Property Grunt

Sunday, January 30, 2005

A Moment of Silence

Several weeks ago the Grunt was invited by a friend to a suprise birthday party that was being thrown in Williamsburg. Except for three people the Grunt, knew know no one at the party but everyone made the effort to make the Grunt welcome including the Birthday Boy's fiancee. Her name was Nicole duFresne.
On January 27, 2005 Nicole duFresne was murdered by a mugger.

The Grunt wants to take this moment to pay his respects to a woman who was snatched away from this world. But the Grunt takes comfort knowing that God has gained an Angel who will inspire and rally the heavens to greatness for all of eternity.

My condolences to the duFresne family, Jeffrey Sparks, her fiance and Nicole's endless circle of friends.

Godspeed Nicole.

Friday, January 28, 2005

The Craigslist Wars

Recently Craig Newmark, the creator of craigslist, laid the hammer down on the real estate market by annoucing he would be charging rental brokers adspace on craigslist. So why is this such a huge development in the real estate field? For that answer let’s go back to the Grunt’s origin in real estate.

The Grunt began his career in a well known rental brokerage company where the use of craigslist was standard operational procedure since it was free and the site attracted a high amount of traffic. My manager at the time ordered us to put out ten craigslist ads a day using the database of listings that the company possessed.

My manager loved touting the wonders of craigslist. If an agent was stuck in the mud he would ask if they put any craigslist ads out and then berate them for not doing so.

The Grunt quickly learned that these attributes made craigslist really aggravating. By being free it often attracted the dregs of the rental market including people with very limited budgets and horrendous credit. I would get hits on my craigslist ads for apartments that were $1300 or less but anything above $2000 was a ghost town. But the majority of those clients did not have the budget to cover a fee or even a security deposit. I knew one broker who put out ten ads on several $800 a month studios way uptown and ended up with over 50 hits. Because of its popularity and the simple graphic user interface, clients would often call on multiple ads put out by other brokers. It was not uncommon to talk with other agents in the office about our clients and find out we were talking about the same ones. So client loyalty was nonexistent.

Basically craigslist is classified as a lead generator, which is an advertisement that attracts customers. The objective is to get that customer to call the broker and than make them yours. Of course Craig has a different view of the lead generator concept.

"The problems we’ve seen are brokers charging a fee for apartments posting in no-fee section, some not disclosing who they are. Sometimes subtle forms of bait-and-switch. This is becoming the exception. We're hearing that things are getting better... People only cut corners when they think everyone else does... I'm trying to dress in black more and be more cynical, but it’s not working."

The bait and switch issue that Craig is referring to is actually a gray area in rentals. First of all what is a bait and switch?

a deceptive way of selling that involves advertising a product at a very low price in order to attract customers who are then persuaded to switch to a more expensive product

This is one of many definitions but the gist is that a product is advertised and when the customer calls they are told it is no longer available but there is another product similar to it.

Now are rental agents engaging in the act of bait and switch tactics? That’s complicated and the Grunt will explain why.

In the real estate business particularly with rentals a well-known fact is that when someone calls on an ad for an apartment chances are they will most likely not rent it because it does not fit their needs or it has already been taken.

A good broker will design a strategy around this fact by collecting a portfolio of ten comparable apartments similar in budget and features and place ten ads on craigslist. When the customer calls for an appointment there will be nine other apartments to view in case the client does not like the apartment or the apartment has been already taken. The objective of the lead generator is to have the customer call the agent and if the agent is worth their salt they will be able to make them their client.

Now here’s the gray area. Sometimes customers call for an apartment which was available but is told it has just been taken off the market and then agrees to look at some other apartments. But the customer has no idea whether the original apartment existed in the first place.

An apartment that is priced correctly will often go quickly the very day an ad is put out. That is the nature of the business. One also has to keep in mind the chaotic nature of the application process and the cryptic lines of communication between broker and landlord.

The Grunt had an experience where an apartment had ten applications and it looked like the Grunt’s client was not going to get the apartment however all ten applications were unqualified except for the grunt’s client. Hence the Grunt got the commission check.

It is theses types of variables that complicate the apartment hunting process which are completely out of the agent’s control.

For customers using craigslist, it can be a maddening experience particularly sifting through the ads and figuring out which apartments to select from and looking at apartments that were far different from what was described in the ad.

Anyone who is reading this and thinking of ways to exploit craigslist with bait and switch schemes please be advised that Craig does not look too kindly on that sort of conduct. He is the Stew Leonard’s of the Internet and always believes the customer is always right. He takes all feedback about his site very seriously and regularly patrols the halls of his temple ever vigilantly for anything that casts a dark shadow on his beloved creation. If you play Greedo Craig will Han Solo your ass since as far as he is concerned you shot first despite what others say.

Craig started this list out of love for his friends and family and as far as he is concerned the only thing that has changed is that his community has just gotten bigger. He could have cashed out a long time ago and would have made out like bandit in the landscape of the ill fated dot com boom but he chose to stay and fight on behalf of the proletariat.

So has the Grunt ever engaged in any abuse of craigslist? No. Because the Grunt has a healthy respect for the law and paid attention to the Human Rights and Fair Housing course during the real estate class. Besides that’s not the Grunt’s style.

What does the future bring for craigslist and rental brokers? Whatever the outcome, Craig is going to be sitting on the catbird seat because his site gets a ton of traffic and ebay already owns a percentage of the site.

For rental brokers it’s a completely different story. The Grunt has already heard rumblings from the grapevine that certain rental brokerages have no desire to play by Newmark’s rules and will be forbidding agents to use craigslist. Agents who primarily use craigslist for their business will feel the pinch and will have no other option other than to use whatever internet ad space is available to them or buy ads in the New York Times.

No offense to Craig, but the Grunt was not the biggest fan of craigslist. The clients that the grunt acquired either had low budgets, bad credit and in general wasted the Grunt’s time. Grunt would cringe whenever the manager would bark orders to put out craigslist ads. Where the Grunt works now craigslist is verboten because we believe in paying for our advertising. Craig, this isn’t sour grapes. Grunt highly recommends craigslist for those who are seeking bargains. Those deals are definitely there. There are a ton of success stories where craigslist has played a key role. Besides some of those ads are really amusing.

Monday, January 03, 2005

How do I know I have a good deal?

I often see this commercial with Erik Estrada talking about buying real estate in the boonies somewhere calling it a great deal. But why is it a great deal? Just because Ponch from “Chips” says so doesn’t make it so. How do you know what is a great deal?

Simple: Comparables which are a record of properties that have been as listed as being on the market or sold and used as comparisons to determine the value of a certain property.

Comparables also allow you to figure out how to put down the best offer but according to this link you have to know how to get them.

Welcome to the world of comparables. Here's how it works: If two identical homes are on the market and one sells for $250,000, which will be a big factor in the cost of the second home.

In real life, however, two houses are seldom identical. And the differences -- such as an updated kitchen or poor maintenance -- can make a big difference.

So, if you're interested in a neighborhood, you need to know what's selling, for how much and how long it's on the market.

Realtors usually have a record of homes sales, their duration on the market before it was sold and description of the home. Getting this information gets a little tricky. According to this site some brokers will require a formal agreement.

In Manhattan comparables are easy to acquire for buyers and especially sellers. The major brokerage companies have enormous databases that contain copious amounts of information on the real estate market. And they are more than happy to share it with you especially if you are a seller in order to entice you to sign them as their exclusive broker. It’s important to get as many comparables as possible that fit your requirements that way you will have a better idea of the market.

Information you should present to the broker.

Where you are looking to live?
What type of building, coop condo?
What is your budget?
What can you afford in terms of maintenance?
How much can you afford in a down payment?
What changes are occurring in the area?

Comparables indicate the following.

1. Whether the property is overpriced.
2. How much to put down for an offer.
3. How many sales have been done in the area.
4. Is the market for that area hot or cool?

Please bear in mind that you should access as many resources as possible in order to get a complete picture of the market. That means talking to as many qualified brokers and doing research on the market.

Law and Government in Real Estate

This is a fascinating article on how powerful a role the court plays
in real estate.

City Obtains Court Order To Close Apartment Complex Authorities Say Apartment Used By Crips Set

In what was described as the first case of its kind, the city obtained a court order closing a South Los Angeles apartment complex used for decades by a Crips set, the City Attorney's Office said Tuesday.

"This is not something that the City Attorney's Office normally does," City Attorney Rocky Delgadillo said in the 6900 block of South Main Street. "But these are not normal circumstances."

The order closes a 24-unit complex across from Bethune Middle School that authorities say was used as a base for more than 20 years by the 69 East Coast Crips. At times, Delgadillo said, children at Bethune have been taken out of classrooms and herded into the cafeteria until police can secure the campus perimeter.

The order by Superior Court Judge Susan Bryant-Deason requires that the apartments be closed for at least 90 days, after which the property's owners will only be able to use the structure for commercial purposes, and with court approval, according to the City Attorney's Office.

Are judges that powerful? Let me put it this way: If a group of judges can decide who can be President of the United States, then they sure as hell can shut down a building.

Although this is the first I have ever heard of this occurring, this is an example of the power the court wields.

Let's take this further. You are a buyer and you have been given a sweet heart deal for this complex. All you've seen were the numbers and dollar signs of how much you will make. Everyone assures you it’s a great deal and you forego doing your own due diligence and buy it.

Now what do you think your position will be after the court order? Do you think the judge will understand that you were ignorant of the situation? That you have a mortgage to pay? Do you think the bank will sympathize with you and will understand why you are unable to make your payments? Do you think the building staff will take a pay freeze for 3 months?
I don't think so.

Another legal power that the government has is imminent domain.

Which means

The government (local, state or federal) has the power of "imminent domain," which is the legal and planning term for condemning property "for a public purpose." Usually this power is used for acquiring right-of-way in the case of the highway department, redevelopment in the case of urban renewal projects, sites for public facilities, etc."

If you own a piece of property that the government needs, they will take it away from you. Of course they will pay you but don't expect any leverage in the negotiation.

Hey, let's be careful out there.

-Sergeant Phil Esterhaus Hill Street Blues

Saturday, January 01, 2005

Mortgage Contingency

When the contract is being prepared to purchase a residence what is often inserted in the contract is a mortgage contingency clause. According to the American Bar Association a mortgage contingency is the following.

Common provision allows the buyer a certain period of time to obtain a commitment for financing at a specified interest rate for a certain amount of money. It usually lasts for 30 to 60 days, depending on the average time needed to obtain a loan commitment.

A mortgage-contingency rider provides critical protection to the buyer. For example, it allows the buyer to void the purchase contract without penalty in those cases in which the buyer is unable to obtain financing on the terms specified in the contract after making a reasonable or good faith effort to do so within the time provided. Because this type of clause favors the buyer, some real estate agents suggest that the buyer obtain "pre-qualification" from a lender, which gives the seller a degree of confidence that the buyer will not use the clause to void the contract unless some extraordinary circumstance arises.

Upon signing the contract, a down payment is given by the buyer to the seller who will take the property off the market. The contingency allows the buyer to retrieve the down payment if they can't get a mortgage or if the Coop board rejects the buyer.

However the clause can be waived:

Seller may refuse to agree to a mortgage-contingency rider. This can and does happen in a very hot seller's market-in which case; there is not much the buyer can do. But the absence of a mortgage-contingency rider might mean that the buyer will be forced to finance his or her home purchase at an unfavorable interest rate. Because of this risk, buyers should be cautious about signing a purchase contract that does not contain this clause.

This is becoming more frequent in Manhattan because it is a seller's market. Bidding wars have been breaking out left and right and by waiving the contingency agreement it shows how serious the buyers are. But its not recommended.

Waiving the mortgage contingency is a decision that should not be taken lightly. You need to evaluate the risk and reward and better be sure that the apartment is worht the risk.