April Fools Market

Real estate's new Magilla Gorilla is the escrow process, longer, and more onerous.  Appraisals are uncertain, rendered by out of area know nothings, loan approvals take an eternity to garner, lender demands: unceasing and often idiotic.  

Not only is the 30 day escrow process a thing of the past, but even a 45 day time frame is ambitious, perhaps ill advised.  Best plan on three months for an FHA deal.  Delays a plenty. Need synchronized closings?  Forget it, better to build in a seller rent-back.

The Appraisal Story

The appraiser surveyed the property, clipboard in hand, likely ignoring my neighborhood spiel.

"It's a new house," he blurted, questioningly.  

"No," I responded flatly--a bit astonished, "it was built in 1898.  Where are you from," I continued.

"La Canada," he volunteered, stealing a glance at his car, parked next to a hydrant.

"Have you ever been to this neighborhood before," I asked warily, "we're close to USC you know."

He hadn't, he didn't, and he tanked the value, comparing the property to others North of the freeway, apples and oranges.  

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Supposedly we're safeguarding the consumer, thwarting cronyism with these new reforms, Good Faith Estimates, and the Home Valuation Code of Conduct (HVCC), which mandates an anonymous appraiser pool rather than area-experienced specialists.  Frankly, I think it's bunk. Window dressing, at the consumer's expense, to mask financial mismanagement and a creative shortfall.

Block Changers

It's nice to be associated with architectural masterworks, bag hefty commissions, bask in reflected glory.  But my greatest source of professional satisfaction is representing buyers on block changers, typically long neglected, tenant-occupied dwellings, spewing adverse impacts.

While it's important to shepherd the comings and goings of swans, neighborhood trajectories are altered most by the passage of ugly ducklings.   Because seldom is an entire block guilty of impiety; instead, a single residence is the source of horn honking, the feral cat population, late night shenanigans.

Bad apples put to compost.  "The Christmas House" lay vacant after evicting a deadbeat tenant, vandalized and collecting refuse.  At "La Casa Azul" people slept two to a bed, and in bunks, in violation of occupancy restrictions.  The yard grew wild and brown (photo is post trim).  

Homeownership may be a right, but it's also a responsibility.

The Real Estate Market October 2009

With the first time home buyer's credit still ablaze and interest rates remaining near historic lows, consumer sights have re-focused on Los Angeles real estate.

Investor participation has resumed as well, targeting single family housing in "starter markets," for conversion to rentals, or to flip.

Nearly all the reporting agencies, agents, escrow officers, data tracking firms, report a souffle-like rise in transactions, prices.

Has the market got its groove back?  If so, this star turn has confounded critics and swamis both, even the smartest guys in the room.

Personally I expect an up-and-down market over the next three 

years; but, of what I'm most confident: unpredictability.  Just as no one foretold this torrid late summer rally, anticipated the magnetism of  the $8,000 tax credit, foresaw the foreclosure moratoriums, and the inventory choking 'controlled release' strategies of the lenders; nor, will the next round of market manipulations be so clairvoyantly divined. 

In other words, the bets are off.

The Real Estate Market July 2009

Got Inventory?

The buzzword for the market's second and third quarters, as inventory shrivels and fierce competition returns to upper entry levels ($300 - $600K).

Pick a zip code, any zip code....

The 90007 zip code which encompasses over 100 city blocks, shabby patches and glorious enclaves, dollhouses and manor houses, sports 10 single family listings.  Ten.  Diez. 

Of those ten, one will require an all-cash or hard money purchase, owing to condition issues. Another, a probate, has a previously accepted offer and is awaiting court confirmation.  Four are short sales, of which three have already netted offers, and are correspondingly disinclined to show, as they grapple with obstreperous note holders.  

Ten is the new five.  "The numbers," I tell my stat-tracking crazies, imitating Edward G. Robinson's Johnny Rocco, "ain't the 

numbers."

The Unsold Inventory Index, measured in the number of months it would take to deplete supply, were home sales to continue at the current pace--without refreshment, stood in June at 3.6 months.  A far cry from January 2008's bloated 14.5 months. 

But back to 90007 and the furious five: one is a bank-owned 

property that "shows" as active, despite an accepted offer.  Even though agent/brokers can be fined for not updating the status of 

their listings timely (from 'active' to 'pending' or 'looking for backup'), REO (bank owned) brokers, perhaps in response to a higher level of aborted transactions, are notoriously delinquent.  Some brokers regard a noncompliance fine as the cost of doing business, and only perform status updates when a buyer has removed all contingencies (typically 17 days into a transaction).  

Finally, a listing on 20th ST is subject to interior inspection only.  Which requires a buyer to write an offer interior sight unseen.  A proposition, contingencies notwithstanding, most buyers reject.  

Ten = three.  Got Inventory?

A Little Satisfaction

I don't typically highlight specific compacts; however, I just completed a transaction, over a year in the making.   I'd like to recognize the principals and express my appreciation.  

The buyer, whom I represented, is Beverly Meyer.  The seller was Frederick Johntz, represented by Tom Inatomi of Prudential.  The helpful escrow agent was Patsy Addy of Pickford Escrow.

The deal endured several rounds of negotiation and a lengthy escrow.  A major repair item was included.  The financing took time to arrange, and was far from conventional.  Even personal effects were exchanged.

The property, a one-story Spanish Revival was originally built in the Watts area in 1931, and moved to the Jefferson Park neighborhood in the late 1940's, at which time a second bathroom, the arcade entry, porte-cochere, and third bedroom were added.

Real estate dealings are often contentious and embittering; yet this transfer, despite its numerous challenges, was a triumph of negotiation and absolute collaboration.

Realbonics

Contemporary?  Modern?  Modern with an 'e'?

Label for this post?  Real Estate Rants!  Yep, another opportunity for snarkiness, righteous self-promotion, and a little squawk.

Increasingly, the term 'Architectural' is being used by real estate 

agents as a catch-all for things new, blobitecture, deconstructivist, International style re-hash, anything that isn't neo classical.

How lame. 

"I'm selling architecture too," I chided one of the descriptive language challenged, "you know the result and product of building."

"Cute," she responded cooly, before adopting a more smug tone, "but this is architect designed."

"Very cute," I returned, "is he an architect of architecturals?" 

Check out these marketing comments (see bottom image): Stunning Architectural with fully integrated Craftsman and Asian details.  Integrated details, as opposed to unintegrated details, WTF?!

If you can't accurately describe product, you're an unqualified salesperson.  

The Conflict of Interest Myth

The Los Angeles Times business section featured a story Sunday about the declining ranks of real estate agents, Realtors are Abandoning a Listing Ship.  Amongst other items, the article details conflict of interest concerns, whether agents push more expensive product to secure richer commissions.  I'm sure it happens--all things happen, but I don't believe it's prevalent.  Moral and ethical obligations aside (and those aren't easily hopscotched for living, breathing, licensed, 

regulated professionals), practice of the sort would be a bit uncomprehending.

For starters, commissions are not fixed.  Sometimes a lower priced property compensates more amply.  For example, a three percent sales commission on $500,000 bears a greater sum than 

2.5% of $585,000.  Some listings even offer bonuses to the selling agent, further complicating the assumption.  (As an aside, I showed over 30 properties last weekend and I haven't the 

slightest sense of what was offered by whom.)

But perhaps what derails the conceit altogether: the difference in the numbers is de minimus, because buyers usually court properties in a fairly narrow price range, plus/or minus 5-10%.  Supposing all things equal, commissions of 2.5%, and a 75/25 agent/brokerage split, consider the following scenarios:

Property A: Sales price $330,000.

Property B: Sales price $300,000.

Brokerage commission Property A: $8250.00

Agent take home: $6187.50

Brokerage commission Property B:  $7500.00

Agent take home: $5625.00

The pre-tax difference is $562.50.  Would anyone really 

jeopardize a client relationship, in a highly competitive marketplace, for 500 smackers?  That's just crazy talk.  Sure, as the numbers get higher the spread increases, but so does the payday. 

I always want my buyers to get the best deals and the best properties, regardless of the remuneration.  In part because I want to be affiliated with the best houses and potentially represent them at a later date; but, also because I'm highly competitive, desire to be liked, and have a big ego.  Ahhh, but you readers already knew about the ego part.   

It Ain't V-shaped

Seems like just the other month, my scribblings about the Hover Market (4/9/2009), paralyzed buyers, and a torporific real estate climate.  Things now couldn't be more different.  

The reporting frequently trails the phenomenon, and it isn't long term recovery I herald; but, a buying orgy has commenced around Los Angeles, with transactions hard-packed around the credit-accessible, conforming loan limit figure of $417,000.  The 

pending home sales index (PHSI), a forward looking indicator, noted the transaction swell nationally; while, many in-house tabulations (by area brokerages) claimed an exponential jump in volume.  Additionally, the median home price registered a 2.2% increase from March to April, a significant watermark, and the biggest month-to-month gain, according to a source reported on Bloomberg.com, since June 2005.

More than mere "Spring Bounce," many buyers are emboldened by good ol' fashioned affordability, and the prospect of a mortgage, helped by low interest rates, that shadows their rental payment.  Multiple offer scenarios have returned, while opens are flooded with first-time buyers eager to burst from years of cocooning.   Stay tuned for the April/May numbers.

Close to Mankind

I root through property descriptions daily, in print and online. Many are colossally unimaginative, and more than a smattering resort to the 'tired trinity': close to schools, shopping, and transportation.

Close to Schools. It's Los Angeles, there's schools flippin' everywhere. LAUSD alone operates 658 campuses. One online source lists over 100 private K-12's. Throw in a few hundred pre-schools and few hundred colleges, from Pacific States University to the American Film Institute to Cleveland Chiropractic College, and you get the picture.  Pick a Thomas Guide page, any Thomas Guide page, there's enough flags to fill the U.N. lobby.

Close to transportation, you mean a busline? Wow, welcome to the greater basin, beaches, foothills, and valleys. The Metropolitan Transit Agency web-site lists 200 express, local, limited, shuttle & circulator lines.  Even the seemingly insufficient MTA rail system stretches over 73 miles (soon to be 80 with 2009's Gold Line extension), to say nothing of Metrolink commuter trains.  

Shopping? Commerce, in the city that drove a retailing revolution? A mere place to spend money? Ninety-nine cent stores?  Lazybones corner market?  Tacos de Adam?  

Really, isn't some of the most desirable real estate, deep in the canyons, high in the hills, sequestered at the cul de sac's end, the furthest from schools, transportation, and shopping?

The Hover Market

Nowadays the real estate salesperson gig goes something like this:

First, you show your buyer a property.

A few days later, the listing agent follows up, "did your buyer like the property?"

"As a matter of fact," you respond, "s/t/he/y did and they're considering an offer."

"Well, I haven't anything in writing," the listing agent predictably returns, "but there's a couple hovering."

"Let 'em hover," I growl, "my buyers are throwing down paper and kicking ass!" (Thereafter, I would throw down, er forcibly reseat the receiver; only, I damaged a cell phone making a similarly grandiloquent gesture.)

It's the hover market, everybody's hovering. I get updates from agents every day, e-mails, texts: 'they're hovering, three different buyers are hovering, two ladies are h-h-hovering.'

"Are they in hovercrafts?" I snigger, whilst trying to restrain myself from forcibly reseating the receiver.

In the meantime my buyers are putting pen to paper, taking numbers, and....well....a few are hovering.

"What about your buyers," another agent asked, "aren't they also hovering?"
"Oh no," I gasped, "they're not hovering at all, we're locked in a furious endurance battle, smoking out the enemy, biding our time..."
"They're hovering," he interrupts.
"Bingo," I add.

Tom-School-ery

Buyers often harbor an aversion to schools, especially high schools, and properties adjacent. While learning institutions beget traffic, some daytime noise, and litter, they are not without perks. Many schools roll up the sidewalks after 4 pm, students and faculty dismissed at three-ish, lie silent in the evening, on weekends and for long holiday periods.

I was once involved with the purchase and sale of a property on 40th Place, in West Park, directly behind Manual Arts High School. "Manual Arts is a large institution," I cautioned my client, "be prepared for a teenage chorus line, maybe even loitering, in the morning and afternoon." But it wasn't to be. Manual Arts received and relieved entirely on Vermont Avenue. Moreover, because the school interrupted the East-West grid, those streets that abutted the back side of the campus (see image top), nearly operated as cul-de-sacs, with reduced traffic, and security patrols.

Over the years I've sold many a house in the Kinney Heights neighborhood, home of Joseph Pomeroy Widney High School. Outsiders, prospective home buyers, have often cast a wary glance at the single story Brutalist strip along Gramercy. Yet, Widney harmlessly serves a mere 370 special ed kids, including sightless youngsters who often, and heartwarmingly, navigate the neighborhood whilst learning to use their canes.

In the Heights (Arlington Heights that is), Johnny L. Cochran Jr. Middle School features an expansive green along the school's Southern border. At an open house, opposite the field, I once heard a home-seeker complain, "but it's across the street from a school."
"Tell her it's a park," I kidded with her agent.

Flip-Flop-Flip

"It's the perfect market for you," I told a longtime client and ardent home restorer recently, "lots of beat-up fixers at heavily adjusted prices."

Simultaneously, for those of us operating outside the golden triangles, there's less "finished" product, much less. Financial jitters, a seller's strike, the spiraling costs of some materials and labor, all play a part. But perhaps principally, the absence of investors, or "flippers," has eradicated a significant percentage of move-in condition offerings.

"Flipping" frequently gets a bad name--deserves a bad name, as vulgarian investors white-wash surfaces, concealing compromising conditions beneath carpet, stucco, or new drywall. Such efforts are often derided as "Home Depot specials." Still, some honest handyman types did turn product around with new roofs and plumbing, decent fencing and the beginnings of a nice landscape. Enough to move the acrid to the tolerable, to make properties more immediately palatable for intimidated first-timers, or engrossed families.

The foreclosure storm will only bring so many well maintained properties to market, a change in the weather will be necessary to evince others. The golden lining: "It's the perfect market for you," I told a longtime client and ardent home restorer recently, "lots of beat-up fixers at heavily adjusted prices."

Cash Flow

"So everyone's clients have the same wish list," I puzzled, sitting around a table with a handful of real estate agents, as each ticked off buyer profiles and pursuits, or listing details, between dice rolls of the investment board game Cash Flow.
"Family of four seeking a 3+2 in Culver City for $600K; Single guy looking in Hancock Park up to two mill; a couple with 400 to spend, trying to stay North of Sunset or North of Venice, or West of Centinela, coveting at least 2000 square feet."

"Hey you're the niche guy," they responded, "what've you got, buyer wants old house with septic tank and original sanitary tissue?"
"A mix," I responded dryly, "What I see is a big divide in strategy. Some buyers (mainly yours) are trying to stretch, throwing every last penny at what they consider to be the very best neighborhood, holding out for the collapse of West Los Angeles prices, confused that a lower median doesn't translate to give-a-ways on Lookout Mountain."
"As opposed to what," they challenged.
"Well, I've a few clients who are moving down or downsizing, selling large houses for smaller ones, leaving A neighborhoods for B neighborhoods. Pursuing fail-safe strategies. Let's be honest, if prices in Castellmare or wherever hit $800,000 or whatever, then the larger economy is wrecked, in a post Katrina kind of way.
"So do you think people shouldn't buy then," came the edgy retort.
"No," I responded honestly and reassuringly, "I think for many it's a great time to buy, but nobody's invulnerable, and the myth of recession proof neighborhoods is proving to be just that. Values aren't built from the top down, they're built from the bottom up."
"So what's your point muckraker?"
"I'm not sure it's intellectually prudent to root for chaos, yet assume personal stasis. That's my point. Now pass the dice."

The New Waiting Game

A large number of aspiring home buyers spent 2008 on the sidelines, waiting for a declining market to bottom. Hoping to avoid the sort of boomerang or upswept tail that often marks the end of commodities corrections.

Perhaps unexpectedly, the wait for the pricing nadir has been displaced by a new resolve--the wait for the rate nadir. Despite gobs of government spending and potentially inflationary outlays, rates continue to languish delectably in the low fives, stoked by the Fed's anti-hoarding, er anti-savings tactics. Might a limited time 4.5% purchase rate be in the offing as rumored? The possibility has even pusillanimous purchasers coiled like a ravenous panther.

Me, I'll probably play along, and exchange paper for a hard asset. You know, something with an inglenook, or a sleeping porch, or a whole lot of rosettes.

New Market Touchstones Part 4

While I spent lots of time fielding questions about architecture and details of the Carey/McDonald house during last weekend's West Adams holiday house tour, a few wanted to discuss the local-local real estate market.

"Transaction volume is up, considerably," I reported, "even as prices ease lower".
"But I thought people couldn't get loans," responded a bewildered few.
"Not only are people getting loans," I gushed, "they're getting the best loans I've ever seen, interest rates are in the low fives!"
Clearly flummoxed by Paulson's persuasions, a couple tour takers blinked, nodded dismissively and moved away. Another looked to his feet before adding, "you know, Paulson is a kind of poker chip." Turns out, one of the big poker chip manufacturers is named Paulson.

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According to an escrow source, in 2008 nearly one residential purchase escrow in five failed. A marked increase over previous campaigns. The reasons? Financing for starters, which is why some bank owned properties accept only pre-approval lenders from designated brokers.

Plenty of properties get tripped up at the inspection stage too. Sellers are often less inclined to make repairs or grant credits, even of a reasonable amount, after accepting a lower than anticipated asking price. Simultaneously, despite supreme discounts, some buyers still feel entitled to a rash of repairs.

So contentious have these negotiations become, I even urged one buyer to conduct investigations outside of escrow. We then made an AS-IS offer, that was accepted despite its deep discounting, by a seller who preferred the AS-IS conceit.

For the Record

My clientele may not encompass the broadest range, dominated by persons with college degrees, oftentimes secondary degrees. I haven't, for example, represented many retirees. I also work with a higher percentage of foreign born buyers than is the norm, though Los Angeles may account for the unusually cosmopolitan mix.

Pleasantly, I've yet to have a client enter foreclosure as a direct consequence of their purchase financing. (One client endured foreclosure, but for reasons unrelated to his purchase loan.)

Many of my home buyers utilized now demonized creative financing instruments: stated income, adjustable rate and interest only products. A few put no money down, and even wrapped closing costs into principal financing. But all planned accordingly, some re-fied in a timely fashion, others were prepared for higher payments. In short, they acted responsibly.

I know predatory lending existed, and probably, misrepresentations were made, particularly to less sophisticated Spanish language speaking immigrant purchasers. Some parties may deserve federal intervention.

But as a guide backpacking through the REO wasteland, I also see the failed flips with grotesque great rooms and porno showers. The high-lifers, who exhausted their generous equity lines, on boom-boom machines, and tables at the Tropicana. Even the shirkers, without the slightest tingling of obligation, unwilling to service--regardless of means, a now desiccated investment.

To these and even noble folk over-matched by the obligation of homeownership, assistance should not be forthcoming. The Robin Hood politic is an insult to that greater number of deft, dutiful homeowners.