Daily Archives: October 4, 2008

General Hammerstein-Equord

Wisdom from 1933 (or thereabouts)

In the comments below (the “Golden Girls” posting) a reader asked about agents who call about her expired listing and ask for an appointment to show the place to a client. I warned her that many of these calls come from new agents who have no clients but lots of time and that they mine the expired listings to try to con their way into a house and into a new listing. She wrote back to express her surprise that agents had enough time on their hands to track her down. Time on our hands? Slow market? Ha! How do you think I can post here so frequently?

Thanks to the wonder of computers, the GMLS data can be sliced, diced and sorted in a myriad of ways including status. Active, contract, sold and, for present purposes, expired and withdrawn. The calls start right after that sorting. Some of these agents are fresh from sales classes that teach them to make 10 – 20 cold calls a day and to concentrate on “FISBOs” – for sale by owner and expired listings. I won’t say such classes are beneath my dignity but I’ve never attended one; I must have forgotten. Dealing with these callers can be vexing because many of them are completely clueless. We had to fire one new agent because, among other sins, she cold called people without bothering to even determine the address she was calling. When an owner asked what, specifically she liked about the house she didn’t have the wit to bluff her way through and instead would ask, “and what part of town is your house in?” I complained to higher-ups that this creature was ruining our name but the final straw came when one fine day with time on her hands, she pored over the obituary pages and mailed each of the grieving relatives her sales pitch. I assume she’s now practicing personal injury law somewhere, but she is no longer with us.

But I’m grateful to the lady for one thing: she reminded me of one of my father’s favorite quotes, spoken by General Hammerstein – Equord, last leader of the Reichswehr before Hitler’s ascension:

I divide my officers into four classes; the clever, the lazy, the industrious, and the stupid. Each officer possesses at least two of these qualities. Those who are clever and industrious are fitted for the highest staff appointments. Use can be made of those who are stupid and lazy. The man who is clever and lazy however is for the very highest command; he has the temperament and nerves to deal with all situations. But whoever is stupid and industrious is a menace and must be removed immediately!

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The Bellamy Brothers
He’s an Old Hippie

He turned thirty-five last Sunday
In his hair he found some gray
But he still ain’t changed his lifestyle
He likes it better the old way
So he grows a little garden in the back yard by the fence
He’s consuming what he’s growing nowadays in self defense
He get’s out there in the twilight zone
Sometimes when it just don’t make no sense

He gets off on country music
Cause disco left him cold
He’s got young friends into new wave
But he’s just too friggin’ old
And he dreams at night of Woodstock and the day John Lennon died
How the music made him happy and the silence made him cry
Yeah he thinks of John sometimes
And he has to wonder why

He’s an old hippie and he don’t know what to do
Should he hang on to the old
Should he grab on to the new
He’s an old hippie…his new life is just a bust
He ain’t trying to change nobody
He’s just trying real hard to adjust

Who Knew?
I ruminated below about the 119 spec mansions sitting unsold in town and suggested, partly-tongue-in-cheek, that older Greenwich residents might want to unload their own mansions (at a reduced price, in today’s market) pick up one of the big ones at the next foreclosure auction and have their own commune. Turns out, others are already doing this. See, eg, Elder Communes or this AARP article, Rethinking Communes. Hey, something has to happen to all these “Bad Manors”, as Bernie Yudain calls them. Why not put them to fun use?

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Isn’t this duckie?
Here’s one person’s estimate of what Pelosi and her gang have wrought:$1.8 trillion of pork

Bailout type Cost to taxpayers (Source: Reuters)
Financial bailout package approved this week up to or more than $700 billion
Bear Stearns financing $29 billion
Fannie Mae and Freddie Mac nationalization $200 billion
AIG loan and nationalization $85 billion
Federal Housing Administration housing rescue bill $300 billion
Mortgage community grants $4 billion
JPMorgan Chase repayments $87 billion
Loans to banks via Fed’s Term Auction Facility $200 billion+
Loans from Depression-era Exchange Stabilization Fund $50 billion
Purchases of mortgage securities by Fannie Mae and Freddie Mac $144 billion
POSSIBLE TOTAL $1.8 trillion+
NUMBER OF HOUSEHOLDS PER U.S. CENSUS 105,480,101
POSSIBLE COST PER HOUSEHOLD $17,064+

“We will not Christmas Tree this bill”, our protector Chuck Schumer vowed last week. “Everyone wants something but they’ll have to wait. This matter is too urgent.”

Thank God for Senator Schumer. Our wallets would have been emptied by his peers otherwise.

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Good news for The Golden Girls
Not everything is bleak. This auctioneer is offering a Lakeside Chateau in New Canaan. It’s a 6 bedroom, 7 bath place, has parking for 9 cars, pool, guesthouse and of course, that “Lake” they mention, which is no doubt a pond. Appraised at $9.5 million, starting bid is set at $3 million. New construction (of course).

This may present a solution for older folks who don’t want to live alone in a big old mansion. If six couples snapped this up for $3 million, they could sell off their own unwanted digs, move in here and enjoy all those amenities like a brand new kitchen and that pool (oh – and an elevator and tennis court, too) etc. for far less than they’d pay at Edgehill (is that a play on “Edge of Death”?).
We’ll leave Edgehill alone. With this latest idea, I may have just discovered a new marketing niche.

Update: Ya know, I’ve already received one comment from a reader who’d been discussing just this approach with her friends. Maybe it would work. Any interest? I’ll find the mansion, you find your friends and won’t that be fun. I’d want an invitation to the first party, though.

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The center will not hold
From Instapundit.com

ROGER KIMBALL: Data points from the Windy City. Including this one: “The Illinois State pension fund is $44 billion in debt. That’s the worst in the country.”
The problem of underfunded public pensions will make Fannie and Freddie look like small potatoes.

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Here’s a bit of a downer
This Englishman thinks we’re in for a spot of trouble. Wish I could refute his pessimism, especially his concluding paragraphs, but right now, ….

At the end of that spiral there are two futures. One is Götterdämmerung, a financial catastrophe that does indeed bear comparison with the aftermath of 1929 – and please, disregard anyone who claims we are there, or anywhere near there, yet.

The other is a sadder, shabbier world perhaps more comparable to Britain in the 1950s, where luxuries were just that, mostly inaccessible, a step up the housing ladder meant years of penury ahead and credit was almost unheard of. Worry if you work in finance, estate agency, retail or other vulnerable areas, or if you are unable to trade out of your debts on your existing salary.

Among the survivors, of course, like cockroaches in a nuclear winter, will be many of Gordon Brown’s 600,000 or more workers taken on to the public payroll over the past decade, along with their copper-bottomed pensions. A world inherited by diversity inspectors and wheelie bin snoops. Dear God.

Have a nice weekend

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If you think someone would have to be crazy to buy Greenwich real estate right now, here’s hope
Loonies investing in U.S. properties!

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I’m not saying this, he is.
Here’s a long letter I just received from a mortgage broker. I suppose I don’t disagree with everything in it – he got my email address right, for instance – but there isn’t much common ground between us. I post it here as sort of a curiosity piece, so that you can, if interested, see what one portion of the industry is saying (the Raveis Mortgage rep I mentioned earlier today shares my sentiments, by the way, so this letter in no way reflects the entire globe of mortgage brokers thinking).

[sender’s name omitted to protect the guilty]

Dear Valued Partner,

The Chinese have a proverb: “May you live in interesting times.” And we are living through interesting times indeed.

Whatever the political posturing regarding the rescue plan, a plan needed to be passed. Credit markets are frozen and banks are going bust every day. This is not totally because of “toxic” mortgages. This has a lot to do with FASB 157, also known as “mark to market”.

Each day, lenders must mark their assets to the marketplace. It’s like you having to appraise your home everyday and, if your neighbor was under duress because she got very ill, divorced, lost her job and was forced to sell her home quickly, she may have sold it super cheap. Now, does that mean your house is worth that super cheap price, too? Clearly not. Why? Because you are not under duress. You have the time to sell your home and get a more normal price, which more accurately reflects true market conditions. But “mark to market” does not allow for this, which creates a vicious cycle.

Why is this so bad? Because, as lenders mark down their assets the amount that they have previously loaned becomes much riskier in relation to their assets. For example, say a bank has $1 million in assets and say they have $15 million in loans outstanding. Their ratio is an acceptable 15 to 1. But should they take a paper write down of $500 thousand due to “mark to market” requirements, their ratio suddenly changes to 30 to 1. This is because their assets are now only $500 thousand after taking the paper loss, while their loans outstanding are still $15 million. And at 30 to 1 this bank is viewed as a risky investment. So the stock price starts to get hit, it becomes harder to borrow, and most importantly harder to make money. The bank is then forced to sell some of its loans to reduce its ratio…at cheap prices. And this makes the vicious cycle continue.

And a quick look at the holdings of these loans show that 95% are problem free. Additionally, the Credit Default Swaps (CDS) that are used with the pools of mortgages are relatively safe. But this requires a bit of understanding. You see, when a pool of mortgage loans is put together it isn’t just A paper or B paper etc. it’s everything. It’s got some A paper, B paper, C paper…and even what looks like toilet paper. An “A” investor buys the whole pool but because they are an “A” investor their safety is greater because they can avoid the first 20% (an example) of defaults. So they own the whole pool but are sheltered from the first batch of defaults, and for this they get the lowest rate of return. As you can figure from here the more risk investors want to take, the higher the return. So the investments are relatively safe, but the accounting rules currently place undue pressure on the banking institutions.

Now add to all this, the opportunistic “shorting” done on the financial stocks, much of it illegal because those shorts did not legitimately borrow shares (called naked shorting), and you exacerbate this whole problem. Thank goodness for the recent temporary ban on shorting in the financial sector. As for the plan, the government is the only one who can step in to do this. And they have to do this. And they will do this. The nauseating political posturing from both sides is just part of the process.

This is not easy to understand for the general public. In fact most politicians don’t get this either. That’s why it is a difficult yet critical bill for them to vote on.

Once this is done, it will take some time but the markets will stabilize. As for the real estate and mortgage industries, it will take a bit of time but we will make it through this. Rates will remain attractive and the influx of credit availability will help the housing market gradually improve. This ultimately will be the medicine needed to improve the situation overall.

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They call it one-stop shopping, others call it fraud
A group of independent title insurance agents in Ohio is suing real estate brokers for steering customers to those firms’ own title companies. Here in the Nutmeg State we don’t have that exact problem – the lawyers beat us agents to the punch bowl and they select the title company and keep 60% of the commission – but we do have similar things going on, all under the rubric of one-stop shopping: buy a house and use the selling broker’s inspection company, lawyer, mortgage company and whatever else these guys dream up (like, in California, where else? – Natural Hazard Disclosure Reports.

Home warranties? Check out this article and this quote from it:

Today, about 90% of the houses have home warranties, and Century 21 and all the Realogy companies now exclusively recommend AHS products, which are branded to each division. And we recommend every agent should advise their clients to obtain a home warranty through our exclusive provider-whether they are buying or selling-AHS is always reporting back to us about how they are taking care of our clients, and I am impressed with how client-oriented they are.

I’m not picking on any one company here – my own firm, Raveis, offers the same services and I’m sure they’d be pleased if I steered business their way. For sure, there are sometimes benefits to using a brokerage firm’s other affiliates. I just sent a family member to Raveis Mortgage this week because it has (its own) money to lend, the rates were the best around and from personal experience I know that Mark Hawkins, Raevis Mortgage’s Greenwich rep, does fine work. But I always recommend at least three real estate lawyers to buyer-clients and none has any business relationship with Raveis. Nothing against whomever my firm has selected but, after two decades of law practice, I have personal relationships with these guys – I know who the not-so-good lawyers are and I know that the three (or 5, or 10 – it’s a pretty big pool) will do an excellent job. Same thing for house inspections, movers, insurance agents, etc.

So my advice to buyers, if any still exist, is to do your own investigation and don’t blindly accept being steered to a brokerage’s controlled or affiliated service firms. You’ll probably get a good product with those companies, and you should certainly compare their charges to those of others, but do look around.

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25 Keofferam

Troubled times call for bold action
That’s my opinion; this builder obviously disagrees. This perfectly nice house on a great street in Old Greenwich hasn’t sold at $5,995,000 so yesterday it was reduced 3.3% ($200,000) to $5,795,000. I’m friends with this builder and he builds a good house, but baby steps toward the new market reality will only, I fear, prolong the day of reckoning.

Around the corner, at 403 Sound Beach Avenue, the same builder has applied the same approach and reduced another project 3%, from $3,765,000 to $3,665,000. Who knows? Perhaps he has information the rest of us don’t. I hope so.

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487 North Street

Gone with the wind?
This beautiful property (across from Dingletown and just up on your left (or down – who remembers these things?) has a 1906 house on it, “renovated” in 1950. Okay, that probably means you’ll want to do a little work, but it’s a terrific house and it sits on 14 acres of spectacular lawn/meadow that, sadly, has been approved for a 5-lot subdivision. Originally offered at $23,500,000, it was reduced about 21% yesterday to $18,500,000. In better times that would surely generate a builder’s interest, but I don’t know of any builders in town who are actively searching for a project this size. Perhaps there are; I certainly don’t pretend to know all the big builders in town, but speaking as a resident who has always admired the grace of the existing house and the beautiful sweep of the lawns surrounding it, I hope that some Russian fleeing from Putin and looking for a safe place to stash some of his cash picks this place up and keeps it just as it is.

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