Guessing Game

Who can figure out this Real Estate market? I am seeing houses in this town sell for anywhere between $350 and $650 per square foot, and I cannot fully understand what accounts for that spread. It appears as though brand new homes are still able to command a premium, up to a certain square footage at which there are diminishing returns, meaning the price per square foot begins to slide because people do not want or need the excess space the home offers. Updated older homes that exude charm are also in demand, unless they are in a poor location. Friends just bought a lovely remodeled 1960’s home in a nice neighborhood on a flat ¼ acre lot for $360/sf. Granted, the street is a double yellow cut through between two busy roads, but it is generally a quiet neighborhood nonetheless. A tired but cute Cape Cod with deeded water access and a somewhat funky layout (MBR on ground floor, garage access though MBR sitting room, etc.) just sold for $400/sf. But a brand new house with a small (.11 acre) lot on a main road is in contract for somewhere in the neighborhood of $550/sf.

It comes down to this: there are not a lot of buyers out there, and those who are looking want value. If a house needs work, they want a discount. And so, our offer of over $425/sf for the house on our street was actually high. I keep thinking it is worth closer to $400/sf, but then the sales come through and begin to make me think otherwise. We wonder when they will come back to us, although my husband suspects that it would be too difficult for them to admit they were wrong. Of course, we would admit we were wrong too, and lower our offer. That should go over REALLY well. We are still hearing about “quiet layoffs” all around the New York area, and if the trend continues, Real Estate as a lagging indicator of the economy could continue to slide. No one can predict the bottom of the market – it is a guessing game. My guess is that the Real Estate market will keep us guessing!

(Taps)

The deal is dead. At least, for now. We went back and forth with the owners of the house, and before we submitted our “final offer”, we went to look at it again. Unfortunately (for them), it was a rainy day. The basement smelled musty, the gutters were showing their inadequacy, the rotting wood trim had nowhere to hide, and we decided that our most recent offer (we had increased our offer by $75K at this point) was as high as we could go. We began to feel scared about the daunting task we might be about to take on: fixing this neglected house. To be fair, the more anyone looks at any house, the more they will be able to find wrong with it. But when we first saw it, we had stars in our eyes, and the owners should have capitalized on that. There was a time, a few weeks ago, when we would have offered about $25-$50K more than where our final offer ended up. But as our enthusiasm waned, and our feet came back to earth, our desire to negotiate further dissipated as well. I guess that’s why they say, “Strike while the iron is hot”!

The real estate market in town is dead in general, so I would be surprised if they were able to drum up an offer at all between now and the end of the year. One of the sticking points in the negotiation was the closing date. They desired a January 15, 2011 date, while we had asked for March 31, 2011. We are not clear on why they were in such a hurry, considering that they HAD A BUYER WHO WAS WILLING TO PAY A LOT FOR THEIR HOUSE, but we stood our ground and, eventually, they gave in to our desired closing date. However, as far as price, we ended up being about $45,000 apart. Our final number was 10% below the asking price. Most houses here are trading at prices more than 10% below the final asking price, which is usually a reduced price to begin with. The other problem for them was that they agreed to a bum deal with their broker. She required them to have a contract signed on the private sale within one week after the Listing Date in order to avoid a brokerage commission. We received the owner’s final offer the day before the deadline, with a stipulation that we would need to have a contract signed by close of business the next day. Hilarious! Considering that we had not yet agreed to terms, and had not completed a professional inspection of the premises, signing a contract within 24 hours was a completely unreasonable expectation. In the end, the owners admitted that our offer was too low and that they felt they needed more time to test the market. I wrote back that we do understand (because we do – even though we know we are right! Ha!), and wished them the best of luck.

Since then, we have had several chance encounters with them on the street, and it has all been perfectly friendly and charming – there are no hard feelings at all. Unfortunately for them, it has rained for about six days straight, so there have been few (if any) showings of the property). Did I mention that one of my closest friends (a true BFF) lives across the street from them and has been spying regularly? She also offered to park an old beat-up pickup truck on her lawn and throw old beer cans around in order to make the neighborhood appear less than appealing to any potential YUPPIE buyers. What a pal!

What does the future hold? We heard last night from some friends on Wall Street that trading volume is slow – and that more layoffs are looming, even if not the 80,000 predicted by one fairly reliable analyst. Since this town’s real estate values are so closely tied to Wall Street wealth, I would say that’s bad news for anyone trying to sell a house. Will our neighbors get offers? Yes – it is a fabulous neighborhood with many amenities, and the house has good space. But they will get lowball offers, and will have to pay a broker 4% of the sale price. They will end up with less money in their pocket than if they had taken our deal. There is no doubt in my mind, they truly believe, or want to believe, that their house is worth more than it is truly worth. There is nothing wrong with that mentality, unless you are in a hurry to move, and you have no offers. We have not heard the last of them. It is really just a question of “when” we will hear from them again. We will see them on Halloween when my children go up to their door for some candy. And I wonder – will they offer us a trick, or a treat?

Let It Roll, Baby, Roll...

The stage is set, the die is cast, whatever you want to say – the ball is rolling! On Thursday, we submitted some questions (mostly about mechanicals, roof, etc.) which were answered very quickly. I “gently” broke it to the owners that their square footage calculation was wrong (they never replied to that email, but you can bet they went down to City Hall that day!). The offer letter was ready yesterday, but we sat on it all day, for no particular reason other than that we were scared ____less. But at 7:01 PM last night, the letter was submitted via cyberspace.

It was a fair offer – one they cannot possible perceive as an insult. But let’s face it, they have not done anything proactively in that house. The kitchen is 17 years old. The roof is 13 years old. The windows are original (1970). The house has not been painted in eight years. So to receive an offer that is 15% off the asking price is not too shabby. And lest we forget, if we do this private sale, there will be no broker’s commission, which will save them over $50,000. Nice work, if you can get it!

Last night, ½ hour after I sent the offer, I picked up two of my friends and went to dinner at a great local restaurant. And wouldn’t you know it: There, seated at the next table, was the owner of the house we just offered to buy! I text-messaged my husband, and his response was, “Too bad he is not there with another woman. (Note: wife is away, looking at houses in their target community) Then we could steal the house!” He did have his arms around 2 ladies, but it was clearly a gathering of old friends – all couples except this guy. I don’t think there was any hanky-panky going on. Perhaps I should shoot him an email saying, “Was that you at the restaurant last night? I am sorry I did not get a chance to say hello, but I did not want to intrude on your fun.” Then, if there were any question about his actions, he would know that I knew. Food for thought.

Just kidding, of course, but it would be nice if there were a way to steal this house. I guess the fact that it will go to market at the end of September could work in our favor – as the holidays approach, there are fewer buyers out there. However, now that they have secured our offer, they will undoubtedly use it to drum up others. I can hear the realtor now: “Well, there IS an offer already, after all, so you may want to act quickly.” What better words to drum up interest? It’s part of Queuing Theory, I believe (very rusty business school Operations Management memories) – haven’t you ever noticed that when you walk into an empty store, it suddenly starts to fill with customers? Whatever happens, I am proud of us for our due diligence and for taking this risk. While I do believe it is a calculated risk, it is still outside of our comfort zone, and we will have to continue to push the envelope in order to secure our future, and that of our children. So, let’s see what comes back, if anything, this weekend. We are ready to talk!

Didn't See It Coming

Oh what a difference a week makes! While chatting with neighbors on Sunday, we learned that the owners of the colonial on the hill (mentioned in my previous post) are putting their house on the market in the next two weeks! My initial reaction was, “Oh, that’s too bad. Better luck next time!” Thankfully, my husband immediately began the first round of “What if…?” The most important “What if” being: What if we can come up with some lenders and make this happen? We decided to “pay attention to the signs”, and be aware if the process of vetting this investment became too onerous. We would then have to understand that it was not meant to be.

We laid out a methodical plan for our due diligence. First step: call the owners and indicate our interest. The call was returned and a date for showing was made. Second step: Drum up possible lenders. Check. Yes, there is still money out there for investors, if you can be creative! I realize that it appears as if I am referring to this house as an investment, but in actuality, part of the plan is to KEEP our current house as an investment while we move to the larger home. It is truly the only way this deal works. With brokerage fees and transfer taxes, a scenario in which we sell our current home becomes a money-losing proposition, while renting could potentially turn a profit. Not to mention the long-term benefit of owning a $1,000,000 investment that pays its own mortgage and other costs. This house, in a sense, becomes our “retirement plan”. If the mortgage is someday paid off, we simply collect rent as our income. Another possibility is that refinancing the investment house in the future creates the opportunity for other investments.

We were truly blindsided by this opportunity, which may or may not happen. At this point, we have seen the house twice, and reconciled with its plusses and minuses. We have asked questions which have been answered. One sticking point which I will need to address soon is that the square footage is not what they claim (and it’s not their fault). The city records are wrong, unfortunately, and counted the family room (a 12x 16 foot, single-story space) as two-story. So, the house is about 200 square feet smaller than they told us. I will have to figure out how to call their attention to this disparity without royally pissing them off. We are close to submitting an offer. But it is a clear case of the “cart before the horse”. Our income, like that of so many people across the country, has been down for the past year. I had not officially begun to look for work. For some reason, though, we are at peace with all of this (beer and wine sure do help!). One of my greatest concerns throughout my adult life has been the funding of college and retirement, mostly because my parents did not plan for either. The fallout from that lack of planning has been close to devastating, and I have always been terrified of repeating their mistakes. But equity in a thriving asset – that could be the ticket for us.

The next step will be to begin the negotiations. If we cannot strike a deal in the next few days, the house will go to market. This could be good or bad for us – in the past, non-updated houses on this street have languished on the market. Renovated homes have gone to sealed bids. Where will this house fall? Hopefully into our outstretched hands within the next couple of days!!!

Next Chapter...Colonial?

The summer is gone – there is a strong breeze and a chill in the air. The flowers are all but dead, and a friendly caterpillar has made his cocoon under our Japanese Maple tree. It is time for me to emerge from my summer bubble and announce that we have decided not to add onto our house, for a plethora of good reasons.

It all started when we heard that our empty-nested neighbors were putting the word out that they would entertain a private sale of their home over the next couple of years, if anyone were interested. The house, a colonial, is one of the largest on our street (about 2,800 square feet), and sits perched on a hill with a very private wooded backyard. My husband does not love the sloped driveway, but the front yard is perfect for small-scale sledding. It will need quite a bit of renovation as the front steps are crumbling and the interior appears to be completely original. But to us, a renovation project is infinitely more desirable and doable than an addition. Of course, we are not chasing this particular house, and in fact there are several other empty-nester homes on the street that may go to market first. But this one got our juices flowing.

While we have determined that we can make an addition to our Raised ranch work (yes, we revised it again), by simply adding a new kitchen, expanding the dining room, and adding a bedroom and bath downstairs, it does not give us what we truly want out of our house: flow and lack of redundancy. Our enormous downstairs family room was virtually unused all summer. We have separated our daughters into their own bedrooms, so we no longer have a guest/play room upstairs on the main level. And we can see with clarity now that we will want more separation between the public and private areas of the house as these girls grow up. With my aging brain, I continue to go up and downstairs ten times a day because most of our storage is downstairs and I am forever forgetting why I went in either direction/what I was looking for. This can only get worse as I get older!

Besides, moving to an existing house is GREENER. Wouldn’t it be nice not to have to disturb the plant and animal life that live in the earth behind our house? We have a large number of boulders at the very back of our yard that were excavated when the original foundation was dug. We would undoubtedly find more rock in digging a foundation for an addition, and I can only imagine the added expense (and noise, and irritation to our neighbors) of chipping it out.

Another consideration is that I will (hopefully) soon be returning to a regular job, and will have less time to manage a large-scale project. We would have a much easier time managing one project at a time, when we can afford it, to make an existing house perfect again. In the meantime, we have outlined about $20,000 worth of projects that we would tackle immediately to make THIS house perfect before selling or renting it.

I still believe that our addition plan would work for any Raised Ranch. But based on our specific needs, we do not feel it will work for us going forward – at least, not to the extent we would like. This family is entering a new era, in which our kids are older, we spend less but higher quality time together at home, and we are not as willing to compromise when it comes to our house dreams. The next 12 months should be interesting…

It's Not Easy Being Green (Or Is It?)

Two weeks ago, our local high school parents’ organization hosted its annual House Tour in which ticketholders were treated to self-guided tours of five knock-out homes around town. In general, only the largest of homes ever make it to the tour’s short list, and the organizers attempt each year to include a mix of old and new, traditional and more modern. I have attended about eight of these tours over the past ten years, and a few homes stand out as “the best”. One was a totally renovated stone mansion located on a peninsula with about 270 degrees of Long Island Sound views. It was the “country home” for a young couple from New York City and their three children. In the description of the home, one of the attic bedrooms was described as belonging to the “two nannies”. Nice. About 50% of the ladies who entered the room and read that description quietly mumbled something about volunteering to be one of the nannies, myself included. While this home was smashingly beautiful, I couldn’t help thinking what a waste it was for this home only to be appreciated on summer weekends, and mostly closed up for the winter. I also noticed that the carpeting was the same (off-white, short pile) throughout the entire house. Just an observation.

Another home, on the other side of town, won my heart for its charm and grace. Not a mansion by any means, it was an early 20th century colonial with many of its original details intact and, in some cases, enhanced. There were several fireplaces, hand-carved moldings, and a décor that reeked of warmth and hospitality. You could tell, a “real” family lived here, and that they thoroughly enjoyed their home. On the third floor, a beautiful, girly play room had been set up for their three daughters. The oohs and ahhs of the ladies touring the home could be heard for miles around. In fact, the “tour chatter” ripped through the town like wildfire that day – “Oh you MUST go to the Ridge Street house. It should NOT be missed”. Still, to this day, people mention that home as one of their favorites, I think because it was the homiest and most personally (and tastefully, in my opinion) decorated of all the homes that had come before or after it on the tour route.

This year, I did not attend. Don’t get me wrong, I LOVE the House Tour, but this year I just was not into it, and decided to take a year off. Friends who went said it was not one of the best groups of houses they had seen, although in general the homes were beautiful. One house, that appeared to be decorated in nothing but Ralph Lauren (the wife is apparently a sales associate at the RL store in Greenwich, CT), made one of my friends sad. She said she was sad for the little girl who lives there, because the house lacked any sense of warmth and was more of a museum than anything else. To each his own, of course. It is probably true that you can tell a lot about a person by the way they decorate their home, but where we live, so many people hire decorators to decorate their homes that personality may have less of an impact on design than the power of one’s “purse”.

One of the homes on the tour was advertised as a “Certified Green Home”. Yeah right! This house is brand new, constructed on the edge of a wetland where no house existed before, and it is 6,800 square feet. Apparently it doesn’t take much to achieve green certification these days. A local woman who owns a green consulting service stated (correctly, in my mind) that the greenest home is the already existing home. I have to agree – you cannot disrupt countless living organisms and construct a brand-new mansion that will require monstrous amounts of energy to heat and cool and call it anything even remotely green. It is a joke, honestly. Oh, and by the way, to construct this home, which was built on a subdivided parcel from another estate, a looooooong driveway was carved out of the landscape (we are talking hundreds of yards) and paved over. Increasing the paved area anywhere in this town is a hazard because we are a waterfront community and have tremendous flooding issues.

Anyway, as I think about the truly green way of living – via “reduce, reuse, recycle” – I become more inclined than ever to find the most efficient floor plan for my own house. As much as I would love a more traditional “looking” home, a small addition to this house will give us what we desire without greatly increasing our carbon footprint, or wasting the positive attributes of the existing structure.

CAUTION

The other day, while driving to White Plains, NY (shopping mecca of Westchester County), I was almost pushed off the road by a “Wide Load” manufactured home that was en route to its final destination somewhere off of North Broadway. It reminded me of my very first job, when I served as a legal assistant for Brown & Wood, a law firm that had been hired to handle a variety of mortgage- and asset-backed securitization transactions. The bulk of their mortgage-backed business came from The Resolution Trust Corporation, a quasi-government entity that had been set up to deal with the aftermath of the Savings & Loan crisis in the late 1980’s/early 1990’s. As luck would have it, one of the non-RTC asset classes that demanded significant legal assistant coverage was in the Manufactured Housing sector. And so began my career of handling somewhat unpopular yet necessary assignments.

I enjoyed working on this program for several reasons – it was kooky, in a way, and the associate whose job it was to delegate menial administrative tasks to me was actually a wonderful guy, incredibly smart, and moderately quirky. He admitted to me at one point that when he got married (in his apartment), they needed a witness, so the doorman from his building stepped in. One thing I learned during my tenure as the “Manufactured Housing Contract Specialist” was that our client, Clayton Homes, which at that point was more or less a one man show, had made an awful lot of money fabricating mobile homes and then lending to the buyers. It was a similar concept to what automobile companies were doing – profiting from the sale and the financing. By securitizing his contracts, Clayton could free up capital to make more loans. He was minting money, but he was also helping people achieve the dream of homeownership.

As my career moved toward Commercial and Corporate Real Estate, the plum assignments kept coming in. Property Manager of a building in the Garment District (before it was cool to be in the Garment District) comes to mind as one of the nastier roles I filled. Between the asbestos-laden restaurant space on the ground floor and a client who was less than interested in spending money to fully comply with local laws, this project generally sent Property Managers (including me) running for the door within a year or two. In my next position, at a different company, I was charged with managing the rolling of leases for a large magazine publishing company. Sure, we (at the time) owned such properties as Modern Bride, New York Magazine, and Seventeen, but those were not under my jurisdiction! Instead, I spent my days slogging away at renewals for American Hog Farmer, Beef, Waste Age, and Apartment Guides from here to the west coast. Interestingly, on a trip to Peoria, IL to visit one of our owned sites, I discovered that Shotgun News kept its guns in a closet adjacent to the storage space utilized by Quilting Magazine. Who knew that such varied interests could share office space and services so easily?! At one point, we were endowed with the responsibility to sell all owned Real Estate to free up capital for acquisitions and paying down of debt. The powers that be were intent on getting top dollar for every sale. One of our properties was located in Clarksdale, Mississippi. I received a call shortly after we began advertising it. Our broker in New York directed me to the front page of The New York Times, which showed a picture of President Bill Clinton visiting Clarksdale, Mississippi – on his whistle-stop tour of the ten poorest counties in the country. OK, so we might have trouble finding a buyer for this one.

Most recently, I had the opportunity to assist a professor from Columbia Business School in writing a case study for the Real Estate Department. I was thrilled to be a part of this experience, especially because the cases had been so fascinating when I had been a student 15 years prior. But I should not have been surprised when the topic was revealed: Restructuring A Construction Loan for Self-Storage Development. I must say, I had very little knowledge at the start with regard to the self-storage industry, but I quickly became an expert (of sorts). As I came to find out, this industry has shown enormous growth in the past decade. There appear to be a number of factors that have influenced this growth, including the increased fluidity of people and businesses across the United States, and the resulting need for temporary storage that accompanies transience. Storage space is also generally cheaper than office or residential space, and the units built today are climate-controlled and provide convenience and other amenities geared specifically to storage needs. I might also argue that Americans have more “stuff” now than they used to, partly due to China’s willingness to manufacture pretty much anything in large inexpensive quantities, and we simply must not deny ourselves anything we desire, and partly due to the “manifest destiny” of cheap storage space – “if you build it, they will come.”

So there’s my career in a nutshell. It has thus far provided a few funny anecdotes, a way to pay for my student loans, wedding and housing, but most importantly it has helped me to meet some of the most loved and influential people in my life while enabling me to hone my management, financial, organizing and writing skills. I can only imagine what is next - although it almost certainly will not be glamorous.