Some stories of note from the last few days:
I have heard a lot of media buzz about Zillow.com, so I gave the site a look-see. Fancy, very cool, but wow! There numbers and basic facts are way off.
I decided to conduct a little experiment. I searched the investment property that my wife and I recently sold in Bridgehampton, New York. The satellite aerials are pretty cool. I can almost see my kids splashing in the pool. That’s where the “flash” ends.
The “Zestimator” prices the home at $1.63M and our neighbor’s home at $2.45M. Our property sold and closed two weeks ago for $1.8M and our neighbor’s is still on the market after six months at the suggested Zillow asking price.
Here’s where things really go south. Our home is listed on Zillow as having three bedrooms and two baths. I was there two weeks ago, and I’m positive I still saw three and a half baths. Maybe the folks at Zillow thought it’d be more Zen with only two?
I changed the specs, and upped the number of bathrooms from two to three-and-a-half. This made the value of the house decrease in Zillow’s estimation. That’s a new one!
If you haven’t guessed by now, I’m terribly unimpressed with Zillow and don’t see it as a useful tool for much of anything except seeing a satellite photo of your home (which is cool, I admit). I didn’t want to pass judgment based on that one search so I also searched my condominium in Manhattan which is not listed at all. Almost all others in the building are listed and have “Zestimated” prices that are at least 20% higher than current market values. Heck, for those prices I’d sell my current apartment right now, but that’s not happening.
I would like to take a Zillow representative with me to my next marketing presentation so they could explain to the seller just how they came up with their price. It’d be cool seeing them squirm.
I gave it one more shot by searching my mother’s address in Maryland. The “Zestimator” gave a price much closer to reality. That’s probably because Zillow has MLS data for Maryland (and not New York City or the Hamptons since an MLS doesn’t exist in these areas). I did notice that my mother’s neighbor’s house which sold in August was accurately listed and I believe that the price they have given for my mother’s home is somewhat accurate.
Overall I have concerns about Zillow. Their data appears to assume that each home is identical in every aspect except address, square footage, and lot size. The numbers don’t appear to take into consideration the level of renovation a homeowner has done and of course can make no estimate on the homeowner’s “taste” of renovation. There are ways you can adjust the data about your house to take those things into consideration, but even with that level of customization I’m a long way from having confidence in any automated pricing systems–especially in New York.
Zillow is fun but I would definitely not rely on it for anything but its snazzy satellite photos and perhaps some sold data.
Inman News has got some questions about pricing property:
The price is right, or is it?
Home sellers often look to real estate agents for guidance in how to price their homes. We’ve heard an earful about what you think about the value estimates (“zestimates”) generated at Zillow.com. What are some data sources/automated tools that agents and brokers use the most these days to help them to suggest the right price? How much does experience and market intuition come into play in recommending a price? Is the process more “high-touch” than high-tech? Do agents find it’s usually best to recommend a price that is different than the price you think a home will actually sell at? How far off are sellers these days in your market area when it comes to expected sale price vs. actual sale price? Comments please.
Based on experience in the property’s specific marketplace, it definitely takes more of a “high touch” than “high tech” approach. Although access to a large database of sold and current inventory is absolutely necessary (and only truly available to the big real estate companies in NYC, since there is no MLS), but what an agent does with the data is much more important.
Agents must have an in depth knowledge of current market conditions, viable marketing strategies, and a keen understanding of current buyer psychology. In today’s transitional market, there is no one better suited to price property than a sophisticated real estate professional with a significant amount of experience to draw from. That said, it is definitely not an exact science and even the best of us are off base sometimes.
And now a message from the National Association of Realtors:
The National Association of REALTORSÆ Public Awareness Campaign takes another important step forward in 2006. This year’s campaign has added two important communications components.
The first new addition to the campaign will be promoting the REALTORÆ Code of Ethics for the first time. The new spot, “Someone You Can Trust” highlights the honesty and integrity that REALTORSÆ bring to each and every transaction, and also specifically mentions the quadrennial ethics training requirement every REALTORÆ must complete.
There is also a new execution aimed at the FSBO market. The spot, “Don’t Try This At Home” targets FSBOs with a hard-hitting message: REALTORSÆ have the experience to price your home, so it can sell for up to 16% more than selling it yourself. (From NAR’s 2005 Profile of Home Buyers and Sellers Study.)
There’s a constant push in my industry to raise the bar and promote ethics and integrity. I’m not sold on the current strategy. Simply taking classes and getting certified isn’t enough. That’s like saying because you took a safe driving course, you won’t speed. We see how well that works. Everyone took driver’s ed, but just look at all the lead foots out on the road.
The only way our industry will truly change is if unethical agents are kicked to the curb. Fortunately this is already happening.
Buyers and sellers alike are becoming savvier than ever before. Not to mention more and more are relying on a referral to an agent based on that agent’s proven track record with a friend, colleague, or relative. As the selling and buying public demands more from real estate professionals the bad apples will gradually be weeded out.
James R. Hagerty of The Wall Street Journal Online talks about the business of buying foreclosures, which can be extremely lucrative for investors–but to my way of thinking less so for homeowners in trouble:
Advocates for the poor, as well as some politicians, warn that deals with foreclosure specialists are rarely good for strapped homeowners. Elizabeth Renuart, a lawyer at the National Consumer Law Center in Boston and the co-author of a 2005 report on foreclosure scams, says it is “theoretically possible to make a fair deal if the investor makes only a modest profit and the sale returns a reasonable amount of equity to the homeowner.” But she believes consumers would be better off trying to work out a deal with their lenders or seeking help from a financial counselor.
Illinois Attorney General Lisa Madigan likens some foreclosure investors to “piranhas.” She recently has filed three lawsuits against companies she alleges have misled homeowners into selling their houses for paltry sums.
Illinois is among several states that have passed, or are considering, measures to bolster protections for homeowners considering foreclosure deals. New legislation in Illinois will require investors to provide a clear, written contract and give sellers the right to cancel within five business days after it is signed. The new Illinois rules also will limit the profit investors can make when they buy a home and allow the occupants to remain as renters with an option to repurchase the property.
My initial reaction to these stories is to ask: “why the owners of these properties didn’t reach out to a real estate professional with an honest estimation of the situation?” An excellent broker/agent could have priced the home very aggressively and likely gotten the owner out with less pain and more cash than you can get selling to a bottom fishing “investor” who makes a living taking advantage of other people’s misfortunes.
Don’t get me wrong, many of these investors are providing a win-win situation by taking property off the hands of the soon to be “foreclosee.” But I believe that in most instances, if a seller is honest with themselves in the beginning when payments are made late, they would heed the red flags early, and sell for more money than they may have to later, when the bank is standing on their doorstep.
There is no room for pride when foreclosure becomes a possibility. A proud seller will almost always leave a great deal of money on the table by passing up a quick open-market stale in favor of foreclosure, at a time of life when every penny counts.
On the Walk-Through, Damon Darlin reiterates a good point:
Columnist Carol Lloyd notes that even if prices drop significantly, they have appreciated so much over the past few years that the people who couldn’t afford a house in 1997 won’t suddenly be able to afford one in 2007.
Read Carol Lloyd’s original post.
I couldn’t agree more. If you’re waiting for a rock-bottom moment, when all of the appreciation of the last decade has evaporated, you could be waiting for a very long time indeed. In the interim, deals are being made in the middle–at prices below the peak of last year, but well above the prices at which most people bought their current homes.
I am already seeing more sellers realizing that some of their “paper gains” from last spring have past, but they can still reap huge profits selling in the current market when they price appropriately, and below last year’s levels. Buyers are also realizing that the negotiability factor has increased and opportunities are again presenting themselves. Minds, it appears, are beginning to meet.
There are buyers who scoffed at prices several years ago, then got nervous as prices only went higher. Will Manhattan property prices come down enough to please them this time? I wouldn’t hold my breath. Mortgage rates are headed in the wrong direction, and the reality is that relative to some global markets, like London and Paris, New York still looks cheap. However, if you’re determined to get into the Manhattan market, the opportunity to get in before they next round of insanity is in sight.
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Photo: Jennifer Breu
When you do enough transactions in the real estate industry, the inevitable always happens… lost bidding wars, co-op board turndowns, and… well… um… uh… the expiration of an exclusive agreement before you have sold a property.
Let me tell you how this just happened to me this past weekend. For the last nine months one of my exclusives has been my pet project. It is an absolutely amazing penthouse duplex property that is located in a building that my wife and I called home when we had our first child.
Maybe it’s my affinity for the building, at 309 West 86th Street. Maybe it’s the fact that my wife and I miss the incredible people there. Whatever it was, something tainted my reasoning when it came time for pricing.
Whatever the reason, when I priced the apartment last fall, I truly believed that I could sell it for $1.995M. By January, I knew I was wrong.
And when we dropped the price to $1.795M, I believed then that we could sell at this price or better. Two failed contracts later… I was proved wrong again.
Still, I remained confident (perhaps even a bit cocky after an eight year booming market) and proceeded with a marketing plan that exceeded any I had done in the past. Again, I was wrong.
Although I “had a hunch” that the market was changing, I proceeded with the marketing of this property for the past nine months (yes, the sellers were even gracious enough to give me an additional three months to sell their place) the same as I would have during the “boom.”
I was wrong.
So today, as I sit writing this and devouring a most delicious (it’s a bit tart) piece of humble pie, I realize again that we in the real estate profession must continue to evaluate ourselves, our businesses, and the commitments and promises that we make to sellers regarding what is often their largest asset. This is no small task and is never to be taken lightly.
That said, even though this isn’t my listing any more, I’m still hopeful that I can help these sellers find a great buyer for their magnificent apartment. To further show my commitment to these sellers and the integrity of my industry, I am even going to tell you that apartment 12A at 309 West 86th Street is a very special property and if you or anyone you know may be interested in a 1500 square foot penthouse duplex with a south facing terrace and a wood burning fireplace in one of the friendliest co-ops I have ever had the pleasure of dealing with (an living in), you may contact the seller’s new broker, Lawrence Schier at Corcoran, at 212-875-2969 or click to go directly to his web page (the property should be posted in the next few days). For somebody out there, this is the perfect penthouse, and if I didn’t love it so much, perhaps it would have sold by now.
On the Walk-Through, Damon Darlin of The New York Times is the latest voice to fret over the number of Adjustable Rate Mortgages (ARMs)that will be adjusting over the next few years. Payments that are small now will be getting massive soon. The worry, of course, is that there will be an epidemic of foreclosures.
It doesn’t seem like a source of anxiety yet, but the numbers are climbing… The economists I’ve talked to say that the bulk of adjustable-rate mortgages don’t start to trigger until next year. That’s when the nail-biting begins.
All of the talk about resetting ARMs is in my opinion another case of the media instilling unnecessary fear in the public. No doubt there will be some foreclosures as ARMs reset.
Not so fast. First, I expect there will be another boom in the mortgage refinance market as most holders of these ARM’s are savvy enough to get something with a more stable payment while they can. As rates have continued to go up on a regular and rapid basis, most of these homeowners should be (and I would bet most are) re-evaluating to determine whether or not their ARM is manageable over the next several years. If not, it may be time to refinance.
Do you have an ARM? Keep an eye on those monthly mortgage statements and the interest rate you currently pay and contact your mortgage broker/banker to discuss your options.
Whatever you do, don’t be one of the minority of ARM customers who proves the media right when your bank comes knocking at your door.
Your other option, of course, is to consider selling before your ARM adjusts to an unmanageable level. Let’s face it, even in this “cooling” market, most sellers are still selling for incredible profits. So instead of a 50% return, many of you may have to settle for 20 or 30%. Not such a bad thing if we keep everything in perspective.
Happy Memorial Day Weekend to all.
Yesterday I stepped into the minefield that is defending real estate brokers. In the post and the comments, pricing your apartment is the big issue. I maintain a knowledgeable broker earns a good chunk of his or money with this one act.
Today I ran across a Wall Street Journal column that discusses another way to get a sense of price: hire an appraiser:
With home sales slumping and inventories on the rise, experts say getting your home sold depends a lot on pricing it correctly. One tool sellers can fall back on when the market is shifting is a home appraisal.
You can have an appraisal done before you contact a broker or if you’re just curious what your home would be worth. They cost, on average, from $250 to $400 for a single-family home, slightly more for multiple-family dwellings.
An appraiser will physically inspect your house for shoddy workmanship or needed repairs, measure its dimensions and takes notes on the floor plan, utilities and other factors that affect pricing.
He or she should also look at three or four “comps” — comparable homes in your neighborhood that have sold within the past six months — and analyze how homes currently on the market are faring, says William J. Doka, owner and president of Erickson Appraisal Company in Fair Lawn, NJ.
In theory, that’s a great idea. But over the last seven years, as the market has been rising, appraisals have often fallen short of conditions on the ground–meaning that you’re leaving money on the table if you leave the pricing to an appraiser.
Not to mention that in New York at least, appraisers almost always rely on brokers to help with the appraisal by providing comprable listings.
To me, that means an appraisal can be a helpful starting point of the pricing discussion. But, as the WSJ suggests above, it doesn’t replace the value that a knowledgeable broker brings to the table.
I know, I know, I’m a broker so of course I say that. But this is not the same old argument you have always heard. I have put my money where my mouth is. Please, hear me out.
As many of you know, I just sold my own investment property. It was one of several on the block for sale. However, it was the only one that has sold in the last several months. Why did it sell? Because I hired an agent who did her homework and figured out the right price. I trusted her, she did her job, priced it aggressively, and found a buyer who saw the value in the home. For that quick and stellar performance, in a soft market, I am more than happy to pay her 6% commission.
It’s no secret that the 6% pricing structure is under fire. It has even been called a war. Brokers are doing their homework, girding for the fight.
My thought is that when real estate professionals do their jobs well, like my agent did for me, they will always be worth a lot. People who can make big deals happen are valuable in any industry.
Take a look at my current listings: every client who has let me do my job–and has taken my advice about pricing–is under contract.
Of the 20 times I have represented sellers in the last eight weeks, 16 have already gone into contract. The common characteristic of these 16 sellers is that they hired me because they trust my guidance.
The other four have had questions. They have second guessed my analysis of the market, and have insisted on high prices. As the weeks now pass without ready buyers, I believe we have watched the value of their property decline.
My job is to convince them of the reality: this market is nothing like six months ago, and the sooner we all accept that, the sooner we’ll find buyers ready to jump back in.
The moral here is that in a flat to down market, sellers need to make sure they are hiring an agent whom they trust implicitly to guide them through the process of selling. Interview multiple agents and make sure that you believe what it is they are presenting to you. Get specific data from them to support their analysis of the market and your home. Scroll through these posts for more tips including the all-important signed marketing plan.
There is nothing worse in a cooling market than being the seller who drops the price too slowly. That results in an extended process of chasing the market down, scaring off serious early would-be purchasers, and selling at a significantly lower price than if it had been priced accurately early in the process. A broker who can get you the right buyer early in the process is delivering real value.
