Saturday, December 24, 2011

Zestimate Bullshestimate

Just the other day—at our company Christmas Party--some of the conversation turned to Zillow. That's the on line automated real estate site that estimates the value of nearly every house in America. Right or wrong, millions of consumers are clamoring for their data since they provide a no-obligation idea of what your house—and those of your neighbor's up and down the street—might sell for. In a housing market that's been mostly a cause for gloom, so-called home-valuation technology has become one of the few sources of excitement.

The question that we debated, over a couple of beers with carols playing on the CD, was how accurate are these estimates? After years of us real estate pros holding all the informational cards in the home-sale game, Web-driven companies like Zillow, and all want to be consulted when you are trying to determine the likely selling price of a home. Probably your home.

For most of real estate history, of course, determining a home's value has been the appraiser's job. Appraisals involve gathering data on recently sold homes in a given area and comparing them with the "subject property" on matters like size, bedrooms, bathrooms, garage, general condition and other characteristics, before coming up with an estimate of the home's worth. If the property has, say, a 4th bedroom, but most of the recently sold homes don't, the appraiser might add a premium to the sale value. This exercise involves as much art as science, as anyone who has done a few will attest..

The more unique or luxurious a property, the harder it is to accurately value. Subject properties may be so unique that no comparable properties can be found. You only have to tune into HGTV's unique homes shows to see what I mean. Where will you find another home that rotates to use as a comp? Or another one made out of old airplane parts that might have recently sold?

Buyers use the web site estimates to get a feel for what's on the market and, later on, to figure out whether their offer will entice a seller to play ball. Sellers might check their home's value to help decide whether it's worth the hassle of selling or just refinancing, even some Realtors use them to gauge if their listings are priced right for the market. As a practicing real estate agent, I'm increasingly resigned to spending time with potential sellers answering questions about the estimates.

Realtors know the estimates are wildly inaccurate. Valuations that are 20, 30 or even 50 percent higher or lower than a property's eventual sale price are not uncommon. The estimates frequently change, too, for reasons that aren't always easy for homeowners to discern. According to the web companies themselves, some quotes have swung by hundreds of thousands of dollars in as little as a month as new data gets plugged into the algorithms the sites rely on.

And the sites acknowledge that people like you and me can enter information that might push estimates higher. The sites invite you to add photos, and make corrections.  But what I'm trying to say here is a Trulia or Zillow estimate is just that -- an estimate.  Zillow even publishes precise numbers about how imprecise its estimates can be.

Every major site urges home-price hunters to always consult with a real estate agent or house appraisal specialist. And yet, consumers and pros alike say many homesurfers put their faith in the estimates to sway the way they shop and sell.

Since 2006 Zillow has been providing it's “Zestimates” to the masses. The company runs data on more than 100 million homes through its own algorithms that recognize relationships between property characteristics, tax assessments and recent transactions. Indeed, in a market where listing prices often reflect more hope than reality, some agents say that online tools are a useful tool—if only to open discussions with sellers.

Their iffy accuracy notwithstanding, critics say the sites' business models may pose a bigger problem for consumers than their algorithms. These online firms earn significant revenues from their advertising, and the more traffic they get, the greater that ad revenue is. Their advertisers are the likes of home-supply store Lowe's, realty franchisor Century 21 and builder KB Home. Meaning on the one hand they provide a free service to shoppers, and on the other they sell a service to the real estate industry—but think for a moment, who's their daddy?

Dane Hahn is a real estate professional in Englewood Florida. He can be reached at or through his site,

Sunday, December 18, 2011

Should Banks Pay it Forward?

Secret Santas are cropping up around the country. These are people—who mostly anonymously—give money as a Christmas gift where it was least expected. A little old lady toddles into a Walmart and pays off a dozen or so lay-away accounts, so the folks who were buying a TV or some toys on time, all of a sudden find their final payments have been made, and the goods are theirs. Wow, it's Christmas.

Some find a way to slip a gold coin or a big check into a Salvation Army bucket, and quietly, more good is done.

Today I watched a down and out fellow get a $100 bill from a complete stranger. The benefactor was visiting soup kitchens and generously gifting money. Yes, he's giving money, but really he's giving more than money to the folks who were doing all they could to cope. He was offering a belief in their ability to be good, providing them chance to evaluate their life and maybe make a change. As he said, “I'm not judgmental. If my effort can help make a change in a couple of lives, then I'm a success too.”

These efforts at Christmas kind of make you want to see that old film, “Pay it Forward.”

To a large degree, what our real estate based economy needs right about now is a Secret Santa.
Naturally, Secret Santas can't be fair. To be fair they'd have to give everyone a surprise gift—and all of a similar value. No, a real estate Secret Santa would have to reach into the morass of tangled loans and foreclosures and somehow catch-up the loans of some of the neediest borrowers. They would just zero out the deficiency, and give the borrower a new start.

Of course that couldn't happen. There are too many people, too far behind to be able to help them all—but what if, just a few, maybe there is a way. What if all banks who had made loans to home buyers looked over their outstanding loans, and zeroed out the bottom 2%. Not pay off the house, but “catch up” the borrower, so that the loan would be “up to date”, with nothing overdue. Next month's payment would still be due, but the slate would be clean. How about that?

I would submit that maybe even the bottom 10% of a given bank's mortgagors are going to lose the house anyway. So what's the risk to the bank? The chances of the bank actually receiving any of the past due amounts are slender given our flacid economy, but if a fresh start could keep the folks in the house, then both the bank and the family would be better off; if a fresh start could result in some percentage of the residents picking up and turning the mortgage into a “performing” loan, then like the Secret Santa, the bank would be a success in the community too. Could it happen?  Probably not, but then it is Christmas...

On another topic, the “flood insurance” topic reappears for the third time this year. Congress seems not to be able to vote for a simple bill that would allow the continuation of Federal Flood Insurance. The problem with flood insurance lapsing (over and over) is that homes which are sold and about to close but which are in flood zones, can't close without the insurance and so not until Congress reinstates flood insurance. Why is this such a hard topic for all those lawyers in Washington? I write to my senators and reps, but with no results.

But I forgot, they're the ones who determined that our traditional incandescent light bulbs could no longer be sold, in favor of florescent bulbs, and then this week, changed their minds. I would love to see the cost of this “double” legislation. The cost of passing the first bill, the cost to retailers to adjust their inventory, the cost to manufacturers to accommodate the newly perceived demands, the cost to consumers to switch over at least some of the bulbs (the 3-ways are just awful) and the cost to change their minds back to again and allow the bulbs. Maybe it's not in the Trillions, but you can be sure it was expensive and is just another of Washington's leadership boondoggles. November 2012 can't come soon enough.

Dane Hahn is a real estate professional practicing in Englewood, Florida. He can be reached at or at

Sunday, December 11, 2011

Even the Newspapers Are Suffering

This week I had the pleasure to attend a breakfast presentation by Diane McFarlin, who is the Publisher of the Sarasota Herald Tribune. I think it's worth taking a few minutes to discuss how it is that the Herald Tribune (a New York Times owned daily newspaper) is weathering the downturn in the economy.

From my perspective, the world revolves around real estate. In the newspaper business, the world revolves around advertising and to a lesser degree, subscriptions. Interestingly over the last three or four years, the Herald has lost more than half their advertising base, albeit their readership is holding pretty well. The loss of their advertising has been to the internet, some of it to other fragmenting media, and some of it to the general  slow-down and loss of business. They have lost most of their real estate advertising and a meaningful amount of their national advertising. The likes of Craig's List and eBay have heavily impacted their classifieds in all categories.

They are countering these changes by adding new websites and serving their readers with other electronic and print products, and of course by continuing their effort to cut expenses. They have sold 60% of their bureaus throughout the three counties they serve, they have halved their personnel and are considering additional changes to the newspaper to save on their financial outgo. These are severe cuts that were difficult decisions, but have resulted in their staying in business, even though more cuts may be necessary.

But these hard decisions should result in future health. And hard decisions are the very thing we are asking our Senators and Congressmen to make before--unlike the newspaper--we are blindsided by our unwillingness to get our head out of the sand. The paper realized that times had changed, and that only well managed and tightly run businesses would survive. Now we—you and I-- have to be sure our lawmakers at every level do the same.

So what's up with real estate? Well things are looking up a little. Home buyers scooped up more previously owned homes last month slowly putting a dent in the huge inventory on the market. Sales of existing homes rose 1.4% last month to an annual rate of 4.97 million homes, the National Association of Realtors reported.
Foreclosures and short sales dropped to 28% of sales in October, down from 30% in September. Even as the stockpile of homes on the market eases, housing prices are continuing to dip. The median price for an existing home was 4.7% lower than a year ago. That means it's still a great buying opportunity for house hunters.

But one of the problems preventing the housing market from making a full recovery is that many of the home buyers attempting to buy houses are seeing their mortgage applications rejected. Contract failures, which include declined mortgage applications or failures in loan underwriting because of problems including appraised values coming in below the negotiated price, jumped to 33% in October, up from 18% in September.

Home sales have been stuck in a narrow range despite several improving factors that generally lead to higher home sales, such as job creation, rising rents and high affordability conditions.

New-home sales edged slightly higher last month, as more Americans hunted for bargains in the struggling housing market. The Census Bureau reported an annual sales rate of 307,000 new homes last month, up 1.3% from a downwardly revised rate of 303,000 homes in September.

Compared to new home sales a year ago, there were about 162,000 new homes on the market by the end of October. That represented a 6.3-month supply at the current rate of sale. The median sale price was $212,300.

Last week, a separate report showed that more house-hunters are also eyeballing previously owned homes. Inexplicably, an increasing number of home builders are planning to build houses and are breaking ground on new construction, with building permits and housing starts climbing.

Dane Hahn is a real estate professional practicing in Englewood Florida and New Hampshire. He can be reached at 941-681-0312 or 603-566-5460  or try