“Buying the Listing”: Exhibit A

by Ross Kaplan on February 19, 2012

Telling Sellers What They Want to Hear — At First

While my track record landing listings is very good — it’s not perfect.

The most common reason prospective Sellers choose another Realtor?

The other Realtor took the listing at a higher, unrealistic price — a practice that Realtors call “buying the listing.”

Exhibit A

Last June, I interviewed to list a Lake Calhoun home that I projected selling in the low-to-mid $900′s, and recommended a listing price of $1 million, plus or minus.

A couple days later, I received a polite call from the Sellers that they were ”going with another Realtor.”

Sure enough, the home debuted on MLS a few weeks later . . . for $1.3 million!

Barely six weeks later, the owner dropped the price a whopping $200k.

Six months after that, the home ultimately sold for $900k, a hefty 31% below original ask (the Twin Cities market average is 8% – 10% off).

Telltale Signs; or, Seller Beware

How can you tell if an agent is buying the listing?

The two most obvious signs:  1) their recommended list price is much higher than what the Comp’s — and any other agents — suggest; and 2) the agent wants an unusually long listing term, e.g., one year or more (if you’re going to overprice a home, you’d better be prepared to wait).

Why should home Sellers beware of such a Realtor?  (besides the *dubious ethics, that is.)

Because it hurts their bottom line.

Selling price correlates inversely with market time.

A home that debuts on the market signficantly overpriced will typically take longer to sell, and ultimately have to be discounted below market value to (re)attract skeptical Buyers.

*In my experience, there’s no such thing as just one ethical lapse (sort of like cockroaches that way).

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Coming: the Golden Age of Venture Capital?

by Ross Kaplan on February 17, 2012

Wall Street Allocating Capital  . . . to Itself

Once upon a time, Wall Street’s reason for being (“raison d’etre,” if you want a fancy term) was to efficiently allocate capital from suppliers of capital (aka “savers”) to those who could most productively use it — typically young, promising companies.

At least, that’s how I explained it to my 12 year-old son the other night.

Going on four years after The Crash of ’08, it seems obvious — at least to me — that what modern-day Wall Street really excels at is  . . . allocating capital to itself.

Witness the still-ginormous salaries and stock options handed out to the head honchos at top investment banks (as best I can tell, any cutbacks are being absorbed by these firms’ rank-and-file), juxtaposed with anemic corporate lending and still-high unemployment.

Revolt of the Savers

Against a backdrop of zero percent interest rates (“ZIRP”), public skepticism towards the stock market (and the High Frequency Trading-types who clearly control it), anemic bond yields, and still-accelerating gains in communication and technology (Moore’s Law lives!), where might retail investors more profitably put their money to work?

Institutional money is apparently flooding into private equity, but that’s not an option for Mom-and-Pop types.

Gold and other precious metals (still) feel a little too “fringy” to old-timers like me.

What does that leave (beside mattresses, that is)?

Instead of accepting “return-free risk” from bonds, I’m guessing that at least a slice of the gargantuan liquidity sitting out there migrates toward investments which actually promise a return for assuming risk.

A pretty good return, in fact.

What meets that description?

Venture capital.

Here’s hoping that more of that money gets raised and invested in the Twin Cities instead of traditional hotbeds like Silicon Valley and Boston.

P.S.:  want a quick primer on venture capital?

Watch “Something Ventured,” a terrific documentary on Silicon Valley’s history.

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Comp’s for Advanced Beginners

by Ross Kaplan on February 17, 2012

Weighing Comp’s and “Kind-of-Comp’s”

The cornerstone of establishing market value for a given property is the CMA, or “Comparative Market Analysis.”

As prepared by both Realtors and Appraisers, it consists of selecting a peer group of three homes (“Comparable Sold Properties”), then going through a compare-and-contrast process sizing up each of the Comp’s relative to the “subject” home (the one you’re trying to price).

The pro’s call this “bracketing, post-adjustment.”

Integral to this process is the presumption that there are three good Comp’s:  homes similar in style, size, condition, and location — that have sold within the last six months (preferably less).

Which Criteria to Relax

The art of valuing a given property comes in when the Comp “pickings,” so to speak, are slim.

Which criteria do you relax?

To take just one example, suppose you’re trying to price a rambler (Midwestern for “one-story,” called a “ranch” elsewhere).

Unfortunately, you have to go back 18 months to find a similar rambler that sold in the same neighborhood.

Some Realtors and Appraisers will widen their geographic scope, and look outside the neighborhood in adjacent ones to find a more recent sale.

Given how discrepant even adjacent neighborhoods can be, I find that less reliable than staying within the same neighborhood, and going back further in time for a similar sale.

Tweaking the Settings

If you go that route, though, Step #2 is figuring out what prices have done, overall, in that neighborhood, during that interval.

Fortunately, MLS statistics readily allow such statistical interpolation.

Alternatively, I will “jump” housing styles to find a good (or acceptable) Comp when necessary.

So, normally I’d prefer an “apples-to-apples,” rambler-to-rambler comparison.

However, if that’s not possible, I’ll use a 1 1/2 or two-story, then use ”above ground finished square feet” to compare the “Kind-of-Comp” to the subject property.

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More Phil Dunphy-ism’s

by Ross Kaplan on February 17, 2012

“Commission Impossible”

From this week’s episode:

“Commission impossible.”

–What Realtors say about a particularly trying Buyer.

“Commission accomplished.”

–When such a Buyer actually buys.

At least, that’s what Phil Dunphy, of TV’s “Modern Family” sitcom, claims Realtors  say.

Must be a Southern California — or Phil Dunphy – thing (personally, I’ve never heard either term).

How Many Showings?

Unlike Phil, I’ve also never had a mutual friend contact me to set up a fifth showing for a client who was too embarrassed to call me themselves (also from this week’s episode).

Trust me:  the kind of clients who want to see a home 5 times are not shy about asking (two showings is standard, three is pushing it unless the home is big and/or needs lots of work — and five is way over the top).

The client ends up buying when they overhear Phil talking about an old chair the Dunphy’s need to throw out, and mistakenly think he’s talking about the house that’s for sale (“Don’t worry, if the Jones’ don’t want it, I know lots of people who’ll snap it up in a heartbeat”).

Dealing With Ambivalent Buyers

While real estate “love-at-first sight” is real, just like the human kind, it’s relatively rare; in a decade selling real estate, I’ve probably witnessed it in less than 10% of my Buyers.

What’s much more common is “strong-like-at-first-sight.”

As my client does a second and possibly even a third showing, their interest level deepens, and they naturally progress to an offer.

When it takes 3 (or more) showings to decide, my usual advice to Buyers is, “something’s obviously missing for you in this home.  When you find the right one . . . you won’t feel so ambivalent.”

P.S.:  And yes, some clients are more deliberative, (in)decisive, etc. than others.

However, once a deliberative-type arrives at a decision, they generally stick with it.

One of the pitfalls of so-called “snap judgments” is that sometimes they “un-snap.”

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Edina Realty “Leadership Circle”

February 17, 2012

How Many Before You Can Say “Perennial?” It’s a given that lots of things you do in residential real estate go unnoticed, let alone appreciated. So, it’s always nice to be recognized by the company you work for. In that vein . . . I just received my fourth Edina Realty ”Leadership Circle” award for my [...]

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“Kaplan Family Price Index”

February 16, 2012

Stealth Inflation & Rising (Dog) Food Costs There are lots of indices that purport to measure inflation:  “the Producer Price Index,” “the Wholesale Price Index,” “the Consumer Price Index,” etc. But the only yardstick that really matters to me is “the Kaplan Family Price Index.” By that measure, inflation is galloping right now. Overt and [...]

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The Positive Uses of Buyer Feedback

February 16, 2012

Will Scathing Feedback Lower the Seller’s Price? I’ve certainly taken my swipes at the seemingly ubiquitous showing feedback forms that Buyers’ agents receive after they show a home. The main knocks:  they ask for information no good Buyer’s agent is going to provide — e.g., “what is the home worth?” — especially if they have a client [...]

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“Hmmm . . . I Wonder If They’re Going to Re-List?”

February 16, 2012

Consider This a Little Big Sign With the usual number of homes temporarily taken off the market over the holidays, plus “For Sale” homes that simply expire without selling (something like one-third of all listed homes), a home’s status this time of year can be a question mark. So, here’s a BIG hint:  if there’s a large post [...]

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