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February 7, 2020

Surfing The Housing Market While Living On A Prayer

Yes, we are.

But I digress…

Manhattan Co-op Sales Fall During Federal Election Year

For the past decade, I’ve been observing a pullback in sales in the summer of an election year and then a release in sales after the election into the new year, no matter the party or the candidate. I was speaking about this to Sylvia Varnham O’Regan [1] at The Real Deal Magazine [2], and she asked me to prove it empirically.

So I did.

Her article: This is how presidential elections really affect home sales [3] lays it out for the Manhattan market.

My methodology:

The results compared federal election years to non-federal election years, finding that beginning in June of an election year, sales were progressively weaker than their non-election year counterpart. The most significant difference occurred in September during an election year with a 12.7% weaker sales market than a non-election year. Beginning in November during an election year, sales overpower their non-election year counterpart, with the release of pent-up demand occurring well into the following spring.


No More Broker Fees? – When An Article Title Gives Marching Orders To Tenants To Not Pay The Commission

There was an explosion heard ’round the city when the New York Times article on Wednesday proclaimed: Surprise for New York Renters: No More Broker Fees [5]

And immediately, the “No More Broker Fees” SEO-friendly headline traveled across nearly all media outlets. There was no warning because the real estate lobby and the state legislature have an oil and water relationship. The news made its way to the deal level almost immediately as tenants were about to sign leases and were confused. Do they “violate the law by paying a commission?” Can they “save a bunch of money legally by not paying their broker?”

A google search shows how widely the Wednesday NYT was followed verbatim.

The Wednesday article “Surprise for New York Renters: No More Broker Fees [5]” was followed up with “Brokers’ Fees Fallout: Renters Are Jubilant, but Agents Are Reeling” on Thursday with the photo caption:


…as if tenants will now be getting a service for free. The problem with the titles in these two articles is they suggest that all real estate brokers are a key problem with apartment affordability – that they are somehow complicit. In reality, there will be no savings to the tenant, just a pivot on who pays for a real estate agent’s service. I will explain.

Guidance ≠ New Law
First of all, the “guidance” issued by the New York Department of State is a clarification on the rent law issued last year. This NOT a new rent law. DOS provided their opinion and I would expect a significant amount of new litigation in short order to get clarification, just like the litigation already pending.

[click to open full guidance]

The disclaimer in the above guidance clearly shows that it is not intended to provide legal advice:

The information offered below should not be used in lieu of seeking appropriate legal advice and is not intended to answer general questions by private landlords, cooperative boards, or condominium boards regarding the Acts. This guidance is subject to change and licensed professionals should frequently visit this page for important updates based on future interpretations of the Acts by the courts.

And where was REBNY? Where was NSAR? These lobbying groups and others, as well as all real estate firms, were blindsided by the New York Times’ exclusive headline.

Here are some observations in the political battle between Albany and the real estate industry that literally accounts for nearly half of New York City’s fiscal budget and the new political majority in Albany that is focused on tenant relief at the expense of the real estate industry.

No Free Lunches
Albany wants the burden of commission costs shifted to the landlords but as we know in economics, there is no free lunch. This action will drive all rents higher because landlords will have to recoup the fees paid to agents to rent their apartments. Who in Albany really thinks that tenants will get a service like schlepping tenants all over the city to find an apartment if the sales agent can’t be paid a commission? The Statewide Housing Security & Tenant Protection Act of 2019 and the Housing Stability & Tenant Protection Act of 2019 have already eliminated all the upside of being a landlord so why would the landlords be able to absorb that additional cost? Of course not. Rents are going up as a result of market forces, this time from these government actions.

As a result, tenants may very well pay about the same rent total over the course of the year. While tenants don’t pay the upfront, their monthly rent will be higher – in fact, the entire market will likely see higher rents as a result of this law. Tenants can’t play landlords against each other because all landlords are in the same boat now.

And what about Streeteasy? They are charging $6 per day for rental listings and taking 35% of the commission [8] off their “leads” program. Without commissions, could we see a surge in the per day listing cost? I’m not sure but with the whole rental process in chaos, anything is possible. I would think that Streeteasy is going to scramble and significantly expand its relationships with landlords to make up for the loss in revenue.

2018 Was A Year To Forget
– Federal “SALT [9]” Tax

2019 Was A Year To Remember To Forget
– New Mansion [10] Tax
– Transfer Tax Increase
– New Rent [11] Law

What about 2020? (with a wild guess about the odds)
– (100%) Massive litigation [12] will continue against new rent law and interpretation of the new “guidance”
– (50%) A revised pied-a-terre tax [13] might be re-jiggered in order to pass but could [14] effectively end all new development [15]
– (10%) A massive revision [16] of the existing property tax law
– (5%) Force landlords [17] who lost all upside to their investment from the 2019 rent law to sell to building tenants first.

The Anti-Development Mantra Is Expanding in NYC

After years of heavy new development volume post-financial crisis, neighborhood activists are getting better at stopping them. NIMBY is one of the key sentiments behind the pushback against the creation of any new housing that is possible with the current economics. Any new residential development is incredibly expensive and the city needs the revenue, but that’s not always in the neighborhood’s best interest. This terrific New York Times piece shows how brutal the battle really is: The People vs. Big Development [18].

[click on image to see photo gallery]

The zoning lot conceived to create this new building was mind-blowing:

[18] [18]

Getting Graphic

Our favorite charts of the week of our own making


Len Kiefer [21]‘s Chart Handiwork


Upcoming Speaking Events

Headed to Boca next week!



(For earlier appraisal industry commentary, visit my old clunky REIC [24] site.)

When USPAP Tries To Do What The Courts Should Do

I perused the latest copy of USPAP and saw a new definition on the list: Misleading.

While I appreciate the attempt by TAF to create clarity and their hard work, and appraisers need standards to operate by and USPAP should be that standard, the addition of this word to the list is symbolic of over-regulation.

“Misleading” as a word is a qualitative term and the courts will determine whether something is “intentional” or “unintentional.” In Webster’s dictionary, the word “mislead [25]” already has a negative connotation.

“to lead in a wrong direction or into a mistaken action or belief often by deliberate deceit”

With this USPAP change, appraisers should immediately be less responsive to clarifications requested by banks for obvious clerical mistakes. In other words, if the appraiser made an “unintentional” error that could reverse the meaning of a particular description, they were – by USPAP definition – misleading and that was a violation.

Why would an appraiser ever make a change in their report going forward that was requested by an underwriter? Appraising involves human beings and human beings make mistakes and we need some flexibility. What if a “comma” was missing that changed the interpretation of the description that was made? With this new definition of “misleading,” it doesn’t matter whether the appraiser unintentionally made the error or intentionally made the error. An overzealous soul could go after the appraiser for being misleading but that would be determined by the courts anyway. This new definition is just inviting problems and not protecting the public trust.

This reminds me of the idea behind appraisal standards, to begin with. Making standards more detailed and specific every two years doesn’t make appraisals more accurate or more trustworthy. There is a point where doing things like this devolve into busywork and is not helpful to the profession or the consumer. This is why I believe that USPAP should be updated no less than every five years.

I respectfully request that TAF removes this definition in the next edition and any other qualitative definitions that should be determined by the courts. Otherwise, I am going to propose new definitions for words starting with “The” “A” and “With.”

OFT (One Final Thought)

Couch surfing aside, I’m not a surfer even though I grew up on the beach in Delaware. A few years ago I read Barbarian Days: A Surfing Life by William Finnegan [26], the winner of the 2016 Pulitzer Prize for Autobiography and developed a new-found appreciation and respect for the sport (even though there is no way I will take it up). There really is something about the search for the perfect wave that the book is able to convey.

Brilliant Idea #1

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Brilliant Idea #2

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See you next week.

Jonathan J. Miller, CRP, CRE, Member of RAC [28]
Miller Samuel Inc. [29]
Real Estate Appraisers & Consultants
Matrix Blog [30] @jonathanmiller [31]

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