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Why Lemmings Die - How “Conventional Wisdom” can cost you

December 18th, 2007 · 4 Comments

With all of the media coverage about the implosion of the real estate market and the rising rate of foreclosures, every time I turn around someone is asking me about the health of the local real estate market in and around Palo Alto. They seem to expect me to echo what they are seeing on TV and reading in the newspaper. Nothing could be further from the truth, especially in Palo Alto, which is still enjoying a Seller’s Market with prices maintaining their stratospheric levels as hordes of well-qualified buyers patrol the city in hopes of seeing something new to look at. Last week there were a whopping three (that’s 3) new homes coming on the market in Palo Alto.

When hearing this unexpected good news on the health of the largest investment and asset that most non-Google employees have, a few folks have asked me if I think this market will continue (I do - subject of another posting), and that they are considering selling their homes in the Spring.

Spring, like April 2008? I ask


Why then?

Well, that is when all the houses seem to come on the market, so that must be the best time to sell . . .

I have gotten better at controlling my reaction (giggling is a great way to start off on the wrong foot). But I then usually explain things in economic terms of Supply and Demand.

If you are a lemming seller and put your home on the market when everyone else does, how do you make it stand out from the competition? You can spend more on preparation (fresh remodel, landscaping, staging, etc.), more on marketing (more advertising, open houses, etc), or you can price it below the competition, or a combination of all three.

These approaches all result in less of a return for the homeowner at the end of the day, much like the price of oil usually drops in May because demand for heating oil has dropped off and the summer driving season hasn’t started yet. Alternatively, when oil is scarce like during a particularly cold winter, or if oil producers reduce production, prices go up.

What if you could make a house scarce? Would that increase the relative interest level and selling price?

Generally, we see the number of homes in Palo Alto for sale increase in mid-February and be high until around Memorial Day, then there is another seasonal increase after Labor Day until late October. Seasonal lows in inventory run from mid-November to mid-February, and then there is another drought in late Summer. Selling prices tend to run inverse of these seasonal inventory fluctuations, as greater scarcity creates greater perceived value for Buyers.

In Summary, an easy way to get your property to stand out is to put it on the market during one of the low inventory times. Serious buyers are always looking, and who would you rather have trooping through your home, serious, qualified Buyers, or people who like to look at houses on a pleasant weekend afternoon?

If you are considering selling, don’t be a lemming and wait until Spring, contact your real estate professional and have him or her show you market data and discuss how to get your home on the market during one of the “off-times”.

Skeptical? Don’t believe me? You can see objective market data for your area, courtesy of Altos Research here, or sign up for a customized report on the market in your area here.

Thanks for reading.

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Tags: * Type of Content · Analysis · Business of real estate · Buyer and seller tips · Consumer · Real estate

Mortgage Mania Part 16 - The Hits Just Keep On Coming

December 11th, 2007 · 1 Comment

Ben And The Boys (aka the FOMC) cut short-term interests rates by .25% earlier today in an attempt to:

1) Soften the mortgage industry landing from a smoking hole in the ground, to more of a smoldering skid mark. Don’t tell Washington Mutual who announced 3000 employees were getting pink slips in their stockings, and the bank is setting aside up to $1.6 Billion for losses in the 4th quarter.

2) Generate some consumer confidence this Holiday Shopping Season, since 2/3 of our economy is driven by consumer spending. Uncle Sam wants you to buy a Ford and / or Chevy.

3) Address concerns that “information suggests that economic growth is slowing,”

4) Give me somethnig to rant about (Thanks, guys!)

Interestingly, Wall Street, which has been on the rise over the last two weeks, had apparently priced in a bigger cut, so it responded by pummeling the Dow, lwhich lost 294 points on the day. Ouch! Maybe some retail therapy is in order . . .

Mortgage rates weren’t significantly affected by the rate cut. The Fed Funds rate is a short-term rate, and mortgage rates are long term. Mortgage rates are still at two-year lows, and it’s a Neutral or Buyer’s Market everywhere but Palo Alto.

Apparently, Palo Altans stayed awake in Econ 101 during the lecture on how relative Supply and Demand affects Prices. Although Demand in Palo Alto has dropped in recent months, Supply has dropped equally or more, maintaining or increasing Prices. Adam Smith would be proud.

Bueller, Bueller . . .

For an actual news article on today’s rate cut by an actual journalist, as opposed to a caffeineated Realtor, click here.

 Thanks for reading.

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Tags: Analysis · Buyer and seller tips · For buyers · Real estate

Mortgage Mania - Part 14, Dubious Fees

November 6th, 2007 · No Comments

My favorite online news source, The New York Times, ran a story today “Dubious Fees Hit Borrowers in Foreclosures” in which the writers interviewed Katherine M. Porter, associate professor of law at the University of Iowa. In a review of many loans that are now going into foreclosure, Porter found that questionable practices among lenders are leading some experts to contend that lenders are taking advantage of higher-risk borrowers and those facing foreclosure.

“Because there is little oversight of foreclosure practices and the fees that are charged, bankruptcy specialists fear that some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures.

Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question.

“Regulators need to look beyond their current, myopic focus on loan origination and consider how servicers’ calculation and collection practices leave families vulnerable to foreclosure,” said Katherine M. Porter, associate professor of law at the University of Iowa.”

You may be asking what this means to you in Palo Alto, happily making your payments on your $1+ million mortgage on your $2.4 million median priced home (no, that isn’t a typo!). As Mortgage Manics have heard me say before (OK, read), national lenders use a mostly one-size-fits-all approach to lending, meaning that practices and guidelines that are developed and applied to home buyers in Iowa, Tennessee and Colorado are also applied to us here in Silicon Valley. As a result, if you are reading about unscrupulous practices and excessive fees by national lenders that are being exposed in areas with high foreclosure rates, you may want to check the fine print on your mortgage and see what you are paying for in addtion to PITI.

In addtion, Porter found that lenders didn’t provide accurate payoff amounts for their loans to consumers, with one claiming they were owed $1,000,000 when the actual payoff amount was $60,000. That must be that fuzzy math stuff . . .

Countrywide was recently sanctioned by a court in Pittsburgh for losing or destroying over $500,000 in checks between December 2005 and April 2007 for homes in foreclosure. These are the companies holding the title to our homes, so we need to keep an eye on them.

You can read the full text of the article here.

On that happy note, have a great week, and thanks for reading.

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Tags: Real estate

How Palo Alto ranks schools - We don’t!

May 22nd, 2007 · No Comments

Palo Alto high schools refuse to join Newsweek survey of best schools - SJ Mercury News, May 21, 2007 

When I saw the above article in yesterday’s Mercury News, I nearly spit a perfectly good latte all over the paper.

The schools in Palo Alto are a major driver of real estate values in the city and are consistently marketed and believed to be the best public schools in the area.

The local real estate community feels so strongly about this that they have an annual drive for donations to Partners in Education, to solicit donations for Palo Alto schools. In return for their generosity, local real estate agents who donate get their picture in the paper as a thank you for being donors and supporting Palo Alto schools. In recent years there has been quite a competition between the various real estate companies in Palo Alto for who donates the most money, which is kind of losing sight of the point of things, but I digress . . .

Interestingly, in Newsweek’s 2006 rankings, we saw a disparity in the rankings between Palo Alto High School and Gunn High School, with Paly coming in below Los Altos High and Cupertino’s Monta Vista.

Article excerpt:

Last year, Gunn High School in Palo Alto ranked 79, and Palo Alto High School ranked 361. But this year, prompted by concern at both high schools, the Palo Alto district refused to send in Newsweek’s required forms.

“We don’t want to be a part of it,” said Gunn Assistant Principal Tom Jacoubowsky.

Said Marilyn Cook, associate superintendent of the district: “It’s a very simplistic premise that the quality of a school can be measured by the number of AP tests students take.”

Gunn neither ranks students nor chooses valedictorians.

“We’re trying to do things to avoid and alleviate student stress,” such as reducing pressure to take advanced placement classes, Jacoubowsky said

Interesting stuff.

This also lends fuel to my personal fire that as increasingly affluent and educated people are moving into cities like Mountain View, they are injecting more money into the schools, while also demanding more of the administration. I prognosticate that we will begin to see increasing parity between Palo Alto public schools and those of the surrounding communities. If this happens, the upward price pressure resulting from a demand for homes in Palo Alto in excess of Supply could be lessened, leading to a stagnation of home prices or even sales.

Heresy! You say.

We will see. In the meantime I welcome your comments and tirades. I don’t pretend to be an expert on education or even to play one on TV.

You can see the rankings for local schools on the SJ Mercury website here.

Thanks for reading.

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Tags: Real estate

Fire Engine Red, A Proud Fixer Upper, and More Eichlers: All in a Day’s Palo Alto Real Estate Tour

March 23rd, 2007 · 1 Comment

Palo Alto housing inventoryChomping at the bit to go, I headed straight out of this morning’s broker marketing meeting to see what the new Palo Alto inventory looks like. The outcome? Inventory is definitely on the rise, with both statistical proof (the Altos Research chart on the left) and the general buzz and business of everybody touring around today.

With six homes on my list — scattered throughout town — and only two hours on my calendar, it was all about efficiency.

First up was 1045 Newell, an “original Barrett & Hilp home,” a Leannah Hunt (Coldwell Banker) listing in the Green Gables neighborhood. $1.25M gets you 3 bedrooms, 2 bathrooms, 1500 sq ft, and a quick 5-10 minute drive on Embarcadero over to the 101. A trust sale home and not particularly updated — but well-staged, per Leannah’s custom — this home awaits the next generation of Palo Altan home owners.

1045 Newell Rd Palo Alto CA 943031045 Newell Rd Palo Alto CA 943031045 Newell Rd Palo Alto CA 943031045 Newell Rd Palo Alto CA 94303

Then it was across Embarcadero and Oregon over to South Palo Alto to see another Coldwell Banker listing — this one from Robert Lane — at 2898 Louis Road. “This one has charm,” says the listing, and it would be hard to argue with that. It has 2 bedrooms and 2 baths squeezed into just under 1000 sq ft, so the next owner will most likely want to expand — but since it’s a corner lot, the only way to do so and still keep in line with Palo Alto’s setback laws may be to go into the side yard.

2898 Louis Rd, Palo Alto, CA 943032898 Louis Rd, Palo Alto, CA 943032898 Louis Rd, Palo Alto, CA 94303

Just south of this Louis Road listing was 770 Allen Ct, a fixer upper and proud of it. The listing agent, Steve Greenbaum from Keller Williams (another technophile like myself!) explained that a contractor actually lived in the property in its current condition — something I’m not sure I could have done even in my Peace Corps days — but simply didn’t finish the project. The bones of the home look good, and the yard is large, though in need of some TLC. An old fashioned pot-bellied stove in one of the rooms awaits the new owner.

770 Allen Ct Palo Alto CA 94303770 Allen Ct Palo Alto CA 94303770 Allen Ct Palo Alto CA 94303770 Allen Ct Palo Alto CA 94303770 Allen Ct Palo Alto CA 94303770 Allen Ct Palo Alto CA 94303770 Allen Ct Palo Alto CA 94303770 Allen Ct Palo Alto CA 94303

Then there’s the fire-engine red Eichler at 3924 Louis. Nancy Goldcamp (Coldwell Banker again — what’s with this? Did Alain Pinel go out of business?) brings us this $1.175M 3/2 1900 sq ft, adorned with a great kitchen, and with all the light you would expect from an Eichler. Great staging, though tragically not done by my friend Ann O’Connell. Oh well, we’ll give her a few more years to completely corner the market.

3924 Louis Road, Palo Alto CA3924 Louis Road, Palo Alto CA3924 Louis Road, Palo Alto CA3924 Louis Road, Palo Alto CA

Rounding out my tour today was another small property begging for a facelift or perhaps even a complete organ transplant. 3176 Emerson is, as the listing agent Richard Cottrell himself describes it in the MLS, a real fixer upper on a terrific lot in a great neighborhood. Folks living outside of this fantasy land we call the Bay Area may be shocked that a fixer-upper — and an 840 sq ft one at that — is not only on the market at $935,000, but will in fact probably sell with multiple offers, well above that price.

3176 Emerson Palo Alto3176 Emerson Palo Alto3176 Emerson Palo Alto3176 Emerson Palo Alto3176 Emerson Palo Alto

Tags: , , , Eichler, Green Gables, Leannah Hunt, Midtown, Nancy Goldcamp, , , , South Palo Alto

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Tags: 94303 · 94306 · Consumer · Eichler · Green Gables · Leannah Hunt · Midtown · Nancy Goldcamp · Palo Alto · Property reviews · Real estate · South Palo Alto

Today’s Palo Alto homes review: Bait ‘n Switch, Bad Staging, Unresponsive Contractors, and Other Rants

March 2nd, 2007 · 2 Comments

Normally I take care of my daily frustrations through a vigorous workout at 24-hr fitness, but this time I thought I’d let my blog take the brunt of it.

You see, I spent a good part of this morning touring the new crop of properties available in Palo Alto (all of which will likely sell in a flash, with multiple offers, well above list price). You’d think that if I and dozens of my colleagues are going to take the time to go see what’s out there, the listing agents and sellers would give us something good to look at!

Alas, one of the first properties I went to, 797 Mayview in Palo Alto, was a “bait ‘n switch.” Looked good on paper, perhaps was good in reality…but the listing agent and her lockbox were AWOL, and the street sign said, “Don’t disturb.” Ok…you’re gonna put a property on the MLS, you’re gonna post the tour date…and then you’re gonna make the property inaccessible? Grrrr…. It was a shame, too, since this one has some potential: a large lot — big enough for two homes, in fact — and a great location with easy access to highway 101.

At least three properties were clearly competing for the Solstice Staging “Yikes, get these sellers a stager!” award. See for yourself the photos of this property:

Another example of bad stagingAnother example of bad stagingAnother example of bad staging

For the other two, the listing agent (wisely, I think) chose not to post shots of the interior, and by a stroke of luck for the sellers, I had forgotten my camera.

Thankfully all was not lost, however. 281 Parkside (Charlene Geers of Coldwell Banker) and 1103 Stanford (Judy Levin and Lisa Blair, Alain Pinel Realtors) were both delightful, and well-presented to boot. The first is a bright, upgraded Eichler, adorned with skylights, and richly landscaped. The second is small and cozy, done up to the 9’s, but unfortunately garage-less since it was converted into an additional living space.

281 Parkside…

281 Parkside, Palo Alto CA -- a delightful contemporary Eichler281 Parkside, Palo Alto CA -- a delightful contemporary Eichler

and 1103 Stanford

1103 Stanford, Palo Alto CA 94306 -- Small, cute, and very tastefully done up1103 Stanford, Palo Alto CA 94306 -- Small, cute, and very tastefully done up

And now, back to my rant…

Will somebody please teach these guys how to answer a phone? Palo Alto Concrete is a local, well-respected construction company with a reputation for good work. Alas, neither I nor my clients will have a chance to test that bit of their reputation. You see, we asked them for a quote for some foundation work about, oh, 2 months ago. Took them nearly one month, plus innumerable phone calls to every number I had available for them, before we got the quote. Then it took another month to retrieve the plans they had borrowed — again, only after numerous phone calls. Guys, you might be busy, you might not have really even been interested in getting the gig…but at least GIVE ME A CALL DAMMIT!

There, I feel much better now.

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Tags: 94303 · 94306 · Contractors · Open houses · Palo Alto · Property reviews · Real estate