Deliberately uninformed, relentlessly so [a rant]

This is a post from "Seth's Blog", which I highly recommend to anyone in any industry.  Check it out at http://sethgodin.typepad.com.

"Many people in the United States purchase one or fewer books every year.

Many of those people have seen every single episode of American Idol. There is clearly a correlation here.

Access to knowledge, for the first time in history, is largely unimpeded for the middle class. Without effort or expense, it's possible to become informed if you choose. For less than your cable TV bill, you can buy and read an important book every week. Share the buying with six friends and it costs far less than coffee.

Or you can watch TV.

The thing is, watching TV has its benefits. It excuses you from the responsibility of having an informed opinion about things that matter. It gives you shallow opinions or false 'facts' that you can easily parrot to others that watch what you watch. It rarely unsettles our carefully self-induced calm and isolation from the world.

I got a note from someone the other day, in which she made it clear that she doesn't read non-fiction books or blogs related to her industry. And she seemed proud of this.

I was roped into an argument with someone who was sure that ear candling was a useful treatment. Had he read any medical articles on the topic? No. But he knew. Or said he did.

You see a lot of ostensibly smart people in airports, and it always surprises me how few of them use this downtime to actually become more informed. It's clearly a deliberate act--in our infoculture, it takes work not to expose yourself to interesting ideas, facts, news and points of view. Hal Varian at Google reports that the average person online spends seventy seconds a day reading online news. Ouch.

Not all books are correct or useful. Not all accepted science is correct. The conventional wisdom might just be wrong. But ignoring all of it because the truth is now fashionably situational and in the eye of the beholder is a lame alternative.

I know this rant is nothing new. In fact, people have been complaining about widespread willful ignorance since Brutus or Caesar or whoever invented the salad... the difference now is this: more people than ever are creators. More people than ever go to work to use their minds, not just their hands. And more people than ever have a platform to share their point of view. I think that raises the bar for our understanding of how the world works.

Let's assert for the moment that you get paid to create, manipulate or spread ideas. That you don't get paid to lift bricks or hammer steel. If you're in the idea business, what's going to improve your career, get you a better job, more respect or a happier day? Forgive me for suggesting (to those not curious enough to read this blog and others) that it might be reading blogs, books or even watching TED talks.

As for the deliberately uninformed, we can ignore them or we can reach out to them and hopefully start a pattern of people thinking for themselves..."

Reach me at: michael.sussilleaux@gmail.com

What's a "Walk-Through"?

What is a "walk-through", and why is it important?

A walk-through is a physical "inspection" of a property performed by the buyer just prior to the actual closing. Since it often takes months from the time that the buyer has last set foot in the property to the time of closing, a walk-though is an opportunity for the buyer to make sure that the property is in a condition consistent with when they last saw the property. It's a final opportunity just prior to closing to ensure that there is no egregious damage to the premises.

Note that the word "inspection" in the last paragraph is in quotes. Therein lies the rub.

Recently I had a walk-though where the buyer came in with a team of helpers and tested every appliance, the plumbing, all the electrical sockets, the windows, window coverings and inspected the walls, floors and ceilings for imperfections. Naturally this person wanted to make sure that she was getting everything in working order -- which is understandable. (By the way, everything was fine, and the closing went smoothly).

What isn't fine with the "fine toothed comb" approach is that in New York City, properties are generally sold "as-is". This means that if the chandelier didn't work when you signed the contract, there's no requirement for it to work now, just before you close on the property unless you specifically made contractual provisions for it to be fixed. The walk-through is not an engineering "inspection" to compile a punch list of things to be fixed by the seller. (In the special case of purchasing new construction, there really is a punch list, but not in the far more common resale of an existing apartment)

Had this woman found pinholes in the walls from picture hangers, faded paint or stains that were covered up by rugs, inoperative lighting fixtures, non-working air conditioners and almost anything else you can think of, she would most likely NOT be entitled to have the seller remedy these problems or compensate her in any way since the purchase is "as-is". This is a surefire way for there to be bad feelings and resentment at the closing table, and is most certainly not the way you want to begin life in your new home.

All this pain can be avoided. The time for this kind of detailed inspection is before the contract is signed, not after. Check the property out thoroughly before you sign on the dotted line! The walk-through is to verify that there is no unreasonable damage that wasn't there when the contract was signed and to ensure that there is a working smoke detector in the property. (The buyer must sign an affidavit that there is a working smoke detector at the closing, so I always make sure I call attention to it during my walk-throughs)

It is the responsibility of the real estate broker to educate their customers about what to expect from a walk-through. There's nothing "evil" about the sale being as-is, but it's important to know how you can meet all your expectations about what you're buying. Education makes all the difference.

Reach me at: michael.sussilleaux@gmail.com

A Cautionary Tale

A couple recently signed a contract to purchase a modest apartment in New York City. They obtained financing, submitted all the required paperwork, and were good to go. They were all set to patiently wait the month or two that normally transpires between contract signing and closing.

Since this was their first apartment, they decided to make use of this interim time to buy all new furniture so they could hit the ground running when they finally got the keys.

Finally, the time to close was upon them. Unfortunately for them, they didn't know that the bank giving them the mortgage runs their credit for a second time just before closing prior to approving the actual disbursement. Their furniture shopping spree created added debt for the couple, and it was enough to cause the bank to pull out of the deal, leaving the couple unable to close on the property and saddled with a ton of new furniture with no place to put it.

The moral of the story is clear. If you are buying a property, do not do anything that could adversely affect your credit rating/debt until after you have actually closed on the property. Make sure that you have a long talk with your mortgage broker about exactly how the process works so that you understand all your obligations and how to avoid pitfalls such as this.

Reach me at: michael.sussilleaux@gmail.com

Summer is almost here!

Happy June to everyone!

As you may know, summer is typically one of the busiest sales seasons of the year for residential real estate in New York, and things are very busy this year. Since the spring of 2009, when the marketplace ground to a halt, we have seen a doubling in the number of residential sales transactions, with more than twice as many apartments being sold this spring compared to spring 2009.

The resurgence of active buyers has also signaled a reduction in the median “days on market” before a property sells, although it is still takes an average of four to five months before a listed apartment actually closes. This is by no means the “irrationally exuberant“ market of 2004-2007 and while sales volume has returned, buyers are very discerning. The demand for any given property is driven by one dominant factor: PRICE!

Well priced apartments are attracting instant activity and occasionally multiple bids, while over-priced listings fail to generate real interest. When a newly listed apartment launches, all the serious, well informed buyers are able to very quickly weigh its attractiveness and appeal in comparison to other similarly priced listings. Readily available market data on the Internet continues to bring much needed transparency to the market, and no longer can a seller reasonably hope for an “uninformed” buyer to overpay for a property.

Looking forward, while no one has a crystal ball, it is fair to say that the latest market “bottom” is behind us. Manhattan apartment prices have generally risen between 4 %and 7% since the beginning of the year, and both buyers and sellers should seriously evaluate their options.

Enjoy your summer!

Reach me at: michael.sussilleaux@gmail.com

Overpricing

I'll need 18 of those $1,000,000 bills thank you very much.

A small townhouse of "quasi-historical significance" just came on the market in Brooklyn for $18,000,000. It's a small building. By suburban standards, it's minuscule. If this buildings' doppelganger were being sold in Buffalo, NY it might sell for $30,000 or so. Theoretically, you could by 600 of these in Buffalo for the same $18 million that this one in Brooklyn is listed for.

Does this mean that this $18,000,000 townhouse is overpriced?

Well, that's a tougher question than one may think. It really all depends on what someone is willing to pay for it. Comparable sales suggest that it is overpriced, but what is "quasi-historical significance" really worth? More importantly, if you are the seller of a "unique" property, how do you maximize your profit.

Consider the owner of this property. Perhaps a real estate broker came in and valued the townhouse at $4,000,000 based on comparable sales. Let's go wild and assume that ten brokers came in and valued it ranging from $3,000,000 to $5,000,000. Finally, the eleventh broker comes in and says that you can get $18,000,000 for the property. What do you do?

All things being equal, it seems the property is worth $4,000,000, but how can you possibly leave a potential windfall of $14,000,000 on the table? That's a very, very compelling reason to list the property in the stratosphere. Many of us buy lottery tickets, why shouldn't a rational human being try for the moon?

The problem is that if you go for the $18,000,000, and then reduce it to $15,000,000 and so on ... all the way down to $4,000,000 everyone will wait for it to go even lower because you'll have a white elephant that no one wants. You're facing quite a conundrum because the lure of the silly money is a tempting siren indeed. What's the answer?

The answer is this. If you are a seller and you are truly uncertain about the true value of your property because of extenuating circumstances such as "quasi-historical significance" your safest bet is to offer the Pollyanna broker the following: "I will let you list my property for $18,000,000 for 30 days. If you are correct, and this is the price point, everyone benefits. If you have misjudged the market and you are wrong, you are fired."

This protects you from brokers who are "buying the listing". Specifically, they simply want to get your listing whether or not the price is realistic. They do this to attract buyers to see the property who they then woo and guide them to other, more reasonably priced, listings. If they price your property ridiculously high, it is detrimental to them as well because frankly the buyers they're hoping to attract will be angry that they went on a wild goose chase for a clearly inferior property.

The moral:

The more unique and out of the ordinary your property is, the more important it is that you do your homework and try to get the most qualified sales team on your side.

Reach me at: michael.sussilleaux@gmail.com

Missing in Action

Mea Culpa.

It's been a long time since I've written a post. The reason is simply that I've been very busy with the business, and haven't allocated sufficient time to write.

So this is a placeholder. There's lots to talk about. I just have to do it.

Hang in there and as always, feel free to e-mail me if you have any questions. Thank you!

Reach me at: michael.sussilleaux@gmail.com

Price per Square Foot

Here's a quick lesson on "Price per square foot", (or ppsf). Price per square foot is a very effective means of pricing property, particularly in large multi-dwelling buildings. The other day I was explaining how to utilize ppsf data to a client of mine, and she said "Oh, it's just like pricing diamonds!", and she is correct.

One of the "4 C's" of pricing diamonds is "carat", or the physical size of the diamond. Small diamonds are obviously less expensive than larger ones, but as the diamond gets larger, the price increases ever faster.

For example, a 1/4 carat diamond of a given cut, color and clarity may sell for $200. A 1/2 carat diamond may sell for $500, a 1 carat for $1,300 and a 2 carat for $3,500! You can't simply add up the cost of four 1/2 carat diamonds to "equal" a single 2 carat diamond. The larger diamonds are simply much more valuable than the smaller ones.

The same pricing analogy is true of apartments. In a given location, for apartments of similar condition, the ppsf will vary considerably by size. A small studio apartment may sell for $700/sf, but a one bedroom in the same building may go for $800/sf and a two bedroom for $1,100/sf. Unfortunately for the buyer, the bigger apartment is not only more square feet to pay for, but each one of those square feet is more expensive! On the bright side, unlike diamonds, you can combine small apartments to make larger, more valuable ones. (But that's a topic for another post!)

Reach me at: michael.sussilleaux@gmail.com

2010

And so it goes. Another year begins, and we look forward, (and backwards), to get our bearings and plan for the future.

2009 showed a marked improvement in sales activity late in the year as buyers who were on the fence finally began to pull the trigger. The best apartments at the best prices are moving again, particularly in the studio and one-bedroom market.

What does 2010 hold? The future is always uncertain, but here are some of my thoughts:

1. The Federal Reserve is currently slated to pare down their direct support for mortgages this spring, and it is likely that interest rates will rise from record lows over the course of the year.
2. Inventory is down from its' record levels in 2009. It is not a sellers' market, but it's not so strong a buyers' market that buyers can unilaterally dictate terms. Many buyers have unfortunately lost out on properties they really liked because they pushed too hard and the sellers went elsewhere.
   
3. Inflation is a growing concern across our entire economy, not just real estate.

Should you make any resolutions for 2010? That's a personal decision, but here are my personal real estate success resolutions:

1. Be reasonable. You are not going to find the lone rube who is willing to pay 2007 prices for your apartment, nor will you be able to drive down a seller to accept 50% off the asking price because you are paying cash.
2. Learn the market. Find out where prices are for properties that are in your realm of interest. That way you will be able to know what amount to bid to buy it, or what price to offer it for in the case of being a seller.
3. Get an excellent real estate attorney. This past year I have seen more deals fall through because of bad lawyers than ever before. You stand to lose a boatload of money if there should be a problem and you have inadequate representation. Get a recommendation and under no circumstances should you use a friend or relative (read "cheaper fee") whose business is not primarily that of New York real estate.
   

I wish all of you a healthy, happy and prosperous New Year!

Reach me at: michael.sussilleaux@gmail.com