Real Estate, For The Love Of Vodka And Property Rights

January 8, 2007 | 12:01 am | | Favorites |

Over the holidays, there was an article on Moscow real estate in the New York Times that I found completely amazing (no, not because the author used my stats or that I have a phone call to Moscow on my phone bill) but because it discussed some of the quirks of Moscow real estate.

I was on hiatus from Matrix for the last week of the year when this story ran and it was extremely difficult not to stop shopping for my loved ones (and of course, me) as well as blog about the story. A Price Run-Up For Run-Down Communes piqued my interest.

Apparently, it is considered a wise practice in Moscow to have a doctor’s verification for both the buyer and seller of a property that they were not intoxicated at the time they agreed to the transaction. In other words, a buyer of a property could be approached years later by a seller and claim that they were drunk at the time of the sale and get the property back.

Residential real estate deals are often accompanied by a peculiarly Russian type of due diligence, where buyers ask doctors to certify, at the time of signing, that the seller is sober. It is not an empty precaution: Former owners returned years later and persuaded judges to void deals on the grounds they were on a bender at the time of the closing. This protection for the inebriated is written into Russian law.

In these cases, Yulia Matygina, a Moscow real estate lawyer, said, “The buyer loses the apartment.”

I was always taught to believe that alcohol reduces inhibitions and to sit through a real estate closing without remembering what you signed or agreed to should appear pretty obvious to the other people there. I find it amazing that witnesses couldn’t be used to vouch for the soberness of the parties while at the closing or that lawyers there were not on the hook somehow.

Its a sad statement on legitimizing alcoholism in Moscow as a legal excuse for irresponsible behavior and seems to indicate that alcoholism is a pervasive problem in Moscow and deeply rooted in their culture to have it made part of real estate law. I see property rights as fundamental to civil society and the Moscow example goes way over the line.

Its also reminded me (yes, I really am sober) of the writings of economist Hernando de Soto and his interview by the Federal Reserve Bank of Minneapolis.
He argues that structured property laws are a powerful economic framework for a country to be built on. Its a great interview – highly worth reading.

Economist Hernando de Soto argues that

five-sixths of the world’s population holds the answer to its poverty in its own hands—its property—if only this property were recognized by the government and legal authorities.

The question of why these different countries are more prosperous than the others has always been in the back of my mind. I find it one of the most intriguing questions to consider.

In other words, if property rights were consistent and recognized by governments, it is his position that much of the world’s poverty would not be as severe and by inference, in the case of Moscow, not as inebriated.


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In Good Times and Bad, Negative Milestones Often Define The Real Estate Market

January 11, 2006 | 9:48 am | | Favorites |

Theory of Negative Milestones

Explained

I was writing another post about the housing situation in New Orleans and I kept coming across the phrase “post-Katrina” as in “post-Katrina policy landscape” [NYT] and it struck me how much negative economic or natural disasters help define a new period for the real estate market.

It gives people the ability to sweep away everything that occurred prior to the event and see things in the current market with a little more clarity. At that moment, history plays a lesser roll in defining how the current market is behaving.

It can also be a stressful period because, like most markets, buyers don’t like the unknown. When economic parameters change or are likely to change because of an event, it takes a while for participants to get used to the new rules. Its a delicate moment in time when buyer/seller psychology is at its weakest or most raw and the potential for misinformation is most high.

I find this whole concept this akin not to asking when it comes to real estate, “what were you doing when Neil Armstrong stepped on the moon?” but rather “where were you when the plane hit the north tower on 9/11?”

The irony is that the whole idea of real estate exudes optimism, hope, success, growth, shelter, safety and opportunity, but the events that define it are most often negative.

Here’s a list that helps define my interpretation of the real estate market after 20 years in the business. Some are more specific to New York City because that is where I work and there are certainly other milestones to consider. It also seems to me that the milestones are getting closer together, but that might just be only because they are fresher in my thinking.

Negative Milestones

  • October 19, 1987 stock market crash
  • 1990-1991 recession
  • August 1998 stock market correction
  • February – March 2000 NASDAQ correction
  • June 2001 entering the recession
  • 9/11
  • March 2003 – start of the Iraq War
  • June 2004 – Fed starts raising federal funds rate
  • August – September 2005 – Hurricane Katrina and Rita

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In The Trenches: Appraisal Inspection Stories

November 11, 2005 | 10:18 pm | Favorites |

The New York Times approached our firm to provide some “war stories” about unusual property inspections. No names, just experiences. We had a bunch of fun jogging our memories. However, the writer decided to present the story from the perspective of real estate brokers [NYT] which was a fun read so I thought I would make my own fun and share a few stories from my staff and myself with you:

Michael J. Grassi

  1. It was mid February and I was doing an inspection of a home. It was a very frigid day and I asked the owner if I could see in the garage. He was not all that happy about my request. I told him it was part of doing a complete inspection and he reluctantly opened the door. I came to find that there were two people living in the garage with no running water or heat. They were staying warm by using a Weber kettle grill and charcoal. They had cut a hole in the roof for a vent. Not ideal living conditions even by New York standards.

  2. While doing an inspection in Jamaica, Queens I asked the owner if I could go down to the basement and if I would disturb anyone. No was the reply by the owner. I went down into the dark basement with only minimal light from a window. When, I reached the bottom step, I heard a growl and saw a massive head with two large orange eyes. As I slowly backed up the stairs heart pounding, sweat dripping, I got to the top step and asked what that was down in the basement. Oh!! the owner said casually, you mean our watch dog. This dog was a 180+ lb. Rottweiler, who looked very under fed. Thanks for the warning I said.

  3. During an inspection of a multi-family dwelling I came across a most unusual sound. As I moved into the basement I noticed a foul smell which was pungent but not overwhelming. While in the basement I heard what sounded like a distant toilet flush from above. As I stood listening, I heard what amounted to the sound of a waterfall getting closer with a splash at the end. Apparently, there was a large hole in the sewer pipe and the waste water was dumping right into the basement, not ideal. The landlord who was with me was mortified. I needed a shower and shoe cleaning after that inspection.

Lea Freund

I was appraising a museum and the summer intern took me around the place. I think it was in the fall and I decided to leave my jacket, bag and cell phone in her office. Just as we stepped out onto the roof, the door closed behind us and locked. . . We did find a set of stairs that led down to an enclosed alley, and the doors on each floor were locked. Finally, we got to the ground level and we started banging on the door quite loudly. It took a while, but security opened the door and said they were completely frightened by the noise.

Dina Miller

I went to an inspection, the maid let me in. The husband had made the appointment. Both husband and wife were at work. The apartment was spotless and in beautiful condition. The wife calls the housekeeper by phone and asks to speak with me. Her first words are “Get the HELL out of my apartment. The maid hasn’t finished cleaning and its a mess”. I explained to her the apartment really looked fine and her husband had made the appointment. She said we’ll see about that…Then I had to conference call with the husband and the wife who continued to rant that I need to get out, her apartment wasn’t clean. When I hung up the maid said “You know she has a daughter. The daughter is just like her. You want some wine?”

Andrew L. Rogers

I went into an apt in Harlem. there were cages for large dogs, but no dogs and cats all over the place. the maid was there and said she didn’t know where the kittens were. we went down to the basement and in one room that was littered with debris there were flies buzzing all about, we assumed that the kittens were dead underneath the rubble.

Jonathan J. Miller

  1. I met a couple on a very large property inspection that stayed with me (very much in my personal space) for the entire inspection, yet both screamed strong insults and innuendos at each other for the hour I was there while I kept saying “perhaps I should come back at a later time” or “please, I am having a hard time concentrating” hoping they would leave or stop, but they would both say “oh no take your time” seemingly oblivious of what they were doing to each other (and me). I called my wife after the inspection and told her I loved her.

  2. I was given the keys to an apartment. When I opened the door, the apartment was completely dark. I thought I saw someone sitting on the couch so I called out “Hello”, but no answer. I finally found the light switch and saw a nude woman out of the corner of my eye in the mirror looking at me. I was startled but then realized it was a female mannequin propped up on the couch. I continued with the inspection, and was startled by yet another mannequin standing behind a door in a dark bedroom. I was definitely creeped out. When I called the homeowner later for info, I mentioned this to him and he laughed and told me their names as if they were real people.

  3. At the end of the day, I had to inspect an apartment for an estate. The property seemed to be lived in with dishes in the sink, magazines strewn about. The apartment was very large and didn’t have a lot of natural light. It was getting dark and as I worked my way toward the rear of the apartment, I began to hear two men speaking very softly from the back of the apartment. I called out and the talking stopped for a few seconds. Then it continued. I became very uncomfortable and felt a chill down my spine. I called out again with the same result. I finally arrived at the rear of the apartment and found a small radio playing on the floor of a closed closet door. I finished up and got the heck out of there.

  4. As a broker was taking me in to inspect a condo unit in a relatively nice building in Chinatown, he mentioned to me in passing “this apartment needs a little work.” He opened the door and the cigarette smoke was so thick, I could not see across the room. I literally had to duck down to see where I was going. It was a studio (one room) apartment and 6 chain smoking brothers were living there after their mother had died (it had been her apartment). There were about a half dozen cages with live chickens and all the walls were smeared with their mother’s feces as she had suffered from some psychological problems before she had died. Needless to say I didn’t touch anything and got outside as soon as I could.

Got any of your own stories? Share ’em!


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