in May that Lange and Shepard bought a three-bedroom corner apartment on lower Fifth Avenue, near Washington Square Park, after renting an apartment in Greenwich Village. The apartment they bought had been listed at $3.495 million, the Times said.

If Ms. Lange had waited a little longer perhaps she could have gotten a better deal or a better apartment. I don't think she is losing sleep over her situation. Afterall, the residuals alone from Blue Sky could probably pay for the mortgage and maintenance for the next ten years on her new purchase.

Nevertheless, there is one winner.

Lange's brother George is living in the house until it sells, O'Flannigan said.

Unless Ms. Lange has an urgent need to sell and is willing to make severe reductions in her selling price her brother will be living there for quite awhile. I am sure he won't be in any rush to move.

Friday, December 23, 2005

Holiday Hiatus

It looks like we are back in business. TWU and MTA are talking and none of us have to improvise any other means.

I am taking a break for a couple of days. No open houses for the next two weeks. If anyone asks me to do one during that period I will club them.

I wish you all Merry Christmas and Happy Hannukah!


Thursday, December 22, 2005

The Truth

This was an article from the New York Times that I feel has alot of relevance to the current strike. Although it was the pension not health insurance that caused the TWU strike, there is no doubt that benefits will become a controversial issue for years to come.

December 11, 2005
The Next Retirement Time Bomb
SINCE 1983, the city of Duluth, Minn., has been promising free lifetime health care to all of its retired workers, their spouses and their children up to age 26. No one really knew how much it would cost. Three years ago, the city decided to find out.

It took an actuary about three months to identify all the past and current city workers who qualified for the benefits. She tallied their data by age, sex, previous insurance claims and other factors. Then she estimated how much it would cost to provide free lifetime care to such a group.

The total came to about $178 million, or more than double the city's operating budget. And the bill was growing.

"Then we knew we were looking down the barrel of a pretty high-caliber weapon," said Gary Meier, Duluth's human resources manager, who attended the meeting where the actuary presented her findings.

Mayor Herb Bergson was more direct. "We can't pay for it," he said in a recent interview. "The city isn't going to function because it's just going to be in the health care business."

Duluth's doleful discovery is about to be repeated across the country. Thousands of government bodies, including states, cities, towns, school districts and water authorities, are in for the same kind of shock in the next year or so. For years, governments have been promising generous medical benefits to millions of schoolteachers, firefighters and other employees when they retire, yet experts say that virtually none of these governments have kept track of the mounting price tag. The usual practice is to budget for health care a year at a time, and to leave the rest for the future.

Off the government balance sheets - out of sight and out of mind - those obligations have been ballooning as health care costs have spiraled and as the baby-boom generation has approached retirement. And now the accounting rulemaker for the public sector, the Governmental Accounting Standards Board, says it is time for every government to do what Duluth has done: to come to grips with the total value of its promises, and to report it to their taxpayers and bondholders.

The board has issued a new accounting rule that will take effect in less than two years. It has not yet drawn much attention outside specialists' circles, but it threatens to propel radical cutbacks for government retirees and to open the way for powerful economic and social repercussions. Some experts are warning of tax increases, or of an eventual decline in the quality of public services. States, cities and agencies that do not move quickly enough may see their credit ratings fall. In the worst instances, a city might even be forced into bankruptcy if it could not deliver on its promises to retirees.

"It's not going to be pretty, and it's not the fault of the workers," said Mayor Bergson, himself a former police officer from Duluth's sister city of Superior, Wis. "The people here who've retired did earn their benefits."

The new accounting rule is to be phased in over three years, with all 50 states and hundreds of large cities and counties required to comply first. Those governments are beginning to do the necessary research to determine the current costs and the future obligations of their longstanding promises to help pay for retirees' health care. Local health plans vary widely and have to be analyzed one by one. No one is sure what the total will be, only that it will be big.

Stephen T. McElhaney, an actuary and principal at Mercer Human Resources, a benefits consulting firm that advises states and local governments, estimated that the national total could be $1 trillion. "This is a huge liability," said Jan Lazar, an independent benefits consultant in Lansing, Mich. "If anybody understands it, they'll freak out."

Last spring, the state of Alaska was the scene of a showdown over retirement benefits that those involved said was a precursor of fights to come. Conservative lawmakers who supported scaling back traditional retiree health care and pension benefits squared off against union lobbyists, advocates for the elderly and the schools superintendent of Juneau, the state capital, who defended the current benefits.

After saying that Alaska's future combined obligations for pensions and retiree health care were underfunded by $5.7 billion, Gov. Frank H. Murkowski called a special session of the Legislature and pushed through changes in pension and retirement health care benefits for new state employees. (The state Constitution forbids changing the benefits of current employees.)

Instead of having comprehensive, subsidized medical coverage, new public workers will have a high-deductible plan and health savings accounts. The changes cleared the State Senate and passed by a one-vote margin in the House.

Even the White House weighed in on the Alaska problem. Ruben Barrales, President Bush's director of intergovernmental affairs, lobbied wavering Republican legislators, arguing in favor of replacing pensions and traditional retiree health benefits with private savings accounts for new employees. Mr. Barrales noted that the president was seeking similar changes in Social Security, including a plan for private accounts.

The union that represents state employees in Alaska said the narrower benefits would make it harder to recruit qualified teachers and government workers. "They keep chiseling away" at school employees' pay and benefits, said Julia Black, a single mother and union activist who earns $11 an hour as an aide in classes for disabled children in Juneau.

Actuaries say that about 5.5 million retired public employees have health benefits of some kind - and accountants joke that there are not enough actuaries in the country to do all the calculations necessary to estimate how much all these retirees have been promised.

Though it may seem strange after a decade of double-digit health cost inflation, hardly any public agencies have been tracking their programs' total costs, which must be paid out over many years. The promises seemed reasonable when they were initially made, officials say.

In Duluth, Mayor Bergson said the city actually offered free retiree health care as a cost-cutting measure back in 1983. At the time, Duluth was trying to get rid of another ballooning obligation to city workers: the value of unused sick leave and vacation days. Public workers then were in the habit of saving up this time over the course of their careers and cashing it in for a big payout upon retirement. Compared with the big obligations the city had to book for that unused time, substituting free retiree health care seemed cheap. "Basically, they traded one problem for another," Mayor Bergson said.

WITH some exceptions, most states and cities have set aside no money to pay for retiree medical benefits. Instead, they use the pay-as-you-go system - paying for former employees out of current revenue. Agencies did not have to estimate the total size of their commitment to retiree health care, so few did so.

Under the new accounting rule, local governments will still not have to set aside any money for those promises. But they will be required to lay out a theoretical framework for the funding of retiree health plans over the next 30 years, and to disclose what they are doing about it. If they fail to put money behind their promises to retirees, they may feel the unforgiving discipline of the financial markets. Their credit ratings may go down, making it harder and more expensive to sell bonds or otherwise borrow money.

Parry Young, a public finance director at Standard & Poor's, the credit rating agency, said his analysts look at total liabilities, including pension and now other "post-employment" obligations. Many governments, he added, have already been grappling with big deficits in their employee pension funds.

A few agencies are wrestling with the daunting task of estimating their total retiree health obligations and coming up with a way to slice it into a 30-year funding plan. They are finding that under the new method, the benefit costs for a particular year can be anywhere from 2 to 20 times the pay-as-you-go costs they have been showing on their books.

Maryland, for example, now spends about $311 million annually on retiree health premiums. But when that state calculated the value of the retirement benefits it has promised to current employees, the total was $20.4 billion. And the yearly cost will jump to $1.9 billion under the new rule, according to an analysis for the state by actuaries at Aon Consulting, which advises companies on benefits.

That is because Maryland would not be recording just its insurance premiums as the year's expense, but instead would report the value of the coverage its employees have earned in that year as well as a portion of the $20.4 billion they amassed in the past. After 30 years, the entire $20.4 billion should be accounted for.

Michigan says it has made unfunded promises that are now valued at $17 billion for teachers, part of a possible $30 billion total for all public agency retirees. Other places that have done the math include the state of Alabama; the city of Arlington, Tex.; and the Los Angeles Unified School District. New York City has not yet completed an actuarial valuation of its many retiree benefit plans. But in its most recent financial statements, the city said it expected that the new rule would "result in significant additional expenses and liabilities being recorded" in the future.

The numbers can vary wildly by locality, depending on how rich its benefits are, what assumptions its actuary uses about future demographics and investment earnings, and that great unknown: the cost of health care 30 years in the future.

"Fifteen years ago, who would have projected 10 years of double-digit increases in health care costs?" said Frederick H. Nesbitt, executive director of the National Conference on Public Employee Retirement Systems, an advocacy group in Washington. Mr. Nesbitt pointed out that when the accounting rulemakers began requiring a similar change in financial reporting for companies in the 1990's, it was followed by a sharp decline in the retiree medical benefits provided by corporate America.

Today, only one in 20 companies still offers retiree benefits, according to Don Rueckert Jr., an Aon actuary. The rate for large companies is less than one in three, down from more than 40 percent before the private-sector accounting change, according to Mercer Human Resource Consulting. General Motors and Ford are among the big companies that still offer retiree health benefits. But both automakers recently persuaded the United Automobile Workers union to accept certain reductions.

"We expect the same thing in the public sector, unless we help employers do the right thing," said John Abraham, deputy research director for the American Federation of Teachers.

The Governmental Accounting Standards Board, known by the acronym GASB (pronounced GAZ-bee), is a nonprofit organization based in Norwalk, Conn., and a sister to the Financial Accounting Standards Board that writes accounting rules for the private sector. Karl Johnson, the project manager for the retiree-benefits rule, said GASB began hearing from public employees' unions as soon as it issued a first draft of its new standard. The unions said that if governments were forced to disclose the cost of their plans, they would probably cut or drop them, just as companies have done.

Mr. Johnson said the accounting board had no interest in trying to reduce anyone's benefits, and no power to dictate local policy even if it wanted to. "Accounting is just trying to hold up a good mirror to what's happening," he said. "These are very expensive benefits."

Under the new rule - outlined in the board's Statement No. 45 in June 2004, and known widely as GASB 45 - large public governments and school boards with large health care obligations to retirees will have to start reporting their overall benefits cost in 2007 - either on Jan. 1 of that year or, for most big governments, on the start of the fiscal year beginning June 1, 2007. Smaller governments will start using the new method in the two years after that.

The change comes at a rough time for state and local governments. Spending on Medicaid and education has been spiraling, and Congress continues to cut federal taxes and shift burdens of governing away from Washington. In some areas, including parts of Michigan, governments are also suffering from the financial difficulties of important local industries. Max B. Sawicky, an economist at the Economic Policy Institute, a liberal research group in Washington, called the new requirement "another straw on the camel's back" for state and local governments already straining under their budget burdens.

Mr. Johnson said the accounting board had tried to issue the retiree health care rule 10 years ago, when the economic picture was rosier. It did succeed then in issuing an accounting standard for government pension plans, but before it could turn to the related issue of retiree health care, other urgent accounting issues crowded onto its agenda. The board finally cleared its decks and voted to address retiree benefits in 1999. Coming up with the new methodology took five years.

Now that it is here, "the general sense in the marketplace is that GASB 45 is going to lead to a watershed in public-sector health benefits," said Dallas L. Salisbury, president of the Employee Benefit Research Institute, a nonpartisan research center in Washington.

Indeed, the handful of states and cities that have already calculated their obligations to retirees have concluded they must also rein in the costs. Michigan, for example, with its possible $30 billion in largely unfunded health care promises, is already considering legislation that would shift "a considerable amount of the cost for health insurance to the retiree," said Charles Agerstrand, a retirement consultant for the Michigan Education Association, a teachers union. The legislation would require teachers retiring after 20 years to pay 40 percent of their insurance premiums, as well as co-payments and deductibles, he said.

The pressure is greatest in places like Detroit, Flint and Lansing, where school systems offered especially rich benefits during the heyday of the auto plants, aiming to keep teachers from going to work in them. Away from those cities, retiree costs may be easier to manage. In the city of Cadillac, 100 miles north of Grand Rapids, government officials said they felt no urgent need to cut benefits because they promised very little to begin with. Instead, Cadillac has started putting money aside to take care of future retirement benefits for its 85 employees, said Dale M. Walker, the city finance director.

Ohio is one of a few states to set aside significant amounts. Its public employee retirement system has been building a health care trust fund for years, so it has money today to cover at least part of its promises. With active workers contributing 4 percent of their salary, the trust fund has $12 billion. Investment income from the fund pays most current retiree health costs, said Scott Streator, health care director of the Ohio Public Employee Retirement System. "It doesn't mean we can just rest," he said. "It is our belief that almost every state across the country is underfunded." He said his system plans to begin increasing the employee contributions next year.

In Duluth, Mayor Bergson grew quiet for a moment at the thought of a robust trust fund. "There was not a nickel set aside" in Duluth, he said. "The reason was, if you set money aside, you'd do less 'pretty projects.' Less bricks and mortar. Fewer streets. Fewer parks. So no one set the money aside. "If the city had set $1 million aside every year for those 22 years" since the promise was made, he added, "we'd be in really good shape right now."

Mayor Bergson said his city intends to start setting aside money for the first time in 2006, but he is also trying to rein in the growth of new obligations. He raised to 20 from 3 the number of years that an employee must work for the city in order to qualify for retirement benefits.

He also imposed a hiring freeze and pledged not to lift it until Duluth could hire employees without promising them free lifetime health care. As the city has lost police officers, firefighters, an operator of its huge aerial lift bridge and other workers, the remaining employees have racked up more than $2 million in overtime. But Mayor Bergson says that this is still cheaper than dealing with free retirement health care once the new accounting rule takes effect.

Most recently, he reached out for what may prove a political third rail: he took issue with the idea that once a public employee has retired, his benefits can never be reduced. This idea, as applied to pensions, is rooted in the constitutions of about 20 states, and unions argue that it also protects retiree health care.

Active employees in Duluth have had to start paying more for their health care under the city plan, Mayor Bergson said. If active workers must make concessions, he said, retired workers should make concessions, too. Otherwise, in relative terms, they are pulling ahead of the active work force.

"That's not a popular thing to say," Mayor Bergson said. "I'm getting kicked hard by retirees. I'm getting beat up by active employees. The people who are kicking me are the ones I'm trying to protect."

ATTEMPTS to balance the competing interests of retirees, active workers and taxpayers are building tension. Ross Eisenbrey, a former Clinton administration official who is now at the Economic Policy Institute, said that "when taxpayers wake up to these obligations, their first inclination is often to escape them or reduce them."

The problem is that people have counted on those benefits, and many have accepted lower salaries in exchange for better retirement benefits, said Teresa Ghilarducci, an economics professor at the University of Notre Dame. If they are close to retirement, said William R. Pryor, a firefighters' union official who is an elected board member of the Los Angeles County Employees Retirement Association, it may well be too late for them to make up for the loss with their own savings.

The clock is ticking. In Duluth, a city official approached the actuary who made the city's estimate in 2002 and asked her to refine and update her numbers because economic conditions had changed and the new accounting rule had been announced. This time the obligations worked out to $280 million, a 57 percent increase in less than three years.

Although I empathize with the TWU and their position towards the MTA, I feel they need to understand that unfortunately that it is going to become quite costly to support these benefits. I forsee that the pension model will be eventually be phased out for many industries and be replaced by the 401K.

Please do not mistake my words as anti-union. I am just pointing out a well known trend that these benefits are becoming more expensive to provide for. The bottomline is that the union has to figure out other alternatives to fund the retirement of their members. Government authorities, like the MTA, also need to make an effort to educate and also figure out ways to fund their pensions if they are to maintain them.

It won't be easy. But the first step is that people have to understand that the current system of benefits that cities and other municipalities currently utilized are in the position of becoming dangerously archaic and need to be overhauled.

How a city or town deals with the situation will determine the direction of their real estate market. What will probably happen is that some of state or city governments will simply pass the cost to their constituents through taxes. This is a bad thing.There are parts of Long Island where housing appreciation has hit the roof which has revealed to be a double edged sword. High housing prices and high taxes has proven to be barriers of entry for new home buyers. Throw in an aging, retired or on the verge of retiring population who are resistant to any new rental developments and you have yourself a situation that can go TARFU. What is really painfully ironic is that these homes have become these huge sources of wealth for homeowners however they are unable to reap the rewards of the housing boom because there are no qualified buyers coming in.

In a recent article in the New York Times, hedgefunds are bypassing Westchester for Connecticut. Part of their motivation is to be stationed under the Greenwich, Connecticut brand however a key reason for the Greenwich move are the taxes. The cities and towns who do not make the effort to resolve benefit issues will be in danger of losing a tremendous amount of money while the cities and towns that do get their act together will reap the benefits of this windfall.

Strike over? Not exactly.

It appears that the strike is almost over. However there is a catch. According to this New York Times Article there a timetable has not been announced for resumption of service.

Even after one is announced don't expect instanteous service.

Even if the union calls for strikers to return to work, it could be 18 hours before service is fully restored.

As far as I am concerned this is a conservative estimate.

Tuesday, December 20, 2005

The Transit strike and open houses

Strikes on. Although it is a huge inconvience for all of New York City, I think the timing couldn't be better for the real estate market.

Before you all start throwing chairs at me, let me explain.

1.As everyone knows winter becomes the dead season for brokers since is too cold for people to come out, particularly with rentals. Brokers use this time to clean up, send gifts to clients and prepare for next year.

2. It is the holidays. (I am going to say holidays. Those of you who demand I be more specific, bite me. This my blog not the White House.) People are busy shopping, buying enormous amounts of liquor in order to medicate themselves when they see their in-laws and other relatives they can only can barely stand seeing once a year. The last thing they want to deal with is looking or showing their apartments.

3. The market has become more flaccid than Hugh Hefner going through viagra withdrawls. With a strike, brokers have a great excuse when they are getting reamed by their sellers. "I can't help it. It was the stirke."

4. Real estate agents make their own hours. Unless they have appointments, closings or lease signings, a lot of brokers are spending the time working from home with a cup of coffee while the rest of the working populations walks the trail of tears to work.

Therefore this was the best time for the strike to go down. If the strike happened during the spring or at the height of the market, I guaruntee you that the MTA and TWU would feel the wrath of the entire brokerage community. In fact I could imagine hordes of brokers hurling their cellphones and blackberries at the picket lines.

Quick update on open houses. They were atrocious. Scant traffic for all. But then what did you expect holding them on the weekend before Christmas and Hannukah? (There I said it. But I threw in Hannukah. How's that for intelligent design?)

Those were probably last open houses for the year and I can't say I am unhappy about that. Working those Sundays were just depressing as hell.

Sunday, December 18, 2005

A Darlin for Acid Wit

The New York Times has recently joined the real estate blogging front with The Walk Through. which is written by the glorious Damon Darlin. The mission for The Walk Through is the following

Take a walk through the latest blog from The New York Times. Notice the spacious columns, the picture-window views of national trends and the granite counter-conventional musings. (O.K., the ads are cramped, but notice the fine workmanship of the links.)

The Walk-Through chronicles, and at times celebrates, the great American obsession: our homes. We will compile news, commentary, analysis and even gossip from across the country — ­in other newspapers, on blogs and Web sites, government and trade association reports and academic papers.

The reporters and editors of The Times, those in New York City brownstones and those in detached homes in California, will seek out information that helps you keep the real estate boom in perspective. Whether it is the value of your home, worries over interest-only loans or what the hottest young architect is building, you’ll find it here.

Best of all, we charge no commission. – DAMON DARLIN

And now for a moment of narcissism. The Hunt Grunt tipped me of about my appearance in The Walk Through which was in this earth shattering entry on page 2.

That’s a Wrap
Categories: Agents & Brokers, Prices
One of my favorite real estate bloggers is Property Grunt, who is a New York City real estate broker with an acid wit. He just got back from a brokers’ open house, which he used as a barometer of the health of the market. You see, brokers are lured into the development with the promise of catered meals and an open bar.

But the devil is in the details and they were quite noticeable. First of all the food was catered by Whole Foods, which were sliced wraps that were stacked like poker chips and little pastries. I have nothing against Whole Foods. In fact I think Whole Foods is awesome but this was the first broker open house I have been to that was catered by Whole Foods. I was expecting something that was more distinct. Even the broker open houses I have been to downtown didn’t use Whole Foods.

Wait until they start using the corner bodega. – DAMON DARLIN

This was in reference to my entry on the last broker open house I attended.

There is an army of teachers including my guidance counsler from my days as a student who would drop a collective load in their pants if they knew that I was being lauded by a reporter from the New York Times. Damon, you have made my day.

So it is obvious that The Walk Through exhibits a strong sensibility for tasteful and knowledegable writing, so let's put this one in our bookmarks shall we?

Friday, December 16, 2005

Another day in Manhattan

It looks like we dodged a bullet. Sort of. But at least we have some bus and train service until over the weekend. I am really curious about the open houses this Sunday.

Right now I am listening to Howard Stern's last day on terrestial radio. I actually met Howard Stern back in college. At that time I was an intern for the publishing company where he was preparing his second book "Miss America". I was delivering documents to the "War Room" where Howard, my boss at the time and his agent Don Buchwald where they were discussing the cover which was Howard Stern in drag.

As I entered, my boss asked me over and wanted my opinion of the cover. This was a huge deal for me. Afterall I was an unpaid intern. Then Howard looked me and asked me this question.

"Hey Grunt. Would you buy this book?"

Being a wiseass my response was "I don't need to."

The conference room broke out in laughter.

Still he pressed the issue and I assured him that he would be fine. That everything he ever touched has turned to gold which included his WOR-TV show and his last book Private Parts.

This book would be no different.

Good luck Howard. Keep fighting the good fight. As long as you do that, you will always win.

Wednesday, December 14, 2005

Not another broker open house

Yesterday the Grunt dragged himself to the upper east side for a preview of a new set of condos. Honestly, the only reason why I went was for the free food but I was also curious to see how these new condos were.

Upon entering the building I was greeted by a line of brokers who were signing waivers. Since construction had not yet been completely there was risk of injury for anyone entering the premises. It is standard operational procedure for developers who are still in the hardhat phase to have anyone visiting to sign a waiver so they won’t be sued. This particular developer was quite thorough because not only did brokers sign the waiver but were required to provide business cards, which were stapled to the waivers.

I was getting annoyed by the line of people in the lobby. Usually these things are done a lot quicker but it seems that the developer did not have the foresight to have more than one sign in station. At one point the admins addressed the growing crowd by handing out more waivers and pens. I was happy about that since the broker in front of me coughed in the hand he was holding the pen. I quickly bypassed him as soon as I saw a free pen and blank form

The primary objective of a broker open house is to attract as many brokers as possible and have them bring their customers to the development. In order to make it worth their while, developers lure brokers with free food and prizes. Usually the food is catered by a well known gourmet establishment like Mangia. If you ever have the chance to eat for free from Mangia, I highly recommend the make your own salad and dessert menu. They also have an open bar, or hor doeuvres. It is the developer’s objective to create a sense of well being with all of the brokers so that they remember the developer and spread the word. It is all about association. Good times mean good apartments.

But the devil is in the details and they were quite noticeable. First of all the food was catered by Whole Foods which were sliced wraps that were stacked like poker chips and little pastries. I have nothing against Whole Foods. In fact I think Whole Foods is awesome but this was the first broker open house I have been to that was catered by Whole Foods. I was expecting something that wasmore distinct. Even the broker open houses I have been to downtown didn’t use Whole Foods.

What really surprised me was that Moby’s Teany was providing liquid refreshment. As far as I was concerned this was a complete misfire. Teany is a lower east side brand so obviously no one on the upper east side knows what the hell it is or even cares. When you say Moby to these people they'll think of the white whale. Two carafes of coffee would have been more practical and cost effective. And as far as I am concerned

Usually if these events take place later in the day they provide some type of alcohol refreshments like an open bar. At upscale events it is usually wine. But none was served. Alcohol is a must at these events especially now. Brokers, especially now, need to get tanked. It also gives a better impression of the apartment if the broker is wasted. I suspect the reason why the developer do not have alcohol was because they did not want to increase chances of injuries occurring from inebriated brokers tripping or getting into fights.

There was also a contest for a pair of roundtrip tickets to London which you entered by throwing your card in. Personally what would have been more effective was take a page out of Glen Garry Glen Ross by making a trip to London one of the incentives for brokers to sell these condos not for showing up at the open house.

My overall impression of the condos were, eh. I think it is because the space looked smaller than it was because of the massive amount of brokers and the apartment itself was still in an unfinished state. Now I have been to many broker open houses where the property in question was still in an unfinished state, a ton of brokers showed up and the place sold like hot cakes but we are in a different market now. Developers need to put their best foot forward because buyers are now more discerning.

That means don’t be cheap on the eats and be a bud and breakout the suds. However the jar of jam that was given as we were leaving was a nice touch.

How well these condos will sell is questionable. If they opened up 6 months ago, I am sure they would have sold out by now but the market has changed and I am sure the developer and his investors nervously waiting. I overheard someone on the developer staff that the building will be completed in 30 days. A lot can happen during that time.

Tuesday, December 13, 2005

FSBO World

These were two comments that were recently posted on the Property Grunt.


what are your thoughts on the FSBOs that have gotten a lot of attention these days? I seem to read about a great FSBO sale or see one in the Times every other weekend. Online too on various blogs."

"And I'm seeing FSBO fliers posted around the neighborhood. For the first time in YEARS. What does it mean?"

In my experience it means two things.

1. Some sellers have become desperate. They have tried the broker route and seeing little or no results they are now becoming aware that the market has turned against them. By going fsbo they have rid themselves of this sense of powerlessness and by putting their own skin in the game they feel they can expedite the process in a quicker and more efficient fashion.

2. Some sellers have become more educated and realize that the 6% commission is a mighty big chunk of change especially when the market has begun to go south and they will be getting less of a return on their property. So they might as well try it on their own.

Of course there will be sellers who will reach their brain damage threshold and simply hire a broker but the FSBO movement will not be a passing fad much to the chagrin of brokers. Marketing is a huge cost for brokers and is used to justify their commissions but sellers now have other marketing options that are free.

However, you get what you pay for. When you go FSBO, it is all in your hands. Therefore you don't have a broker to yell at if something goes wrong. However if you can pull it off, you can save alot of money.

Monday, December 12, 2005

Open house report

Still quiet on the open house front. Buyers were scant and moody. Sellers were smoldering.

There has been talk of a recession from the media in relation to the housing market. However the powers that be feel that a recession is more likely to occur in a flu pandemic than in the housing market. Yippee.

So this week the Grunt is going to be listing his tips in dealing with the coming downfall of the market. The Grunt will also welcome any suggestions and questions so start sending those emails.

I'll also be addressing a recent tiff between a well known real estate media magazine and a certain real estate trade organization. Lots of holiday fun for all.

Saturday, December 10, 2005

Air rights question

This was from a reader.


A question for you and your readers

Is there a way to find out about the sale/plans for air rights construction on a co-op building? I'd like to buy an apt. with an especially good view, but the side view of this corner apt. would be blocked is extra stories were added to the short bulding next to the one I'm interested in. I'd like to find out before I hire an attorney, to save expense.

Below is my response.

You ask a very interesting question. Some shoe leather is involved in this process.

1. You should check out the building in question and talk to the staff, e.g doorman, super and see if you can get a rundown of the situation.

2. Ask the seller's broker if they have access to the minutes and see if you can take a look at them. This might require a lawyer in order to properly decipher the minutes. For all you know the co-op might have already purchased the air rights.

3. Go to these two links adn search the building's status.

You should also call the city and inquire if they have any information about this building's potentail redevelopment.

4. You could also call up commerical brokers to see if this is an income producing building on the market. If it is on the market the possibility is that a buyer may be looking to build up.

5.The property might also be landmarked. If that is the case it will be damn near impossible to re-develop it. Check this site to verify it's status.

Even if you do not see any records of building up that still may not indicate you are in clear. Whoever owns the building may consider the option in the future. So it could be hit or miss.

Did I miss anything? Feel free to jump in.

Thursday, December 08, 2005

One more article then I'll call it a day.

A reader sent me this article from the Wall Street Journal

Investors Retreat
From Housing Market

Inventories Rise as Speculative Buying Slows
In Once-Hot Markets Like Phoenix and San Diego
December 7, 2005; Page D1

Individuals are pulling back from buying homes and condos as an investment, in a move that could accelerate the cooling of the housing market.

In markets such as Las Vegas, Miami, Phoenix, San Diego and Washington, D.C., where investor activity had been heated, fewer people are competing to buy properties as an investment, real-estate brokers and housing analysts say. Some investor-owned properties are returning to the market for sale. With the pace of price appreciation slowing, some investors who were betting on quick profits are instead being squeezed.

The apparent pullback by investors is recent and is just beginning to show up in national data. Evidence of the development can also be seen in a number of markets that had until recently been a hotbed of investor activity. As speculators withdraw from the market in San Diego, for instance, the number of investors buying property has fallen by nearly half, estimates Russ Valone, president of MarketPointe Realty Advisors, which tracks the San Diego housing market.

In the Phoenix area, as many as 30% of properties for sale are currently owned by investors, says Jay Butler, director of the Arizona Real Estate Center at Arizona State University. Six months ago, most investors were buying rather than selling, he says. The shift has helped to drive up inventories of homes for sale in the Phoenix area, which climbed to 22,340 in October from 8,600 in April, according to data from the Arizona Regional Multiple Listing Service.

In the latest sign that the housing market is cooling, the National Association of Realtors said yesterday that its index of pending home sales dropped 3.2% in October. The reading is the lowest since March.

It's too early to tell just how a pullback by investors will affect the broader housing market, but their impact on the housing boom has been considerable. Investors accounted for 9.6% of mortgages used to purchase homes in the first nine months of this year, the most recent data available, up from 6.7% in 2002, according to LoanPerformance, a unit of First American Corp. But the investor share began to drop in the third quarter, the firm says. The figures don't include second homes that may also provide rental income and serve as an investment.

A softening in investor demand is likely to accentuate any slowdown in home sales, says David Berson, chief economist at mortgage giant Fannie Mae. He estimates that home sales will fall 10.4% over the next two years, largely because of a decline in investor and second-home purchases. Mr. Berson also figures that without the recent surge in these purchases, home sales would have been 7.3% lower in each of the past two years. That estimate assumes that investment properties and second homes account for 10% of total sales.

Another concern is that investors will be quicker to sell if prices soften, accentuating any downturn, particularly in areas where speculation has been most prevalent. Some of the most vulnerable markets include Daytona, Fla., Las Vegas, Phoenix and Fresno and Bakersfield, Calif., according to Credit Suisse First Boston analyst Dennis McGill.

Even if investors don't all rush for the exits at once, more investor-owned properties are likely to return to the market over the next few years. In part, that's because many investors have bought preconstruction properties that won't be ready for occupancy for another year or two.

To be sure, investor demand remains strong in some parts of the country as investors take their profits in markets that have seen double-digit gains and move into areas such as Dallas, where price gains haven't been so steep. And while it's getting tougher for speculators to make a quick buck, brokers say that opportunities remain for investors who plan to hold their properties for several years.

Earlier this year, Sandra Geary, a broker in California's Sonoma County, was running seminars that drew as many as 200 would-be investors. She's also taken California investors on out-of-state home-buying expeditions to Arizona, Idaho, Nevada and Oregon and bought more than 30 rental properties for her own portfolio. But in recent months, her investor sales have fallen more than 75%. "Now that the market is slowing down, it's scaring investors away," she says.

Some brokers are advising speculators to put away their checkbooks. "I'm telling people who want to buy new construction to flip it that the gig is up," says Frank Borges LLosa, a real-estate agent in Arlington, Va.

Last year, Mike Morgan, a real-estate broker in Stuart, Fla., set up a Web site designed to attract investors scouring the Internet for preconstruction properties. But with the market softening, Mr. Morgan has cut back on promoting his site. Now, he works only with investors seeking "buy and hold" properties. "I haven't sold an investor a property to flip since June," he says.

Some investors also are backing out of preconstruction properties they bought. In San Diego, cancellation rates for new condominium units climbed 47% in the third quarter over the second, in part because a growing number of investors are getting cold feet, according to the Building Industry Association of San Diego County.

Cancellation rates for condo units are also rising in many other markets, including Florida and metropolitan Washington, according to the National Association of Home Builders. "It's largely because of investors" pulling back, says NAHB staff vice president for research Gopal Ahluwalia. "A whole lot of condo units are sitting empty." Whether a buyer can easily get out of a deal can depend on a number of factors, including the builder's policies and the terms of the buyer's contract.

With price appreciation slowing, it's getting tougher for investors looking to quickly flip a property to earn a return that's high enough to cover brokerage commissions, mortgage costs and other expenses. Prices for existing homes are expected to rise 12.4% this year, according to the National Association of Realtors, well above the 5.3% average annual gain since 1990.

Some investors are already getting pinched. Barry Fiske, an account manager, teamed up with a friend to buy a bungalow in the oceanside town of Hingham, Mass. The pair tore down the house and put up a three-story Victorian home that went on the market in October, priced at $889,000. After three price cuts, the asking price is now $799,000 and the opportunities to profit are "marginal," Mr. Fiske says. "We probably spent more than we originally intended to," he adds.

Robert Cayouette, a computer programmer, has put down deposits on 10 homes under construction in Florida, figuring he'd quickly flip them and make a profit of about $30,000 apiece. The first of those purchases, a three-bedroom home in Port St. Lucie, is expected to close this month. But Mr. Cayouette has learned he'll be lucky if the house fetches $285,000, or $10,000 less than his original purchase price. "I wouldn't be able to flip it if I wanted to," says Mr. Cayouette.

With home prices growing faster than rental rates, investors who decide to rent out their properties rather than sell them often can't make enough to cover mortgage payments, taxes and other costs. Arash Yazdi, an information technology consultant, decided to rent out his $465,000 townhouse in Merrifield, Va., this fall after a deal to sell the home fell through. He figures he's losing about $1,000 a month.

Write to Ruth Simon at ruth.simon@wsj.com1

URL for this article:

It's on folks. With the withdrawal of investors there will definitely be a drop in prices. But how far will the drop go? And will the serious buyers be more apt to wait it out longer to see home much momentum the price drops will gather?

Wednesday, December 07, 2005

Critical Path: Housing Market

Soft landing? Yeah right. According to these articles this looks like the biggest housing beatdown in all of history.

U.S. Housing Market Seen Declining in 2006 By ALEX VEIGA, AP Business Writer
Wed Dec 7,10:52 AM ET

LOS ANGELES - The U.S. housing market will see a sustained decline next year, causing a drag on the nation's economy but falling short of triggering a recession, according to a new economic report.

"We expect housing to start slowing the economy this quarter or the next," Edward Leamer, director of the quarterly University of California, Los Angeles, Anderson Forecast, wrote in the report to be released later Wednesday.

The cooldown in the housing sector is likely to be spread over several years, with as many 500,000 construction jobs and 300,000 financial sector jobs lost, the report said.

"Some jobs in manufacturing might well disappear as a result of weakness in housing, but this may be offset by jobs brought home or not lost to foreign competition," Leamer wrote.

The forecast said eight of the last 10 economic recessions were started by housing market slowdowns.

Previous UCLA Anderson Forecasts have suggested a decline in housing construction would begin by mid-2005.

The current report cites several signs that the decline could be underway:

• New construction of housing in October was down 5.6 percent from the previous month, with new construction of single-family housing accounting for a 3.7 percent dip.

• New home sales have declined.

• Applications for home mortgages have trended downward since late September as rates increased.

• In some regions, homes are remaining unsold longer and the pace of housing construction is outpacing population growth, which could spell a decline in demand.

"On all these grounds, we believe housing is due for a sustained decline," economist Michael Bazdarich wrote in the Anderson Forecast. "The remaining questions are how hard the fall will be and when it will begin."

The forecast for California, where housing prices lead the nation and housing-related jobs have been driving economic growth, resembles the national outlook.

Economist Ryan Ratcliff said the state's housing market will see a slowdown in spending along with job losses in construction and related sectors.

He expects California home prices to plateau while sales and new construction see moderate decreases during two years of weak growth.

"If the housing market slows more than we are expecting, a recession is not out of the question," Ratcliff wrote.

Counties showing signs of a cooldown include San Francisco, where housing sales have been off 20 percent since peaking in June, 2004. San Diego County has seen sales slow about 13 percent, while monthly price gains have plummeted to low single digits.

California's job picture has been lackluster in recent months. The rate of employment growth has slowed after a significant number of jobs were added in July and August.

Construction has remained the fastest-growing sector. But Ratcliff predicts a slowdown in construction activity through 2007 and moderate construction job losses.

This was from L'Emmerdeu

Housing Bubble Bursts in the Market for U.S. Mortgage Bonds

Dec. 6 (Bloomberg) -- In the U.S. bond market, the housing bubble has burst

Bonds backed by home loans to the riskiest borrowers, the fastest growing part of the $7.6 trillion mortgage market, have lost about 2.5 percent since September on concern an 18-month rise in interest rates may force more than 150,000 consumers to default.

``We've been hearing about risks of a house price bubble, easy credit and loans to borrowers that really don't qualify, and now in the last couple of months we're starting to see things turn for the worse,'' said Joseph Auth, a bond fund manager who helps oversee $135 billion at Standish Mellon Asset Management in Boston. ``We don't know if it's going to be a hard or soft landing.''

Mortgage securities with low ratings and loans from Ameriquest Mortgage Co. and New Century Financial Corp., two Irvine, California-based companies that specialize in lending to the 50 million people with histories of late payments and bankruptcies, yield the most in two years. The rise in yields reduced the value of loans made by lenders, resulting in lower profit margins and higher rates for consumers with bad credit.

The slump in the bonds is one of the first signs the housing boom is ending after the Federal Reserve's 12 interest- rate increases. Real estate has accounted for about half the economy's growth since 2001, according to Merrill Lynch & Co.

Growing Market

About 13.4 percent of all mortgages at the end of June were to borrowers considered most likely to default, such as those with high credit card balances, up from 2.4 percent in 1998, according to the Mortgage Bankers Association. The Washington- based trade group's 2,700 members represent 70 percent of the home-loan business.

The amount of bonds backed by these high-risk loans has more than doubled since 2001, to a record $476 billion, according to the Bond Market Association, a New York-based trade group of more than 200 securities firms.

The market ``will deteriorate as housing slows down,'' said Christopher Flanagan, who runs asset-backed debt research at New York-based JPMorgan Chase & Co., the fourth-largest mortgage lender in the U.S. The amount of loans made next year may fall by as much as 25 percent, he said.

Borrowers with credit scores below 620 as measured by Fair Isaac Corp. have a higher risk of defaulting, and loans to these people are considered subprime. About 20 percent of the U.S. adult population has a score below 620, according to Fair Isaac, the Minneapolis-based company whose FICO ratings are the benchmark for loans and credit cards. The test scores borrowers from 300 to 850 and the lower the mark, the riskier the credit.

Delinquency Rates

The last time delinquency rates on lower-rated mortgages jumped was in 2000 as economic growth slumped following the Fed's six rate increases. The central bank has lifted rates 12 times since June 2004, to 4 percent from 1 percent.

The weighted average default rate on the riskier loans rose to 10.1 percent in November 2001 from about 7 percent in early 2000, according to Michael Youngblood, a managing director of asset-backed debt at Friedman, Billings, Ramsey Group Inc., an Arlington, Virginia-based securities firm that specializes in mortgage-related assets.

The late payment rate is 5.51 percent now. Every 1 percentage point increase in that rate means another 34,700 home-loan defaults, according to Youngblood's calculations.

``Employment drives credit conditions in subprime loans and as long as we see a robust labor market we should not expect deterioration in subprime performance,'' said Youngblood, who expects the default rate to reach 5.75 percent by August.

The Labor Department said last week that the unemployment rate in November held at 5 percent for a second month, below the 5.64 percent average over the past 20 years.

`Big Fear'

Irene Von Toussaint, a 33-year-old married mother of one from Bayville, New York, said she's depending on improvements to her credit to avoid paying a rate of as much as 12 percent when the fixed period of her New Century interest-only loan expires in two years. Von Toussaint's credit score is 584.

November 1985 was the last time any prime borrower paid 12 percent on a 30-year fixed-rate mortgage, according to Freddie Mac. Von Toussaint now pays 7.1 percent, compared with about 5.25 percent for a so-called prime customer.

``Paying bills on time is the big fear because I've been disorganized,'' said Von Toussaint, who now has her payments deducted automatically from her checking account.

Loss Estimate

Losses on mortgage bonds backed by subprime loans that will be made next year may rise to 7 percent, contrasting with 2 percent for bonds issued the past two years, should home prices hold steady, said Kenneth Posner, a New York-based finance analyst at Morgan Stanley.

The average yield on bonds rated BBB-, the lowest investment-grade ranking, and backed by payments on adjustable rate mortgages made to the riskiest borrowers is 7.23 percent, the highest since December 2003, according to JPMorgan. The yield was 5.7 percent in October.

The 1.53 percentage point increase compares with a rise of 0.4 percentage point to 5.93 percent for higher quality 30-year mortgage securities guaranteed by Fannie Mae.

Lenders that rushed to provide mortgages amid rising home prices are now stuck with loans worth less than they expected because bond investors are demanding more protection. They are raising mortgage rates help to make up the difference.

`Changing Environment'

``In a rapidly changing environment, you can find yourself ahead or behind the yield curve,'' Robert Cole, chief executive officer of New Century, the No. 2 lender to people with the lowest credit scores, said in a Nov. 15 interview in New York. ``With rates going up, it's more likely behind.''

Profit margins for New Century may narrow to 15 to 25 basis points this quarter from 61 basis points in the third quarter, and 175 basis points in 2004, Chief Financial Officer Patti Dodge said in an interview. A basis point is 0.01 percentage point.

New Century is increasing rates twice as fast for subprime borrowers than for others, Cole said. The company lifted its weighted average rate to about 7.9 percent in November from 7.18 percent in August, pushing up the cost of a $200,000 loan by $98 a month. A prime borrower would only have to pay about $56 more.

Gains from sales of loans at New Century fell 13 percent to $176.2 million in the third quarter from a year earlier even as sales rose 43 percent.

At Kansas City, Missouri-based NovaStar Financial Inc., another lender to borrowers with poor credit histories, profit from sales tumbled 23 percent.

Yield Spreads

``Originators don't charge enough for the risk'' and will lose money as investors demand higher yields, said Alex Wei, who co-manages $3 billion in bonds at Philadelphia-based Delaware Management.

Ameriquest, the largest company specializing in loans to subprime borrowers, had to pay investors a yield of 2.75 percentage points more than benchmark one-month lending rates to sell $14 million of BBB rated mortgage bonds last month.

The extra yield was 1 percentage point higher than on a similar issue sold by the company in June, according to data compiled by Bloomberg. The $1.2 billion AAA rated portion was priced at 24 basis points, 1 basis point higher than in June.

Sales of bonds backed by risky loans will fall next year to about $375 billion, JPMorgan's Flanagan said.

The Fed is signaling that it's unlikely to stop lifting borrowing costs until housing cools. The Commerce Department said last week that new home sales in October increased 13 percent, the most since April 1993, to a record 1.424 million annual rate.

``Froth'' in housing markets may be spilling over into mortgage markets, Fed Chairman Alan Greenspan warned an American Bankers Association convention in September. A rise in interest- only loans that initially don't pay down principle and the introduction of ``exotic'' variable-rate mortgages ``are developments that bear close scrutiny,'' he said.

To contact the reporter on this story:
Al Yoon in New York at

As far as I am concerned these articles have confirmed our worst fears about the market. So what do we do now? I am going to do my part by presenting information on how to survive the crash. Those of you who will say that I am trying to stir the pot, you can f**k off. This whole situation has gone beyond the point of debate and it is time for action. I don't give a damn if I look like some survivalist nut telling everyone to build a bomb shelter because far as I am concerened, the s**t isn't going to hit the fan, it's going to be the entire septic tank. There is going to be an assload of people who are going to be bleeding cash from their purchases and the media is going to be overwhelmed with real estate horror stories.

Remember this quote?

Sarah Connor: What did he just say?
Gas Station Attendant: He said there's a storm coming in.
Sarah Connor: [sighs] I know.

The Terminator

So are you going to take shelter or stay on the beach?

Bank closings

The Grunt has heard on the wire that a signifigant amount of banks have begun to close shop due to the lack of interest (no pun intended) for mortgages. Can anyone out there verify this?

Tuesday, December 06, 2005

NAR stuck on spin cycle

It seems NAR is doing their laundry again. According to Diane Olnick of CNBC's Morning Call, the National Association of Realtors released news of a "slight" housing slip based on deals signed not closed in October.

According to NAR's pending home sales index which are contracts signed not closed:

*The following numbers for October was 3.2%

*This was 3.3% below October of last year. Sales number is still above average

*According to NAR's Chief Economist "the index is point to a soft landing for home

I am not an economist nor am I on CNBC but how do these numbers indicate a soft landing? To me these numbers indicate run and cover. It is a pretty big drop from 6.5% to 3.2%. How did I get 6.5%? NAR stated 3.2% of last October was 3.3% below October of last year. Do the math.

According to CNBC:

*Regionally the index (I am assuming sales, they did not specify)rose in the west which was down the last year.

*Dropped a bit in the south. (CNBC did not present numbers)

*There was a 6% drop in the midwest.

*And a near 7% drop in the north east.

Does this sound like a soft landing to you? I think this sounds more like a crash and burn. I am getting dizzy from all this spin and it is really starting to piss me off.

I am officially calling out NAR. I want evidence why they state that a soft landing is on the horizion. I want real historical, empirical evidence. None of this bulls**t about all signs to a soft landing because as far as I am concerned the same signs point to hellfire and brimstone raining down on the housing market.

If anyone out there can provide evidence that NAR is correct, please feel free to do so. I am more than happy to switch my stance if someone can give me proof that NAR is in the right.

My take is that NAR knows the market has hit the iceberg and there are not enough life boats so they are telling everyone to stay on the ship as long as they can. This housing market has been carrying the American economy for quite sometime and it looks like it can no longer hold the burden so NAR is trying to pump out as much money as possible before it collapses.

If the market enters the bend over and kiss your ass goodbye phase, I am sure NAR will stand by the party line that it is all part of the soft landing instead of acknowledging the truth.

Sunday, December 04, 2005

The Customer is always right

Joyce Cohen's column The Hunt spotlights a young Food Network anchor's quest to leave her mom’s house to find a studio.

The part I loved the best was when Ms. Hall agonized over calling the broker about pulling out of thedeal.

Then she had to make the dreaded phone call, telling the broker with the 57th Street listing that she was pulling out. "I suppose I could have had my lawyer do it, but she had done a lot of legwork on my behalf, so I felt I needed to tell her voice to voice," Ms. Hall said.
"I said it's not something I planned and I feel really bad, but you know how the broker thing works," she said. "She was really dramatic and emotional. I was kind of feeling guilty about it but there was nothing in writing, I wasn't committed to her, and I didn't do anything illegal or unethical. It was ironic because, had she gotten me the contract a month earlier, we wouldn't have had this situation."

I admire the fact that she had the balls to call and break up with her broker. Most of the time buyers are too chicken s**t to call or they email a Dear John letter. What Ms. Hall did is not an uncommon occurence since buysers nowhave more resources at their disposal and unless they have signed a contract they go wherever they want to go.

All agents have stories where buyers for whatever reason broke it off. I was once working with a couple when the husband dissolved our relationship by informing me that his wife wanted to work with an agent that was Chinese. He was white but his wife was Chinese. I responded with “Happy wife, happy life.”

Ms. Hall should not feel guilty in any way because the customer is always right. If she did not feel the agent provided the proper services and is not legally bound to the agent then she has the right to look for a better deal.

That agent can bitch and moan about Ms. Hall all she wants. But the bottom line is that this is a huge investment of Ms. Hall’s time and money. Remember, she has to live with whatever decision she makes since she has to live in that apartment. I know it sucks from my own experience but those are the risks in our line of work.

Saturday, December 03, 2005

Craigslist Wars: Craig Strikes Back

Craig has finally dropped the big one in the Craigslist Wars and has announced he will be charging for real estate ads.

According to Money magazine

The company plans in 2006 to begin charging employers to post job listings in four new cities: Boston, Washington, D.C., San Diego and Seattle. It's also set to collect a nominal fee, no more than $10, from New York City real estate brokers for their property listings.
My prediction is that there will be a massive exodus of rental brokers to the free Google Base since the only reason why agents kowtowed to Craig’s policies was because of its free ads. However I don’t think Craig is losing any sleep over that.

The biggest threat, as usual, is Google. It has introduced Google Base, where users can upload anything -- e.g., "49ers tickets for sale" -- into its searchable database. Piper Jaffray analyst Safa Rashtchy calls Google Base "Craigslist on steroids." Google's technological prowess -- and money -- mean it can add features in weeks that Craigslist has contemplated for years.
If only Newmark and Buckmaster cared. "We don't even really think in terms of competition," says Buckmaster. "Our site usage is growing at, like, 200 percent per year. If the activities of other companies cause that number to be reduced, I don't think we'll necessarily lose sleep. It's probably inevitable." Buckmaster says he's more focused on a long list of projects, including adding cities, introducing foreign-language support outside the U.S., connecting regional sites and improving search capabilities.

As everyone knows, Craig has been on a search and destroy mission to take down scum bag bait and switch rental agents but he did make known of his plans to charge for real estate ads. But although it must have been fun taken a flamethrower to scum bag brokers I think Craig decided to implement his own firing solution to the end the matter.

What will be interesting to see how Craigslist and Sellsius will co-exist. Craigslist does have a large following however Sellsius costs only $29.95 for the year. Next year is going to be quite interesting.

Thursday, December 01, 2005

Sellsius: Ice Cold Real Estate Action

This was a PR link I received from Sellsius.

Sellsius Announces Its Low Cost Annual Membership To Post Unlimited Real Estate Listings and More

Sellsius, an all inclusive real estate web site, scheduled to launch in January, announces its low cost annual membership to post Unlimited Real Estate Listings and More.

New York City, New York (PRWEB) December 1, 2005 -- Owners and real estate professionals no longer need to pay for high cost newspaper and online advertising. They can now get maximum exposure for all their property listings at an affordable price. For $29.95 per year, anyone, including owners, agents, developers, builders, managers etc. can post unlimited listings for any type of real estate - residential or commercial, sales or rentals, businesses for sale, new and pre-construction, timeshares, vacation homes, getaways - anything - even treehouses. Everyone can also post unlimited classifieds for real estate related products, services and jobs. Sellsius says, "If It’s Real Estate Related, You Can List It".

A Cost Effective Option To Expensive Newspaper and Online Advertising

Advertising real estate, whether online or in print, is costly. Many venues charge weekly or monthly per listing. Whether a FSBO or a real estate agent advertises real estate in New York, Los Angeles, Miami, Chicago, Boston, Seattle, Las Vegas, or anywhere, they are compelled to pay for expensive print or online advertising. Over time, costs escalate, forcing listers to become selective about the frequency of their ads and the choice of property they list. This is a problem for owners and real estate agents with limited advertising budgets. “Ideally, for maximum exposure, you need to advertise all your listings every week in as many venues as you can afford,” say the founders of Sellsius. Sellsius eliminates per listing fees. With its low cost, owners & real estate agents or other professionals have the ability to give all listings maximum exposure.

List All Real Estate Niches

"An owner or real estate professional may need to list many types of real estate at any given time. They may own a multi-family investment property in Hoboken, a beach home in the Hamptons, a timeshare in Mexico, a business in Manhattan, land in Colorado, office space in San Diego or an apartment to rent in South Beach. If they wanted to list them all, they would have to go to traditional print advertising or different web sites that specialize in that niche and pay a separate listing fee for each", say the founders. Anyone can post all of these properties on Sellsius’ all inclusive site for one low annual membership fee of $29.95. For a FSBO, that’s the cost of a sign. Sellsius removes the financial risk associated with advertising real estate and increases the chance for a better return on investment. In addition, Sellsius has a code of ethics, disclosure requirements, and strict updating rules for members to insure quality and help prevent the abuses commonly found on free listing web sites.

For a complete list of all the solutions & benefits Sellsius offers, please email them for a copy.

Sellsius will debut at the Triple Play Realtor Convention, held in Atlantic City, New Jersey, on December 6-8, 2005.

Sellsius, LLC
Joseph G. Ferrara & Rudolph D. Bachraty III, Founders

Sellsius has joined Craigslist and Google Base in presenting another real estate advertising alternative. All Sellsius needs to doestablish strong brand recognition because that will play a vital role to their success. The fact they have such a funky yet recognizable name should work in their favor.

Online services have the potential of providing a ton of leverage for sellers since one of the ways that brokers justify their commissions is that they spend a ton of money out of their own pocket to advertise for the property. That argument holds no water if it only costs $29.95 a year to advertise comparing a pricey New York Times ad.

If the advertising features of Sellsius proves to be comparable or superior to the New York Times well brokers should start gathering their towels. Half the battle in selling an apartment is marketing and if Sellsius is as effective as they claim then brokers should expect a signifigant reduction in listings because alot of sellers will be going FSBO.

This is the natural of order of technology. So resistance is futile.

Welcome to the Jungle

Recently, Janis Mara of Inman news did an article on Urban Jungle Realty which has joined the ranks of Foxton's as a discount broker which is focused on providing services for the buyer.

According to Alison Bernstein, founder of Urban Jungle Realty:

Bernstein, principal broker of the Urban Jungle Realty Group, emphasized that her service is focused on "the Internet-savvy, aggressive buyer who knows New York City," the kind of buyer who, like more and more clients these days, does research online and knows what he or she wants.

The broker pointed out that since New York doesn't have a multiple listing service, clients who do their homework often know as much about a neighborhood as a real estate agent would. Buyers can do their research and go to open houses on their own without Urban Jungle agents escorting them – and hence save time and money for the agents and ultimately the clients.

From my experience I have seen buyers who have become quite savvy to what they want and what the market offers. Not only have they been searching for awhile but they also have access to more information than ever.

"Nobody wants to work with buyers because they're a headache. They say they want a two-bedroom today, and then it's a split-level tomorrow. Or they waste the agent's time driving them around and then say, 'I don't want to buy anything,'" Bernstein said.

By not escorting clients to open houses, Urban Jungle agents can spend their time on more financially rewarding activities, she said. Additionally, Urban Jungle administrative staff handles all the paper shuffling agents are usually stuck with, such as coordinating attorneys, inspections, board packages and answering the phone, Bernstein said.

Yes. This is true also. I have been burned by many a buyer by used as a tour guide. It is quite annoying. Although her model is unorthodox it does have possibilities.

"If a buyer visits an apartment and decides they want it, they can whip out their cell phone and call our 24/7 call center, and an agent will take a cab to meet them and write the offer," Bernstein said.

A real-life example: "In one of our first deals, our buyer came to us and said, 'I want an apartment in this building.' Okay. Done. In 10 minutes," Bernstein said. "So why should I expect a 3 percent commission?"

Elaborating, the broker said, "In this case it was a new development. We contacted the listing agent, we negotiated and made sure the process was conducted properly, but look: a dream for the buy side.

"The purchase price was a million thirty-five," Bernstein said. "Under a conventional 3 percent arrangement, I would have earned $31,050. But I only took $7,000. How dare I take money from you when you have done your homework and done so much of the job from me?"

The end result was quite satisfying,

In the case of the aforementioned client, "We negotiated and got to this price, a million thirty-five, and upon accepted offer, I said, 'Let me step in. I do not need all this commission,'" Bernstein said.

"Meaning I'm going to reduce my commission to the seller's agent and say instead of taking three percent I'm going to take X percent, so at the closing table, don't write me a check for $31,050, write me a check for $7,000 and reduce the buyer's purchase price by the rest," the broker said.

Basically by taking a cut on the commission she has given a discount to her buyer for the purchase price. It sounds fantastic. However Ms. Bernstein points out that Urban Jungle Realty is quite specialized.

The broker emphasized that her service is not for everyone.

"We are not for people who are relocating to New York. We don't have time to take them on a tour and say, 'This is Lincoln Center,'" Bernstein said. "There are many other excellent brokerages here who can do a great job at that. Foreign buyers, out-of-town buyers, that's not for us. We're geared toward the specific demographic of demanding, market-savvy buyers."

The model that Ms. Bernstein is using is what is what I liked to call the Chinatown model which is to sell low but make your money in moving high amounts of volume. There a ton of savvy buyers out there who know what they want and go out on their own without a buyer's broker. However it doesn't hurt to have someone in their corner to coordinate all the details and make sure that they aren't getting screwed over.

The only party I can see getting annoyed are the selling brokers. A direct buyer usually means a broker gets a 4% commission all to themselves. The last thing they want to do is share that commission to some agent who just popped into the deal the lat minute. In fact most selling brokers will go apes**t over a discount broker even if they are getting the larger portion of the deal. Why? Because they want it all especially in a soft market.

Another thing that will probably happen is that sellers will demand to renegotiate the commission because co-brokes usually means a 6% commission will be provided by the seller to be split by the two parties. However, if it turns out that a discount broker is only taking less than half of the 6%, the seller is going to demand to lower the commission since the selling broker is taking the majority of the split.

As discount brokers become more popular, I do forsee sellers demanding a clause in their exclusive agreements that if a discount broker is involved with the transcation than the commission will be reduced.

Now if REBNY takes a page out of the NAR playbook and demands minimum serivce laws well, that is when things are going get completely out of control.