Dana Graham (DRE #00877973)

Remember how I wrote the last couple of years that reports of drastic price declines were largely a product (at least in the South Bay) of a statistical anomaly whereby the lower end of the market was very hot due mostly to Fed-subsidized interest rates, while the upper end was ice cold. Well, interest rates for loans over $729,750 have come waaaay down to around 5.5% and, while you still have to qualify for them, they're much easier to get now than, say, 2 years ago.

This has caused the upper end of the market to experience a rebirth. Sales over $1.5 million are up 52% over last year, year to date, while the market below that is holding steady. So get ready for media reports of increases in the average price of homes in Southern California. They're not going up, but a relatively small number of high end sales can have the effect of dragging up the average.

If you're on my mailing list, my July newsletter will get into this in some depth, separating out various market segments in an attempt to see what prices are really doing. Unfortunately for the numbers-oriented, there really is no absolutely objective way to present this and, even if there were, the only way to see how it all applies to your house is to have a Realtor active in your area give you his estimate of the fair market value for your house.

If you'd like to be added to my mailing list, shoot me an email at: DanaHGraham@cs.com, and visit my website: www.DanaGraham4RE.com.

If you've ever interviewed realtors, you know that all of them leap tall buildings, walk on water, and heal the sick.

The vast majority of realtors are competent which, for what you pay in commission, you have a right to expect. I would suggest, however, that you ought to get more than "competent". When I got into this business 25 years ago, not having been happy with my realtor, I began with a clean slate: if I were the client (which I had just been) what would I ideally want in a realtor? Not bare minimum, not "what do other agents do", but rather what would be my wildest dream in an agent. I resolved then and there to be that kind of agent.

As a result, a lot of the things I do for my clients have other agents' jaws on the ground; things such as getting up on a roof and repairing it when no one would spend the money, crawling under a house to repair a leaky copper pipe when the walk thru was the next day and no plumber was available, climbing on a 20' ladder to remove a satellite dish for an 88-year-old seller, selling the car of my clients' deceased mother because they lived out of town, re-grouting the kitchen tile so the house would show better, or painting extensive termite work so the house would be move-in ready. I routinely do things like minor plumbing repairs, making doors close correctly, patching walls, sprinkler repair, shampooing carpets, painting, clearing drains, driving an elderly seller to her doctor appointment or to escrow to sign papers, etc. These are all the types of things I do myself free of charge. I don't just arrange to have someone else do it and you then have to pay, tho I do have people to make repairs and schedule the work when necessary.

My favorite "Above and Beyond" was a number of years ago when my buyers were going to back out of a purchase, leaving the seller in desperate straits -- I bought the house for what my buyers were going to pay. I can't guarantee that sort of thing, but it's indicative of my approach to the business: I am not always trying to do the minimum so I can be off looking for new clients; I am appreciative of the clients I have, and want to do the things that, in their wildest dreams, the would want their agent to do.

My website: www.DanaGraham4RE.com has a section called Testimonials. Click on that for a selection of unsolicited letters I've received from clients.

My wife and sister (2 different people, thank you very much) remind me that I get so used to doing things no other agent would think of doing (let alone know how to do), and I get so used to my clients raving about me, that I forget how unusual my services are. So you can thank them for this reminder.

This is more important with regard to real estate than ever, so listen up:

Understandably, I have seen more than the usual number of new listings lately come out at unrealistically high prices. It's understandable because a) every seller wants to get the highest possible price for his house, b) feels his house is special (that's why he bought it), c) may have gotten used to shortcomings in location, lot size, floor plan, etc, d) and, in a slower market, is tempted to measure his house against others for sale in the neighborhood.

Reality check: none of those reasons are valid, and the strategy of going out high with the idea that "we can always come down", more often than not, backfires and produces exactly the undesired result. In any market, the higher the Days on Market number in the listing, the bigger the disadvantage to the seller. Used to be that we could subvert the system by cancelling the old listing and re-listing under a new MLS number, but gnomes got wise to that. There is a field in the listing called CDOM (Cumulative Days on Market) which inexorably ticks upward, and cannot be altered, hacked, or deleted. At some point in the listing, depending upon the market, that number becomes a ball and chain. Despite the machinations and creativity of the listing agent, buyers look at 300 CDOM and think: gee, if the house was all that desirable, someone would have bought it. Doesn't matter if you just reduced the price to the current level last week; the buyer's agent has to be pretty resourceful to figure that out.

The other problem with a high number is that, in a slower market with a lot of houses for sale, buyer's agents are looking for ways to cut down the number of homes they have to look at before they show their buyer this weekend, and Days on Market is a common one. In other words, the agent will sort only by homes with less than 60 DOM, figuring his odds of finding a good value are higher than with those over that. Let the over 60 ones wait til the next trip out. Therefore, the showings go way down.

You also tend, at some point, to get the "bottom feeders": buyers looking to steal something and figuring, usually illogically, that a house with over 250 DOM may have a desperate owner. I say illogically because, if the owner were that desperate, he'd have reduced the price and sold it. The question I always have to ask is: what makes a buyer, looking at a house with a $2 million asking price, think that that seller is of a frame of mind to take $1.5 million? Doesn't matter if that's what the house is worth -- if the seller is asking $2 million for it, he's obviously not sufficiently motivated to sell it to take what it's actually worth. Penmanship practice becomes the only explanation.

So the price of greed is very real: once you've been on the market a long time, the odds are great that you will not get as high a sale price as you would have had the house been priced realistically/accurately to begin with. When the listing is new, everyone's excited, no one's seen it, the CDOM is 0, and all the buyers who have been looking for the past 4 months, have seen everything, but haven't bought, are on your house like bees on honey. It is during this initial period, which lasts 30-45 days, that you have the best chance to get the highest price for your house. Buyers who like it don't know how much time they have before another offer comes in, couples might be staring down other couples in the living room, agents might be writing offers on the hoods of their cars, etc. A feeding frenzy could ensue. OMG.

I'm talking about real estate. The basic process of buying and selling a home is not rocket science, brain surgery, or astrophysics. It doesn't even involve knowledge of Kepler's Laws of Planetary Motion. So why does the realtor you choose matter? Heck, why not do it yourself? See how tense Kepler looks in this picture? He was probably in the middle of an escrow, had figured he was smart enough to handle it, and had just listed with someone who left a card on his door.

Most things in life are not rocket science. When your car begins making a funny noise under the hood, water all of a sudden trickles out of your kitchen faucet or thru your ceiling, it's April 15th, or your favorite suit needs cleaning after you tried to diagnose the funny noise under your hood, what do you do? Sure, you could probably fix all that stuff yourself; after all, you're at least as smart as the auto mechanic, plumber, roofer, CPA, or dry cleaner, assuming you could get past the plastic covering the engine, the black widow spider guarding the pipes, find the hole in your roof (hint: it's never near the leak), Subtract Line 52 from Line 8 on Form OMG-1 unless you qualify for some government largesse (the rest of us are paying for) in which case obtain form 682.3 and attach it to your return, or rent a dry cleaning machine on a one-time basis and hope not to destroy that suit.

The point is that familiarity on a daily basis with the laws, customs, and issues that might come up during a real estate transaction is a lot like the above examples. Sure, you have 26 patents to your name, designed the Saturn V rocket, are about to cure cancer, or invented a car that runs on nothing. But you can't know everything and you don't deal with real estate every day. Having done so for the past 25 years, I can tell you that the number, type, and potential consequences of things that happen during a real estate transaction can be unpleasant; and while they don't require Mensa-like intellect to deal with, successful handling of the myriad issues that can, and often do, arise, does require someone used to dealing with them, someone with creative and resourceful solutions to them, and someone with your interests in mind.

That pretty-well describes me. Give me a call at 310 613-1076 and/or visit my website: www.DanaGraham4re.com.

If you've been paying attention, you know that one of the "solutions" to the sub-prime/credit "crisis" as it relates to real estate (everything these days is a "crisis" don'tchya know -- gonna have to come up with a new word for those that really are, a sort of Label Inflation, but I digress) is a new set of rules for appraisers: they can't be on the payroll of the lender making the loan, no one can talk to them, they tend to be based in other area codes (presumably to reduce the chances that they're dating the listing agent), and there is now a new layer of bureaucracy which the lender must contact to secure their services. Well, this is just great. All this stuff makes the process look to the downstream rating agencies and purchasers of the paper like it has more integrity and, since this is the Administration of Appearances (versus substance -- notice how the pendulum swings back and forth?), that was probably the goal.

So now, instead of pressure by realtors and lenders to make the appraisal as high as possible, the opposite pressure is being applied by, I assume, Fannie Mae, Freddie Mac, and FHA as a condition of buying/insuring the loans. Since the lenders have been given all this TARP (Troubled Asset Relief Program) money, the government can now tell the lenders how to run their business, right down to details of the appraisers' activities. And since Washington has demonstrated such amazing fiscal acuity in the past, I'm sure we'll all sleep better knowing they're now running the financial markets . . . in addition to building cars. My oh my! What a wide range of talents!

Back to appraisers: as if sellers didn't have enough to worry about finding a buyer in the current market, appraisers are now apparently trying to see how low an appraisal they can justify. This is causing sales to fall apart in alarming numbers, and causing artificial downward pressure on real estate prices. Obviously if the sale price is really high and the buyer only has 10% down, there may be an issue, but the buyer doesn't understand that he can't rely upon the appraiser to tell him what the house is actually worth, and may want to back out even tho he has half down and the lender will still make the loan with an appraisal 10% under the sale price.

So why is the appraiser's valuation unreliable? As I've discussed elsewhere (The Problem With Appraisers), there is a structural problem with the appraisal industry which remains unaddressed and, as far as I can see, unrecognized. To repeat (briefly) appraisers do not look at property. If you're not in the business, this may be a shock to you, but it's true. The only property an appraiser actually sees (meaning goes inside, backyard, etc) is the one he's appraising. But how does he determine the value of that property? By comparing it to the ones he hasn't seen, of course. So we have the appraiser carefully scrutinizing the subject property, measuring it, taking copious pictures -- giving the impression that this is really serious business. He then proceeds to use (generally) 3 recent sales to determine the value of the just-dissected property. Problem is, he can't get inside any of them. And God knows he didn't see them when he could have, because he's probably from Yorba Linda and, for some reason, doesn't habitually look at property in the South Bay.

So the appraiser sits in his Camry in front of Comp #1 swiveling his head between a copy of the listing and the house. "Oh, this house had a 'remodeled kitchen, a big flat lot, 4 bedrooms, and a panoramic view' according to the listing" . . . written by the listing agent when trying to sell the house. Now, I know that hyperbole is unknown in the real estate business, so I'm sure there is no puffing in that description . . . I mean, "Mr Seller you put new paint and linoleum in the kitchen, so we'll call it 'remodeled' because the buyer is going to see what it is before buying it anyway; and there is at least 15 feet of flat yard before you reach the Suicide Cliffs -- some people would probably call that 'big', and we'll call that room you added a bedroom, even tho you have to walk thru the 3rd bedroom to get to it, and there is a pretty good view of the oil tanks from the bathroom . . . if you stand on the toilet, and the buyer will judge for himself anyway". That may all be true. However, the appraiser will also judge, but only from the description, since the new owner is unlikely to let him in. Sometimes the appraiser will call the listing agent for the past sale, but 3 listing agents are going to have different standards for what is "good", "big", "panoramic", or whatever.

So we now have the appraiser comparing the reality of the subject property with the fantasy (or at least the best possible justifiable) description of the recent sales. How do we think the subject is going to fare in that comparison? "Gee, the subject had only re-faced the kitchen cabinets and new appliances, and the back yard was only 30 feet deep, there are only 3 bedrooms and a den, and there was only a slivver of coastline view thru the trees, so obviously it's inferior". So the appraisal comes in under the sale price.

The point, of course, is that there is so much that contributes to the value of a property that isn't strictly quantifiable. It is very difficult to assign a number when one can't compare even on a subjective level. This results in a disproportionate reliance on hard data like square footage of the house and lot, bedroom and bathroom count, etc, which is a terrible way to price homes, and is the last resort of those who haven't actually seen any (generally the appraiser or out-of-area agent). I hate to say it, but the buyer who has seen 20+ homes probably has a better idea of values than the appraiser does. The Realtor active in the area definitely does.

So the appraisal comes in below the sale price, which causes the sale to fall apart because either a) the buyer can't get the loan, or b) he gets cold feet because the appraiser, whose infallibility is assumed, says the house is not worth what he's paying. Again, all this is causing artificial downward pressure on real estate prices.

Which brings up the last issue (I know -- hooray!), Local Knowledge: I'm trying not to be sarcastic here, but how much is an appraiser from Yorba Linda or Mission Viejo going to know about the South Bay, or vice versa? I've had appraisers trying to use "comps" in Hollywood Riviera when "appraising" homes on Via La Selva in PVE! The fact that it met the criterion of being within 1/2 mile got it included. Or using a Rolling Hills Estates property as a comp to a Rolling Hills one. The "appraiser" (who was from a galaxy far, far away) actually thought, due to the name, that RHE was a more upscale area.

I'm not a fan of criticism unless the critic has a better answer, and I do: restructure the appraisal process so that each lender (or appraiser-locating middleman) has the number of appraisers assigned to a specific geographic area required for the business that lender does in that area. One area would be, for example, the Palos Verdes Peninsula. If 2 is a appropriate number of appraisers, those 2 appraisers would be charged with looking at houses for sale just like agents do -- going to the broker's open houses (hey -- there's free food), they'd have a lock box key so they could look at vacant houses -- whatever it took to keep current. These two appraisers would get all the appraisals in Palos Verdes for that lender/middleman. Not only would it then be their job, it would make sense for them to look at property because there would be a fair likelihood that that knowledge would be used later; it makes no sense for them to look at property now because they're working all over Southern California, and those 30 homes they looked at in Murrietta aren't going to shed a lot of light on the one they're appraising on Via Pacheco in PVE.

So when the appraiser was called to appraise a sale on Via Rivera, he'd have seen the comp on Via Carrillo and know how it compared in terms only discernable by personal, visual inspection. The result would be a more realistic valuation, which should be better for everyone.