When Compelling Stories About Housing's Future Are Dated

When Compelling Stories About Housing’s Future Are Dated

When I read this NAR factoid that 77% of Americans think now is a good time to sell, at first glance, it sounded like good news. But if a record number of Americans want to sell, logic follows that they don’t think their homes would be worth more next year.

Here’s another way to illustrate it. There was a great viral video making the rounds recently that made me feel good after I watched it. Except it was fake.

My takeaway is that digging deeper into the stories we read and hear every day about our profession (and, well, everything) should somehow be our new full-time job.

but I digress

Market Report Gauntlet Q3-2018 Week 1: Manhattan/Northern Manhattan

After a long quiet summer, Douglas Elliman published our research covering the Manhattan housing market. I’ve been authoring the expanding series of Elliman Reports since 1994. Most importantly, the Bloomberg piece covering our report was the number 1 read and shared article by the ±350K Bloomberg Terminal subscribers worldwide. Most importantly, our research has never been included in an article with “Clogged” in the title.

Elliman Report: Q3-2018 Manhattan Sales
Elliman Report: Q3-2018 Northern Manhattan Sales

And charts!

Our charts!

Here are some of the key points:

– Number of sales declined year over year for the fourth consecutive quarter
– Resale listing inventory increased annually for four straight quarters
– Most inventory gains were seen in the studio and 1-bedroom markets
– Co-op median sales price has not experienced a year over year decline in more than two years–
– The year over year rate of new development sales decline was double that of resales
– Market share of bidding wars stabilized for three consecutive quarters
– Negotiability between buyers and sellers has not changed significantly over the past year
– The bidding war luxury market share was less than half of non-luxury market share
– Luxury market shifting lower with top ten percent at the lowest level in three years

8 Out of 10 New Apartment Buildings Built Were High-End in 2017

Now this is something I’ve been saying about NYC Metro over the past 5 years. New development has been clearly skewed towards the high end.

This is a key reason why housing affordability has moved to the forefront of the housing conversation – development emphasis has been on higher end across rental, condo and single family development = shortage of affordable and surplus of luxury.

Auction Marketing As Alternative To, Well, Marketing

The auctioning off of real estate is fraught with perception risk and good old stereo-typing. Auctions are assumed by many to be only for distressed sales. There have been many attempts to mainstream the concept into the mainstream.

I look at the auction process for real estate as the selling a number of units faster than the typical market area can absorb. In other words, the seller is compressing marketing time – almost like a present value application – to move the property. This doesn’t always require a discount from value which people often confuse for a discount from listing price. The skill behind auctioning is to create a sense of urgency. There are firms out there that cater to the high end. Since pricing is harder in higher end properties because the product is generally less homogenous, the inefficiencies present opportunities to other types of marketing. It’s still not a mainstream marketing process but as the market softens from the top down, I suspect we will be seeing more of this concept going forward.

[Paramount Realty USA]

Never Underestimate Human Beings Ability To Behave Fraudulently

I always marvel at those who steadfastly believe that gutting all regulations is better for all and the free market will prevail. The problem is that human beings are really good at screwing things up, and aggressively engaging in self-dealing, over time. We have short memories and love to have an edge over our neighbors. The spectrum of risk versus reward never stops moving back and forth as memories fade until are reminded again through another crisis. Since the last cycle did not have any “perp walk” videos, I believe we are more vulnerable to bad behavior. While I do believe “less is more” in the context of regulations, it is more about “smart over generic,” blah, blah, blah, I’m not a fan of gutting a large number of existing regulations.

Here it comes…

This is a reminder, even with historically tight credit conditions.

Mortgage fraud putting lenders in a tough spot from CNBC.

New Ideas on How To Measure Softening Housing Markets

We already have some good ways to see housing slowdowns through:

– sales declines
– inventory expansion
– more auctions marketing companies

…notice how I left out “price trends”? By then it is already too late.

But what about…

– More homes being listed both for sale AND rental?

Expired listings?

– Rising mortgage fraud?

Compass: Let’s Do The Math?

This week’s announcement that Compass raised another $400 million, bringing their total to $1.2 billion. At this point, most of the money raised seems to be from two entities: The Softbank Vision Fund and Qatar Investment Authority.

The company expects growth in 2018 to double to almost $1 billion in revenue, according to the person, who asked not to be identified because the information is confidential.

This sentence inspired me to write about this news event. I’ll try to be specific solely on my limited understanding of the brokerage industry:

The average U.S. brokerage commission generally ranges from 4% to 6% but each transaction has two sides. We could even assume that 75% of Compass deals are splits with other companies and 25% have them on both sides of the transaction. To keep it simple, let’s assume there is an average of 5% commission on every deal and I am only considering this revenue as from the brokerage business and not other lines of business they may start soon or have just started. When including the weighting of sides, the commission average works out to 3.12% so let’s call it a 3% commission per deal.

What will be their 2018 U.S. market share of total sales as a residential brokerage company? What’s also interesting is that they tend to be doing business in high split markets

UPDATED – It was pointed out to me by a number of readers that the splits that go to the agents are not included in their revenue projections. So the following was revised to reflect that.
$1,000,000,000 gross revenue (provided by anonymouse source in this story) / 3% blended sales commission = $33,333,333,333 property values sold in 2018 when the year is completed.

From this napkin measurement, I get a $33,333,333,333 U.S. property volume result for Compass brokerage.

Now lets pair this up with the U.S. housing market results. According to FRED, the average sales price of all U.S. homes (new+existing) in the U.S. was $375,200 in 2Q18. The seasonally adjusted annual existing home sale number for August 2018 was 5,340,000 units. According to Census, there were 629,000 annual new home sales, seasonally adjusted using August results. By my math, that means there will be a total of 5,969,000 U.S. new and existing home sales when the 2018 dust settles.

5,969,000 U.S. annual home sales x $375,200 = $2,239,568,800,000.

Compass 2018 market share calculation is

$33,333,333,333 (Compass property sold share) / $2,239,568,800,000 (U.S property sold share) = 1.5%

This suggests that Compass will sell 1.5% of all homes nationwide by the end of 2018.

So with $1 billion in revenue (if true), Compass was given a valuation of $4.4 billion resulting in a multiple of 4.4x in a service (non-tech) industry. Based on past conversations with accountants and others in the brokerage industry, I would have assumed a ratio was more like 1/3 of 4.4, but then again I am at the disadvantage in not knowing the inside details and whatever “secret sauce” they have that hasn’t appeared in any of their press releases to date.

Cities Where It Is Still Cheaper To Own

The cost of homeownership has been rising this year but it didn’t mean that it was better to rent.

What Is A Bedroom?

The Real Estate Board of New York (REBNY) has some very useful explanations for defining what a room, and other living areas are.

Upcoming Speaking Events



Featuring Guest Speaker Jonathan Miller

Presented by Columbia Business School Alumni Club / NY in association with Greenberg Traurig and the New York Metro CCIM Chapter

The published ticket rate for this event is $45/ea. As a member of the NY Metro CCIM Chapter we are pleased to offer tickets at only $20/ea. Seating is extremely limited. To reserve your space please click HERE and use promo code “NYMEMBER” to unlock the member rate.


(For earlier appraisal industry commentary, visit my old clunky REIC site.)

Appraiserfest 2018 is almost here!

November 1, 2, 3 in San Antonio.

Sign-up here with the last coupon offered for the event.

When you’re apparently the “Go To” appraiser for the wrong reasons

I’m not being political here by using this massive New York Times investigative piece on POTUS tax history, but there were some pretty specific points made towards a commercial appraiser in NYC that I wanted to bring up.

The references to this person reminded me of the housing bubble era when certain firms who mastered the art of working with mortgage brokers, were known as ‘deal enablers.’ All of the appraisers of that era that I knew either saw their companies collapse or lost their credentials.

From the NYT investigative piece…

A crucial step was finding a property appraiser attuned to their needs. As anyone who has ever bought or sold a home knows, appraisers can arrive at sharply different valuations depending on their methods and assumptions. And like stock analysts, property appraisers have been known to massage those methods and assumptions in ways that coincide with their clients’ interests.

The Trumps used Robert Von Ancken, a favorite of New York City’s big real estate families. Over a 45-year career, Mr. Von Ancken has appraised many of the city’s landmarks, including Rockefeller Center, the World Trade Center, the Chrysler Building and the Empire State Building. Donald Trump recruited him after Fred Trump Jr. died and the family needed friendly appraisals to help shield the estate from taxes.

Mr. Von Ancken appraised the 25 apartment complexes and other properties in the Trumps’ GRATs and concluded that their total value was $93.9 million, tax records show.

To assess the accuracy of those valuations, The Times examined the prices paid for comparable apartment buildings that sold within a year of Mr. Von Ancken’s appraisals. A pattern quickly emerged. Again and again, buildings in the same neighborhood as Trump buildings sold for two to four times as much per square foot as Mr. Von Ancken’s appraisals, even when the buildings were decades older, had fewer amenities and smaller apartments, and were deemed less valuable by city property tax appraisers.

The Appraisal Institute Succeeded Pushing SB-70 Into CA Law Without Informing Their Own Membership

Their long-term goal for all their anonymous lobbying to dismantle all appraisal licensing is to revert to a previous time before FIRREA when membership in trade groups mattered a lot more. Unfortunately, they are heavily damaging the livelihoods of appraisers in the process. Be sure to shake hands with Scott DiBiasio, Bill Garber, Jim Amorin and the rest of AI executive leadership at your next AI meeting.

The background on this insanely damaging law to appraisers can be found in the August 3, 2018 issue of Appraiserville.

I’ve been keeping tabs on SB70 and saw that it was signed into to law this week.

Here is what I wrote back in August about SB70:

Here’s the biggie:

(C) States that there may be assumptions that the appraiser has not verified that may significantly impact the appraised value of the subject of the report.
The whole purpose of USPAP is to provide credibility in reporting to protect the public trust. With the wording of this bill, any appraiser could take any point of view and not back it up with verifiable data. For example, an appraiser could take a seller’s word on potential uses of their property and the appraiser can simply restate them and not provide any support to verify the claims.


This bill allows the creation of a worthless document that demeans the value of an actual diligent appraisal.

This will open up fraud and overvaluation on a scale not yet seen before. It renders our profession equal to a fortune teller (no offense to fortune tellers). This bill shows a blatant disregard for the public trust from the real estate’s largest trade group.

But there is more:

This bill, if it becomes law on January 1, 2019, is only good until January 1, 2020!!! It is only valid for one year which clearly shows how desperately AI National needs to claim a win after years of losses in fighting for evaluations against their own membership’s wishes. They are throwing ethics aside! All bets are off now! Just get a win!

This bill destroys the validity of what an appraisal actually is because good appraisers can now perform like bad appraisers without concern. There is no accountability and no verification required if this bill is passed.

Plus, this bill changes the use of the report from the single client concept to a universal use as long as all the names are listed. How does this square up with their own code of ethics?

There is one glaring oversight by the AI lackeys in Sacramento that signed-off on this bill in secret that shows their own greediness to advance up the AI National hierarchy: There are about 10,000 credentialed appraisers in California. I don’t know how many AI designated members are in California, but I’m assuming it is substantially less than that. If this bill becomes law, can anyone imagine the explosion of fraud by people desperate to take shortcuts, ESPECIALLY AS THE MARKET STARTS TO COOL? Remember, AI leadership in California signed off on a bill that makes verification unnecessary. I’m sure a majority of AI membership in California are decent and competent appraisers. But now they have to compete with the bad eggs or those that will quickly become bad because they can say and do anything without verification. Not only AI members get to do these simple reports, but anyone with a license and a pulse does as well.

And you can bet that AI National will press for renewal or permanence in 2019 without telling their CA membership. I was told from a very credible source that the strategy all along was to not tell the membership what was going on and sneak in the bill in the second year of a 2-year review process. Congrats AI National, you got a win and hope you can sleep at night. Oh, and shame on all of your leadership.

Texas Appraiser Licensing & Certification Board Withdraws Proposed Rule To Allow Appraisers To Drop Licensing Requirements to Perform Evaluations

AI National’s Scott DiBiasio has been pushing the idea of allowing appraisers to drop their credential requirements to perform evaluations on commercial assignments in a number of states. We have witnessed these deceptive efforts in Florida. The Texas Board has been pressured as well but they voted against it:

MOVED, that staff is authorized, on behalf of this Board, to withdraw new rule 22 TAC
§155.3, Work Relating to Commercial Real Estate Transactions, as published in the Texas

Here is some anonymous feedback from an appraiser in Texas:

In an interesting related story just received. An informed source indicated that independent appraisers would never get the mark to market work since it will all go to the nationals with deep pockets since the users are looking for the assurance that there will be somebody to sue if the deal goes south.

Coincidentally, xxx saw an RFP the other day that specified – national firms only.

This story likely will/may relate to evaluations too. All the business will go to the nationals who set up divisions to produce these types of reports while independents sit on the sidelines waiting for the call with trepidation and reluctance since we all know the job needs to be done thoroughly. But, we’ll never get the call anyway since users will hire nationals they can sue.

Brilliant Idea #1

If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them because:

– They’ll be more willing to go to a food mart at night;
– You’ll measure your bedroom;
– And I’ll review some charts.

Brilliant Idea #2

You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.

See you next week.

Jonathan J. Miller, CRP, CRE, Member of RAC
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Matrix Blog

Reads, Listens and Visuals I Enjoyed

My New Content, Research and Mentions

Recently Published Elliman Market Reports

Real Estate Blockchain Reads

Appraisal Related Reads

Extra Curricular Reads