Tag Archives: real estate

Deciphering the words in home listings; “quaint” = 1,299 square feet, “cute” = 1,128 square feet

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An analysis of Zillow data looks at the text accompanying real estate listings:

Longer is almost always better, though above a certain length, you didn’t get any added value — you don’t need to write a novel. Over 250 words, it doesn’t seem to matter. Our takeaway was that if you’ve got it, flaunt it. Descriptive words are very helpful. “Stainless steel,” “granite,” “view” and “landscaped” were found in listings that got a higher sales price than comparable homes.

And there are words you should stay away from, especially “nice.” We think that in the American dialect, you say “nice” if you don’t have anything more to say. And then there are the words that immediately tell a buyer that the house is small: When we analyzed the data, we found that homes described as “charming” averaged 1,487 square feet, “quaint” averaged 1,299 square feet, and “cute” averaged 1,128. All of them were smaller than the average house in our sampling.

The impact of words seems to vary by price tier. For example, “spotless” in a lower-priced house seemed to pay off in a 2 percent bonus in the final price, but it didn’t seem to affect more pricey homes. “Captivating” paid off by 6.5 percent in top-tier homes, but didn’t seem to matter in lower-priced ones.

There are certainly codes in real estate listings that are necessary due to the limited space for words. But, as the article notes some of the words are more precise than others. If someone says they have stainless steel appliances, the potential buyer has a really good idea of what is there. But, other words are much more ambiguous. Just how “new” are some big-ticket items like roofs or flooring or furnaces? The big data of real estate listings allows us to see the patterns tied to these words. Just remember the order for size: cute is small, quaint is slightly larger, and charming slightly bigger still.

If I’m Zillow, is it time to sell this info to select real estate professionals?

Zillow off a median of 8% on home prices; is this a big problem?

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Zillow’s CEO recently discussed the error rate of his company’s estimates for home values:

Back to the question posed by O’Donnell: Are Zestimates accurate? And if they’re off the mark, how far off? Zillow CEO Spencer Rascoff answered that they’re “a good starting point” but that nationwide Zestimates have a “median error rate” of about 8%.

Whoa. That sounds high. On a $500,000 house, that would be a $40,000 disparity — a lot of money on the table — and could create problems. But here’s something Rascoff was not asked about: Localized median error rates on Zestimates sometimes far exceed the national median, which raises the odds that sellers and buyers will have conflicts over pricing. Though it’s not prominently featured on the website, at the bottom of Zillow’s home page in small type is the word “Zestimates.” This section provides helpful background information along with valuation error rates by state and county — some of which are stunners.

For example, in New York County — Manhattan — the median valuation error rate is 19.9%. In Brooklyn, it’s 12.9%. In Somerset County, Md., the rate is an astounding 42%. In some rural counties in California, error rates range as high as 26%. In San Francisco it’s 11.6%. With a median home value of $1,000,800 in San Francisco, according to Zillow estimates as of December, a median error rate at this level translates into a price disparity of $116,093.

Thinking from a probabilistic perspective, 8% does not sound bad at all. Consider that the typical scientific study works with a 5% error rate. An eight percent error rate suggests the estimate is right 92% of the time. As the article notes, this error rates differs across regions but each of those have different conditions including more or less sales and different kinds of housing. Thus, in dynamic real estate markets with lots of moving parts including comparables as well as the actions of homeowners and homebuyers, 8% sounds good.

Perhaps the bigger issue is what people do with estimates; they are not 100% guarantees:

So what do you do now that you’ve got the scoop on Zestimate accuracy? Most important, take Rascoff’s advice: Look at them as no more than starting points in pricing discussions with the real authorities on local real estate values — experienced agents and appraisers. Zestimates are hardly gospel — often far from it.

Zillow can be a useful tool but it is based on algorithms using available data.

Growing real estate segment: commercial cannabis real estate

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A new startup wants to help buyers and sellers identify properties that are eligible to grow and/or sell marijuana:

Chicago’s real estate industry is in the midst of a few building booms, but if a new startup has its way, another one is about to bloom: commercial cannabis real estate. HerbFront, co-founded by CEO Alan O’Connell and Matt Chapdelaine, head of business development, want to create the Zillow of marijuana-based real estate. Their concept, which they’re developing at the ElmSpring accelerator at 1871 and plan to release in February, is a tool that lets investors see where they can legally locate dispensaries and grow operations, and helps property owners discover if buildings in their portfolio qualify for this potentially lucrative market. According to O’Connell, zoning rules and regulations can make locating a dispensary or grow operation complicated, but the huge upside means entrepreneurs are looking for someone to help point them in the right direction.

“There’s a lot of murky water in the industry, right now,” says Chapdelaine. “A lot of people are looking to access real estate, and real estate people are looking to access the industry.”

HerbFront will offer an array of services, from listing a property for $50 on its database to leasing the software to providing specialized business intelligence to investors and municipalities, in effect becoming a consultancy as well as a marketplace for these industry-specific property transactions. Chapdelaine, who has background as a broker, saw what happened during the last permit application process in Illinois, and believes his program can fill an important gap, as well as provide a form of insurance for those spending at least $250,000 to obtain a permit. With that kind of down payment to start a small business, obtaining a guarantee from HerbFront that potential sites are properly zoned becomes valuable (or so the founders hope).

I could see how this service might be valuable. But, it seems less difficult to map the available properties than it will be to predict and/or know what these properties might be worth. How profitable are such facilities? Are there other businesses or services that want to be or are needed near marijuana facilities? More broadly, could these be tools for economic development? From what I read about planning for such facilities in different Chicago suburbs, there is still hesitation based on what kind of people and activity such facilities could attract as well as how they might affect the reputation and image of the community. But, if they became a unique opportunity for economic development, perhaps communities would be falling over themselves to attract one.

Does “smart-sizing” sound a lot better than “down-sizing”?

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One writer suggests “down-sizing” is too negative and instead would prefer to use “smart-sizing” instead:

In the world of real estate, downsizing generally refers to reducing the size of the property you live in and the amount of stuff you have. Downsizing is something most homeowners will do at some point in their lives and it can be a very positive and necessary experience when property needs change. So why do many people have a negative reaction to the word?

When I hear someone say they are ‘downsizing,’ my writer’s imagination goes into high gear and I immediately picture this elderly couple, giving away most of their worldly possessions, leaving the home they have lived in for 50 years to move into an anonymous condo somewhere — maybe in Florida — far away from the familiar faces of friends and loved ones and the city they call home. And even though the move to a more manageable property may be a good thing for a variety of positive reasons — “downsizing” to me still feels like something is being lost…

Buying and selling property comes with some hefty emotional baggage, so why add to it by using words that can have negative associations when new, more positive selections are available?

After a quick Google search, I found precisely the right word to replace downsizing in my vocabulary: Smart-sizing. Don’t you feel a rush of positivity right now?

I’m guessing many people would prefer to affix “smart” to their own activities. But, what exactly does the term mean?

Smart-sizing means finding the right-sized property for your individual needs. It makes sense to purchase a home best suited for your lifestyle, needs and budget, at any stage in life. This applies equally to first-time home buyers who want ultra-energy efficient houses with a smaller building footprint, to property ladder climbers with expanding families, to baby boomers with shrinking families, and to seniors who would rather spend time with loved ones, or travelling, or any other form of recreation without the burden of maintaining (or paying for!) a large property.

Here is what might be happening. “Down-sizing” implies that people are getting out of the status seeking game, possibly because they can’t keep up or no longer want to. Americans tend to like bigger homes and more stuff – it is built into our individualistic, consumeristic DNA. If people are moving to a smaller home and getting rid of stuff, they are moving back down that status ladder. “Smart-sizing” gets at something else. It covers up the bigger is better consumption motives behind homes and stuff and replaces it with customization and what individual homeowners need. Some people might need a pool and hot tub, others might still want a McMansions, others might need a cheaper home that suits their income. All these people win with a “smart-sized” home that fits their needs. Others have made this pitch before; architect Sarah Susanka argues for the Not-So-Big House. However, given the lifestyles of the individual owners, such homes may not really be cheaper or all that less luxurious.

In the end, do people with “smart-sized” homes have smaller, greener homes with less stuff? Maybe…

Selling mansions with a luxury experience

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The arms race to sell more real estate – from live-in managers to personal notes – now includes creating luxury experiences in expensive homes for sale:

Before entering through a Casey Key mansion’s arched doors to attend a “VIP reception” to spur a sale in November, guests first had to navigate their way through a jaw-dropping array of luxury automobiles — Lamborghini, Bentley, Rolls-Royce, Porsche, Mercedes-Benz and a reproduction 1936 Auburn Boattail Speedster — parked in the 6,600-square-foot home’s motor court.

A few weeks later — and also on Casey Key — guests at a 10,000-square-foot, $15 million mansion for sale were greeted by Saks Fifth Avenue models who offered perfumes and skin care products in the oversized master bathroom.

In the Sarasota Ranch Club recently, a chef displayed his skills in the enormous kitchen of a 7,200-square-foot, $2.6 million listing…

Often, such events top $5,000 to run, or about 10 percent of a typical $50,000 marketing budget for a waterfront mansion priced at $10 million or more.

While I’m sure this creates some buzz – and it seems everyone likes buzz these days – it seems like it would help people envision how the house could be used. If a primary motivator of buying a big home is to impress people (this is what critics of McMansions argue), actually seeing the home put to that use could go a long way.

Interestingly, the article hints that this strategy works but there are no hard numbers about how effective this is. If this strategy wasn’t used as much for a while, why is it returning now? I wonder if this is particularly prone to the overall state of the economy: if things are generally going well, these sorts of events look okay but in lean times, they look garish and suggest the wealthy are rubbing it in.

Odd final thought: could someone become a real estate party crasher if they know where these events are happening? Do you have to be vetted (income, wealth, credit, etc.) to be invited to such an event?

Real estate sign? Prices in Compton, CA back on the rise

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The California real estate market is heating up again – and housing prices are rising in Compton:

She is proud that what she has achieved so far was done, not through heavy policing, but conflict mitigation. The last several months have seen a reduction in violent activity of about 65 per cent, she said. For her, seeing people jogging at night is a key indicator of success…

The residential property market is surging, up more than 10 per cent in the last year, as people are priced out of other Los Angeles neighbourhoods. Properties are being snapped up by investors and professional house flippers have started targeting the area. Compton’s first home with a price tag of $1 million recently went on the market.

Key to attracting companies and families is Compton’s geographical location close to LAX airport, Long Beach port which is the second busiest container port in the US, and near office buildings in downtown Los Angeles.

 

Violence and gang activity is down, housing prices in California are rising, Compton sits at an advantageous location, and so the prices in Compton go up. As the graph suggests, prices aren’t near what they were pre-economic crisis but the trend looks like it is heading up.

Two questions this raises:

1. This article makes a big deal about the reduction in violence due to a gang truce but what happens if the two gangs start fighting again? Perhaps the article begins with the gangs and gangsta rap because it is from a UK perspective but it does hint at the fragility in the community.

2. What happens if a community like Compton gentrifies? Not only would this bring new people in Compton but it also gets at one of the big issues in the big cities in California: affordable housing. Housing prices in Los Angeles are already relatively high and there may not be many places left that offer reasonable housing prices.

Institutional buyers slow purchases in the Chicago region

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Rising home prices in the Chicago area have slowed the purchases made by institutional investors:

But several housing markets, including Chicago’s, are considered prime places for institutional buyers to cash out if they choose, walking away with tidy profits, according to an analysis by RealtyTrac. These are the same investors that consumers have complained about because their own bids for distressed homes were beat out by the firms’ higher cash offers.

Institutional investors, defined as buyers who acquired 10 or more homes during a year, spent an average of $161,252 to acquire a home here, and that home now has an average market value of $210,126, according to RealtyTrac. That’s a gain of 30 percent. Meanwhile, the S&P/Case-Shiller home price index puts the Chicago area’s home price gain between January 2012 and this past September at 22 percent.

That rise in prices certainly has tempered large investors’ appetite to increase their holdings. In Cook County, for instance, affiliates of Blackstone Group, which operates its homes under the Invitation Homes name, acquired close to 150 homes in 2013. This year, they bought fewer than 20, according to property transfers filed with the Cook County recorder.

The question becomes at what point does the housing market normalize enough, and enough consumers opt to buy instead of rent, that profits level off and firms begin to sell those homes. In the meantime, they are settling in, learning their role as landlords and the ins and outs of taking care of properties and tenants. There have been liens filed against them by contractors seeking to get paid for work completed. There have been eviction cases filed against tenants who haven’t paid the rent. And there have been the expenses associated with homeownership.

It will be interesting to see what these institutional investors do. Will they wait to see if they can get higher prices within a relatively short time frame? Are they in it for the long haul but only with some houses or areas within the region? Can they handle large-scale maintenance and renting? I want to see more work in this area to find out the (a) long-term goals of these investors; (b) how residents and local leaders view them as time goes by; and (c) how their actions affect other players in the real estate market, particularly people at the lower end of the housing market who need a good deal in order to purchase a home.

Miami fights climate change with fees derived from new waterfront condos

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Miami can could lose big with the consequences of climate change but in order to fight the consequences, the city needs to approve more oceanfront development:

The more developers build here, the more taxes and fees the city collects to fund a $300-million storm water project to defend the shore against the rising sea. Approval of these luxury homes on what environmentalists warn is global warming quicksand amounts to a high-stakes bet that Miami Beach can, essentially, out-build climate change and protect its $27 billion worth of real estate.

The move makes budgetary sense in a state with no income tax: Much of South Florida’s public infrastructure is supported by property taxes…

By 2020, Miami Beach plans to complete 80 new storm pumps that will collect and banish up to 14,000 gallons of seawater per minute back into Biscayne Bay. Construction started in February. The goal is to reduce sunny day flooding — which frequently invades streets at high tide whether or not it is raining — and prepare the community for future ocean swell…

The $300 million project is ambitious for a city with a $502 million annual budget. A new stormwater utility fee on homeowners, hotels and stores helped Miami Beach save enough money to borrow the first $100 million.

The project started before planners worked out all the funding. It’s unclear how the city will raise the rest. “We don’t have time for analysis-paralysis,” said Levine. “We are going to have to get creative.”

It is hard for cities to turn down development when the luxury market is hot. Not only does an overheated housing market attract new residents, a hip reputation, and the interest of developers, it can also generate money for the city through taxes, fees, and increased spending.

Yet, development isn’t simply a game where more equals better. Whether the consequences are flooding or gentrification or a lack of affordable housing, cities tend to approve such projects that bring in money and growth. But, this ignores the bigger picture and the broader consequences that could affect everyone. The money may be pouring in now but what happens if this leads to flooding and a hampered tourist and investor economy for decades to come? What if avoiding the question of affordable housing contributes to other social problems or causes needed workers and citizens to move to other communities? As urban sociologists have asked for decades, who wins when big development takes place? Usually not the normal citizens. Instead, the growth machines – the powerful businesspeople and politicians – tend to profit.

Of course, funding to combat future problems is not easy to obtain. No state income tax in Florida helps contribute to hot housing markets. Should the federal government help pay to alleviate climate change? Should there be state or federal policies that do not allow building such expensive developments right on properties near the ocean (similar questions are raised about floodplains around major rivers)? Cities and other governments have a long way to go in order to figure out this issue.

$1 million plus homes continue to sell well

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The top end of the real estate market is still going strong:

Across the map, the strongest growth in the residential real estate market lately is in high-end homes, according to the National Association of Realtors. In October, sales of homes at $1 million and above surged by 16.2 percent from the year before, while overall sales of homes were up by just 4.7 percent, the trade group said…

In the Chicago area, home sales in the million-and-up category were up 8 percent from January through September, with a median price (in that bracket) of $1.35 million, according to Re/Max Northern Illinois.

In Manatee and Sarasota counties in Florida (one of the leaders of the Bubble Country pack during the boom), 485 homes in the $1 million-plus category sold from January to the end of November, according to the Bradenton Herald…

His theory, apparently, is that the surging Dow has inspired confidence in average investors and has made them comfortable about putting their (other) money in real estate again, given that their savings are growing only incrementally within traditional investments.

The wealthy are still doing well in the real estate market while the rest of the market is still sluggish. How long can this trend last? In other words, could the top end of the market do well for years or longer while the bottom and middle struggle along?

Forbes offers 6 investing tips for buying suburban McMansions

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A contributor to Forbes offers “6 Investing Tips For Buying That McMansion In The Suburbs Now.”

Buy like a landlord.

Check your price-rent ratio.

Look at inventory.

Consider an ARM.

Know when to buy new.

Consider realty stocks instead.

Renting McMansions has been suggested as a possible opportunity but I don’t know of anyone doing this on a large scale. The real estate dip in recent years boosted demand for rental units yet the construction of larger homes has been one of the healthier parts of the housing market.

If critics are right, how much demand would there be to rent McMansions in sprawling neighborhoods? Even this investor notes:

Both renters and buyers will pay a premium for close-in or “new urbanist” suburbs with short commutes to offices, high walkability and nearby stores and restaurants.

This doesn’t describe the typical McMansion. The price point for purchasing a McMansion to make a decent rental income must be pretty low.