Realty Freak

Marketing 101?

I am a big fan of under promising and over delivering when it comes to describing a property but is there really nothing more than the agent could say about 345 Chenault Rd, Buffalo Grove than:

 "Pursuant to a shortsale. PROPERTY SOLD “AS IS” WITHOUT REPAIR, WARRANTY OR SELLER DISCLOSURE. The Listing Broker and Seller assume no responsibility and make no guarantees, warranties or representations as to the availability or accuracy of the property information, photographs, or other information depicted or described herein."

No photos either.  Really makes you want to run out and see it, doesn't it.

North Shore Real Estate Agents Get It All Wrong

In troubling times, when consumers need honest and knowledgeable real estate agents more than ever, most agents still distort facts in an effort to encourage transactions.

This article is a fantastic example of the nonsense that spews out of the mouths of most real estate agents.  Agents seem to  be excellent at propagating myths while ignoring (or at least not understanding the facts). 

Take for example the claim that buyers have an advantage  over sellers.  I take this statement to mean that buyers somehow have more negotiating leverage over sellers now than in the past.  If this were true one would expect to see the ratio of average sale price to list price increasing over time.  But if we look at some data, let’s say single family homes in Highland Park, we find that the sale price to list price ratio is virtually unchanged between Q1 2008 and Q1 2011 with only a 1% difference.  This suggests that buyers have no more and no less negotiating leverage than they did three years ago.  Not surprising when you also take into account that list prices have been largely falling at the same rate as sale prices.

Another act of misinformation perpetrated in the article is that there is a “surplus of houses but a dearth of buyers.”  If this were true one would expect the number of homes for sale to be increasing while the number of homes selling to be decreasing.  Yet if we look at our Highland Park sample again we find that between Q1 of 2008 and Q1 of 2011 the number of homes for sale fell 15%, the number of new listings fell 20% all while the number of homes that sold rose 14%.  Where is the surplus?

But my favorite worthless factoid in the article was the “important statistic: Of the homes that came on the market at a compelling rate, the average final sale price was 92.25 percent of the asking price. Those houses that needed one or more price adjustments? They sold for 76.81 percent of the readjusted asking price.”  This is NOT an important statistic, but it is an example of a type of logical fallacy real estate agents love to make.  In this particular non-sequitur the suggestion is made that if one makes a price adjustment, then one will sell the property for less than if no price adjustment is made.  NO connection has been made to the list price to sale price ratio and an effect on sale price.  In fact one can just as easily speculate that if an owner of a home lists at $100,000 and takes an 8% discount in sale price he will net less money than the owner of an identical home who lists at $140,000 then reduces to $130,000 and then takes a 23% discount.  This by the way describes the well know (although apparently not to real estate agents) economic principle of anchoring.  In reality however, no correlation has been shown between price reductions and an effect on sale price.

What buyers and sellers of real estate should know is that market factors don’t favor individuals; they put negative or positive pressure on prices.  My advice, find a real estate agent who understands this and is will defend your interest instead of industry interests.   

Realty Freak Named in “The Top 50 Real Estate Blogs”

Realty Freak was named in the “The Top 50 Real Estate Blogs as written in the Business Administration Degree blog.

Inman's 6 Strategies For Bullshiting Your Client

6 strategies for a realistic asking price   

6 strategies for bullshiting your clients into a lower list price

If you don’t have real data or skill in interpreting and presenting data so your clients can make good decisions you can always take the advice of Inman columnist Bernice Ross in this article and just use bullshit.  Her six strategies and why they are bullshit.

1.    Absorption Rates

Absorption is probably one of the biggest fallacies in real estate.  Ross takes the concept even further into bullshit land by expressing the meaningless number as a probability of sale.  This is nonsense because absorption doesn’t take into account the list price and it assumes no other properties will enter the market.  Properties sell when a buyer believes they won’t be able to find the same features and benefits for less by continuing their search.  If a property is perceived by the market to be above market value it has a 100% probability of not selling.   As long as a property is priced above market value, it won’t sell no matter how long it is on the market or how many other properties enter or leave the market.

2.    Holding Costs

Holding costs are only a valid argument if the property is not the owner’s primary residence.  If the property is the owner’s primary residence than the mortgage payments, taxes and insurance are housing costs and selling the property does not make those costs go away.  We all have to live someplace.

3.    Price per square foot CMA

Size matters, but it is only one element that makes up the value of a property.  Basing a CMA only on size is disingenuous.

4.    What properties have "qualified for" in your area

Huh?

5.    Show them comparable sales in person or online

Good luck with this.  First, how exactly do you show a house that has already sold in person?  Second, this strategy totally ignores the issue you are trying to help your sellers work through in the first place; the well proven psychological principle that people assign more value to anything that they own.  Compare two cans of paint and a person will figure a way to convince themselves that the can in their possession is worth more.

6.    Use online pricing tools

Ross must be taking money from Zillow because even my grandmother knows that Zillow can be wildly inaccurate.

Does the IAR Hate Poor People?

The Illinois Association of Realtors claims it supports affordable housing measures; it just seems like they don't ever want them funded.  The IAR's opposition to Illinois SB 3001, sponsored by Senator Susan Garrett, is a case in point.  What is even viler than the IAR's opposition to an affordable housing trust is the disingenuous, fear mongering used to rally support to their opposition.  

In this email the IAR suggests that a $5 recording charge is going to increase the cost of housing.  This, simply put, is nonsense.  The IAR also warns that the fee could reach the astronomical sum of $10, but fails to point out that this outrageous increase couldn't go into effect until the year 2020. 

Huge spikes in housing costs from a $5 recording fee aside, the IAR brings out its’ tried and true anti everything it doesn't want argument, the dreaded slippery slope.  The Slippery Slope is a fallacy in which a person asserts that some event must inevitably follow from another without any argument for the inevitability of the event in question.  Allow a $5 recording fee and soon it will be $5,000 argues the IAR.  The slippery slope is the last refuge of the demagogue and reprobate and the IAR should abstain from its use. 

Tell your state representatives that you support affordable housing measures and SB 3001.

Your Agent Hates You

Okay, maybe he doesn't hate you but here is an example of an agent who clearly is not going to put his clients interests before his (the definition of a fiduciary.) 

I received this email the other day from an agent with a national franchise :

"Get the co-op commission to at least 2.5%, anything less in this market when I have a buyer with $175,000 down does not help the opinion I gave to them!"

He doesn't like the co-op commission being offered so he is going to give his client a negative opinion about the property regardless of the clients situation.  WOW!  That's about all I can say... WOW!

The really sad part is that this agents clients probably trust him.  They probably trust him to be looking out for their best interests.  Clearly he is not, and they will probably never know.

The only way to safeguard consumers from the despicable slime of this industry is to mandate by law that buyers pay for their own representation.  This is really as simple as allowing the buyers' agent commission to be appear on the buyers' side of the HUD.

Having buyers negotiate and pay their agents' commission will increase competition amongst buyer agents, increase transparency and reduce conflicts of interest; all good things for the consumer and the industry.

Look What You Made Me Do!

Stupid real estate agent!  Look what I had to do because you don't know the difference between a basement and a lower level!

=IF(BG2<>"Lower",BG2,IF(V2="1.5 Story",BG2,IF(V2="Split Level",BG2,IF(V2="Split Level w/ Sub",BG2,IF(V2="Raised Ranch",BG2,IF(V2="Hillside",BG2,"Basement"))))))

And RPR is going to be better than Zillow why?

Garbage In, Garbage Out

One reason the soon to come Realtors Property Resource (RPR) won't work  be any better than Zillow is because it will rely on real estate agents being accurate and consistent in how they define property characteristics.  I'm not just talking about calling a small house cute, but actually getting the factual details correct.

Chicago real estate agents will often list a property as having a garage space when the reality is there is a garage space for rent down the street.  Many agents don't know the difference between a level and a floor.  And what some agents label a "Bedroom"... don't even get me started.  All of these are examples of the kind of bad data that will cause havoc in an automatic valuation model.  MRED (the Chicago area MLS) relies on agents self policing the data for accuracy, but that's like the fox guarding the hen house.

Valuation models are great (I build my own), but if the people using them don't understand how and why they work , and real estate agents don't, they won't work.

Tax Credit a Bad Idea (Again)

I have to agree with Jack Hough and his WSJ article that the U.S. doesn't need more home-buyer perks.  The best way to get people into homes is to let the artificially inflated housing market continue to correct itself.  The $8,000 first time buyer tax credit and the new $6,500 tax credit for existing homeowners that purchase, though relatively ineffective,  slows the correction and robs the treasury of badly needed funds.  Let's hope this is the last NAR/banking housing "stimulus" scheme we see. 

Realtors Pucker Up for Kiss of Death

Why do agents insist on writing stupid things?  Don't they know that telling people to hurry (217 days on the market) is like a giving a triple dog dare to Fate?

In a quick and unscientific study I looked at the average market time for properties on the North Shore of Chicago (180 days) and compared that to properties that had "hurry" (267 days) or "won't last" (221 days) in the remarks.

Now I know that correlation does not necessarily equal causation, but a 48% increase in average market time would be enough for me to stop BS-ing people in a vain attempt to sell a property quickly.

The only way to sell a property quickly is to price it low enough that everyone with even the vaguest knowledge of  the market  will want to hurry, lest they loose the property.