[youtube=http://www.youtube.com/watch?v=Bw-5CxGY4Rk&hl=en_US&fs=1&]This week I had several calls from clients asking about real estate investment opportunities in other parts of the state. One of those areas requested was Riverside so I took the opportunity to talk with Robert Markley about the market conditions there. The evolving aspect of real estate investment in his region will be looked back on as a text-book case of long-term investors making shrewd timely decisions.
All the Best,
Lance
The National Association of Realtors recently released survey of International Home Buying Activity reports that of the Realtors surveyed their level of international business was about the same in 2009 as in 2008. The top four states receiving the majority of international business are Florida, California, Texas and Arizona, respectively. And, Realtors in Arizona and California were most likely to report increased international business in 2009.
The majority of international clients originated from a relatively few number of countries: Canada, the United Kingdom, Mexico, India and China. And the top five countries of origin have been consistent over the last three years. Canadians accounted for 18% of international purchases within the U.S. so far in 2009 with the United Kingdom accounting for 11% which was consistent with last year’s survey.
By far the largest sector purchased by international clientele were single family homes at just about 70% of the total of all purchases. And the country with the highest concentration of purchases in California is China with other Asian nations concentrating their US purchases here as well. A benefit of the Pacific Rim geography.
These are some the highlights from the report. If you’d like a copy of the entire report leave a comment with your email address and I’ll forward one your way.
[wpvideo Lq4wyhDk]Does interior design add value to your real estate? Let’s look at what a buyer of a luxury property looks for when they begin their home search. It has been my experience that a buyer will first look for ‘neighborhood’, ‘address’ or ‘the right building’ which is the one intrinsic quality that can’t be changed. Second is square footage which can often times be compromised if the view is spectacular (and San Francisco is known for its views). The design element is something that a buyer expects to see when looking at luxury properties but which, more often than not, doesn’t fit their individual style. So while it is expected, I’ve seen many buyers of luxury properties rip out newly remodeled elements and replace them. In the current economic environment (even in luxury real estate), many buyers are ‘value’ driven and will think twice before remodeling fixed elements. They will spend money on furnishings and art which will reflect their individual tastes and can be taken with them in the future. The answer is ‘yes’ to value (it is expected) but probably will not translate into a dollar for dollar gain for the seller due to the unknown of the individual buyer’s style unless ‘the one perfect’ buyer shows up – which does happen on occasion.
The Millenium Tower is currently host to “Icons of Design”, a designer showcase of four homes on the 52nd Floor in San Francisco. Thanks to my friend and Regional Vice President, Tim Murray, I had the pleasure of touring the units this week. There were some unique design elements and some specific pieces of art that I especially liked. I was disappointed by the lack of thought the building put into lighting for homes of this quality and the awkward soffits for the heating/air for the units. The same problems exist at The Brannan complex and with this being a ‘defining’ building for our City I would expect these issues to be better executed. Overall, the showcase is a success since it pulls at the traditional provincial focus that ‘designer showcases’ have had in our City away from the period homes on the North side of town to what is new, happening and appealing to both a more youthful and international crowd that is quickly calling San Francisco home.
All the Best, Lance
I’ve had two experiences with clients this year that highlight the vast difference in either how well people utilize their best real estate resource, their relationship with their Realtor, or how clumsily they don’t avail themselves of the benefit of that relationship which then impacts them negatively.
The first situation involves my clients, we’ll call Gail and Sergio for this example. They were referred to me from previous clients and we’ve had a great relationship from the start as they purchased their first home with me in San Francisco. They ultimately did remodeling and had two children in that home and we stayed in touch throughout the years. Whenever they had a real estate related question – they called me and they got an honest opinion on the market or what might be the best choice in a remodeling plan. Then when they decided they needed to move to the East Bay to be closer to family, friends and chosen schools they called me to discuss selling their home. By this time however, the market had changed and not to their favor. We discussed the marketing aspects as well as pricing. And, my pricing opinion, $899,000, was not what they wanted to hear but they trusted my judgment so we launched the marketing this past summer and because the house was priced at a price for value sensitive buyers - it sold well over asking at $950,000 (5.56% above) the first week on the market. They received more money than they expected but besides that they saved time (which is money) and the house didn’t have to suffer price reductions and a longer time on the market in a downward trending market with other variables we couldn’t control such as an unexpected increase in inventory. A true success story for wisely utilizing a Realtor relationship.
The second experience was with two gentlemen who were formally my tenants in a rental property I owned. A number of years ago as their lease was expiring they went out and purchased a house without a Realtor. The market was hot and they felt using the listing agent would get them the best deal. They paid a higher than asking price for the property which was common in the market of that time. They never called me for advice and moved on to their new property.
Fast forward to this summer when I received a call from them asking me to come by and give them my valuation opinion because they needed to sell the property. I arrived with my business partner to initially tour the house prior to forming a valuation opinion to see what remodeling work had been done. It was a lovely two-story Victorian and they had done a beautiful job updating the kitchen and large family room. I, however, was shocked when touring the second floor to discover that during their ownership they had gone thru an extensive remodeling of the property by separating off the master bedroom from the main house and giving it a separate entrance from the rear of the house so it could be a second unit. Now this lovely Victorian had an abbreviated second floor with a cramped master bedroom and bath overlooking the front street, a second bedroom and a new bathroom at the end of the hall which created the separation between the main house and the second unit (which was formerly the spacious master bedroom and bath – now with a small kitchen added). To add to the negative impact the “new” second unit had on the main house, the tenant would have to access the small second unit by walking along the side of the house by the windows of the family room and through the outdoor patio off of the family room to get to their front door. Needless to say, they didn’t have a professional to talk to about the ramifications of this kind of remodeling on their overall investment in the property.
The comparables for this neighborhood had dropped quite a lot in the current environment. The value I gave them based on one lovely property that had sold within the last four weeks was a low price, $1,400,000. Since the current market is so value conscious, I suggested I call some colleagues at several other companies to come view the property to get some other opinions on pricing. I called six agents both within my brokerage company and at two others that I’ve had long professional relationships with to come by and let me know what they thought the value was. Across the board, the agents felt due to the awkward remodeling configuration that the house should be priced no higher than $1,500,000. Now, granted, that was higher than my value but in this tricky pricing environment I told the sellers it was a number I could get behind and with the right presentation get their property sold.
The sellers didn’t like the advice so they went price shopping. They found an agent (no big surprise) that would list the property for $1,695,000. The house sat. And, sat. They reduced it to $1,595,000. They did receive an offer and it sold for $1,550,000. (The number sounds familiar, doesn’t it..3.3% above my recommended and 9.35% below their original asking price.) They priced it higher than the current market value and in ultimately reducing the price created downward pressure on the final price they would achieve rather than pricing it lower and creating upward momentum.
These sellers never got beyond thinking of a relationship with a chosen Realtor as a sales situation rather than a relationship of trust for, most likely, their most valuable asset similar to the kind of relationship they would have with their attorney, accountant or physician. In the book, Rich Dad, Poor Dad, the author says the two professionals he never hesitates to pay are his attorney and his Realtor because they both make him money. The key is to have a “real” resource relationship with a trusted Realtor. One you can call on for advice at any time and know that the value will come to you when you need it most.
‘Til Next Time…All the Best, Lance
[wpvideo 9GRsNgch]Last week, I attended the FIABCI-USA luncheon and presentation at the United Nations compound in Manhattan. After introductions by FIABCI-USA President, Judy Shenefield, Axumite Gebre-Egziabher, Director of UN-Habitat spoke and was then followed by Dr. Michael Buckely, the main speaker.
Wow, what a dynamic, informative program presented by Dr. Buckley, Director of the Center for High Density Development for the graduate real estate program at Columbia University. The title of Professor Buckley’s presentation was “Seven Transition Waves in the Midst of Crisis” which looked at the current economic situation and future trends – some good news and some situations that are shaping up to be a very negative drag on the economy down the road.
Professor Buckley discussed what got us into the current situation and in my video segment you will see him talking about the idea put forth by George Soros to plug a potentially catastrophic situation involving credit default swaps. According to Professor Buckley, Mr. Soros said the federal government should halt all credit default swaps and nullify all existing contracts due to the magnified effect of these instruments’ current outstanding obligations in the estimated amount of $60 – $90 trillion US dollars. That is an action that only the federal government can make as Professor Buckley was discussing the realm of government in dealing with the unknown outcome of creative financing instruments that were put into place during the run-up.
Currently, the economy is in the midst of an unprecedented consolidation wave in pharmaceuticals, banking and high-tech companies according to Professor Buckley. He went on explain that these companies are much more sensitive to locating their headquarters in locations where they have access to top universities. And in deciding where to locate their headquarters, cost wasn’t even in the top ten categories of consideration for these companies according to a recent survey by his group.
The cities occupied by top universities and corporate headquarters constitute “growth clusters” as Professor Buckley called them. These are our present and future city states and their influence will continue to grow nationally as they set the pace for the rest of the country.
Demographically, he discussed the population growth here in the US where we will add approximately 60 million more people by 2050 and the largest segment of the population will be of latin heritage. He also discussed education and the lack of young people going into the sciences as well as a new wave of thinking about education. Rather than the old line schools (which will still be important), he talked about how the youngest generation is thinking. His son introduced him to Full Sail University in Florida – a university for gamers. And with a twinkle in his eye and a nod to the potential unknown, what great new technologies might come from that.
Lastly, he discussed the rapidly increasing bank failure rate in comparison to the 1930’s and gave his prediction on the current stock market run-up. He believes the stock market will fall by year’s end and if the bank failure rate continues its pace we really will be repeating the 1930’s.
Professor Buckley’s presentation was a highlight of my time in Manhattan. In addition to the presentation, however, I was also able to visit with other colleagues from around the country and around the world and get feedback from the trenches on other markets and how they’re comparing to ours here in San Francisco. It largely sounds the same at the moment, the lower end is strong due to government programs and the luxury real estate market for higher end homes is soft and is forecast to continue weakening. This does create opportunities as prices fall. A colleague I know from Miami was sharing with me about her international clients and the expectations and practice differences by country. She is originally from Brazil and works with a lot of South Americans coming to Miami. It is this opportunity to purchase in the US at bargain prices that is luring international investors to our most popular cities. This helps our local real estate markets as cash flows in and absorbs excess inventory thereby stabilizing the market. As the economy moves out of crisis, the US is becoming more of a global participant even on local levels and can no longer afford to just look within. The next buyer of your property may very well be from outside the country.
‘Til Next Time…All the Best, Lance
