Big Bathroom Data, Big Housing Results & Big Media Spamming Appraisers
In my opinion, the summer doesn’t really start until July 4th. No disrespect to Memorial Day summer purists and what that holiday stands for, but most kids are still in school after Memorial Day. I’m not sure if everyone had the same weather as we did in NYC metro but the July 4th 4-day weekend was amazing. Time with friends and family made it even better.
From Wednesday when I returned to work up until now as I sit and write this on Friday morning, I remain unabashedly groggy with relaxation (this is an apology in advance for typos and poor grammar). While July 4th was our nation’s birthday, July 5th was the 80th birthday of spam. And I learned something new: The name “spam” comes from “spiced ham.” I needed to get the word out as well as make a reference to the global cyber attack in my discussion of the Manhattan housing market later on as well address the spam-like attack on appraisers in the Appraiserville section below. Incidentally, one-third of U.S. households have a can of spam. Here’s this year’s 15-second Super Bowl ad that probably cost more than the equivalent of 1.25 million cans – I did the math.
Here’s the fried version.
And of course, here is the Monty Python version (I still have that Lobster Thermidor reference memorized from my teen years – test me when you see me in person).
But I seriously digress…
Blue Bathroom Valuation, The Junk Statistic That Won’t Go Away
Remember when I brought up the topic of valuing blue bathrooms a while back? There was an incredible blog post written by Salil Mehta over at Statistical Ideas on this very subject called: Zillow misestimates, despite Big Data. I added his site to my RSS feed and will hang on by my fingernails as I get more informed every day.
Of course, Zillow has improved their model substantially in recent years, but it is still significantly worse and often completely futile versus a human realtor estimate and Zillow has modeling accuracy that makes their home resale suggestions untrue (how do hey know what are the marginal drivers of price when they frequently have >40% errors?) Realtors tend to gauge the local nuances and flow data better, and interpret estimates that are far closer to the actual selling price.
In other words, Zillow’s big data modeling projects a nuanced precision that does not exist.
And he mentions a point I brought up:
Leading housing consultant Jonathan Miller reviewed these findings and agrees with the difficulties for Zillow estimates in dense cities, for example, those with a towering skyline: “A 3rd floor condo in Manhattan called 3A and the exact same unit on 33rd floor in same building called 33A can’t be distinguished in value.”
Here’s a subsequent article on the topic if you’re interested.
Oh, by the way, your name correlates with how valuable your home is…according to Zillow. I’m not sure why they continue to push out these misleading “fun facts?” They have such strong economic analytic firepower from good people yet insist on stat junk. I love to have fun with numbers as much as the next person, but it is important to convey the meaningless nature of it as a disclaimer so consumers don’t just run with it.
This just in: Get educated on your name’s impact to your home value a la Zillow:
Manhattan housing irony: luxury sellers cut prices to set new records
Real estate firm Douglas Elliman published our research on the Manhattan sales market yesterday in the Elliman Report: Manhattan Sales 2Q17 and our submarket report which overlaps the content known as the Elliman Report: Northern Manhattan Sales 2Q17. This is part of an expanding series I’ve authored for 24 years (gulp). Heavy press coverage of the report this quarter.
If you haven’t noticed, there is a lot going on in the world these days and a lot of it is stressful. So even with all the global distractions, it is good to know that Wall Streeters love their real estate news. Bloomberg’s coverage on the Manhattan market was the 7th most ready on their terminals worldwide yesterday when the report was released.
And the chart they presented had perhaps the most telling characteristic of the market. Sellers, especially at the higher end (luxury market defined as top 10%) are traveling further to meet buyers, who generally aren’t budging. So in effect, larger discounts from silly high asking prices resulted in new sales price records.
Here are a few charts from our web site gallery.
Here is an interesting long term trend for Northern Manhattan, defined as north of West 116th Street, Central Park, and East 96th Street.
The market share of co-op and condo sales over the past 30 years continues to rise. It is about 4x the share seen 25 years ago.
Where Are The Global Hotspots for High-end Housing?
Remember that the 15% foreign buyer tax from the province where Vancouver is located has shifted demand to Victoria (and Seattle). Taxes like this modify locations of such purchases but don’t stop them. It has shifted the problem to other locations.
The Acronym Wars: What’s in a neighborhood name?
Every few years, there is WSJ coverage of a local neighborhood leader in some northern Manhattan neighborhood fighting against gentrification acronyms as an insult to the existing residents. I appreciate and respect this position but at the same time, I don’t quite understand it. I have always seen neighborhood boundaries, housing stock, residents and conditions as something in a constant state of flux over the hundreds of years of Manhattan’s existence. Neighborhoods are not a static entity. The latest offender was the use of the acronym Soha as in South Harlem. The leaders were able to get results and a real estate agency removed the Soha reference in their signage.
Redfin Goes IPO
I’ve never been quite able to figure Redfin out. They changed their original model from cheap commissions and use of “show-ers” instead of agents to something more traditional. I find their website generally better than Zillow as I do their valuation tool (it’s less but still terribly inaccurate. Now they are looking to raise more money so we will gain additional understanding of what makes them tick.
Here are a couple of solid thought pieces on Redfin, especially Rob’s.
- Random Thoughts on Redfin Going Public [Notorious ROB]
- Six things to know about the real-estate company Redfin before it goes public [Marketwatch]
The appraisal profession needs PR. We literally have none. This week it was clear that my profession was under siege by ignorance from those I just assumed were informed. It now makes me questions anything else they might have said in the past. Real estate appraisers in the trenches, especially those in my residential world, have been quiet since our dawn of existence until the past year. It is time for all of us to respond to these inaccurate depictions:
These were my favorites of the week…
Homebuyers who pay cash win deals as appraisals derail sales in tight Chicago market [Chicago Tribune]
No appraiser interviewed
Story hook about the $5k buffer yet doesn’t disclose whether the value actually came in low.
I didn’t think it was possible to cram so many appraiser stereotypes into one article [sarcasm].
- We are old, behind the market and aren’t keeping up with the rising prices
- There is a shortage of appraisers
- We are conservative because the banks tell us to be
- We don’t want to be held responsible for appraising the sales price
- We want protection so giving us a signed letter attesting to the value for our files
- Appraiser is a blip on the way to buying a home
Appraisers May Be Holding Back The Housing Market, And That Might Be Okay [Forbes]
The econ blog Modeled Behavior writes a piece for Forbes that sees appraisers as keeping the housing market get out of hand. He does note that there isn’t data on this, just conjecture.
No interaction with appraisal profession noted
- Appraisers are very conservative in the wake of the housing bubble and are effectively keeping prices below their market levels.
- Banks are more likely now to outsource the process of hiring independent appraisers to so-called appraisal management companies
- Appraisers who lived through the housing bubble may be more conservative about what kind of price movement is reasonable
When is a broker’s price opinion better than appraisal? [Chicago Tribune]
The author presents the very idea that Zillow and Redfin can give you a sense of what your home is worth sends me off to la la land. He says BPOs are used by banks for short sales to save $100 for the additional appraisal fee since they are already losing money on the foreclosure. LOL.
No shared insights from appraisal professional
- Professional appraisals are expensive ($100 more than a BPO!)
- Professional implies more information than just the number
- Appraisers do drive-bys on motorcycles
The latter point nailed it for me. Then imagine if the appraiser was wearing flip-flops on that motorcycle drive-by? What a lack of professionalism. Definitely, save your money and get a Zestimate.
Zen and The Art of Real Estate Appraisal [Appraisal Buzz]
I included this article mainly for the comments near the bottom of the post. The idea that there is a zen or art to appraising allowed in an AMC dominated residential appraisal world is an ancient, dated concept.
When you get review appraiser questions like:
- Why did you use comp 3?
- Justify your adjustment for [fill in the blank]
It has become a mechanical process where experience has limited value and abstract concepts have no real worth to the 19-year-old gum chewer that is calling you for the status of your report for the second time that day.
A Brilliant Idea
If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes. And be sure to share with a friend or colleague if you enjoy them. They’ll break out the spam, you’ll light a leftover firecracker and I’ll cook up some Lobster Thermidor.
See you next week.
Jonathan Miller, CRP, CRE
Miller Samuel Inc.
Real Estate Appraisers & Consultants
Reads, Listens and Visuals I Enjoyed
- Fat tail Zillow errors [Statistical Ideas]
- What on Earth Is Wrong With Connecticut? [The Atlantic]
- Is the Fed Driven by Data Or Metaphors? [Barrons]
- Six things to know about the realestate company Redfin before it goes public [MarketWatch]
- Open Houses Fizzle for Manhattan Condos and Co-Ops [WSJ]
- Milwaukee's Famed Boat-Shaped House Floats Onto the Market for $389K [Realtor.com]
- Study: When retail stores close down, neighborhood crime goes up [Curbed]
- Posh West Village penthouse goes for nearly $31.5M [New York Post]
- Two major lending changes mean it's suddenly easier to get a mortgage [CNBC]
- Conquering the market in Queens [The Real Deal]
- StreetEasy will play hardball in battle with REBNY. Here’s why [The Real Deal NY]
- How a Co-op Divvies Up Its Shares [NY Times]
- ‘SoHa’ Is a Renaissance Few in Harlem Want [WSJ]
- Random Thoughts on Redfin Going Public [Notorious Rob]
- Chart: Where are the Ultra-Rich Buying Luxury Homes? [Visual Capitalist]
- Looking Around: Introduction to Floor Plans [McMansion Hell]
- In New York, a Neighborhood Makes a Pre-Gentrification Plan [Nextcity]
- Helping Those Who Hoard [NY Times]
My New Content, Research and Mentions
- Condo Supply Swells in Manhattan [WSJ]
- 曼哈頓房市趨冷 售價折扣5年新高 | 世界新聞網 [World Journal]
- Manhattan home sales had a brisk quarter [Crains New York]
- Matrix Blog: NeighborhoodX: In praise of secondary cities [Miller Samuel]
- Zillow misestimates, despite Big Data [Statistical Ideas]
- Public Transit: The Fast Track to Rising Real Estate Prices [Realtor.com]
- Average price of a Manhattan apartment is now $2million [Daily Mail]
- Happy Medium on the East End [Long Island Pulse Magazine]
- Manhattan Residential Sales Remain ‘Surprisingly Robust’; Buck National Trends [GlobeSt.com]
- Healthy living the luxury condo way [NY Post]
- Manhattan Apartment Prices Hit New High Of $2.19 Million [Forbes]
- Manhattan Home Sales Surge as Cuts Bring Prices to Buyers' Level [Newsmax]
- Sellers Chop Prices and Buyers Feel Less Urgency as NYC Real Estate Cools [DNAinfo]
- TIL Central Park's estimated real-estate value is over $500,000,000,000 : todayilearned [Reddit]
- Central Park: Because We Wouldn't Trade a Patch of Grass for $528,783,552,000 [NY Mag]
- Matrix Blog: Central Park: No Price Can Be Attached To The Center Of The Universe [Miller Samuel]
- Manhattan apartment prices hit record, averaging $2.19 million [CNBC]
- Manhattan apartment prices are at an all-time high—again [Curbed NY]
- Douglas Elliman Releases 2Q 2017 Manhattan Sales Market Report [PR Newswire]
- Manhattan apartment prices hit new record high [MPA Mag]
- Manhattan resale inventory fell for the first time in 3 years in Q2 [The Real Deal NY]
- Manhattan Luxury Units See Price Cuts While Bidding Wars Rage Over Homes Under $1M [Mansion Global]
- Manhattan Home Sales Surge as Cuts Bring Prices to Buyers’ Level [Bloomberg]
- Commission competition ramps up [The Real Deal NY]
- Follow the trend and buy in northern Manhattan [am New York]
- Brooklyn's Most Expensive Home Has Ties to Russian Socialite [realtor.com]
- The $165m home in Palm Beach, Florida — and other bargains [FT]
Appraisal Related Reads
- Homebuyers who pay cash win deals as appraisals derail sales in tight Chicago market [Chicago Tribune]
- Smoking pricing crack, era charm, & blaming appraisers [Sacramento Appraisal Blog]
- 10 Appraisal mistakes new agents make and how to avoid them [Birmingham Appraisal Blog]
- Appraisers May Be Holding Back The Housing Market, And That Might Be Okay [Forbes]
- When is a broker's price opinion better than appraisal? [Chicago Tribune]
- Oregon Establishes Statute of Limitations on Appraiser Liability [Fox Rothschild]
- Federal regulators mull appraisal-free mortgages for some loans [OC Register]
- Zen and The Art of Real Estate Appraisal [Appraisal Buzz]
Extra Curricular Reads
- Are goats taking jobs from union workers? [Detroit Free Press]
- Meatballs: An Oral History [Vanity Fair]
- Don't Confuse Valuation With Public Embrace of Tech [Bloomberg View]
- Fade the Great Rotation into Europe [The Institutional Risk Analyst]
- Echoes of Wall Street in Silicon Valley’s grip on money and power [FT]
- Pink Floyd’s Drummer Is the Warren Buffett of Classic Ferraris [Bloomberg]
- NASCAR 1969 Flat Out [Youtube]