Thursday, November 20, 2014

Let's just stay in and talk to the house


Let’s just stay in and talk to the house

As the holidays are just around the corner, every new gadget imaginable (and some not imaginable) are being advertised as the next “can’t live without it item”.  Whether it be a bigger iPhone, a smaller iPad or a watch which is really a phone/computer, it gets very confusing after a while.  OK.  So you are wondering what does this have to do with real estate.  Actually, everything.  After all, what is a home if not your refuge from the outside world, where you can allow your stress to fade away and you can enjoy all the modern conveniences of today’s world. 

 

With that in mind, let’s look back at some of what the last 100 years have given us. 

 

The car, which led to the detached garage, which also served as a workshop, which led to the attached garage, which led to the convenience of garage door openers since no one wants to actually get out of the car, eventually leading to third car garages because life is not the same unless everyone and the dog has a car, which inevitably led to the bonus room since there was no longer any workshop space in the garage with all these cars.

 

Electricity, (I know, it was in use over 100 years ago, but humor me here), which led to the light bulb to CFL bulbs to LED bulbs.  And then to appliances, from iceboxes to microwaves to convection ovens.  Let's also not forget about air conditioning (God bless air conditioning – nuff said).   And who can forget furniture size radios, leading to black and white televisions to color televisions to flat screens to Playstation and Xbox, to 3D to Netflix on curved screen ultra HD televisions.  And, now, back again to cars (see Tesla).

 

Plumbing.  No going outside for water anymore.  No going outside, either.

 

The point is, we live in a world of exceptional change, but we are relatively immune to all The home modifications that have been occurring around us throughout our lifetimes.  We take for granted all the differences from the housing our grandparents grew up with.  There was no cable, nor clickers for the television.  Heck, now you can even just waive your hand to change channels.  Meals were family events, partially because you had no microwave to quickly heat up and prepare food.  Heat was sometimes provided by coals under the beds (okay, I may be going back another generation or two here – but I remember seeing them.)

 

Looking back to all these changes, I am sure that the housing of our children’s children will be vastly different than what we live in today.

 

Anyway, these are just my observations.  Don’t take my word for it.  Give your grandparents a call on their house phone. Then again, they may no longer have one.  You will have to settle for Skyping instead.

 

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

Monday, February 24, 2014

Real Estate Physics


Real Estate Physics

There are certain principles that we hold to be unalienable truths.  A unit of mass at rest will stay at rest.  A unit of mass in motion will stay in motion.  These are basic rules of physics.  If A happens, we know B to be true.  Unfortunately, the laws of physics will never apply to real estate transactions.

When buying a home, an individual will feel it is their obligation to negotiate the price.  Regardless of whether it is a buyer’s or seller’s market, a buyer will always search to see what room there is for negotiation.  Other than automotive sales, it is the only industry where it is an accepted norm to haggle on the price.

The funny part, though, is this same logic does not apply when they turn around years later and try to sell.  The same person that felt the home they were buying was overpriced at purchase will then  try to top the market for the highest possible value when they try to sell it.  Additionally, they will often get indignant when someone new attempts to haggle and offer a lower price.

Why does this happen?  Why does the mass at rest not stay at rest?  Why must we feel the boulder should roll uphill when we find ourselves as the ones now forced to push it?  I find the answer to be as simple as personal attachment.  As opposed to other retail purchases such as televisions and appliances, we find ourselves exceptionally attached to our homes.  It is like a pet.  It is a reflection of ourselves.  We have poured our souls into them.  Many celebrated life events occur there.  Our kids are born and raised there.  We improve our homes to reflect our changing personal circumstances.  Get a raise, redo the kitchen.  Your child graduates high school or college, throw a party.  You become empty nesters and have the home alone for just you and your spouse?  Well, that’s a story for a different web site.  Anyway, people tend to treat their homes as if it is a business for sale instead of an asset for sale.  They feel there is a degree of personal goodwill that has value above and beyond the sticks and bricks that should be readily apparent to every buyer that comes through the door.

Unfortunately for the seller, there is no extraneous goodwill in the sale of real estate.  George Washington did not sleep in your home.  Neither did Bill Clinton.  In fact, the day someone decides to sell their home, they need to realize that it stops being their home.  Whether they like it or not, they need to look at their residence through a very dispassionate lens.  They need to stage the house to make it acceptable and attractive to the greatest number of buyers.  Paint the exterior a more neutral color.  Get rid of the kids’ height markings on the laundry room door.  Clean out the garage.  Personal memories need to be boxed up.  No one is buying someone else’s nostalgia.

This, though, is easier said than done.  The emotional detachment you displayed for your purchase is difficult to accept on your sale.  Human nature does not have the same principles as physics.  If it did, though, we may all find it easier to buy and sell homes.

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

 

Monday, February 17, 2014

Mother Nature Big


Mother Nature Big

OK Florida developers.  This blog is for you.  Now is the time to reap what you sow.  You have never had a better opportunity to blow away your sales targets with out of town buyers.  Savvy developers know how to follow up on a major advertising campaign.  Offer incentives, giveaways, throw a party.  The point is to get customers through the door while your product is fresh on their minds. 
 
So, what are you all waiting for?  Mother Nature just put your marketing campaigns in bright lights, brought you mainstream to the entire country.  She gave you a first class, “A” rated advertisement for the sunnier climes.  And she did not just advertise up north where it is historically cold.  She even gave you a front page spread in the mid-south and all points in between, like the Carolinas and Georgia, where snow is as common as sundresses in January.  And what are you doing about it?  NOTHING.  Sure, you may be giving lip service about how the bad weather will cause people to move.  You may even take out a regional newspaper ad or put something on the radio or TV. 
 
Big deal.  Think bigger.  Think Mother Nature Big.  You need to not only roll out the red carpet, you need to paint the major highways red.  Physically red, using big cans of paint, directing them where to go.  Show them the path the whole way down south.  Free meals at every Denny’s and Cracker Barrel along the way if you buy a home right now.  Send a plane.  In fact, send a fleet of planes.  Let people know their flights are waiting on the tarmac.  First come, first served.  Free flights.  Hand out floral shirts and plaid shorts and tell them they look good.  Black socks, sunglasses and big hats too.  Let them know that never ending sunshine awaits.  Pay no attention to those who say they are afraid of hurricanes.  Really?  It seems like their recent winters of discontent have been on par with our stormy summers.  The last time I checked, the hurricanes played no favorites along the east coast, either.  Just ask those from New Jersey who are still feeling the effects from Hurricane Sandy.  Send buses.  Reroute trains.  It can be the mother of all parties.  Pour lots of fruity drinks with little umbrellas in them.  Put orange slices on the highballs.  Let them know they can grow those same oranges in their backyards.  Have a bonfire party.  Let them bring all their winter coats to throw on the fire.  It can be the world’s largest weenie roast.  Tell them to forget the Yankees and the Cubs.  The Tampa Rays have been better anyway.  They don’t have to worry about how bad their hometown football teams are, either.  We have three mediocre pro football teams right here that they can lament over.  You want winning football?  Follow the state’s college programs.  We even have two pro hockey teams.  Give them nice warm sweaters to wear to the games to ward off the chill from the ice.  Whatever it takes.  This is your chance.  Think big.  Mother Nature Big.

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

 

Wednesday, February 12, 2014

A not so perfect world


A not so perfect world

In a perfect world, a home will always be built on time and to a 100% quality standard.  Unfortunately, we do not live in a perfect world.  Forced to sometimes choose between a stated delivery schedule and meeting a defined quality standard, what would you do?

You may have a contract that states an anticipated delivery date.  While the date is written as a soft timeframe with more disclaimers than you care to remember, a buyer will look at that date as cast in stone.  That date, while still qualified, is then most likely reinforced by the builder during his conversations with the buyer.  Additionally, the buyer will probably be making arrangements based on that closing date, scheduling moving trucks, furniture delivery and family gatherings.  On a positive note, you can probably get away with changing the delivery date up to 30 - 45 days prior to the estimated closing without causing too much heartache.  After that, you may have a real problem on your hands and you may have to consider eating the cost of accommodations and storage expenses to reduce the inconvenience to your buyer.

On the quality side, you may find yourself in a bind if the home will be completed on time, but it does not meet the fit and finish standards that your buyer is expecting at the delivery of their home.  A buyer should always expect the same level of quality in their own home that they see in the model homes.  You also want to minimize quality issues to reduce the level of warranty work that needs to be done to a home right after closing.  No one wants to have to perform quality repairs after delivery with residents living in the home.

The question, though, was what will you do if you are forced to choose?  My choice would be to maintain quality over delivery.  You may be able to make up for the inconvenience of a delayed close by taking a monetary hit to resolve the timing inconvenience.  However, you can rarely, if ever, recover from a lapse in quality.  First, if there are issues at closing, I guarantee you that the buyer will subsequently find a dozen more perceived deficiencies with the home whether they truly exist or not.  You have already planted the seed for poor quality in their heads and they will be looking for reasons to reinforce their negative perceptions.  Second, they will absolutely tell all their friends about how disappointed they are in the quality of their home and how they have lost faith in you as a builder.  If you are late in delivery, you can go over the top to work to make it up to them.  If the quality is poor, they will always feel like they are living in a substandard home.

Neither option is good.  Life, though, is not always fair and there will be times when you have to make difficult decisions.  My decision is to always err on the side of quality.

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

Monday, February 3, 2014

An elephant never forgets


An elephant never forgets

With the real estate industry seeming to be on a bumpy road to recovery, I would like to focus some attention on the trades.  You know, those individuals that make everyone else look good by being the groups that are truly responsible for the quality and increasingly energy efficient housing that is rising like a phoenix from the ashes of the housing crash.

The problem is, there are fewer sub-contractors out there that are able to take credit for this work than had been present five or ten years ago.  It seems that when housing starts decreased, so did the trade base.  However, unlike the housing rebound, the trades have been slow to ramp up and join the party.  Whether that is because they are waiting to see if this rebound is sustainable, or whether individuals have chosen to pursue other career paths does not really matter.  The fact is that there are presently more seats at the homebuilding party than there are participants ready to sit at the table.

Obviously, this has resulted in a bargaining position shift between the builders and the trades.  Where trades had previously needed to sharpen their pencils to the breaking point just to stay in business, they now have the ability to not only raise prices, but to also pick and choose those builders that they want to do business with.  And, make no mistake about it, the trades have long memories about who treated them right and with respect when times were tough and who did not.

So, what does this mean?  As with any economic imbalance, there is a window of opportunity at present where the trades have the ability to raise prices and demand more favorable payment terms.  This will, in turn, trickle down to higher home prices, and, possibly, a bit of a slowdown in the short term housing recovery.  However, it will also result in growth among the sub-contractors as existing businesses grow and new business pop up.  The lure of expansion and rising profits will bring costs down and create a more stable trade base equilibrium over time. 

The main question is how long will this take and what will be the fall out.  It is possible that homebuilders that had squeezed their trades in the past will find their expansion objectives derailed by lack of a currently consistent trade base.  Conversely, those builders that have had, and presently show, a willingness to work more favorably with the trades, may find themselves better positioned to garner the attention and services of a presently limited base of sub-contractors. 

They say that times of growth are times of opportunity.  I say that those that recognize growth to be a team effort will be the ones that reap the true rewards of a recovery.  In truth, the homebuilders that are the quickest to recognize and react to those who hold the leverage during this time of sub-contractor imbalance will most likely be the ones that best position themselves for a steady rebound.

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

Monday, January 27, 2014

Stay cold and stay wet


Stay cold and stay wet

From here in the south
I follow the charts
Not stocks or investments
But weather in parts

I chuckle with glee
At the ice and the snow
As the people will think
They have nowhere to go

But they do, they have choices
The options are clear
Come down where it’s warm
Most times of the year.

But wait they will say
The timing has past
The prices are rising
The bargains won’t last

So they wait and they shovel
As the snow piles high
So close it near touches
The gray clouds in the sky

The excuses then mount
Little land left to build
The traffic is terrible
And the food is no good.

The same excuses were used
In recessions of past
The condo crash in the 70s
Overbuilt housing this last

But they miss one small point
Some things never change
Southern migration did slow
But will rebound just the same

As Florida is poised
To become the third state most populous
It replaces New York
That old staid metropolis

Where housing is expensive
And taxes are high
They will soon come to realize
As their days pass them by

That the bargains remain
You get more for your money
When you trade in up north
For the lands warm and sunny

And soon all will forget
The sales bust and the scare
As they swap out their rain boots
For shorts and swim wear

The masses will follow
As they read tweets from their friends
I haven’t shoveled snow in a year
I don’t even pretend

Sales and prices will rise
But no one will care
The market will dictate
What is just and is fair

So stay cold and stay wet
Watch the snow in the light
The next boom is coming
Soon all will be right.

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

 

Monday, January 20, 2014

Looking good from here


Looking good from here

I have been reading how, over the past few months, new home sales have been having 20+% increases since last year and how the pace of new single family home sales is now at an annualized rate of about 464,000 yearly sales.  Woo hoo, great news!  However, I wanted to evaluate this current increase and sales pace historically.  Coupled with my favorite web browser, I was able to visit the census.gov/construction website and review new home sales over the last 50 years. 

Interesting data on this chart.  We all know that new home sales peaked in 2005 when people had nothing better to do with their money than to bid up the prices and sales pace of new homes to the tune of 1.283 million single family homes that year.  Almost three times the pace of 2013.  We also know that the years 2000 – 2002 reflected a more stabilized price and sales pace for new home sales.  During that three year period, new home sales increased from 877,000 to 908,000 to 973,000 single family homes.  Looking at the current 2013 yearly increase with this historical lens, it is somewhat refreshing to know that we still have about 100% to go just to get back to the last normal pace of new home sales. 

To put an even greater perspective on the current sales pace, before the recent downturn, you have to go back to 1981 and 1982 to see absorption levels below 500,000, when they were at 436,000 and 412,000 new home sales, respectively.  Before that, you have to look to the years 1966 – 1970 when sales hovered between 450,000 and 480,000 homes.  I guess the free love period did not translate to buying a new home to find your own room.  Even going all the way back to 1963, there were 560,000 new single family homes being sold.

Let’s look at the current sales pace another way.  Assume no homes are sold in the 10 least populated states and that all 464,000 new home sales are just spread among the remaining 40 states (Sorry Wyoming, Alaska, Montana, the Dakotas et al. I need to make a point).  That means each of these 40 states only averaged 11,600 new home sales per year.  Or 967 homes per month, or 32 homes per day.  In Florida, the Villages alone, the top selling community in the US, sold over 3,400 homes this year.  Obviously, there is room here for national growth.

The point is, as the housing recovery continues, do not get caught up in talk that the new home sales pace will slow as interest rates and home prices continue to rise.  Barring a new unforeseen economic meltdown, this puppy is just starting to rev back up again.  I am not saying we are going to get back to 1.283 million new home sales again anytime soon.  However, there is a long way to go before we even begin to reach what should be a return to normal levels of stabilization.

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

 

Monday, January 13, 2014

Breaking up is hard to do


Breaking up is hard to do

Do you live on a golf course?  Would you like to?  Staring over manicured green fairways as your property abuts up to the course.  Or does it?

Let’s take a step back and review the development process of a golf course that meanders through a residential neighborhood.  During the planning process, you not only have single family lots and golf course acreage.  You also have HOA property that often acts as a buffer between the golf course and residential lots.  Typically, this little love triangle is not problematic when the original developer owns the lots, the golf course and controls the HOA.  The problem, though, comes into play when the developer chooses to sell the golf course. 

You see, a funny thing happens when the golf course is sold.  The buyer wants to actually know exactly what they are purchasing.  This is where the problems can occur.  Unless the lots clearly abut the out of bounds areas of the course, it can get confusing as to who owns what.  Are certain areas clearly marked as HOA lands?  If so, can they be easily accessed after the course is sold?  Are the plats clear as to ownership?  Has the survey been done correctly?  It sounds like a simple process.  However, I can tell you that it is one of those things that tend to slip through the cracks until various ownership groups come into play.  Are there any irrigation separation issues?  Have the golf course and HOA budgets clearly accounted for maintenance expense of the potentially disputed areas.  The list goes on.

In the end, the issue is typically resolved.  However, as with any dispute, there is usually some blood that is spilled on all sides.  As easy as it is to let this issue slip during the early years of a community development, it would serve all parties best interests to make sure that the appropriate time is spent after the golf course is complete to walk the course, identify what is golf course maintenance and what is HOA maintenance and to then make sure that the boundaries are adjusted and set as appropriate so that this issue does not spin out of control by the time the course is sold.  And, make no mistake, that course will be sold.  With few exceptions, developers do not like to be long term owners of golf courses for one very simple reason.  They rarely make any money!

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328

 

 

Monday, January 6, 2014

Now you see it, now you don't


Now you see it, now you don’t

Diversity is a good thing, right?  Different views, cultures, a melting pot of ideas and innovation that creates a stronger whole.  This is especially true in community design and execution, where the mixing and matching of styles, colors and themes can add interest and desirability to a community.  Ok.  You know this is a set up. 

In planned communities, this whole concept falls short when talking about mulch.  Now, of all the aesthetic concerns regarding a master planned community, why, you ask, am I concerned with mulch?  The answer is simple.  It is visible.  Actually, if you start messing with different styles of mulch, it is very visible.

In a perfect mulch world, you typically don’t want to notice mulch.  You want to notice the trees and ornamentals, the color and varied styles of the plantings.  They add interest and desirability to a neighborhood.  However, once you start mixing different styles and colors of mulch to the mix, it suddenly seems to not work.  It seems off, like mixing stripes and plaids. 

The problem is that there are so many different choices for mulch.  Excuse me for a moment while I indulge my inner Forrest Gump.  There is pine bark, pine needles, cypress, wood chips, straw, river rock, lava rock, red mulch, brown mulch and so on.

In master planned communities, where homes are typically 10 to 15 feet apart, it just does not look good when different mulches are used among the homes.  It diverts the eye to something that is really meant to act as visual filler.  That does not mean that mulch styles cannot change in a community.  It just means that there needs to be a consistent application if a change is to be made.  It also does not mean that occasional exceptions are not warranted, such as using small amounts of color blended river rock in areas where wash outs may occur from rain sheeting through roof valleys.  However, as a whole, setting architectural guidelines requiring a consistent application of mulch is a visual win-win for most communities.

Real estate by nature is a very visual form of expression.  Most of the time, the focus is placed on the major elements such as elevations, amenities, entrance features and community landscaping.  However, it is important to not forget the smaller details, like mulch.  While much smaller in total dollars spent, these complimentary items often have the ability to make or break the visual integrity of a master planned community.  Like they say, the devil is in the details.

Until next time…

Keep kicking the dirt!

Jeff Gersh is President of Gersh Consulting Services, a real estate advisory firm, headquartered in Orlando, FL.  He may be reached at jsgersh@gmail.com or 407-468-9328