Property Grunt

Tuesday, January 31, 2006


Steve Spinola of REBNY, recently wrote a letter in response to an article that was published by the Real Deal.
Below is the letter in it's entirety along with my comments in bold.

December 8, 2005

Mr. Stuart Elliott
The Real Deal
36 East 23rd street
New York, NY 10010

Dear Stuart,

Dear Stuart? I believe the proper way to address someone is either Dear Mr. Elliott or Dear Editor.

Your article “Weaving Webs In Online Property Hunting” in your December 2005 edition, made a number of plainly inaccurate statements. Of note, the article stated that “…the major internal, proprietary system brokers use is R.O.L.E.X., which distributes listings between firms and is backed by the brokerage behemoths in Manhattan and owned by the powerful Real Estate Board of New York”.

First, R.O.L.E.X. is not and has never been owned by the Real Estate Board of New York. Second, the phrase “backed by the brokerage behemoths,” attempts to imply that R.O.L.E.X. is controlled by the large firms. That is also flatly wrong.

R.O.L.E.X. is a proprietary based system which means it has to be owned by someone or entity. Mr. Spinola may claim that R.O.L.E.X. is not owned by REBNY but it sure as hell is controlled by REBNY, which is used to keep brokers in line. In order for real estate brokers to get access to R.O.L.E.X. all of their agents must become REBNY members. Which means each agent has to shell out a personal membership fee which adds up to alot of money.

As for the implication of control that Spinola raises, I don’t think any of these firms have dominion over REBNY but I wouldn't be surprised if they get a perk of two. It was recently brought to my attention that some of the big firms who are members of REBNY do not advertise their open houses through R.O.L.E.X and instead utilize NYT ads and their own web ads since it increases the chances of direct buyers. Yet other brokerage firms share their open houses in R.O.L.E.X. Whether this situation has been remedied is unknown to me at this time however it is an example of how certain firms are able to operate under the radar despite being REBNY members.

The truth is that more than 280 firms of every size participate in the sharing of their exclusive listings through their participation in the REBNY Listing Service. No one firm or small group of firms control in any way the system of cooperation between the REBNY Listing Service participants, or more importantly, the residential brokerage industry. Through REBNY, these firms have established rules and regulations that benefit the entire industry and more importantly, the buying and selling public.

In a story that attempts to identify how the public can hunt for a new apartment, it fails to identify the best option. Sitting down with any one of the 283 participating REBNY Listing Service firms, who will give the public the most current and accurate information of available apartments in Manhattan. Access to this comprehensive data, along with the professional knowledge and training of a broker participating in the REBNY Listing Service, all of whom abide by the REBNY Code of Ethics, offers the public the best opportunity for finding a new home or selling their apartment for the best available price.


Steve Spinola

It appears that either Mr. Spinola has failed to understand the point of the article or is just afraid to face the truth. The fact of the matter is that with advances in the Internet and technology, brokers are quickly becoming outmanned and outgunned. With options like craigslist, natefind, cribseek, sellsius and now google base, consumers have more options at their fingertips. And we have yet to see Zillow which is being implemented by the same group behind the online success of and practically annihilated the travel industry. It doesn't matter how big REBNY is and how many listitings REBNY members have in its possession. If the consumer finds another option that is more convienient and cost effective then they will leave broekrs in the dust.

Brokers are no longer the gatekeepers of information. With sites like Curbed and the Matrix, consumers are able to gather their own information without the help of a broker. By no means do I believe brokers will be eradicated but a growing number of brokerage services across the country are being outsourced for less then the 6% commission by discount brokers. At Real Connect New York there were a ton of new businesses that specialized in the online transaction of real estate without the use of a broker. If the worst case scenario occurs and the housing market leads to a recession, sellers will definitely examine these options in order to lower their overhead which includes reducing or eliminating the commission altogether.

In my opinion, Mr Spinola is questioning the credibility of the real deal’s article as an attempt to preserve the public perception of the indispensability of the real estate broker. But it all comes down to the consumer. If these alternatives become more popular than the current real estate broker model than REBNY’s influence will begin to wane.

Friday, January 27, 2006

Weekly Roundup

Afternoon Rainbow Monkeys, below are three articles of interest.

The first one is CNN. It seems sellers are taking more creative choices in selling their homes. Thanks AC.

And according to Curbed it looks like the publishing industry is lending a hand in promoting the real estate market.

It appears John McCain is also facing an uphill of sorts. But this time it is not for running for President but in selling his ginormous mansion.

More stuff to come.

Wednesday, January 25, 2006

Vegas is a wrong bet.

Well it looks like not even the power of the Rat Pack can save Las Vegas from the downturn. According to Time Magazine things are starting to get really chilly.

According to the article it seems even Danny Ocean couldn't scam his way out of this.

Currently, just 18 projects are under way, and nervous developers have called off three high-profile projects over the past seven months. A number of others, including one backed by a group including George Clooney, are being either revised or postponed. Experts now forecast that only a quarter to half of the seven dozen originally proposed projects will ever be built. Brian Gordon, a principal at Applied Analysis, a real estate research firm, says the developers with experience building luxury high-rises, whose properties are located on or near the Strip and carry a strong and recognizable brand name— such as Donald Trump, Hard Rock and MGM Grand— are the ones playing winning hands in Vegas now.

What does this mean for New York? Will we come up snake eyes?

Back east, the luxury condo markets that have had similarly explosive growth in Miami and New York, where high-end apartments can command from $2,000 to $4,000 a square foot, haven’t slumped yet. Still, experts say the abrupt reversal of fortune in the desert, where the mainstream residential real estate and hotel markets are still quite healthy, shows just how quickly the odds can change in even the most affluent markets if runaway speculation and overzealous development take hold. “It’s another case of irrational exuberance,” says John Restrepo, head of a Las Vegas real estate and economic consulting firm. “There is a market for high-rise condo hotels here; but it’s not as deep as people thought it was. The days of the two guys from the East Coast or Canada coming into town and promoting a condo development with a website and a dream are over.”

Cash your chips in now folks.

Tuesday, January 24, 2006

Soethbys Heading To The Suburbs

It appears that Soethby's is expanding their operations into the land of soccer moms and car pools.

According to Inman News

Sotheby's International Realty today announced it has acquired the assets of Julia B. Fee LLC based in Scarsdale, N.Y.

Julia B. Fee's eight offices throughout Westchester County will now operate as Sotheby's International Realty Inc., a subsidiary of NRT Inc.

Randall Katchis and George Stone, co-owners of Julia B. Fee, will each assume a role as senior vice presidents for Sotheby's International Realty, managing the company's Westchester operations.

Julia B. Fee was founded in 1960 with a single office in Scarsdale and has since expanded with another office in Scarsdale, as well as offices in Armonk, Chappaqua, Katonah, Rye, and two in Larchmont. During the past 12 months, Julia B. Fee and its more than 300 sales associates have posted approximately $1.8 billion in closed sales volume, according to a press statement.

My analysis is that Soethby's realizes that the New York City area is pretty much tapped out and they are looking for other territories to pillage. Julia B. Fee is compatible to Soethby's since they both deal with the white glove demographic. Other competing brokerage firms are definitely going to keep an eye out on this very profitable union.

Personally, if I owned a brokerage firm in the burbs, I would find the biggest, fattest broker hog I could find and sell out so I can weather the storm when all hell breaks loose. What will be interesting to see is when the discount brokerage industry makes their foray into Westchester.

Btw, I have been getting some comments regarding my lack of coverage of open houses. One reader insinuated that I was avoiding doing coverage because the open houses did not correspond to my views that the market was crashing.

The real reason why I haven't done any recent reports is that there is really nothing to report about. It is still has dead as it ever was.

Monday, January 23, 2006

Irrational Exuberance: Crossing all barriers

I always thought that Irrational Exuberance only afflicted the uneducated and stupid. But it appears that it will take hold of anyone, regardless of race and class. This a very long entry but I feel that presenting these two articles will better illustrate my point.

January 15, 2006
The Great Escape
MAHBOOB AWAN, a dignified, matchstick-thin Pakistani immigrant, had $20,000 and an escape plan. Weary of the hustle and squalor of his 26 years as a New Yorker, fed up with the cramped, roach-infested apartment that he shares with his wife and two little boys in Kensington, Brooklyn, he wanted out.

"New York has nothing for me," said Mr. Awan, a 56-year-old former newsstand owner. "If you want to live on welfare, the city is best, city pays rent for you. Otherwise, if you want as a human to make money and pay rent, you can't survive here."

Mr. Awan, dressed neatly in a charcoal sports jacket and almost-matching slacks, was sitting in a packed ballroom of the Marriott Hotel in Downtown Brooklyn, where a frenetic event billed in a brochure as a "Gigantic Land Auction" was unspooling. The brochure, printed in the reassuring colors of Old Glory, breathlessly promised "E-Z Financing! E-Z Qualifying!" on "300 Properties to Be Sold!!!"

Mr. Awan hoped that one of these parcels of vacant land, offered in 10 states from Massachusetts to California, would provide the missing piece of his dream of escaping from New York. "Anybody I see who leaves here," he said of the city, "I see two, three years later, and they get healthy, wealthy. That's reality."

The auction, which took place in October, was the fifth major event held in New York over the past 15 months by a California-based company called N.R.L.L. East L.L.C., which buys land from a variety of sources, including bank foreclosures, and auctions them off under the name Mr. Awan has attended all the New York auctions.

About three-quarters of the 783 registered bidders in the Marriott ballroom lived in the city, most of them in Brooklyn, according to the auction company. With starting bids as low as $100 for property in enticing locales like Florida and Hawaii, the auction attracted many working-class and middle-class strivers: bus drivers, security guards, grocery store owners, waiters. Many were immigrants, some drawn by ads in the Korean, Chinese and Spanish press.

These would-be property owners, many of whom had been shut out of the city's gravity-defying real estate market, crowded into the cavernous ballroom as a promotional video played on two giant screens, its bubbly announcer declaring, "You can really own a slice of America for very little money!"

The first real estate auction I ever attended was at the Jacob Javitts Center held by New York City in 2003. It was there that the city unloaded property that landed in their possession onto to the open maws of the hungry masses. It was insane. People were bidding left and right. Some of the properies were returned to the chopping block because people did not have the certified checks or thought they could pay by credit card. I quickly learned that the people who truly benfit from auctions are the ones who either live next to the property that is up for acution allowing them to expand their holdings or people who had inside information about the property in question and were able to make a profit even if they spent an exorbinant amount of money during the auction. It is in my opinion that auctions are not the place for first timbuyers or investors because it requires deep pockets, quick thinking and lots of experience. Mr. Awan should not be buying property in this manner. He should be utilizing traditional methods, investigating areas of interest and taking his time to research these properties.

An auction is ground zero for irrational exuberance. The environment does not allow novices to make the proper decisions in their purchases.

Shortly after 9 a.m., the auctioneer, Mark Buleziuk, wearing formal black-tie attire, stepped up to a podium as a "parcel map" appeared on a screen depicting a residential lot in Holmes County, Fla., a site the brochure described as "a world away from the hustle and bustle of the big city."

As Mr. Buleziuk lifted his gavel, a transformation occurred. His lips began moving faster than the human eye could follow, and out surged a mesmerizing torrent of syllables, punctuated by rapidly escalating dollar amounts. The bidding was on, pinballing around the room, with 300 properties sold over eight frenzied hours.

The affair had the feel of a traveling carnival of commerce. While Mr. Buleziuk's relentless patter of opportunity poured through the speakers at deafening volume, several tuxedo-clad auction workers charged up and down the aisles like hypercaffeinated groomsmen, gesticulating wildly and hollering "Heyyyy!" each time a bidder raised his number.

"Hey, now, seventeen-five!" Mr. Buleziuk cried. "You're a horse in the race, and you're in second place - and down the stretch they come!"

'Outdoor Adventure'

For customers who wanted to investigate properties, had made available for free, before the auction, maps showing the land to be sold, along with a brochure containing a description of each site. The brochure's pages were as richly adorned with exhortations to do research as the Marriott ballroom was decorated with red, white and blue balloons.

"You should inspect any parcel personally before bidding," read a notice at the bottom of virtually every other page. "Investigate before you buy! Look, listen, and inquire. Spend your money wisely."

Despite these urgings, many registrants acknowledged that they had done virtually no investigation and were bidding on land they had never laid eyes on. "Whatever they tell me in the booklet, that's what I go on," said a Haitian-born elevator operator from Brooklyn who would identify himself only as Harry and had just bought 10 acres in California - he wasn't quite sure where.


The dream can prove elusive for bidders who buy land without doing their homework. At an auction in Midtown in October 2004, listed a 1.5-acre parcel in the upstate New York town of Cairo; the brochure promised the buyer that "four seasons of outdoor adventure await you in Greene County's great northern Catskills."

Mr. Awan and a nephew emerged as the winning bidders for the parcel, for which they agreed to pay about $8,800. But when they arrived in Cairo to visit their new land, they discovered that it might have behooved them to take more seriously the brochure's warning that "this property may lack road access." The land, some of which floods periodically, could be reached only by trespassing on neighboring property, and the neighbors refused to grant access.

Of his decision to buy the parcel, for which had paid just $2,700 two months earlier, according to Greene County property records, Mr. Awan later said, "That was a stupid movement I made."

Ya think? Due diligence should be applied to all expensive purchases. I have to admit Land business model is absolutely fantastic and is the wave of the future for real estate sales. What I think is brilliant is that they are purchasing land from all over the country and are able to charge a premimum for the land through the auction process.

After being asked about the matter by a reporter, Michael Schack, a senior vice president and general counsel of, contacted Mr. Awan's nephew. "I explained to him that if he or his uncle felt that what they purchased did not match the descriptions in the brochure or the information provided by," the company would refund their money, Mr. Schack wrote in an e-mail message.

A spokesman for Attorney General Eliot Spitzer of New York said that the agency had received no complaints against N.R.L.L. East. But customers who bought land from N.R.L.L. Inc., a sister company, have not always been thrilled with their purchases.

In 1999, the district attorney in Santa Cruz County, Calif., filed a civil complaint against N.R.L.L. Inc., accusing the company of misleading customers into buying "unbuildable" land outside Santa Cruz. The company admitted no wrongdoing but settled the case, agreeing to refund purchasers' money. Mr. Schack, the spokesman, who also speaks for N.R.L.L. Inc., said in an e-mail message that the company had had no prior knowledge of whether the land was buildable. He added that each successful bidder was required to sign a statement that he had been encouraged to inspect the land before the auction and had either done so or elected not to at his own risk.

I have mixed feelings about this. These companies are not out to save the world. They are not out to fix the homless problem. Their objective is to simply make money, which I have no problem with. Afterall this is America and one of the pillars of democracy is capitalism. Afterall this why millions of people risk their lives to come here. At the same I think simply requiring customers to sign a statement that he had been encouraged to inspect the land before the auction and had either done so or elected not to at his own risk is an act of CYA on NRLL’s part. At the same time customers need to make an effort to educate themselves and engage in the process of due diligence. Is N.R.L.L really at fault if customers zealously engage in these unsafe practices?

The Race for Property 21

Mahboob Awan is a bounce-back man, buffeted by difficulty but confident in his resilience. Professionally, he has reinvented himself multiple times - as a newsstand owner, as proprietor of a variety store, as a cabdriver - and amid the frenzied bidding in the Marriott ballroom, where bargain hunters in jeans and backward Yankee caps speed-walked about, he cut a placid, contemplative figure.

Seated on a plastic folding chair, he listened calmly as the auctioneer announced Property No. 21, a 1.9-acre lot in the small southern New Jersey town of Corbin City, 24 miles north of Cape May and a half-hour drive from Ocean City. "I bid 21, if they stop at my price," he said. "If not, I stay quiet."

The bidding began at $5,000 and ricocheted around the room, quickly soaring above Mr. Awan's $20,000 limit. "Sold it for $110,000!" the auctioneer shouted.

Mr. Awan shrugged. "Already I own place as where they're selling," he said in his imperfect English, referring to another Corbin City parcel he bought earlier in the year.

Mr. Awan was an old hand at extravaganzas. Since the company's first New York auction in October 2004, he had purchased four properties in the Northeast, including a parcel near the Canadian border in Clinton County, N.Y., that he has never seen.

His prize acquisition, in his view, was a 123-foot-by-75-foot wooded parcel in Corbin City, which he bought for $9,000. Mr. Awan thought he might build a house on it, to escape the pollution in the city. Ideally, he could live there with his family while realizing his goal of importing marble from Pakistan for use in people's bathrooms. It was to provide storage space for shipping containers full of marble that he had hoped to buy the second, larger Corbin City parcel at this day's auction. But he figured something would turn up at a later auction.

More immediately, he had a big trip planned for the next day. It was Ramadan, the holy Muslim month of fasting, and though Mr. Awan, a practicing Muslim, was in no position to journey to Mecca, he planned to make a more modest pilgrimage to his patch of land in Corbin City. He had recently paid $575 to have the parcel surveyed. After 26 years of paying rent in Brooklyn with no equity to show for it, Mr. Awan was going to view for the first time the clearly delineated boundaries of the future he hoped to inhabit.

Their Own Little Forest

Mr. Awan's search for his future had begun seven years earlier, shortly after he was wed in Pakistan to a soft-spoken schoolteacher named Samina. His wife, who became pregnant soon afterward, remained in Pakistan while he brought his mother to the United States to help her get medical treatment for back pain.

While living largely off stock market investments, Mr. Awan rented a 620-square-foot shoebox in an apartment building on McDonald Avenue, in a neighborhood that is home to many working-class Muslims. But when his wife came to America in 2000 with their infant son and stepped inside her new home for the first time, she was devastated. "When I first came here," Mrs. Awan confessed recently, "I cried when I saw the place that we live. So small."

With the addition of a second son that year, the apartment became even more uncomfortable. Nowadays roaches amble across the floor as if they own the place, and the only decorations in the main room, aside from children's crayon scrawls on the dirty walls, are a carbon monoxide detector and a calendar from a drugstore.

Corbin City promised breathing room. "To the northeast is the Tuckahoe Wildlife Management Area, an area great for bird-watching," declared the brochure.

Mr. Awan was undaunted by the disclosure in the brochure that "this property does not have public water or sewer available." To someone who has reinvented himself so often, the tasks of getting a well dug and a septic tank installed seemed eminently manageable.

Okay. He’s an idiot. I am not an expert in plumbing but I do know that it is not cheap. You are talking about at least a couple of thousand dollars not to mention the eternity it will take to get the permits to dig a well and install a septic tank. If the town is concerned with contamantion from private wells and septic tanks they might throw every legal barrier to prevent Mr. Awan putting them up.

So he forged ahead. The day after the October auction, Mr. Awan tucked the deed to his Corbin City property into the pocket of his jacket, climbed into his 1991 Chevy Caprice with his wife and sons, and hit the road.

On the Garden State Parkway, the industrial New Jersey scenery was gradually replaced by lush green trees. Three hours after leaving Brooklyn, while heading northwest on Route 50, Mr. Awan suddenly pulled his Caprice off the road beside a mass of trees. The four Awans tumbled out of the car and stood beside the highway as trucks thundered past, peering at a flimsy wooden stake from which a strip of pink plastic fluttered in the wind. This was the northeastern corner of their property.

The Awans' land, sandwiched between Route 50 and a looming aluminum warehouse on the lot behind them, was a scarcely penetrable little forest. Looking incongruous in his black loafers, Mr. Awan scrambled up the trunk of a fallen tree and tugged awkwardly at dead branches. But amid the tangle of nature and the whoosh of passing trucks, he and his wife saw possibilities.

Yeah. Possibilities for foreclosure and bankrupcty.
While Mr. Awan and the boys hammered cast-off plumbing pipes into the ground to mark their land's boundaries, Mrs. Awan allowed her mind to roam. "When you come here," she said, "you can write poetry, too, I think."

It also seemed possible the land might one day help her improve her relations with her husband's siblings, who all have big houses in Brooklyn and New Jersey. "His brothers and sisters say they won't come because our house is so small," Mrs. Awan said. "I used to cry a lot, it depressed me so much." But her husband had reassured her. "When they hear that you own land and a house," he said, "their tone and attitude toward you will change."

Their dim view of him and his family will never change as long as he keeps up with this stupidty. It is obvious that a primary motivation for Mr. Awan’s Quixotic quest to build a home is due in part of family pressure. He is probably reminded of social standing with his wife’s tears and his kids sharing the same bed with cockroaches which is a tremendous amount of pressure on any man. But he is going the wrong way of doing this.

As she spoke, Mr. Awan and his older son wandered back. Putting his hand on the boy's shoulder, he kneeled beside him and pointed skyward. "That's yours there," he said. "Those trees are yours."

Pray to Allah that is not the case son.

An hour after the Awan family had headed back to Brooklyn, Robert Ohlsen sat at the bar of the Buck Tavern, a restaurant he owns in Corbin City, taking a break from overseeing the installation of a new awning. Mr. Ohlsen had attended the auction in Brooklyn the previous day and bid unsuccessfully on the 1.9-acre Corbin City parcel. Though Mr. Ohlsen thought it had sold far above market rate, he wasn't surprised that it fetched such a high price. "The audience," he said, "was filled with a lot of dreamers."

When told about the little parcel the Awans had bought on Route 50, Mr. Ohlsen did a double-take. "He can't build on that," he exclaimed, shaking his head emphatically. "It's zoned all highway commercial."

If Mr. Awan had simply did a search about the area on google or had called the village he would have figured out that this purchase was a white elephant. REMEMBER! REAL ESTATE IS LOCAL! EVERY AREA HAS THEIR OWN WAY OF DOING THINGS. I am not just talking about laws but also culture. Ignore them at your own peril. Mr Ohlsen did not make the same mistake as Mr. Awan because he knew that area was not zoned for residential he also had the wherewithal to bow out when he saw a parcel of land that he was interested was going selling above market rate.

Bouncing Back Once More

Over at Corbin City Hall, Janet McCrosson, the municipal clerk, confirmed the nonresidential zoning of the Awans' property, which, according to Atlantic County records, had bought the previous fall for $2,500. "As is, nothing can be built on it," Ms. McCrosson said. Regulations also preclude using the land for a business, because it is far too small. "It is not as wide or as deep as the minimum it has to be to use it for anything," she said.

She said that Mr. Awan could apply for a zoning variance, although she did not recall the city's ever approving one for an undersized lot like the Awans'.

And it probably won’t ever happen because it is not worth the town’s effort to grant him that variance.

None of these restrictions appeared in the brochure. What did appear was a blanket statement that the company assumed no liability for "zoning, building codes and regulations."

Asked about the restrictions, Mr. Schack, the spokesman, wrote in an e-mail message that the company had been unaware of any limits on the use of the Awans' Corbin City parcel. "However," he wrote, "many of our experienced buyers will purchase properties at these prices and then assemble others around (or sell to the neighbor) into a larger and thus more valuable or developable piece of property."

This might sound like another CYA response from but I understand where they are coming from because each town have different laws and regulations would add to their overhead to create a service. Also it is not in the best interests of to have their customers to be well educated since customers would not be making as many mistakes at they are now if they knew the rules of the area.

A few weeks later, Mr. Awan sat barefoot on a sagging mattress in his apartment and thumbed through his real estate documents, talking about his good fortune in buying the Corbin City property. "There the air is coming from the sea, washes the pollution away," he declared happily.

Mr. Awan is in deniable. Buying a property because the sea washes the pollution should not be the primary reason for purchasing it. You f**ked up. Face it. Then get over it.

Asked what he would do if he learned that it was true that local regulations would not allow him to build on his Corbin City land, Mr. Awan did not waste a moment second-guessing himself. "Clinton County, easy, I move there," he said, referring to the property he had bought, sight unseen, near the Canadian border. He added, "I can work, survive in two countries."

How f**king stupid can this man be? How do you know if you can even live there if you haven’t seen the property or know the zoning laws? Didn’t you learn from your last mistake at the CatSkills? What about your family? How do you think the stress of what you are doing is going to affect them?

By this month, Mr. Awan's plans had changed again. He now thought his escape route might take him as far as Georgia, or even Texas. "I go, circle around, look at different states, see where luck takes me," he said, his confidence unbruised. "It's nothing impossible for me."

Mr. Awan’s situation can be remedied very easyily. First of all his wife needs to take a chair and beat him into unconsciousness. While he is knocked out she should take control fo the family’s finances before he gives them a one way ticket to bankruptcy. Then after he wakes up sit down with him and figure the next course of action. Mr. Awan is correct that the cost of living is quite expensive in New York City. He is obviously business savvy since he has been able to operate a newsstand which is considered to be one of the most competitive businesses in New York City and has made money in the stock market. He should simply find a business that he knows he can work successfully and move his family into a state with a lower cost of living. There he can give the life that he dreams for his family without making any stupid mistakes.

Let’s be honest here. This is a man who is 56 years old. Time is a commodity that he can’t afford to be frivolous with. He needs to put together a viable firing solution that will provide for his family and ignore the urge to simply rush in.

There is a engaged couple in my building that closed on a farmhouse for $385,000 which includes 24 acres of land. Of course this property is located in Rhode Island which means they will both need to transfer there to work. They were looking for homes in the 400 range in the New York City area but it was all junk, They made an executive decision that if they wanted to enjoy a higher standard of living on their budget it would require some drastic changes on their part. This is the type of strategy Mr. Awan needs to adapt.

People, you don’t need to live in New York City to have the life of your dreams. There are other places where your money can go further, however once you leave New York it is very difficult to return since the amount of money you pay out New York state won’t enough for a down payment in Manhattan. But that is the tradeoff to getting the life that you want.

Although I am harsh on Mr. Awan , I empathize with his situation. I have no doubt his in-laws talk behind his back and probably insult him at family gatherings. His kids probably get ragged on by their cousins for being the only kids who don't have a mortgage and having to wear hand me downs. His wife probably gets reminded by her side of the family that she really bet on the wrong horse and that the only reason why she hasn't divorced him is because it would cost money to do so. In America, one of the foundations of the class system is money, that is why alot people are able to cross over. However in some cultures if you don't have the right last name no one will talk to you. No matter how much money you have. The pressure of succeeding is probably compounded on Mr. Aman cultural background which is leading him to follow his emotions yielding him with more problems.

If he is really serious about leaving New York City then he needs to find a place where he can run a successful business and has a decent school system. If he is unable to afford private colleges and univerisities for his children then he should definitely look at state schools which are far more affordable and provide a comparable education. The SUNYs, as far as I am concerned kick ass.

The second article from New York Times deals with the other segment dealing with Irrational Exuberance.

January 20, 2006
Second Homes Without a Second Thought
SEDUCED by balmy breezes, scenic vistas and local charm, travelers have long been known to stuff their valises with impulsive purchases, many of which lose their appeal as soon as they resurface back home. Ill-fitting T-shirts, stone statuettes and gaudy textiles can be tossed pretty easily onto the scrap heap of what-was-I-thinking vacation booty. But the problem is more complex when the buyer has acquired the ultimate ill-considered souvenir: a contract to buy a vacation home or a time share.

Two and a half years ago, on her way out of Mendocino, Calif., after a short vacation, Rebecca Kopriva, a research professor and psychologist, drove by a cramped, shabby beach house. It looked as if it were about to slide into the ocean, but it was listed for around $350,000 - a great price in an area where more conventional beach properties were starting at $1 million.

Enchanted by the setting and envisioning an eventual seaside retirement, Ms. Kopriva, who is now 54, flew home to Washington, D.C., and without ever seeing the inside of the Mendocino house, made an offer on the property contingent on the results of a geographical survey.

When the survey showed that the cottage was not, in fact, destined for a swan dive into the Pacific, Ms. Kopriva closed on the house - two bedrooms, one bathroom and about 900 square feet - without revisiting it. She was confident that it was worth $200,000 more than the price and counted on rental income to help her cover costs in the years before she retires.

Her ensuing troubles began with a troubled renovation. "The fact that I lived across the country was the problem," Ms. Kopriva said. The contractor's written proposals rarely coincided with what she actually saw, she said, when she was able to fly out to look at the work. The job was scheduled to be finished in August 2003, but when she visited in March 2004, with the rental season only two months away, there was still much work to do. Ms. Kopriva decided to simply stop the work, but at first the contractor "wouldn't give back the keys," she said.

Donald Trump is well know to have properties all over the country. One of the reasons why he is able to own these properties is that he has a network of people that can manage these proepries. I suspect that the contractors were aware of Ms. Kopriva’s living situation and took advantage of it. Since it was such a hassle for Ms. Kopriva to travel across the country, it allowed the contarcts to play fast and loose with the renovation.

In the end, she gave the contractor about $40,000. She estimates that the renovation, completed with the help of a new contractor found by her new property manager, ReMax Shoreline Properties, cost her $10,000 to $20,000 more than she would have expected. And because the house wasn't ready until July, she also lost several months of rental income she had counted on.

What would have been the optimal strategy was for her to hire someone who was reliable and to hire someone else, preferably a family member, to keep an eye on the contractor and to put a foot up their ass everytime the contractor screwed up.

She had also underestimated the cost of upkeep and advertising. Over all, she said that while she has never regretted her purchase, owning the house has been "more expensive than I ever would have thought." And after the toil and expense, she hasn't been able to stay there much herself. "The last year, I've probably been there three or four times, usually just for a couple of days," she said.

This is what happens when you are lead by emotion. You begin to obey the law of diminishing returns. Simply put, you do not get the adequate return from the amount of initial funding.

STEVE GAMES, chief executive of Prudential California Realty in Southern California, estimated that impulse purchases now make up about 40 percent of his agency's regional sales to buyers whose primary homes are elsewhere. The number of impulsive buyers - whether motivated by a pleasant vacation or already out looking and ready to buy after one visit - has shot up in recent years, he said, "because there's so much wealth looking for a place to land." He sees impulse buying most "in places like Newport Beach, Laguna Beach, La Jolla, Beverly Hills, the west side of Los Angeles, Malibu," he said, "those kind of places that are glamorous."

Branding plays a key role in real estate. There is an unquenchable desire in all of us to be associated with something prestigious or bigger than us. This is particularly effective with impluse buyers. When you are hopped up on the Irrational Exubernace juice you don't care about the numbers, all you care is that you want it.

Eric A. Hathaway, who owns Montana Signature Properties, a Christie's Great Estates affiliate in Big Sky, Mont., said he had seen a change in the profile of the buyer who leaps into a home purchase in a vacation town. "It's been the wealthy up to this point, and it is now starting to become the baby boomers," he said.

The boomer second-home buyer in general, whether impulsive or not, is affluent and family-oriented. "These folks are not having to work full-time anymore - the pendulum is swinging back to the family," Mr. Hathaway said. "It's no longer a guy who goes on a two-week fishing holiday every year." When family feelings are stirred, expense can take a back seat.

These are ideal customers. Drenched in emotion these customers are unable to discern the forest form the trees.

They are the wet dream of every real estate broker.

Jack Cotton, 52, a manager and broker at Sotheby's International Realty on Cape Cod, impulsively bought - and overpaid for - a 1,000-square-foot condo in Naples, Fla., earlier this year. On vacation with his wife and their 20-month-old son Max, Mr. Cotton agreed to fork over $520,000 - even though the appraisal came in $30,000 short. Then, over the next few months, he laid out $150,000 for a renovation that he had expected would cost $50,000.

Why did it all happen? During his original vacation to Naples, he had connected strongly with Max, spending whole days with him. "He knows who I am again," Mr. Cotton said. "How am I going to put a value on that? I'm going to wait and put off a year of that?"

It seems that irrational exuberance can also infect a broker. I am really surprised he actually went through with this. I think he would have been better off taking that money and setting up a trustfund for his son. Then setting up a schedule so he can interact with his son on a daily basis instead of doing it once a year. I am sure his son would be a helluva lot more apprecitive of not having to pay a fortune for student loans than family memories of a vacation home they go to once a year.

He sees the allure of a vacation place as a healthy impulse. "The reason you want to purchase something is you want to extend and anchor the great feeling you have when you're in that destination," he said. "It's a way of having it never go away. It's like having a Porsche in the garage. You know you're never going to drive 130 miles an hour, but you know you can. I feel better just knowing it's there."

Impulse combined with real estate purchases is never, ever healthy. Usage plays a key role in real estate. If you are not get enough use out of it what was the point in buying it? That's like marrying Jessica Simpson and never seeing her naked. However Mr. Cotton is onto something. In a recent article in the New York Post it stated that the wealthy are more focused on experienced based purchased.

According Suzanne Kapner's New York Post Article "RICH BUCK LUXE "

Instead of buying another fur coat or diamond brooch, a growing number of affluent consumers are instead spending money on their homes or on experiences such as memorable vacations, analysts said.

Unlike Mr. Awan, this demographic has the money to pull this off.

(Mr. Cotton further acknowledged that on a whim, without consulting his wife, he more recently bought a $30,000 mail-order tree house for his son to use at home in Osterville, Mass.)

His wife should beat him with a chair and withhold sex from him until he knows his role that he is not allowed to make big ticket purchases without her approval.

Nancy Eppler-Wolff, a clinical psychologist with a private practice in Manhattan, inserted a note of caution about the power of a vacation home to bolster family relationships. "If there are underlying issues and problems and one hopes or wishes that a house is going to solve those underlying issues," she said, "they will probably be disappointed."

She has a point. Money is nice and all. But having a conversation with your children and having a game of catch can go a long way.

In interviews with 18 brokers and others who market vacation-home properties throughout the country and in the Caribbean, most said that 5 to 10 percent of their sales were to impulse buyers. When the property was a time share, however, that portion soared.

Mark Waltrip, chief operating officer of Westgate Resorts, a time-share company based in Orlando, Fla., estimated that 9 of 10 shares in fractional-ownership properties are sold to vacationers who buy on impulse.

Certainly, fractional ownership, usually for $10,000 to $120,000, is cheaper and comes with fewer responsibilities than an outright second-home purchase, making it less daunting as an impulse buy. But time-share marketers also cannily aim to capture buyers in the midst of "a real-life, real-time comparison" - while crammed into a hotel room with two teenagers, perhaps, or experiencing a rare interval of family harmony.

"People don't wake up and say, 'Hey, I'm going to buy a time share,' " Mr. Waltrip said. "It's that whole emotional experience that drives the impulse."

It can also set the stage for an extended pecuniary hangover.

Andrea Laidlaw Lautenbach, 33, an orthodontist from Portland, Ore., ended an idyllic week in Cabo San Lucas in September 2001 by putting down $3,625 on a $14,500 time share in a one-bedroom apartment.

"I had finished my residency in June of 2000, and I had just started buying into the practice as a partner," she said. "I was paying off my student loans, I was single, working hard. I think part of it might have been, you're in school for so long, and you start making good money, and you're on vacation, and you're not thinking about all the financial responsibilities that you really have."

Her buyer's remorse began in the cab ride to the airport. She found she couldn't sell without losing money, so she held onto her investment, refinancing it through a low-interest credit card and paying it off in about two years. "I appreciated it once it was paid off," she said.

She is very, very lucky. However if she had just focused on taking care of her student loans and living a frugal life she would have never gotten herself in this mess.

Her initial regret, however, was hardly unusual.

Allyson S. Nick, a developer for a condominium resort called Somerset on Grace Bay, which is under construction in the Turks and Caicos Islands, said that about 10 percent of her buyers back out when the trade winds give way to a slap of fiscal reality back home.

"It's like the gum at the checkout counter," she said. "It's very attractive when you're there."

Buyers remorse. It seems a lot of that is going around.

Moreover, she said, the fantasy-charged atmosphere of a vacation can spark temporary delusions of grandeur.

"You know how you go to Ferragamo or Gucci and you love a handbag and you get the bill and you're too embarrassed to say 'I just can't spend $2,500 on a bag right now?' " Ms. Nick asked. "That's some of it. - they're playing a bigwig thing and they get put on the spot."

Fortunately, even as emotions can trigger the impulse buy, they can also act as a bedrock to withstand aftershocks. For Ms. Kopriva, the struggle to keep things afloat at her Mendocino house was worthwhile partly because of the feelings it can evoke about her early life in California.

"I do love the place," she said. "When my mom passed away in 2002, there was definitely a hole that was left with not having a home base in California. I didn't see it just as an investment - I saw it as a connection."

If buying this property makes Ms. Kopriva's happy. She can afford to be happy.

When you look at both these articles, the people involved have a lot in common. Despite having drastically different lifestyles they all were guided by their emotions and made some really bad decisions. It doesn’t matter whether you have 20 dollars and 20 million dollars, it pays to keep a cool head and determine if the purchase makes sense and your reasons justifies the cost.

I implore to all of you buyers to make sure you understand the numbers. Whether it is a primary residence ,secondary residence or an invesment property you need to a sensitivity analysis that allows to see the best and worst case scenario of what you are purchasing. Remember, real estate is illiquid. Unlike a stock or bond it is very difficult to get sell off real estate especially when the market tanks. The average holding period of real estate is 10 years, So you better get it right the first time. You also have to be ready to make the hard decisions of whether to stay or go.

I always thought this turbulent mob mentality to buy had dssiapted but I realize it will never go away as long people are unwilling to correct the mistakes of the past. There is a deal out there for everyone. Sometimes it falls in your lap but it usally takes time and patience for it be discovered.

I know. I sound like a broken record but I see alot of this irrational exuberance and it is really frightening. There are people out there who are unable or unwilling to obey the rule of external obsolescence. They think that if they pour a ton of money into their property it will overcome those deficiencies. They feel justified in asking for insane prices because of the work they have done. But guess what? No one cares. Because it doesn't fit the buyer's tastes and it is going to cost them more money for the buyer to renovate it to their liking.

More fun reading

Here some fun reading to start the week.

This week's Hunt sounds likes it is straight out of Friends.
It seems that not all parts of Harlem are not gentrifying. Thank you to the reader who sent me this.
If you are having apartment repair issues that involve your landlord or co-op board you must read this article.

Friday, January 20, 2006

Fun reading for the weekend.

Alison Rogers talks about a lowball offer

The Grunt is featured on the Inman blog. You have to scroll down.

Joyce Cohen discovers the latest craze in real estate advertising. Brokers marketing through shopping carts. Check out the Walk Through.

Master Appraiser Jonathan Miller has discovered a new real estate index developed Marin Heating Index.

Thursday, January 19, 2006

Sellsius joins the blogging world and the Rain City Guide Interview

Remember those wild and crazy Sellsius guys who are determined to set the real estate world on fire? Well it was only a matter of time before they started their own blog.

Those of you who missed Real Estate connect can catch up with the pictures pictures on the Sellsius blog.

The Property Grunt was recently interviewed by the Raincity Guide which is a real estate blog located in Seattle. This blog is a great start for those of you who are interested in buying in Seattlle.

Tuesday, January 17, 2006

The Property Grunt revealed! Sort of.

Last Thursday the Grunt made his public debut at the, Inman News and Craigslist soiree. The Grunt was quite excited to finally step out and embrace his public. Yet the Grunt still wanted to maintain his secret identity, which meant he had to go incognito.

So I purchased a fake beard and combined it with an old wig I used to dress up as the Crow and a black wool cap. Add sunglasses and I looked like a reject from a ZZ Top video.

Upon arriving at the party I immediately recognized that the location was my former YMCA before it was taken over by Habitat for Humanity. After casing the place I ran into the subway station and quickly donned my disguise. I walked back to the party where I was greeted by the doorman who asked for my name which I told him was the Property Grunt. He didn’t believe me until he saw my name on the list.

Upon entering the party I was greeted by inebriated looks of partygoers who were thinking “Who the hell are you?”

I proceeded with my search for familiar faces and ended up on the perch above the crowd where Alexis Palmer who is responsible for Operations at Curbed met me. She figured I was either the Brownstoner or the Property Grunt. Apparently the Brownstoner was also walking in disguise.

Alexis was a pure delight and brought me over to finally meet Lockhart Steele. Meeting Lockhart started a chain reaction of sorts. On the way I ran into Tom Acitelli of the Real Deal. (Sorry I couldn’t talk to you further. Btw, I will be printing my response to the REBNY letter regarding the WebCrawler piece. ) I was overjoyed to meet Lockhart. This is a man who has the led charge into the real estate blogging world and I thanked him profusely for the exposure he gave me. He humbled me by expressing his thanks for my work and then ran off to find Joyce Cohen who was also eager to meet me.

Before leaving me he introduced me to the developer of the loft space. We discussed the history of the building and the development process of the building while the woman he was with innocently attempted to lift my beard. Then out of the corner of my eye I saw Craig Newmark, the great leader of Craigslist. To call Craig “down to earth” would be an understatement. Despite being one of the biggest rock stars of the Internet age and being lauded by all the partygoers, he maintained a calm and humble demeanor. We talked about his site and a certain brokerage firm’s tactics of downloading their ads directly onto his site until Lockhart requested my presence. I bid Craig adieu and hopefully next time we will have more time to chat.

Lockhart was able to locate Joyce Cohen who was absolutely thrilled to see me. The feeling was mutual. This is a writer who I have respected and have emailed from afar. Her praises and critiques have made me a better writer. Her brilliant writing skills are comparable to her charm and wit. I was absolutely overwhelmed with joy that we got to meet.

Here are the pictures.

These lovely ladies are Joyce from NYT, Sara from Forbes and Lisa from NYT.

This was probably the second scariest moment of the evening when I met Alexandra Bandon. As many of you know I did a critique on her New York Times Article on rental agents. The moment I saw her I began to look for the exits. However after we met I found Ms. Bandon quite gracious and engaging. She stated that she enjoyed my writing and my analysis in her work. She made it clear that she wished to go further with the article but there was no room to spare. Alex expressed her frustrations that rental agents often tried to steer her away from her set requirements. I empathized with her annoyance but I explained to her that often people change their minds and agents cast a wide as possible in order to find the best options for their clients.

I also had the chance to meet Alison Rogers writer of Diary of Real Estate Flipper . This is a woman who is probably one of the reasons why the New York Post is still being published. Under her command, the real estate section of the New York Post profited handsomely.

The Union is now complete. Joyce Cohen, the Property Grunt and Lockhart Steele. If you notice we are in size order.

This was the girl who tried to lift my beard, me, the developer of the building and the great Craig Newmark.

The beautiful and delightful Alexis Palmer and the Grunt. In disguise.

The party. Who is this guy taking this picture?

While at the party I felt I was attracting too much attention and decided to retreat before I got tackled and unmasked by a broker. I bid my friends adieu and left.

It got a little dicey for me because I chose to use the stairs instead of the elevator, which proved fortuitous since the elevator broke. But the exit was locked which I think is a huge fire hazard. It was there that I had an encounter with a very drunk and belligerent man who saw my disguise and threatened to remove it forcefully. I took refuge on the 5th floor and mulled my options. Do I stay and wait for the elevator or should I wait it out for the exit to open? Then a chilling thought entered my mind. What if both the elevator and the exit were out of commission? What if I was stuck here until the police or fire department arrived? I would have to pull the old "blend in with the crowd trick" by removing my disguise as we were ferried out. What if someone recognized me? Then I began to laugh. When did becoming a blogger become Mission Impossible?

At that moment I heard some yelling that the door was open and I zipped down running through the David Barton Gym and then into the subway station where I removed my disguise and proceeded to walk several blocks south down 6th ave. Occasionally I would surreptitiously look behind myself but no one was following me.

Thank you all for inviting me. I had a lovely time. Let's do it again

These lovely ladies are Joyce from NYT, Sara from Forbes and Lisa from NYT.

This was probably the second scariest moment of the evening when I met Alexandra Bandon. As many of you know I did a critique on her New York Times Article on rental agents. The moment I saw her I began to look for the exits. However after we met I found Ms. Bandon quite gracious and engaging. She stated that she enjoyed my writing and my analysis in her work. She made it clear that she wished to go further with the article but there was no room to spare. Alex expressed her frustrations that rental agents often they tried to steer her away from her set requirements. I empathasized with her annoyance but I explained to her that often people change their mind and agents cast a wide as possible in order to find the best options for their clients.

The Union is now complete. Joyce Cohen, the Property Grunt and Lockhart Steele.

This was the girl who tried to lift my bears, me, the developer of the building and the great Craig Newmark

The beautiful and delight Alexis Paymer and the Grunt. In disguise.

The party. Who is this guy taking this picture?

While at the party I felt I was attracting too much attention and decided to retreat before I got tackled and unmasked by a broker. I bid my friends adieu and left.

It got a littel dicey for me because I chose to use the stairs instead of the elevator which proved fortuitous since the elevator broke. But the exit was locked which I think is a huge fire hazard. It was there that I had an encounter with a very drunk and belligerent man who saw my disguise and threatened to remove it forcefully. I took refuge on the 5th floor and mulled my options. Do I stay and wait for the elevator should I wait it out for the exit. Then a chilling entered my mind. What if both the elevator and the exit were out of commission? What if I was stuck here until the police or fire department arrived? I would have to pull the old "blend in with the crowd trick" by removing my disguise as would be ferried out. What if somone recognized me? Then I began to laugh. When did becoming a blogger become Mission Impossible?

At that moment I heard some yelling a door open and I zipped down running through the David Barton Gym and then into the subway station where I removed my disguise and proceeded to walk several blocks south down 6th ave. Occasionally I would surreptiously look behind myself but no one was following me.

So. Will the Grunt pull an Opioninstas and reveal himself to the world? One day I will. Perhaps when the book deal comes in.

The Grocery Wars

It appears that Fresh Direct is on the verge of being outmanned and outgunned by Pea Pod I first heard of PeaPod from buyers who were from Chicago but it appears they are now expanding their operations including Westchester. And they have aligned themselves with Stop and Shop.

If you go to the Peapod website, they have a query engine that allows you to put in your zip code to check if they deliver in your area. There is no doubt in my mind that grocery delivery services will be become more popular particulary in the suburbs because you need a car to get anywhere. And with higher gas prices, lack of parking and general congestion, this will beomce more of a viable option for consumers.

I would not be surprised if Trader Joes and Whole Foods are exploring this arena. Fresh Direct better get it's ass in gear and either expand their operations or sell out. This industry is slowly losing it's niche status.

Saturday, January 14, 2006

Weekend update

I am watching Channel 7's Eyewitness News special on the Winter 2006 and what caught my eye was The New York State Energy Research and Development Authority. The organization's mission is the following.

The New York State Energy Research and Development Authority was established by 1975 law as a public benefit corporation. NYSERDA funds research into energy supply and efficiency, as well as energy-related environmental issues, important to the well-being of New Yorkers. NYSERDA has been cited by the U.S. Department of Energy as being among the best government research organizations in the North America, including others such as NASA.

Since late 1998, in cooperation with the NYS Public Service Commission, (PSC), NYSERDA has managed the New York Energy $martSM program. Funded by a System Benefits Charge (SBC) on electric transmission, this program offers energy efficiency, research and development, low-income and environmental disclosure funding and education to assist electric consumers as the regulated electricity market moves to more open competition. NYSERDA also finances, through the sale of bonds, environmental and energy improvements for the State’s energy infrastructure.

Those of you who are concerned about high heating bills will be relieved to know that NYSERDA helps train and certify contractors energy contractors. According to the Eyewitness news program they begin with an energy audit to see how energy deficient your home is and then a develop a comprehensive strategy to fix the problem.

They profiled a homeowner who got a whopping bill of $1000 bill for home heating alone and after replacing the door with a door with an R value of R4, getting a new set of double pane vinyl windows and insulating the attic and exterior of the house the owner is very likely to save at least 40% on his heating bill.

Catch Joyce's latest Hunt about a very attractive Indian dental student Ms. Sonnya Gade. What caught my attention was this quote.

Meanwhile, Ms. Williams kept looking. "Co-op boards require stability, so we were trying to get her a place before she went to school," she said. "Once she was a student, forget it."

Boards tend to get freaky about students because it means lack of income and party animal. Even if you are pursuing a PhD who will be too busy reading to have a social life you better come armed with a huge amoung of liquid assets, sterling recommendations and a building that is flexible on their financial requirements.

Joyce's work also noticed by Gothamist for the cat themed photographs.

Thursday, January 12, 2006

So it begins

Recently a very powerful Texan alerted me of a new site called the Tenant Network. It is a website that allows customers to find an apartment without using a broker by allowing users to utilize a growing database of rental buildings. It also invites users to list rental buildings.

This deveoplment does not surprise me since I have written about the outsourcing of rental brokers for quite sometime. Those of you who are curious or just want a recap these entries were Outsourcing rental brokers and I stand corrected on somethings.

Tenant Network is in the early stages of development but it has a viable database of buildings and a tremendous amount of potential with its grass roots appeal.

I forsee a future where more of these sites will be popping up which will cause more aggravation for rental agents and save more money for customers. What would be a huge blow to the industry is if somone was able to get their hands on all of the rental buildings in Manhattan including the smaller owners.

However there are owners who perfer utilizing brokers since it provides someone to be accountable for finding qualified tenants and some landlords just dislike dealing with tenants directly and perfer a buffer.

Wednesday, January 11, 2006

740 Park: A Really Gross Book

To simply brand 740 Park as just a book about a really rich co-op is akin to branding Star Wars as a movie about special effects. Michael Gross has written an engaging historial epic on 740 Park and how Manhattan became the Island of F.I.R.E.
(Finace, Insurance, Real Estate)

It is quite a lengthy read, however I think it is worth it because it will give you a better insight of how Manhattan formed it's identity as one of the most exclusive places in the world and it will also give insight on the uppercrust of the bagel of Manhattan society. I am not talking about celebrities or people who are featured in Page 6. I am talking about the real heavy hitters, the ones who are lifetime members of the University Club and trustees of the Met. I am talking about the oligarchs who have trustfunds that are worth the GNP of most third world countries.

If you have time go see Mr. Gross today at Real Estate Connect New York where he is participating in a panel discussion on the West Side.

NYC Real Estate: The Real Story
Westside 3 & 4
4:00 pm to 4:45 pm

Go to this link if you want to learn more about the book and author.

Monday, January 09, 2006

The last laugh

It seems the market continues to defy gravity despite warnings from the experts and the New York Times puts in their two cents with their article Warning: Beware of Warnings About Real Estate.

Vivian Marino presents a pretty strong case for why real estate is pretty much the investment vehicle of choice for fund managers.

These include the following:

Still, the overall case for real estate remains strong. As the economy continues to grow and to generate jobs, demand for properties like apartment buildings, retail stores and office space will only rise, said Martin Cohen, co-chairman and co-chief executive of Cohen & Steers, whose Cohen & Steers Realty Shares fund was near the top of last year's performance list, returning 14.9 percent.

Indeed, last year started precariously. The funds lost 6.4 percent, on average, in the first quarter amid profit-taking by institutional investors. They recovered in the second quarter, with a robust average gain of 13.2 percent, though the third-quarter return was much smaller, at 3.2 percent. The funds were up 2.6 percent, on average, in the last three months.

REAL estate funds have been resilient partly because there has not been a major spike in long-term interest rates, which can prompt a sell-off in real estate investments, Mr. McNeela said.

The funds have also benefited from the limited supply of commercial buildings being developed.

"On average, the replacement costs continue to go up," said Theodore R. Bigman, who manages Morgan Stanley real estate funds, referring to the rising cost of essentials like building materials and land. That may also help to explain the higher-than-usual number of takeovers of REIT's last year - eight completed, six pending - from companies looking for an efficient way to expand their real estate portfolios without having to build, he added.

"We feel very glad about the limited amount of cranes in the sky producing buildings in the United States," Mr. Bigman said.

However things are not all happiness and sunshine.

We're bullish on energy prices," he said. And housing? "I believe mortgage financing has become too liberal, which has lead to rising speculations," he said. "People are buying more home than they can finance."

In other words: he thinks that there is a housing bubble.

Other fund managers would agree that some markets - particularly parts of Florida, California and Nevada, for example - have become overheated and overbuilt, but they caution investors not to confuse them with the commercial market.

"They are looking at the bubble in residential real estate, in single-family homes and condos, and translating that to a bubble in other parts of real estate," Mr. Cohen said. "They are unrelated."

Mr. Bigman concurred: "Is there a bubble in commercial real estate? We would argue that there isn't."

But he had this to say to those investors who might have been left behind in the real estate fund rally: "We're sorry you missed the best run-up that we had in years, and we strongly discourage you from expecting comparable returns. However, having a meaningful allocation still makes sense."

I still stand by my bearish stance regarding real estate particularly with Wall Street.

All these invesment banking institutions have been around for years. They have teams of the best brightest enconmists, analysts, researchers and staticians that with their combined brain power and experiences could probably destabilize the economies of several third world countries.

Which is probably why they have been so successful in navigating this noreaster of a market. Do not mistake their success that can be replicated on your own. Unless you have their resources and abilities I would advise everyone to be very careful.

Comments back

I have instituted protocols that will prevent this blog from being carpet bombed with spam. However I an still required to utilize the word verification tool in order to publish an entry. I already sent a million requests for blogger to review me so they will see that I am not a spam blogger. Below is a description of the whole process. BLOGGER! I AM NOT A SPAMMER! PLEASE GET RID OF THE WORD VERIFICATION REQUIREMENT! IT IS VERY ANNOYING!

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Sunday, January 08, 2006

Shutting down comments

Some f**khead has comment spammed me. It has gotten so bad that blogger thinks I am a blog spammer. So I am going to clean up the spam and then shut down comments for now. Feel free to email me and I will post it up. Thanks.

Report from the Open House Front: Eh

Today was the first open house of the New Year. And the verdict was comme ci comme ca. Not the most amazing turnout but it could have been worse. What I have noticed is that there are more new buyers on the market but they are just as discerning or even more so than the veterans who have been slogging it out.

But so far there has been no trauma to report yet.

Jonathan Miller has written two entries that I think you will all find interesting.

One was regarding his recent 2005 4th quarter report of the Manhattan Market and the differences in coverage by the media outlets.

The other was the media's heavy use of the term "Soft Landing."

My analysis of the situation is that the media's reaction is cautious but hopeful. With the New Year now upon us there is a sense that it won't be as bad as we think itis.

However I think another reason why we are all dipping our feet in the pond but not jumping into swime because we are awaiting the Greenspan/Bernanke transition and see how everything is going to play out. What I am concerned about is not Bernanke. From what I have read about him he is cut from the same cloth as Greenspan and has record of not being stupid. It is how the environment will react to him is what I am keeping my eye on.

Recently the New York Times did an article on the Yield Curve. Which has been used to predict recessions and has been popping up lately all over the world. However it has proven not to be the most reliable indicator of recessions. The word that kept coming up was "Conundrum."

That gives me a warm fuzzy.

Thursday, January 05, 2006

Lawyers: Not all are created equal

Whenever I think of taking the LSATS and going to law school,I am often violently smacked into reality by Opinionistas, which is a blog that chronicles the tragic yet hilarious accounts of the O's life as a lawyer. In a recent entry she discusses her inexperience regarding corporate law.

My friends in other departments come from my identical background and clearly spend many hours at their desks, but on in general I haven't a clue as to what they sit and do all day. Ask me to start a corporation, draft a will, read a mortgage, you'll get a blank stare, while corporate associates panic at the mere thought of writing a motion or appearing in court.

Nonlawyers seem shocked to hear this, "But you're a lawyer! You went to a good law school! Don't they teach you these basic things?" Hardly - we were far too busy cramming our heads with general legal theory and practicing our ass smooching techniques for firm interviews to ever absorb any practical training. Then, after graduation we entered firms in a specific department, where we sit all day performing the single task in the one area of law that we're even remotely trained to practice, essentially joining the glorified overeducated assembly line created by large firms.

She raises a very important point regarding lawyers which like doctors, have specialties. Some choose litigation, some go corporate and others are on the federal judge track.

Which is why you need to choose a lawyer who has the experience that correlates to your needs. If you are putting together a co-op deal, make sure you have a lawyer who has experience in putting successful contracts for co-op packages.


I don't care if your lawyer attended Harvard Law School, clerked for William Rehnquist. If they haven't made their bones in what you need them for then they are completely useless.

Wednesday, January 04, 2006

Overvalued Markets, Homeland Security and the Fed

I got this link from my good buddy Brokered. It is an article from CNN on the most overvalued markets in America. Coming in first is not Manhattan or Las Vegas but Naples, Florida. Scroll down and you will see this really nifty chart from most over valued to most discounted.

Acording to the NYT, Homeland Security is now distributing security aid based risk assessment not politics. Now they figure this out? Here is a sample of what the aid was spent on.

Set up after the 2001 terrorist attacks, the Homeland Security Department's local and state grant programs have drawn repeated criticism from members of Congress and budget watchdog groups because the early emphasis on spreading the money around resulted in tens of millions of dollars going to some communities where, critics said, the terrorist threat was not as urgent as elsewhere.

Examples cited in recent testimony to Congress include $557,400 awarded to North Pole, Alaska, a city of about 1,700 residents, to buy rescue and communications equipment, and $500,000 to Outagamie County, Wis., population 165,000, to buy chemical suits, rescue saws, disaster-response trailers, emergency lighting and a bomb disposal vehicle.

One of the reasons why I think that New York had such a hard time getting funds was the perception that it is the destination of commerce and real estate that it would be able to pull itself out by taxing its entire population into the stone age. Which is what happened. However, we could have used those funds and hopefully these new requirements will make things easier for New York.

Mr. Chertoff, in a speech last month, said the changes he was considering would require an acknowledgment that the nation could not protect itself against all risks.

"That means tough choices," he said. "And choices mean focusing on the risks which are the greatest. And that means some risks get less focus."

I couldn't agree with him more. This is what should have been done in the first place.

What probably took everyone by surprise was when the Fed presented their minutes to the public and revealed that they are setting the parameters to end the campaign to raise interest rates. Besides trying to maintain a balance in the economy I suspect the fed is setting the stage fora smooth transition Mr. Greenspan's exit and Mr. Bernanke entrance. Another fellow blogger agrees with the fact that Fed's action events gives Bernanke some leeway when he comes in Let's see how thing go next month.

Tuesday, January 03, 2006

The FSBO Wars: Battlefield Madison

In past entries including The Perfect Storm and FSBO Wars I have often written about FSBOs and how they are going to play a piviotal role in the real estate industry. I still strongly support the argument that they will become more prevalent in the real estate industry especially if the market completely tanks since sellers will want to cut as many of their costs as possible.

Jeff Bailey of the New York Times has written an excellent article about two cousins who own and operate FSBOMadison which is the biggest FSBO site in all of Madison, Wisconsin. I know what you are all thinking. Wisconsin. Who cares? All they have is cows and cheese. If you are a seller you should care since this means there will be other options that will cost less. If you are broker you should be concerned because sites like FSBOmadison are going to take a very big chunk out of your revenue stream.

Below is my analysis of the article.

January 3, 2006
Owners' Web Gives Realtors Run for Money
MADISON, Wis. - Across the country, the National Association of Realtors and the 6 percent commission that most of its members charge to sell a house are under assault by government officials, consumer advocates, lawyers and ambitious entrepreneurs. But the most effective challenge so far emanates from a spare bedroom in the modest home here of Christie Miller.

Ms. Miller, 38, a former social worker who favors fuzzy slippers, and her cousin, Mary Clare Murphy, 51, operate what real estate professionals believe to be the largest for-sale-by-owner Web site in the country.

The site, which charges just $150 to list a home and throws in a teal blue yard sign, draws more Internet traffic than the traditional multiple listing service controlled by real estate agents.

Madison is home to the University of Wisconsin and a city where the percentage of residents who graduated from college is twice the national level. It is also a hotbed of antibusiness sentiment, which turns out to be the perfect place for a free-market real estate revolution. Bucking the system is a civic pastime here.
"It may be an extension of the 1960's, when we stuck it to the man by protesting the war," said Mayor David J. Cieslewicz, who notices all the FsboMadison signs around town. "These days we stick it to the man by selling our own home - and pocketing the 6 percent."

Elsewhere, the Justice Department, free-market scholars, plaintiffs' lawyers and countless entrepreneurs are vowing to make real estate more competitive and to bring down sales commissions. To do that, they advocate forcing the Realtors' association to share control of its established listing services. Those critics seem to view the listings as an unassailable monopoly.

And who can blame them? Those 800-plus local listing services, controlled by local branches of the Realtors' association, help dole out about $60 billion a year in commissions to real estate agents and the firms that employ them. Despite numerous attacks, the association has been remarkably successful to date at protecting its turf. Through lobbying, litigation and legislation, the Realtors' group has managed to keep control of the crucial listings.

Ms. Miller and Ms. Murphy, however, built a separate and alternative listing service - a parallel market, much like the Nasdaq, which rose in recent decades to challenge the New York Stock Exchange's dominance and sparked competition that eventually reduced transaction costs for all stock investors.

This is what I would like to call the “A League Of Their Own Model”. Instead of fighting for the content that has been acquired by realtors, Miller and Murphy simply created a separate environment that would attract the content to their site therefore bypassing the need for access to the MLS.

The price competition is startling. FsboMadison listed about 2,000 homes in 2005 and said that about 72 percent of its listings sell. If those 1,440 houses averaged $200,000 per sale, the real estate commissions under the 6 percent system would have been about $17.3 million. Ms. Miller and Ms. Murphy collected about $300,000.
"They don't care - they're not profit-driven," said François Ortalo-Magné, an associate professor of real estate at the University of Wisconsin who has studied residential sales in Europe and the United States.

That lack of profit motive - big profit, anyway - may be the reason FsboMadison is succeeding. Most entrepreneurs want to quickly grab a piece of that $60 billion in commissions by offering a price lower than what most real estate agents charge to attract consumers. Ms. Miller and Ms. Murphy, working patiently, are focused on providing a place for buyers and sellers to meet and exchange information.

The paradox of business is that it’s primary objective is to make a profit. However the most successful businesses ignored profit and focused on providing the service or product to their customers which is what Ms. Miller and Ms. Murphy have done.

Obviously they could have made more money from their business by charging higher rates but that would require providing more services to fulfill the higher expectations of their customers. Leading to more paperwork if they were to accept these responsibilities, which would require more resources that would prove overwhelming to this two person operation. I think Ms. Miller and Ms. Murphy have the best deal in town considering that their overhead is quite low and besides $300,000 in Madison Wisconsin is like a million dollars in Manhattan and it goes a long way in their hometown. And all they did was setup a website and manufacture some signs which even they agree is not that special.

"I don't think we've done anything unusual," Ms. Murphy said. "We are not out to take over the market, to eliminate the real estate world. We're just here to offer this service."

To real estate agents, "for sale by owner" conjures up some cranky tightwad trying to sell an overpriced, ramshackle house. Agents utter FSBO as if there was something foul stuck to the bottom of their shoe. "It's a commission-avoidance scheme," said Sheridan Glen, manager of the downtown Madison office for Wisconsin's biggest real estate broker, the First Weber Group.

Mr. Glen ticks off the tasks that real estate agents handle: using market expertise to price a house; advertising and showing it; negotiating an offer; organizing the paperwork for closing. "We do a good job," he said. "We deserve 6 or 7 percent."

It is not a scheme. The FSBO is another business model and brokers need to accept the fact that the FSBO is becoming more prestigious and attractive to consumers. There is no doubt that brokers work very hard for their commissions but it is up to the seller to decide if they want to exclude the broker from the equation.

The Justice Department sued the Realtors association in September, claiming that its rules for listings unfairly disadvantage online brokers who might stimulate price competition in the business.

Agents take comfort by reminding themselves that FSBO and other alternative sales methods blossom in an up market and tend to wither in market downturns. The market is slowing now. And they note that owner sales, which have been around as long as property rights, have always accounted for something less than 20 percent of home sales.

Don't take too much comfort in that notion. As I have stated before if the market takes a big enough hit, sellers will be looking for ways to lower their overhead and the first cost they will look to trim is the commission.

Kevin King, executive vice president of the local Realtors' association, runs the multiple listing service but says he pays no attention to FsboMadison. "It's not important; I don't follow it," he said. "I don't even know the people."

This type of dismissive attitude is going to cost Mr. King a lot of money and unfortunately it is a very popular sentiment among brokers. Which they will certainly regret.

But times have changed. Most consumers are now accustomed to executing large transactions, including airline tickets and investments, over the Internet with little or no assistance. Buyers and sellers are now far more comfortable dealing with each other through Web sites like eBay. And it is far easier to find the FSBO offerings on a single Web site with photographs and property descriptions, not unlike the official multiple listing service. Do-it-yourselfers were hard to find among the classified ads and makeshift yard signs.

This is the future of real estate transactions. Eventually closings will be done online. It can no longer be ignored.

A robust for-sale-by-owner operation has also helped open the Madison market for other alternatives to real estate agents. Jason A. Greller, a lawyer, charges a flat fee of $600 to help a buyer or seller on a house transaction and handles about 200 a year. Many of his clients find a house on FsboMadison and also see his advertisement on the site.

Stuart and Sheri Meland, both 28, put their graduate studies on hold in 2002 and started a business that offers sellers a spot on the traditional multiple listing service, plus a yard sign, for a flat fee of $399. Most sellers agree to pay a buyer's agent a 3 percent commission, show the home themselves and either negotiate on their own or hire a lawyer.
William A. Black, a lawyer for the Wisconsin Department of Regulation and Licensing, says he does not think consumers who bypass real estate agents are missing much. "The majority of residential transactions are very simple: 99 percent can be done without a broker. And the 1 percent screwed up - the broker couldn't have prevented it."

I concur with Mr. Black on his opinion. Brokers are no longer the gatekeepers of information. Consumers have more resources available to them thanks to the internet and are more savvy on how real estate works.

Alternative listing services would need to reach a combined 50 percent to 60 percent of a market to topple a multiple listing service, Steve Murray, an industry consultant, guessed.
That is what David B. Zwiefelhofer, Webmaster for FsboMadison, would like to see, and he constantly encourages Ms. Miller and Ms. Murphy to expand. "I think this is the one place in the country where FSBO could overtake" the multiple listing service, he said.

From my experience in the field and from what I have I heard on the wire, customers are getting most of their information from online resources. Seeing people running around with the New York Times Classifieds tucked under their arm is starting to become a rare site. This is just the beginning of the FSBO based operations that will be popping up all over the country. I do forsee Mr Murray's guess becoming a reality in the near future. The technology and information are readily available for an army of entrepeneurs who are out to invade the broker empire.

For those of you who are thinking of throwing your hat into the FSBO ring remember that it has taken FSBOMadison 7 years to get this point. And simply copying their business model will not ensure success. What works in Madison may not work in Manhattan. But only time will tell.

Monday, January 02, 2006

Happy New Year!

Happy New Year! I hope all of you are well. I have no doubt that 2006 will be an historic year as we all embark on the next phase of our real estate journey. Hopefully we will have a better idea of how the market will position itself.

The Propery Grunt will be undergoing it's own metamorphosis. I plan on putting together a new GUI and reshaping the focus of this blog. I know, I have been saying for awhile, but this time I really mean it.

I look forward to hearing from you all!