Archive for December, 2007
This is my column for last week from the Arizona Republic (permanent link). Since I wrote this, Cathleen found a solar-powered flood light solution, which we’re testing now. At some point — ideally when there is more sunlight and when electrons aren’t quite as sluggish outdoors — I’ll let you know how it’s working out.
Time of the signs: Let there be light
We’ve been playing with sign lights.
Signs matter. If you’re trying to sell your home, the yard sign just might swing the balance. A whopping 63% of home buyers discover homes they’re interested in seeing from yard signs, and the sign can be the first “salesman” for the home in one out of every six home sales.
Our signs are custom-made for each home we list, with big photos of the interior of the home. The idea is to swing the balance toward our sellers by whatever means we can think of.
But I cannot imagine a more profound enemy of custom real estate signs than darkness. During the day, you can spot the signs, see the photos, read the copy. At night, our signs, like all real estate signs, are silhouettes against the void.
So we’ve been looking for lighting systems that will extend the hours our signs are visible — from twilight to 9 pm at least, although all night would be ideal.
Our first swing at the ball is a device called the Listing Light. It uses six C-cell batteries to set two light-emitting diodes ablaze. It actually works in the sense that the signs seem to be aglow from a distance, and they are completely readable up close. But the effect is a lot like reading by flash-light — doable, but not to be preferred.
(That’s a flash photo. We wish out lights were this bright!)
My friend Teri Lussier, a Realtor in Dayton, Ohio, has set her husband loose on the problem of lighting signs. His first invention builds the lights into the underside of the crossbar of the sign post. By now, he’s playing with the idea of building a box composed of two translucent signs with fluorescent tubes inside, much like a commercial sign.
I like what ground-mounted flood lights do for a home, so I’d like to make a deal with a seller to get an electrician to illuminate the home, building in two additional flood lights for our signs. This would not be cheap — but as our massive unsold inventory makes plain — cheap efforts don’t get the job done.
This is my column for this week from the Arizona Republic (permanent link):
Government interference will prolong housing woes
Want to make an economic problem worse? Interfere with it.
As I write this, the Federal Reserve Bank just cut the Federal Funds Rate by another quarter-point. Why? To try to stimulate the housing market.
Last week President Bush put together an attestedly voluntary agreement among lenders to freeze interest rates on certain adjustable rate mortgages for five years. The plan is voluntary in the same way that your rowdy Uncle Sid volunteered for the Marines instead of serving 90 days in the clink. Even so, Congress is still rumbling about involuntary solutions to the housing crisis.
So what’s the beef? Everybody’s just tying to help, right?
The problem is that all investment is based on planning. Before I risk my capital, I need a reasonable assurance that it will be returned to me — ideally with a healthy profit. There is always some risk in investing, but if the government can change the rules of the game at any moment, then the risk of investing soars. Doing anything else becomes much more attractive.
Consider: If I plant the right seeds and cultivate them properly, I can expect a bountiful harvest. But if the government were able to control the weather, and if it announced that it might or might not schedule a hard freeze for mid-July, I would be better off doing almost anything other than farming.
If I have capital available to lend, should I lend it where I know for sure I’ll get five percent interest, or should I lend it to a borrower who will promise to pay me eight percent — until Big Mother cuts that back to four percent as an act of mercy. If it were your money — and in many cases it is, in the form of insurance and pension funds — what would you do?
It’s plausible that we’ll go through the same amount of economic pain, with or without government involvement. But free markets self-correct quickly, liquidating bad investments and getting back to business. Government interference will almost certainly prolong our agony — to no good end, and therefore probably to our net detriment.
Half-empty or half-full? Appearances to the contrary, the Valley’s real estate market doesn’t totally suck
In Sunday’s Arizona Republic comes news that tabulating gross median home prices is not the best way to judge the housing market. Who knew? Oh, wait. That would be everyone except academics and reporters.
The fact is, most sub-markets in the Valley have had a slow leak in prices since December of 2005. High-end markets tended to do better, so the Republic has been wearing ASU-fitted rose-colored glasses through much of the down-turn. In any case, the paper is getting a new prescription:
Tracking the housing market by median home prices has become more controversial, particularly as homes have gotten bigger and skewed price comparisons in recent years.
Arizona State University has developed a new index to track the Valley’s housing market.
Researchers at ASU’s W.P. Carey School of Business have created a single-family housing price index based on repeat sales.
The index tracks the sales price of the same house over and over, which is like the S&P/Case-Shiller index and similar to the Office of Federal Housing Enterprise Oversight’s House Price Index.
ASU real-estate Professor Karl Guntermann says median home prices aren’t always reliable because the housing market is different and “heterogeneous.” He put together the index with research associate Alex Horenstein.
Crocker Liu, director of the Center for Real Estate Theory and Practice at ASU’s business school, said one month the most expensive homes can sell in a neighborhood, and the next month a subdivision with less expensive homes dominates sales.
The median for the area would be down, but “it would mean nothing at all about true home-price appreciation,” he said.
“The problem with median home prices is like having your head in the freezer and your toes in the oven. You get an average body temperature, but it really doesn’t tell the whole story.”
Okayfine. But what the heck does this say?
The index, like median-home-price trends, shows that metropolitan Phoenix’s housing appreciation peaked around September 2005, although prices continued to climb after that but at a much slower rate.
Appreciation peaked, but prices continued to rise. We continued climbing for months after we got to the top? I don’t have the math skills necessary to parse a nonsensical sentence, I’m afraid.
And, sight unseen, I already don’t trust the new index. If they’re measuring sale-over-sale on particular homes, then the sample size is probably too small to be meaningful. Moreover, extraneous factors — stadium-related construction on the west side near the SR-101 or the completion of the SR-202 in the southeast valley — will affect prices in anomalous ways.
We have our own alternative, which is not to say that it is beyond criticism. We have been publishing the BloodhoundRealty.com Market Basket of Homes for nearly four years. We’re working from tightly-defined criteria for a fairly large sample of homes, so we’re getting what we hope is a clear idea of what is going on in the middle of the bell curve. The Market Basket won’t tell you much about luxury homes or stately historics, nor about slovenly hovels, but it does a decent job of tracking the kind of middle class homes that form the bulk of the Phoenix-area real estate market.
So what’s going on? In November, very few homes sold — the glass half-empty — but prices held steady and days on market declined — the glass half-full. Market Basket prices are down 19.3% from their peak in December of 2005, but they’re still up 47.3% from January of 2004.
When will the market turn? Ask me three months after it happens. We haven’t suffered nearly as much as was predicted, but that doesn’t mean the pain is over. But if you subscribe to the RSS feed for BloodhoundRealty.com, the Market Basket of Homes will provide you with a reliable indicator to how the market is performing.
This is my column this week from the Arizona Republic (permanent link):
Web site demonstrates how much goes into staging a home for sale
Week after week, I hammer away on the idea that the only homes that will sell in our current market are the ones that are priced right, prepared right and presented right.
But here’s an unwelcome fact about the real estate market: Home-sellers can be bull-headed. I don’t know how many times I’ve had sellers tell me all about what is wrong with the other houses for sale in their neighborhood.
My answer? I agree. But we’re not talking about those houses. We’re talking about what it will take to sell the sellers’ house.
And that’s when I get to hear about all the improvements the sellers have made — some of which are actually worth what they think they’re worth.
But what I really want is for my sellers to look at their own home with the same critical eye they bring to the neighbors’ homes. It’s motes and beams, surely, but seeing your home through a buyer’s eyes is a very instructive exercise.
It’s fun for me, because one of the things I tell sellers is, “You know what’s wrong with this house. You know exactly what you would frown over — or your mother-in-law would frown over — if you were seeing this home for the first time. Those are the issues we need to address before we can try to sell this house.”
This is the threshold of staging, which entails a lot more, in most cases, than laying out a few decorator items. A home that is prepared for sale is in complete turn-key condition, with no obvious defects left uncorrected.
One of our listings in North Central Phoenix just sold. We made a before-and-after record of the staging process, so you can see what we’re aiming for. You can view this demonstration by clicking here.
Staging is all the rage right now, and preparation is only one part of a sound marketing plan. But staging is a wasted effort if the home is dirty or in palpable disrepair. Our slide show illustrates a more robust idea of home staging.
I went duck-hunting with Elmer Fudd and came home with a radically different approach to real estate prospecting
[This is a post I wrote at BloodhoundBlog, our national industry-focused weblog. It seemed like a good first-post for the BloodhoundRealty.com weblog.]
About fifteen months ago, we were preparing to list a home for someone we had known for quite a while. The house was a cosmetic flip in an excellent location. We had been consulting with the seller for months to get the repairs and upgrades done the way we wanted them. The seller had great equity, even if he were to sell it at the fix-up price. But he kept trying to cheap out the remodeling, which we thought was the wrong thing to do in a luxury location.
We even paid to have the home inspected, pre-listing, to get another set of eyes on the problems we had identified. The major items on the punch-list were addressed, but not in a way appropriate to the price-range of the neighborhood.
Okayfine. There are listings you can’t get away from — family, old friends, past clients. So knowing that close-enough was going to have to be good-enough, we priced the house as it would be delivered into a buyer’s market: $425,000.
The seller wanted $475,000, which would have been easy to get if the home had been improved to the quality of the location. But it hadn’t. Whoever bought it was going to live in it as-is, or, more likely, they were going to spend that extra $50,000 to bring the house up to its true potential. Ether way, there were competing listings at both prices points, so no one was going to confuse the one for the other.
At $425,000, we could have sold that house in 30 days or fewer, even against all the competition. Lucky us, the seller let us off the hook. He insisted on $475,000, by phone, and he got so mad that he hung up on me.
Dang! I lost a $475,000 listing, which at 3% of never-ever-sold would only have netted out to a loss of around $2,500 for us, not counting our labor.
It takes us a solid week to get a home on the market — photos, floorplans, signs, web site, open house cards, etc. The house was listed the next day — for $479,000. The extra $4,000 might have been an aggravation tax.
The first listing expired in 90 days. That would have been our $2,500, plus a big fat juicy strike-out in a neighborhood full of pricey homes. As far as I’m concerned, the absolute worst form of marketing for a high-end Realtor is not selling the home.
The second listing expired 180 days later. By the end of that listing, they had finally gotten the price down to $424,000 — cutting $5,000 at a time, chasing the market down but always from an above-market price. By the time they got to where it should have been listed over a year ago, it was too late. Does days-on-market matter? I think it does matter, psychologically, but I know it matters in a declining market. If you aren’t going to cut your above-market price to a number very aggressively at or below the current market price, don’t bother. You will not screw the buyer in this market.
Anyway, the house finally sold on its third listing — for $379,000. That’s $46,000 less than we could have gotten for it fifteen months ago — fifteen months of mortgage payments, maintenance, yard work, opportunity costs and heartache.
We were lucky to get fired, rather than having to fire the seller. But we have learned from bitter experience that we simply cannot take a listing that will not sell. I get the idea that some Realtors will take just about any listing, at any price, hoping either that the seller will come to Jesus eventually or that the sign in the yard will pull in enough business to compensate for each doomed listing.
This doesn’t work for us. We spend next to nothing acquiring listings, but we spend a ton of money on our listings. We’re not marketing our brokerage, we’re marketing the home. Everything is focused on selling the home. But, in consequence, our listings tend to sell fairly quickly at fairly high list-price to sale-price ratios. Even in this market, we continue to get multiple offers. Last summer, we sold a house on the third listing for $25,000 more than the list price of the second listing. We are selling high-priced homes in neighborhoods where the neighbors pay very close attention to real estate, so the net result is that marketing our homes as hard as we do is hugely effective at marketing our brokerage.
We are very small, and we are not even close to being as busy as Kris Berg, much less Russell Shaw. But we know going into a listing appointment that the listing is already ours, if we want it. The sellers are sold on our way of doing business before they even call us. Russell has been leaning on us to go on appointments where we don’t have a lock on the listing, so one of my Black Pearls from StarPower is an expired/FSBO campaign. In any case, for now at least, we arrive at a listing appointment with the ability to ask for things the way we want them, fully committed to walking away if we can’t get them.
Again: We simply cannot take a listing that will not sell. Cannot, should not, will not. Our entire marketing strategy for acquiring listings consists of hitting home runs, and we will not list a house unless and until it is a perfect fit to the marketplace. We’re talking about a median value of around $500,000, fairly pricey for Phoenix. We don’t need to hit many home runs to live very well. If we can pump it up to 50 homes a year, we can afford to retire someday.
About fifteen months ago, just about the same time we were getting fired by our erstwhile friend, Cathy was in a house she liked a lot. She decided we were going to list it when it went up for sale, so I registered the home’s address as a web domain.
This is duck-hunting Elmer Fudd-style: We picked out the particular duck we were going to hunt. We’re going through the prep work now to list that home. We had no competition for the listing. It was ours long ago. We just had to wait for it to go up for sale.
We have had great success with people coming in over the transom from Google, some of whom we have done multiple transactions with, some who have become very dear family friends. But most internet leads are just a time-sink, particularly the folks who have invested no time in distinguishing one Realtor from another: Unqualified, unmotivated people probing for information they may or may not put to use. You have to work with each one to find out if there is anything there to work with, but it’s almost always the case that there is not. Working with internet leads is a low-yield prospecting strategy, one that can easily cost more in lost opportunities than it gains in new business.
Taking care of the clients you already have, on the other hand — knocking their socks off and knocking their neighbors’ socks off — seems to us to be a very effective marketing strategy. Our new-client acquisition costs are essentially nothing, and our new clients come to us pre-sold. We can easily grow this to $25 million in gross volume a year, and from there we should be able to ramp it up to $50 million a year. I think we can grow it into high-end markets everywhere, but, in truth, there is a limit to how big we will need for it to grow in order to outstrip our wildest financial dreams.
Hyper-local weblogging plays a part in this, but not as much as it might at other price points. But the same principles obtain: We are target-marketing to particular ducks, identified in advance, and we are persuading them to use us and us alone, now and forever. Even when people find us by the internet, we are pre-conditioning them to our way of working, which is a perfect application of a text-oriented medium like weblogging — and our very text-heavy web site. How do we know it works? Because our clients tell us it does. By talking about what we do, how we do it, and why we will not work any other way, our clients-to-be self-select as our clients. We are not competing for random internet leads, we are building a business that is beyond competition.
It’s actually funny for me to talk this way. We are carrying one listing right now, a starter home in Surprise that I’m selling for one of my investor clients. But we have $950,000 in new listings on deck right now, and we have turned down over $2,000,000 in listings in the past two weeks. Our listings are never on the market for very long — and our stats are improving over time. If we keep hitting home runs, we will keep getting more opportunities to hit more home runs. Our work, our way, our price point, our compensation objectives, our particular pre-identified homes, our wildly-enthusiastic clients-for-life.
Each man to his own Saints, and we’re not terribly concerned about how other people work. Much of what we do is a counter-reaction against the way other people work. I’ve been talking about our listing strategy for a solid year, and, to my knowledge, almost everyone has learned almost nothing. Even in our own market, only the FSBOs are learning from us — perhaps because they want to sell the house, not capture leads. In any case, this strategy is working well enough that we felt confident in walking away from what might have been a lot of commission income. We didn’t believe the houses would sell, but we know that the ones we reserved our time for will.
And that’s the take-away: If you can learn a lesson from Elmer Fudd and hunt for the ducks you want, rather than the ducks that just happen to be flying by, you will build a business you can own — and sell — rather than a business that owns you.