Posted by Jonathan J. Miller -Tuesday, November 29, 2011, 2:00 PM
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I was asked this interesting question the other day [specifics changed]:
Question
What is the typical percentage discount on a property’s price in order to achieve a quick sale, i.e. liquidation or disposition value versus market value?
Answer
There is no rule of thumb for a “quick sale” value since it is always changing and depends on the property type, location, supply, demand etc. but here’s the logic:
The quick sale value is a function of the marketing time that is required by the owner/client which is often faster than the current market can achieve.
Translation: sell it faster than competing properties in the same market i.e. compress it’s marketing time.
For example: The average days on market might be 6 months in the subject neighborhood – the number of days from the original listing date to the contract date – but the client wants to know what the value would be if they had to sell it in 30 days. This comes up in a foreclosure transaction (and can sometimes explain the “discount” mistakenly identified with such sales), a corporate relocation sale (when a company is buying the home when relocating an employee) or even a seller is under duress who has to sell quickly.
Stable Markets
If someone has to sell a property much faster than typical market conditions, then the price must stand out among the competition to allow the property top sell first. This doesn’t mean that a lot more marketing is required – you’ve usually got plenty of competition – it means the price needs to be lower.
The larger the difference between the two periods of time to market a property (quick sale and typical), the larger the discount needed to move the property faster.
Declining Markets
Unfortunately if the market is declining, the seller has to price the home ahead of the declining conditions and not “chase the market”. A simplistic example might be something like this:
If the conditions show a 10% annual decline and the average house is usually on the market for 6 months, that means the average house would be expected to sell for 5% less 6 months from now (this is an example – I’m ignoring seasons). Since that is what the average house does, one way to sell the home faster is to outpace the expected decline. This is a significant problem in areas with a lot of distressed property since everyone does this and forces the market to fall faster.
Rising Markets
In a rising market such as during the frenzied market in 2004, there was no difference between “normal marketing time” and a “quick sale” since all properties sold almost immediately.
Posted by Jonathan J. Miller -Tuesday, November 29, 2011, 10:00 AM
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The New York Fed publishes a coincident index using data on employment, real earnings, the unemployment rate and average weekly hours worked in manufacturing and its beginning to show nominal weakness. This comes out monthly so I’ll keep an eye on it.
It’s not a lagging indicator like consumer confidence or a leading indicator like building permits. Coincident is closer to what is happening now, or it least that is what my economist friends tell me.
In October, the New York City Index of Coincident Economic Indicators (CEI) decreased at an annual rate of 0.4%, following a 0.1% increase in September. The index has risen 2.4% over the past year.
Since NYC housing’s future in the region partially depends on where the regional economy is going (it’s not all about foreign buyers), this suggests the NYC economy slipped a bit last month but is better than last year.
Posted by Jonathan J. Miller -Tuesday, November 29, 2011, 7:00 AM
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Last summer I wrote an article for the now defunct Live Valuation Magazine. I attempted to explain to both appraisers and non-appraisers why our appraisal industry is so screwed up.
It was the cover story for one of the last issues – nearly a think tank of new ideas, the loss to the industry was a real setback.
In light of this change and the importance of the message to the industry, I have allowed Appraisal Buzz to republish it. Hope you enjoy it.
Neutral Valuation: Allowing appraisers to provide the service they were built for
As a real estate appraiser for the past 25 years, I’ve always viewed my role as a provider of a neutral valuation benchmark for clients to become empowered to make more informed decisions. Of course this is a fantasy-based, in-a-perfect-world depiction rather than an actual practice. In mortgage lending, residential real estate appraisers are not able to provide an independent market value without some sort of reprisal if the results do not match the client’s needs.
Since the credit crunch began with the Lehman Brothers bankruptcy that roiled the world economy in September 2008, our profession has actually strayed farther from being any sort of neutral valuation benchmark….[read more]
Like in the original publication, the comments on Appraisal Buzz reflect the fact that the article really touched a nerve.
- Neutral Valuation: Allowing appraisers to provide the service they were built for [Appraisal Buzz]
- Neutral Valuation: Allowing appraisers to provide the service they were built for [Live Valuation Magazine]
- Neutral Valuation: Allowing appraisers to provide the service they were built for [Miller Samuel [pdf]]
Posted by Jonathan J. Miller -Monday, November 28, 2011, 4:30 PM
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Reading to keep you from thinking about how much weight you put on over Thanksgiving:
- Is American dream fragile? History says it’s strong. [CSM]
- Lost in Krappetown [City Journal]
- Worst. Congress. Ever. [Foreign Policy]
- Mortgage Principal Can Be Cut Without Moral Hazard [BankThink]
- Turn On the Server. It’s Cold Inside. [NY Times]
- Penzance lands Watergate offices for $76 million [WaPo]
- Is home ownership really a smart investment? [Toronto Star/Moneyville]
- Buzzonomics: Why a housing bubble won’t surface until at least 2013 (Canada) [Buzz Home]
- Utah among highest home-ownership rates in the country [Deseret News]
Posted by Jonathan J. Miller -Monday, November 28, 2011, 2:30 PM
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[click to expand]
Census released their October New Residential Sales report today.
Sales of new single-family houses in October 2011 were at a seasonally adjusted annual rate of 307,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 1.3 percent (±19.7%) above the revised September rate of 303,000 and is 8.9 percent (±17.2%) above the October 2010 estimate of 282,000.
The median sales price of new houses sold in October 2011 was $212,300; the average sales price was $242,300. The seasonally adjusted estimate of new houses for sale at the end of October was 162,000. This represents a supply of 6.3 months at the current sales rate.
Two things I get out of this report:
1. No context
The chart and the ups and downs of the past 2 years seem wildly out of scale with the past.
2. No reliability of the data
Let’s take this sentence:
“This is 1.3 percent (±19.7%) above the revised September rate of 303,000 and is 8.9 percent (±17.2%) above the October 2010 estimate of 282,000.”
and translate it (bad grammar aside):
“October 2011 new home sales were anywhere from 18.4% less than last October to 21% more than last October. October 2011 new home sales were anywhere from 8.3% less than September 2011 to 26.1% more than September 2011.”
Conclusion
Not very useful or reliable but easy to make fun of.
Posted by Jonathan J. Miller -Monday, November 28, 2011, 2:00 PM
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Here’s an info graphic making the case for solar energy for central air conditioning. What caught my attention was the lack of disparity between people that ran their CAC with grid and solar power.
No matter what the power source is…
guilt is the gift that keeps on giving.
[click to expand]
Posted by Jonathan J. Miller -Monday, November 28, 2011, 12:30 PM
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I was emailed this thank you note from a very nice real estate reporter covering Washington, D.C. recently:
Compliment?
Thanks so much-you were a dream source-knowledgeable AND spoke in complete sentences-truly a winning duo for a reporter.
Posted by Jonathan J. Miller -Monday, November 28, 2011, 10:00 AM
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[click to expand]
Knight Frank’s research of high end housing markets across the globe shows many of the markets are expected to cool in 2012. They produce an impressive amount of great research on real estate across the globe. I provide some insights within this report.
This process (report) highlights a key risk –
that prime markets will ultimately be undermined by domestic economic reality, with a convergence between prime and mainstream market performance. If the euro was to collapse, or a similar catastrophe was to strike, all bets really would be off and we would expect much weaker performance across all of our prime markets.
Key findings
- After two years of growth the world’s prime markets look set to cool in 2012
- Our forecast for 2012 is evenly split with 44% of the cities monitored forecast to see price falls, 44% likely to experience price rises and 12% expected to remain unchanged
- Given the global economic turmoil it might seem surprising we are forecasting price rises in 44% of the cities monitored. In many of these cities the critical factor is a lack of quality new supply. We expect this to be particularly evident in London, Paris, Moscow, Nairobi and Kuala Lumpur.
- In those cities forecast to see price growth this will be underpinned by the flow of capital from the world’s troubled regions and a desire amongst the wealthy to target property and other real assets over financial products
- Over 60% of the Asian cities monitored are forecast to see price falls in 2012 as government measures aimed at dampening speculative demand start to take effect
- The Eurozone crisis is considered a high risk for 60% of the cities covered. Political and security issues present the greatest risk to the housing markets in the Middle East and Africa.
- Interest rates, high inflation and consumer debt represent the smallest risk to the world’s luxury housing markets reflecting the affluent, more equity-rich buyer profile for this market.
Prime Global Forecast [Knight Frank]
Posted by Jonathan J. Miller -Monday, November 28, 2011, 7:00 AM
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[click to open]
Real estate agents have long been teased about questionable babble in their listing ads. But is the teasing still justified? Or has the shift to online advertising reduced the problem?
I was sent this “broker babble” generator by a soon-to-launch online rental company that doesn’t need real estate agents (an assumption based on the “sick of brokers?” link on the bottom of the web page). Besides the generator not being very good (but looks very cool), I feel like the language of real estate agents has actually been improving over the past decade and this attempt at humor was out of sync with today – designed to “buddy up” with consumers directly.
Does the industry still use silly language in some of its listing ads? Of course! Descriptions that include “triple mint” and “fab vus” are still used to excess. Then why did this attempt at low brow humor seem so hollow?
Perhaps it comes down to the decline of classified print advertising for real estate listings. Limitations on print space back in the day cried out for choice words to get the attention that would drive the sale.
Since listings are shifting to the web whether it’s with the online classified ads of the New York Times, online services like Trulia or StreetEasy or brokerage firms, whose space constraints are less daunting for agents.
Perhaps the modest upgrade in the qualifications of people entering the industry and the rising emphasis on professional development has played a role?
Or it is still just as bad and because I’ve been involved in the real estate industry for too long and it’s become white noise.
Whatever it is, this sort of promotional stunt is just a silly.
Posted by Jonathan J. Miller -Tuesday, November 22, 2011, 1:46 PM
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I must say I was skeptical about the new debate format but was pleasantly surprised and really enjoyed the event. I also liked the creativity of the intro video – swingin’ around that camera.
At some point TRD pulled me aside to talk on camera, but only after web editor Lauren Elkies talked Lincoln Center security into letting TRD film outside the venue. You’d think it was #occupylincolncenter
Incidentally, The Real Deal had me on standby as they tried hard to get Lawrence Yun, chief economist of NAR to debate me (I’d love to!) but he is too protected by his trade group. He never seems to appear in public in a forum where it is understood that his views would be challenged/debated. This gatekeeper mentality is a vestige of the past. Still, he’s a smart guy who I am sure would have something to contribute. NAR has access to wonderful information – they just need to work on the “building a sense of trust” part – something not conveyed through their press release linguistics.
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