I’ve said this before
But perhaps you’d like to hear it again, this time from a real estate professor at Columbia, quoted in the New York Times. Professor Christopher Meyer, who studied loss aversion by (would-be) sellers in Boston when the market dropped 30% noticed that sellers refused to drop their price to match market conditions. They didn’t do well, naturally, and the professor says that he now counsels his own family, “If you want to sell your house then you list it at the market price and you sell it,” he said. “If you don’t really want to sell then don’t put it on the market. But don’t say you want to sell and then set the price so high that you spend the year cleaning up every morning, having people walk through your living room and look in your medicine cabinets and reject you. That’s just painful — and expensive.”
I’ve been saying this for the five years I’ve written this column but I don’t teach at Columbia – if you won’t listen to me, perhaps you’ll listen to Professor Meyer.

On the other hand
There’s still an active market here for houses priced right. B.K. Bates listed 144 Riverside Avenue, a wonderful 1860 Federalist on 1.4 acres, for $3.7 million last Thursday and it was gone in a bidding war by Friday. This house, one of the few landmarks we have in Riverside needed, to put it gently, a good bit of work – I’d estimate $1 million, minimum – to bring it into the 21st Century, but there’s nothing like it around here, and certainly no comparable land. I think that we’ve reached a new stage in land sales here in eastern Greenwich, where sellers can now get a premium for over-sized lots. If you own an acre or more in Old Greenwich or Riverside, you may want to eschew sub-dividing it and instead offer it as a whole. Or hold onto it, and pay those college tuitions down the road. Or, better yet, call me!

Hurricane deductibles
Interesting article, again in the New York Times, concerning the increasing use of “standard” deductibles of 2% or 3% in home insurance policies for storm damage. As the article points out, many homeowners gloss over this amount, thinking it doesn’t amount to much, but a $1,000,000 loss could mean a $30,000 out-of-pocket expense. Not the end of the world for you hedge fund folks, assuming your bonus comes through this year, but for older people on fixed income living near the water, that’s a chunk of change. As always, it pays to review your policy and see what’s in there. If you can’t understand the language, that’s probably a bad sign.

Stone and clapboard multimillion houses
About three years ago I suggested that the shingle-style house was probably reaching a saturation point. No one who counts listened, and we’re still seeing new ones, some of which are selling. With that record of prognistication failure, here’s my latest prediction: there are too many houses being built, all alike, with stone facing in the middle and clapboard wings to either side. They look identical and, other than price, there’s very little to differentiate one from the other. And, if price is the only factor, won’t the cheaper ones sell faster than their more expensive sisters?

Even a blind squirrel finds the occasional acorn
(Thanks to my brother Gideon for that bit of wisdom). I rarely read New York Times editorials (and never agree with those I do) so I was astonished to read their editors denouncing the entire corn-to-ethanol project as the national boondoggle that it is. It consumes more energy than it produces, drives up the cost of food, encourages the destruction of farmland and, in short, profits no one but the farmers who grow corn and vote in the Iowa primary. If ethanol is to make economic sense, it will be because we import sugarcane ethanol from Brazil but of course, we’re presently taxing it 50 cents per gallon and adding a 50 cent subsidy to American-grown corn ethanol – duh. It’s discouraging, putting it mildly, that a program so flawed that even the New York Times editorial board can see its disadvantages is praised by every politician, of both national parties, running for president. Just wait till they fix medical care and Social Security.

Where are the offers?

Most sellers with overpriced houses don’t understand why no one extends an offer, at any price on their property. Having spent many weeks recently with a very nice couple who are ready to buy but haven’t extended an offer on anything we’ve seen, here’s my conclusion: unlike, say, corporate take-over targets, houses are personal. The same hard-bitten business man or business woman who’d think nothing of extracting the lowest possible price from another corporation’s shareholders seems to balk at tossing a lowball, but realistic price at the owners of a house. “Call me if they lower the price” is the almost universal response to these situations, even though I argue that the time to present an offer is before the price is lowered and more buyers flood in. I think buyers don’t want to insult people personally, so they won’t go there. Too bad, because we’ve been looking at a huge range of houses recently, ranging in price from $6,000,000 to over $12,000,000, and so many of them are asking literally millions of dollars more than they’re worth. My folks are ready to buy, but they aren’t going to over-pay. So your house sits.

More on overpricing

A builder client of mine just walked from a deal when the seller (actually, his agent) of a building lot told us that they already had an offer roughly $500,000 more we offered, far than it could possibly be worth. I told the agent to sign the deal up before the alleged buyer was recaptured and returned to the loony bin but we, at least weren’t interested. Was there such a buyer? I suspect not, which makes this an even dumber tactic than it seems – nothing worse than making such a claim and then having to return, hat in hand, begging for the original offer but if there was, God bless both buyer and seller – they’ll need such blessings. Builders have to make money on a deal. While it’s true that both builder and land seller have conflicting interests as both want to maximize their profit, a successful transaction has to make sense for both parties or it’s never going to work. At the height of the market in 2005 sellers got away with some astonishing coups but the buyers ended up in a very poor position. A house off lower Lake Avenue, for instance, sold for an insane price in that year and the developer (doing his very first project, I’ll bet) dumped hundreds of thousands of dollars into its renovation. It sold last week for, after commissions, $25,000 less than he paid for it, not even including the money spent on improvements, carrying costs, conveyance taxes and so forth. In short, the buyer lost his shirt. There may still be innocent naifs out there, convinced that they can’t lose money on Greenwich real estate but the professionals I know have stayed in business for decades by refusing to overpay for projects. If you want to sell to them, adjust your expectations.

Merit pay for teachers?

The head of our local teachers’ union claims that it would be degrading for her members to have to compete for wages, to which I say, welcome to the real world, honey. I know of no other industry where three years of indifferent performance guarantees you life-long employment with pay raises each year based solely on your waking up to breath each day. I remember the (very few) excellent teachers I encountered in my passage through the Greenwich school system and they were of all ages; the very worst were usually old frauds, going through the motions, who should have been fired years before they were inflicted on me and my classmates.
And now, “magnet schools”

The committee to examine diversity in our grammar schools was headed by our Superintendent of Schools and supposedly included a number of parents for their feedback. From what I hear from those parents, they were never intended to have a voice and that the Superintendent simply held meetings without inviting their presence and then announcing a ‘consensus” that magnet schools were the solution, a pre-ordained conclusion. I still don’t get it: if better schools are the answer, why not improve all of them, rather than a select few? One way to do so might be to improve the quality of our teachers by, for instance, eliminating tenure and instituting merit pay.

Market Activity
August is usually a pretty slow month in the Greenwich real estate market and this year was no exception. Still, I was impressed how much activity there was. Forty-three houses went to contract during the month (compared to 41 in August ’06) ten of which at prices of $5,000,000 and up ($12,750,000 was tops, on Cedar Cliff Road in Riverside). That’s a substantial volume and you might find it reassuring to know that, even in this “national housing crisis”, there are still buyers out there and they’re doing more than just kicking tires.

“Green” houses
A number of my builder friends are either building or considering building “green” houses: super efficient, energy saving structures. They cost a bit more to build but produce a draft-free, comfortable house and offer much lower heating and cooling bills. The general sense the builders and I have is that consumers aren’t willing to pay more upfront even with the promise of paying less during ownership; my friend and builder, Peter Thalheim, says he builds them out of personal pride and a commitment to the environment, which is pretty cool. But 26 Bramble Lane, a house I wrote about before because of its innovative, super-insulated construction, sold in August for $3,725,000 and, without meaning to offend the buyer by suggesting that they over-paid for the house – they didn’t – I think that price may reflect a slight premium for its energy saving features. I hope so, because that will encourage builders to do more of these projects and buyers will end up with better houses. I am one of those “global warming deniers” and consider Al Gore and his ilk to be leading a new religious campaign based on fear and ignorance, rather than science, but that doesn’t mean we shouldn’t conserve resources – my father singly-handedly kept the 15 watt light bulb industry alive and raised his kids to abhor waste. I learned well, and I’d like to see more new construction pay attention to conservation.

White Houses
As one of the last subscribers to the printed book version of our MLS, I like to get my money’s worth by prowling through the whole thing, cover to cover. Did that recently, as was struck by the number of listing photographs that showed bucolic snowy scenes, reminiscent of Pieter Bruegel. Nothing screams “over-priced loser going nowhere” than a photograph, in September, of a bedraggled yard with a melting Frosty the Snowman in front. Any competent agent has a digital camera or can borrow one. If your listing is still depicting the snows of yesteryear, demand a new photo. Or, of course, you can wait a few months and you’ll be seasonally correct once again – but maybe you’d like to sell your house before February.

Chubby Wubbies
I’m delighted to have moved to Raveis’s Old Greenwich office because I’m now back in my “hood’ and get to encounter friends and neighbors regularly. The location also affords an opportunity to survey the street scene, and I’ve seen some amusing sights, including a porcine 4 year old, clutching both a bagel (with cream cheese, presumably) and a soda while being wheeled through town in a stroller. Far be it from me to offer parenting advice but this kid looked (a) old enough to walk on his own and (b) desperately in need of a little exercise. Just one man’s opinion, of course.

Don’t stage that house!
Saw some new construction the other day. The builder, seeking to recoup the expense of renting furniture for another, larger project, crammed everything into this much smaller house, thereby ensuring that prospective buyers will see exactly how tiny the living room, dining room and kitchen are. Bad move.

Speaking of melting snowmen
The new ethic, at least as preached by Leonard Decapprio and his new movie, “The 11th Hour”, is that we should all use less wood and curtail logging. Dr. Patrick Moore, a co-founder of Greenpeace and presumably no enemy of the earth, points out that trees suck up carbon better than anything else on earth and that carbon remains stored in the wood, even as it’s converted to furniture and houses. Young trees absorb carbon at far greater rates than mature ones so we should be doing more logging, not less. And shooting more methane-belching moose, of course.

Mortgage Meltdown

The so-called sub-prime mortgage market has been taking a beating and dragging down a number of very good companies. But I’m not convinced that recent “solutions” proposed by politicians will do anything to alleviate the situation; in fact, I believe they will only make things worse. One suggestion floating around is to ban variable interest rate loans. That’s not going to help anyone who already has one and it ignores recent history, when rates went down, not up. Variable rates were a good deal for a long time, now they aren’t. Such is life. The late Harvard libertarian philosopher Robert Nozick, author of “Anarchy, State and Utopia” liked to commend “acts of capitalism between consenting adults” and that’s what variable rate loans were; they allowed folks to buy houses who otherwise couldn’t. Same with the “no-documentation” loans. I recall when, 20 years back, we wanted to add onto our house to accommodate the arrival of our third child. While my income as a lowly lawyer didn’t meet the precise standards of a conventional 30-year mortgage, I was confident I could handle the payments and Green Point Mortgage, looking at a requested $100,000 loan on a $1,000,000 property, took the chance. We got the house rebuilt, Green Pont got repaid and everyone was happy. But last week, Green Point was shut down, not because its loans were going bad but because the panic infecting Wall Street spread to it.

I suppose that my point here is that flexible terms and rates – even interest-only loans – weren’t and aren’t all bad. I’m reading now about poor homeowners who swear that they didn’t know their rates could go up and about mortgage brokers playing fast and loose with income statements but all in all, I think it would be a mistake to switch the whole system back to the standard 20% down, 30 year mortgage model. It will only deprive a lot of people the opportunity to own their own house. And if some of those people dive in over their head and lose what they tried to buy? Well, that’s a shame, but depriving the 80-90% of their peers who can handle it the chance to buy a house seems like overkill.

Mortgage Contingencies
They’re back! Not so long ago, sellers were refusing to allow mortgage contingencies into their contracts and buyers were forced to go without this protection. The shoe’s on the other foot now and buyers who need a mortgage (not every Greenwich resident does, naturally) can usually insist that their deposit be returned if they can’t obtain financing. But be warned: the days of overnight mortgage approvals are over, at least for now, because there are fewer lenders making loans and those that are are insisting on far more documentation than before. Two weeks is probably the minimum contingency date you should ask for and if you can get the seller to agree to three weeks, all the better. Sellers, cheer up: these things all go in cycles, and you’ll be back in the catbird seat, one of these days.

Yet another apples to apples comparison
16 Stanwich Lane listed at $2,250,000 back in November of 2005 sold that month in a bidding war for $2,466,000. It was returned to the market this year and my brother Gideon (Cleveland, Duble & Arnold), representing the new buyer, got it for $2,350,000 last week. On average, Greenwich prices are holding firm but, as I pointed out last week, we’re seeing more of these losing propositions. As always, the advice is to hope that you don’t buy in a heated market and have to sell in a soft one. No one’s ever done badly in Greenwich real estate in the long run but if you can’t hold out for the long run, hang onto your wallet and cry.

Nice while it lasted
Schools are back open, traffic’s back. But that means the buyers are, too, I hope. Next year, I think I’ll spend August in Montana.

Dog Days
Contrary to rumor, Leona Helmsly’s last will and testament did not demand that her little dog, Trouble, be sent off to be trained by Michael Vick. Amazing the mean things people say about the dead