June 2008

photo credit: nerdy girl

A couple of months ago, my resident teen idol idolizer decided that the perfect sixteenth birthday present would be a trip to Irvine to see the Jonas Brothers concert. Being Mother of the Year and all, I signed her up for the Fan Club which came with the bonus prize of pre-sale ticket access. Now, I know these guys are big. I read the hype, and I hear the hype in my own family room on a daily basis. The concert was going to be a swift sell-out. This is when I became a real estate investor.

I only needed two tickets, but I got caught up in the media frenzy. I bought four. Knowing that my real estate was in short-supply, I figured I would sell the other two for a profit. Maybe I could cover the parking. This seemed like a good idea at the time, capitalism at its best, but then with any investment comes an element of risk.

My two extra tickets were listed for sale with an agent, Stubhub. When I made the initial purchase, I paid commissions (”convenience charges” they like to call them) and closing costs (shipping and handling). As a flipper, I now was faced with costs of sale at the other end, so in order to make a tidy profit, I had to list my tickets a little higher. I “needed” to get a certain amount, and this dictated my asking price. Granted, there were a lot of seats on the market when I made my debut, and many were better and even cheaper, but I had time.

How quickly a market can change. Suddenly, two new concert dates were announced, the two consecutive days following the date on my tickets, for a venue in a nearby neighborhood (Anaheim). Overnight, inventory tripled. But, I wasn’t worried. I had time, and I needed to get my price. Oh, faced with this news, I agreed to a price adjustment, but I just lowered the price enough to make it competitive with the hundreds of other offerings, the other offerings that weren’t selling. My new price wasn’t enough to distinguish my property from many of the other comparable properties, and my price was even slightly higher than others yet, but my property was “special.”

Yesterday it suddenly occurred to me that I didn’t have that much time after all. With my need to move (the tickets) in the next three weeks, I became a motivated seller. I was reminded that my property is not worth want I need or what I want, but it is worth what a buyer is willing to pay. I was smelling short sale if I didn’t act swiftly.

So I agreed to another price reduction. This time, I didn’t mess around. My new price didn’t scream “fire,” but it was compelling. I priced my offering not just below comparable properties, but slightly below slightly inferior real estate. Buyers in this market, I realized, want location but they also demand value. In difficult economic times, value will overcome a lot of objections. Value trumps every time.

I am happy to say that I’m in escrow. Within thirty minutes of doing what I should have done thirty days ago, had I heeded the market indicators and responded to the buyer feedback (crickets), I had a sale. I made a whopping $15, and I am a little short of my goal of covering the parking. On the one hand, I might see this as having lost $100, because at the peak of the market, $100 was roughly my imputed equity. However, it was never real. It’s only real when you actually sell. My timing was off, certainly, but a little too much greed and a big lack of objectivity and proper pricing day one ultimately resulted in a lower sale price.

This story sounds eerily familiar, if you know what I mean.

photo credit: blvesboy

The stories you are about to read are true. Only the names (and a few other little details) have been changed to protect the innocent.

Episode 1 - The Listing Agent Takes a Call

Buyer’s Agent: “I am calling on your listing at 11467 Vista de Stucco. It is a short-sale?”

Seller’s Agent: “No.”

Buyer’s Agent: “Are you sure? Because my client needs to close escrow before he starts his new job.”

Seller’s Agent: “Yes, I’m sure. It is not a short-sale. When does his new job start?”

Buyer’s Agent: “2012.”

Seller’s Agent: “We’re good.”

Buyer’s Agent: “Are you really sure? I mean, is there a chance that it could become short? Because we wrote an offer on a short-sale during the Bush Administration (the first one), but then the bank lost the paperwork, then thirty-eight other offers came in, and then we resubmitted at a higher price to stay in first position, and then the holder of the second trust deed wouldn’t approve the sale, but then he said he would, but then they lost the paperwork, and then they accepted our offer, and then the agents agreed to reduce their commissions to $1.95 and a two-for-one movie ticket, and then yesterday the sellers moved and took all of the door knobs, and…

Seller’s Agent: “I’m sure. The seller has a lot of equity.”

Buyer’s Agent: “You don’t have to be a smart-ass. Just answer the question, is it short?”

Episode 2 - Checking Availability

Scene 1 - On the Phone

Buyer’s Agent: “I am checking availability on your bank owned listing at 47 Rue de Red Tile Roofs, #12. Do you have any offers?

Seller’s Agent: “No we don’t. The buyer must be prequalified by Irv at Lemonade Out of Lemons Lending.”

Scene 2 - On the Phone

Buyer: “Hi, Irv. I want to make an offer on Rue de Red Tile Roofs. It’s the one with the red tile roof. My agent said I have to first get a prequalification letter from you.”

Irv: “Great! You will need to come into my office and complete a loan application.”

Buyer: “But I already have loan approval from my lender.”

Irv: “Do you want the house or not?”

Scene 3 - In the Lender’s Office

Irv: “We already have an offer on this home. It is $2,000 above asking price. If you want it, you will need to offer more.”

Buyer: “But my agent said there are no offers.”

Irv: “The last buyer backed out because the home has mold. It is massive mold, multiplying and permeating every inch of interior drywall as we speak. The work should be done by Friday, then the price will be going up. So, let’s fill out that loan app!”

Buyer: “But I don’t want it now.”

Irv: “Let’s just run your credit anyway…”

Scene 4: On the Phone (Again)

Buyer’s Agent: “I thought you said this morning that you don’t have any offers on Rue de Red Tile Roof. What gives?”

Seller’s Agent: “Oh! My bad! I thought you were talking about my new one on Shake Shingle Circle. Boy, have I been getting a lot of calls on that one today!”

Buyer’s Agent: “So you have an offer on Rue whatever?”

Seller’s Agent: “No.”

Buyer’s Agent: “But the lender said…”

Seller’s Agent: “He must be confusing it with another home.”

Buyer’s Agent: “I find it a little inappropriate that the lender, in effect, the seller, is making representations about the property to my client directly. For instance, he mentioned that the home is a veritable Petri dish of wood destroying infestation…

Seller’s Agent: “There is only mold in the patio cover. That is being taken care of.”

Buyer’s Agent: “He said the price would be going up soon.”

Seller’s Agent: “I don’t know anything about that.”

Buyer’s Agent: “So, you don’t have any offers?”

Seller’s Agent: “May I ask about which home are you inquiring?”

Buyer’s Agent: “Oh, never mind.”

In next week’s episode, investigators are puzzled when a lender prices a home at market value and selects an agent to represent them who isn’t handling 192 other distressed properties and can therefore keep his inventory straight. When the lender responds swiftly to the ensuing purchase offers, foul play is suspected.

I’m spent. I continue to cling to the notion that for every problem there is a solution, but this morning I am throwing in the towel.

All I want to do is continue to post market statistics for a half-dozen distinct zip codes and for San Diego County as whole on our web site. That should be easy enough. I have MLS access, dang it! I have been doing this for years, and while this seemingly simple task has always been the source of much frustration (and has often resulted in a few colorful words being tossed about, like “darn” and “jeepers”), never before have I found myself resigned to utter defeat.

When I set up my first, ugly web site a decade ago, I decided I wanted to provide on-going market statistics because a) Consumers liked them, and b) I could. Since I have always shunned the canned web site, I am able to entirely control the content. The power is intoxicating. I can update any page or create new pages any day I am in the mood, or even several times in one day if I am feeling spunky. Even today in my evolved state, our web site is not vying for any “pretty” awards, but it is content-rich.

It is no secret that I am not a huge fan of our new MLS system. But, even the old system presented it’s challenges when it came to sharing data. This is mostly because Realtor Associations, as we all know, have never been good at sharing. In the early days, I started by providing a list of homes on the market, in escrow, and recently sold for a single Zip code: Scripps Ranch. Within weeks of publishing my stats for the first time, I got the nasty-gram from my Association. Where active and pending listings are concerned, by showing actual property addresses, I was a big-fat rules violator. Even with the proper disclaimer (”listed and sold by various Brokers”), I can only publish this information if I am the listing agent. If I was a Virtual Office, things would be different, but as a lowly agent with my license hung at a brick and mortar Brokerage, this is forbidden. Fair enough.

Instead, I started providing the lists with street names only. Not so fast! In nasty-gram number two, I was counseled that this information was still too specific, and a consumer might actually be able to figure out to which property I was alluding. Obviously, we can’t have that. The solution, I was told, was to identify the home by “subdivision.” The challenge here is that while listing agents presumably get the address right, they rarely get the subdivision name right. “The Willows” often becomes something like “Scripps Ranch PUD Unit 12B 987-J Heck if I Know.” I overcame this with a little sweat equity; the MLS report tables could be cut and pasted into my own table where I could set about correcting the data before posting.

Over time, my statistics offerings were expanded to six Zip codes plus the county summary. I always wished I could provide data for more areas, but given that there is no way for me to automate the updates or even easily grab the data, this will never be an option. The Altos Research charts helped, but these (so far) only reflect active listing trends. Until they (or someone) are able to provide a similar product for pendings and sales, I am relegated to doing things the old-fashioned, manual way.

Enter Tempo5. I am no longer able to “right click” reports, and I am certain this was by design. Further, the standard reports either include fields I don’t want (map code and listing type) or fields I can’t use (address). I can create a custom report, but I can’t add column labels. I can’t find a way to even find the county-wide summary statistics because, before I can get to the “statistics” report option, I have to display the listings meeting my criteria, and this display is limited to 250 records. 

The fun doesn’t stop there. Statistics reports for some Zip codes include Days on Market, while others do not. If an address is long, it overwrites the adjacent column, the column for Zip code which I don’t even want because I am searching by Zip code. Duh. There are a million other little problems, like price-per-square-foot being reported to ten decimal places, but they are too numerous to go into here. So, I have been playing with work-arounds. I have tried saving screen shots of reports and dropping them into Photoshop for cropping and resizing, but that only works if the search results fit within one screen. They rarely do. I have tried saving the files as PDFs, but being one who is not prepared to pop for the $7,985 full Adobe software, I then have no way to correct or edit the data.

If someone has any ideas, I would love to hear them. I know I can pay DataQuick to provide me with the sold data each month, but this just seems wrong. I have access to the data I need; I just can’t get it from Point A to Point B. In the meantime, I am seriously considering nuking the statistics pages from my web site entirely. And, maybe, nobody would notice or care. I just hate to have to admit failure.

So, to the three people who might accidentally read this, help! If you are a vendor, is there a solution I am not aware of? If you are an agent and you are willing to share, have you found a solution? And, if you are a consumer, are the statistics offerings really of any value to you, or can I make them go away and put myself out of my misery? I could always lobby our Association and Sandicor to provide me with what I need, but given that we are still trying to untangle the mess that is their current offering, that is not really an option at all.

Tempo5 Footnote: This is a little off-topic, but it is still important. If you are a San Diego agent, do you know where your listings are? A three-week old listing of ours is still not showing up on Realtor.com, the “Offical Site of the National Association of Realtors,” if you believe their banner. I am told that “they” are working on this. Presumably ”they” are the same “they” that told us we would need to update our ActiveX controls again this morning, only for us to be met with an error message that told us to contact our system administrator. On Yahoo Real Estate, a site relying on my Broker’s feed, our three-week-old listing is also AWOL. Fortunately, it is resident on Trulia, but only because I use Postlets to syndicate our listings, and on Zillow and Craigslist, but only because I manually enter our homes for sale there. It shouldn’t have to be this hard.

Now that you are awake, I threaten to put you to sleep.

The San Diego Union Tribune had an article this morning about airlines promoting ala carte services as a way to stay afloat. In quoting the president of US Airways, J. Scott Kirby, they wrote:

Historically, all passengers paid for checking bags even when they did not bring luggage, because a charge for transporting them was built into the ticket price. Now, Kirby said, “those who want the infrastructure to check bags, will check bags; those that don’t, won’t pay for them.”

Yeah, right. And this statement, naturally, got me thinking about Mello Roos fees.

The “Mello,” as it is familiarly called, is a California thing. It was devised (in theory) to do to new home construction what Mr. Kirby says the airlines are doing to the cost of air travel. First, in case you were itching for a primer this morning, here is the back story.

In 1982, the Community Facilities District Act was approved by the State Legislature. The bill’s coauthors were Senator Henry Mello and Assemblyman Mike Roos — Get it? The impetus for the bill was our famous Proposition 13 which was enacted in 1979 and severly limited the amount of property tax revenues which our local governments had previously enjoyed. With tax revenues limited, revenues which could be earmarked for public improvement projects and new infrastructure, a new source of funds was needed.

In newly developing areas, it became the norm for cities to exact fees and infrastructure improvements from developers as a condition of project approval. In the case of residential development, higher fees and costs meant that the developers would pass these costs through to the home buyers in the form of higher prices on the homes themselves. The Mello allowed an alternative, wherein municipal bonds would be sold to raise the money for required public improvements and infrastructure, and the bond debt would be subsequently passed on to the new homeowners in the form of a Special Tax Lien on the property.

The theory, or propaganda, much like the theory being tossed about by the airline industry, was that rather than imputing the costs of improvements in the price of the home, home prices would be lower since the folks benefiting from the improvements would be funding these costs after purchase. It should come as no surprise that this didn’t happen.

Now, at least in our San Diego neck of the woods, Mello Roos is generally associated with newer development, so those wanting “new” have all but resigned themselves to the Mello Roos burden. Buyers still grumble, but the good news is that since the special tax is based on square footage and not price, homes built prior to the 2000 boom years saw enough appreciation to make the Mello somewhat palatable relative to the total tax bill. Many homes constructed more recently in San Diego County, however, carry a significant Mello burden. In some cases, the effect is to increase the tax rate (based on today’s prices) by as much as 60% or more.

Not all Mellos are created equal, of course. Some run for 15 years, some for 22 or more. Each Community Facilities District has its own rates and sunsets. “How long?” was a question we rarely got until recently, because the buyer just assumed it would be around as long as they would be around. Now that we have a few years under our belts in some of the earlier Mello neighborhoods, we get asked this more often. In Scripps Ranch Villages, for instance, we are told that our Mello Roos runs through 2020, so we can almost see the light at the end of the tunnel.

Finally, here are some of the things that the Mello pays for: Streets, sewer systems, and capital costs associated with police and fire services, schools, parks and libraries. If you aren’t in a Mello Roos district? Then, your city’s general fund gets the nod. The irony, of course, is we all benefit to some extent from the Mello-funded goodies, whether or not we live in a home subject to the special tax.

You can read up on the boring details here. The bottom line is that while the Mello Roos funds public improvements previously paid for by the developer (and passed through in the form of a higher price on the home), the distinction has been all but lost. Buyers would prefer to not have a Mello, but I rarely see a buyer who factors the tax into their offer price. Further, while appraisers in the early days found the Mello to be a consideration, it is all but ignored by appraisers today.

And no matter what Mr. Kirby says, we are all going to continue to pay for the baggage handling infrastructure. It is just that those of us with actual bags will now be paying a little more.

Like so many others, I am still struggling with our new MLS — So much garbled data, missing fields, and stuff showing up on reports that is just flat-out wrong. Despite this, I will demonstrate my fortitude and forge ahead with some market statistics. I do this on the heels of the latest breaking news story published in our San Diego Union Tribune on Monday in which they (again) reported how our market is going to hell in a handbasket (whatever that means).

Since I have spent a year this week showing homes in both Scripps Ranch and Carmel Valley, I chose these two communties as our poster children. Absent accurate “days on market” statistics (see “Garbled Data” above), I am sticking to the basics: Number of monthly homes sold, median sale price, and median price per square foot.  All information is courtesy of the Sandicor Multiple Listing Service (MLS), detached homes only, and never has the disclaimer “All information is deemed reliable but not guaranteed” been so appropriate.

First, we compare number of homes sold in Scripps Ranch and Carmel Valley.

Obvious are the suspected seasonal variations, but month-over-month is as expected in Scripps Ranch (down), while our coastal cousin seems to be a bit more insulated.

As for median sale prices…

It looks like everyone was having a bad day in January. Aside from that, there is not much to glean from these admittedly small sample sizes except, perhaps, that Scripps is feeling the downward trend to a greater extent.

Finally, I give you the much anticipated price per square foot results.

Again, Carmel Valley has been holding tougher, but if you were to visualize a smooth trend line, both communities are trending in the same direction.

One thing Steve and I have both noticed, and this is a more seat-of-the-pants intuitive thing, is that while the coastal communities have tended to be more resilient, softening is ocurring. Further, because they have lagged in the price correction category, the price gap has widened. I expect that one of two things will happen. Either the western communities like Carmel Valley will close the gap with further downward price pressure, or the pendulum will swing the other way, and demand will return to the more affordable inland communities. I suspect it will be the latter. Homes closer to the big, blue, wet thing will always command a premium, but the spread is artificially great right now.

Or, I could be wrong.

Edited to add a snapshot of listing inventories, because commentor Jakob said he likes inventory statistics. Now, that is full service!

You can make this about real estate, or you can make it about almost anything else in life.

I’m not a golf fan, and it wasn’t my intent to catch the US Open this week, but mainly because Steve has seen that this is the only channel my television has known for the past 48 hours, I saw the Tiger Woods’ putt that tied the tournament yesterday. In response, challenger Rocko Mediate had this to say:

You can’t root against somebody. It doesn’t make sense.

I wish more of us thought this way.

With that, I am off to watch my oldest daughter graduate from high school. And to think I don’t look a day over 50!