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article by Leonard Steinberg
|I know I’m dreaming, but wouldn’t it be wonderful if everyone could play well together in the sandbox purely by self regulating their own behaviors and actions, or inaction? A recent article spoke about a Mom describing that the greatest skill she instilled into her kids was to teach them the ability to regulate their OWN behaviors. We could learn from this as a profession…..|
The article speaks to the exceptional powers we have individually when we don’t lie, don’t defraud, don’t cheat, don’t steal, don’t harm or murder, exercise patience and kindness and respect for others, pause and walk away from confrontation when angry, limit our social media use for the sake of good, don’t discriminate, debate differences factually, etc. Yes, these self-control aspects to life can be taught, the earlier in life the better. Great education is not simply learning about mathematics, art, languages and science. We should educate – and re-educate – ourselves to the greater lessons of life daily. And like the law, education that is not practiced and enforced – preferably self-enforced – is useless. When we KNOW what is the right thing to do and make a choice not to do that, we are abandoning knowledge.
When you don’t self-regulate, governments often step in. This is when most of the world’s ill’s become costly and often fuel even worse behaviors. In our profession, many bad behaviors – discrimination, messaging ‘easy money’ to the planet, lying, cheating, etc – usually lead to some government agency stepping in with all sorts of complex, expensive, time-consuming regulation as a result of the bad behaviors of a small minority. Yes, we all have to pay a steep price for this.
So when someone shoots someone else, steals, de-frauds, etc, the rest of us have to pay more for security, policing, the legal system, courts, jails, insurance, etc. LOTS more.When someone cheats on their taxes, an insurance claim, etc, the rest of us have to pay more in taxes and premiums to cover for that.When banks make loans to unqualified borrowers, or charge some exorbitant rates for debt, the rest of us have to pay more for that too.When a company tags on a wee bit extra in its pricing and can get away with it, the rest of us have to deal with higher inflation.
So if you want less regulation in our profession, simply do the right thing. We KNOW what that is almost all of the time. Those who abuse the system WILL cost you ultimately, so call them out now – as painful as that can be – to avoid the future pain that is inevitable.
Now don’t get me started on the reckless inefficiencies and self-serving aspects of government and the politicians who drive this (knowing they will collect a pension for life, regardless). Most have not even considered the CONCEPT of self-regulating, and why should they when the rest of us have to pick up their tab?
The vast majority of us – myself included – do not sell or market ultra-luxury properties priced at $10 million or more daily. Living in an expensive city like New York, I’ve indeed been fortunate to sell several of these ultra-homes over my 25-year career, but the vast majority of homes I sell are priced below $10 million. COMPASS sells luxury and ultra-luxury…..lots of it. By many estimates, COMPASS is the fastest established globally recognized luxury real estate brand in history…..about 8 years!
While you may dismiss this segment as something completely removed from your focus, don’t under-estimate its power. Ultra-luxury has spread its wings outside the obvious traditional areas New York, Los Angeles, San Francisco, Miami/Palm Beach, Aspen, Greenwich, etc. Ultra Luxury is seen in dozens of other parts and growing. Here are some thoughts on this:1. Big fortunes are made throughout the year amongst people that can afford to buy these homes. Inheritance, lottery winners, etc are a few less obvious examples. Wealth is spreading around the US too.2. While your area may not even have $10 million homes, some who live in lower priced areas have exceptional wealth and buy in OTHER areas around the country. The association with COMPASS that sells these properties around the US via its superb group of agents may allow you to connect a client – or friend/family member/associate – to an agent.3. Everyone loves to dream. Many love reading about what the ultra-rich are doing, especially around their homes.4. A luxury brand always showcases the best of the best to fuel the brand for all the other products it sells at much lower prices. The vast majority of people who shop Hermes are not buying that $100,000 Alligator handbag! Many shop at Hermes BECAUSE they know it also sells that crazy-expensive bag…..5. Many agents wish to elevate their price-point. The easiest and cheapest way to do this is to become well versed on the subject and share your knowledge with your sphere.6. Don’t ever think selling an ultra luxury property is quick and/or easy. Most times they require extensive work, attention, time, care, discussion, communication, thought, patience….and money. This clientele is (rightfully) extremely demanding. Sometimes an ultra-luxe property can take years to sell. Buyers of these homes are often dismayed at how much less they get for their money than they had imagined. The volume of sales at this level is relatively tiny with a very, very small – equally demanding – audience.
Being aware of this market makes for interesting dialogue at the very least. Speaking intelligently about this arena can fuel others’ perception of you. Your association may be invaluable. Knowledge is power. Sharing knowledge is powerful marketing.
5…4…3…2…1….Three Months Later!
by Leonard Steinberg
|I have to admit, sometimes I truly loathe motivational speakers. Often I find them to be a bit cheesy, over-scripted, with fakes smiles and fake tears, gimmicky, not genuine, self-enriching, you-name-it…. however, often I too sit through their lectures in the hopes of learning SOMETHING, even if it might be the exact opposite of what they propose (see, I am not all 100% positive all the time! ).|
At the COMPASS Retreat in Atlanta in October 2022, the keynote speakerwas Mel Robbins. The primary message of her speech was that unless we act on doing something within 5 seconds – The 5-second-Rule – chances are we will delay, further delay or completely abandon that idea or task. I am guilty as charged on this front! At first I thought this was rather silly, but then I remember the multiple days just before leaving for vacation when I had no other option other than to ACTIVATE WITHOUT DELAY to get through 4 day’s work in a day……and it had worked. So for the past three months I’ve been practicing the technique Mel spoke about so enthusiastically .
The moment I have to make ‘that call’ or write ‘that email’ or go to that broker’s open house or “say hello” to that stranger or make my bed…..or hundreds of other ‘to-do’s’ I am so incredibly good at delaying or abandoning out of laziness, fear, loathing, etc, I simply count 5….4….3….2…1….and DO IT WITHOUT DELAY. I’ve tried this now for three months and I’m happy to report that it works. It’s highly effective. I’ve learned a new GOOD habit. And I practice it daily. I encourage you to do the same or at least try it. And I’ll continue to grit my teeth, bite my tongue and attend more ‘motivational speaker’ events knowing that even though they rub me the wrong way most of the time, in each one lies at least one grain of valuable insight, advice or learning.
Have a WONDERFUL Wednesday!
Should I Sell Now?
We are often asked the question: “Is this the best time to sell?” My answer is consistent, regardless of markets. “The answer is not simple. I need to know LOTS more.”
Yes, there may be times when the market is a super-hot seller’s market. But deciding on whether to sell or not should be something that is not based purely on whether you will maximize the selling price. Here are some of the questions I ask of sellers before answering the question:
1. Where do you plan to live if you were to sell?
2. What is your motive to sell: is it simply to maximize your profit, or do you have other reasons?
3. How long have you owned the home and what have you invested into the property?
4. What are your monthly costs to own and operate this home?
5. Do you have a mortgage? Is it a fixed rate mortgage?
6. How does the cost of your home match your net worth and income? What percentage of your net worth does the home represent?
7. What are the current market conditions in your specific classification and location. What are the projected longterm trends?
8. How new/old is your renovation/condition of your home? When might it need renovation? If recently renovated, when might its added value to the consumer start to fade?
9. Have you seen the properties your compares closest to to better understand what they are listed for, what has recently closed and what was recently signed? A COLLECTION can be helpful here.
10. Will your home need repairs, additional maintenance, renovation, assessments, higher real estate insurance/taxes in the coming months and years? Do you have a complete accounting on estimates for cost?
11. How much time do you have? This is a brutal question. But possibly the most important one. Too many people delay decisions forgetting how time erodes opportunity and enjoyment. I have seen old relatives suffer difficult circumstances in their huge homes with lots of stairs waiting for a better time to sell….then suffering a fall. What was the value of the potential upside of a higher sale price compared to the QUALITY of life had they moved into a simpler single-floor home without stairs? How long do kids live with you before they are off to college? Are you willing to sacrifice your need for space for the PERFECT time to sell? If you are buying a larger home, selling in a down-market may have an upside on the BUY side.
These are just 11 questions I ask. There are many more. No real estate evaluation should be over-simplified with generic answers based on averages. Each person’s home and circumstances are very different. No human or home is an average. A home is a substantial investment requiring serious analysis, evaluation and consideration. Yes, we need to help simplify these matters, but over-simplifying them is not in the best interests of the consumer. Balance-sheet thinking should replace transaction obsession.
The above demonstrates yet again how the services professional agents go well beyond the mere transactional duties. Substantive, non-googleable or non-do-it-yourself advisory with real fact-based insight is an invaluable service that most are very willing to pay for.
The Trajectory Of A Shock
The world has experienced several big shocks over the past 3 years: A global pandemic, massive supply-chain disruptions, a Russia-Ukraine War, global high inflation, an energy crisis, massive government spending, equity market plunges and sharply higher interest rates…..that’s a lot of shocks to the system! Our world in real estate is probably responding mostly right now to three SIMULTANEOUS shocks:
1. Rapidly rising interest rates, rising faster than at any time in recent history. While rates are much higher now than 6 months ago, they are not much higher than when they had SLOWLY increased in 2018 to around 5%.
2. High inflation fueling rapid price escalations….and interest rate hikes.
3. Inventory Shortages causing price escalations, especially for rentals.
What happens when you are confronted with a shock (like breaking your leg, for example?):
1. You rush to a hospital in shock, seeking professional help from the most reliable sources. You are somewhat stunned.
2. You are in pain. Your life is quite different in a flash. You lose certain things you took for granted and become angry. Why me? How unfair!
3. You become practical, accepting your predicament and adjust to the new normal and focus on your path to recovery.
While I see this moment as the GREAT REBALANCING OF 2022, one of the hardest parts of this moment – and this is just a moment – is the fact that what we are experiencing right now stands in sharp contrast to the crazy-active markets we experienced in the prior 18 months. Many had become used to that with some thinking that was ‘normal’. It was not. It was a reactionary market. And it also was not an ‘easy’ market. Yes, things sold in a flash over asking, but any professional knows managing rising markets with multiple bidding is complex, ultra-stressful and draining too. Speak to any buyer’s agent!
So after the pause caused by a shock, a new normal sets in and life goes on. While some say we are not in a recession due to the phenomenally strong labor markets, two quarters of negative growth usually implies a sharp slowdown – or recession – in the economy, this time mostly fueled by high inflation.
We should, however, feel encouraged: with all the scary, feverish warnings of the ‘coming recession’, the fact that we have actually been living in a recessionary moment for the past several months – and functioning rather well – leads me to believe that we are very well equipped to weather these shocks. Are they easy? NO! Comfortable? Never! Stressful? You bet! And they don’t pass quickly either. But soon, we will look back at this moment and realize that this (inevitable) moment of rebalancing forced us all to see the bigger picture, become more creative, efficient, practical, smarter, prudent and be much better positioned than ever to soar yet again.
by Leonard Steinberg
|Many parts around the US are experiencing massive surges in rent prices, well above the average rate of inflation. A new report shows that rents rose in 96% of 252 housing markets. In most parts the natural forces of free markets are at work: when there are 10 renters for one apartment, you can be certain over-bidding will occur. |
Housing represents about 40% of CPI, so what happens in home pricing matters….lots! Nationally, average apartment rents rose 9.4% in the second quarter of 2022 compared with the same quarter in 2021. While that is high by historical standards, it is down from the more than 11% annual increases seen the previous two quarters, and there is an expectation that these increases will moderate to around 6.2% higher than 2021 for the year. Costar is projecting a 4.9% increase for 2023. If rents continue to rise at 4%, $2,500/month rent today could be $3,700/m a decade from now.
In many areas where people moved after the pandemic for a more affordable lifestyle, rents rose even more, making these areas a lot less affordable than imagined when you consider the average American spends over 30% of their income on rent. 80% of municipalities saw the average rent increase by 10% or more. Miami had the biggest increase in average rent, rising 59%. Rents are up 31% in Tempe, Arizona, 21% in San Diego, and 30% in Austin. However, rents have also risen in areas that have always had high rents: New York, Boston, Los Angeles.
Why do rents rise?1. An imbalance between supply and demand.2. More people focused on renting rather than buying, mostly because of affordability and availability of for sale homes.3. Rising operational and labor costs for landlords, including rising real estate taxes.4. Because people are willing to pay the price.5. Aging housing stock that requires massive renovation and upgrades.6. Fear of buying/committing to a purchase.
While rent hyperinflation can be great for landlords, some downsides are: 1. A pro-forma based on exaggerated high rental returns can run into trouble when markets turn. Already banks have started to discount the more over-exuberant expectations.2. Those who draw capital from properties producing high returns right now could run into trouble if rents subside or vacancies emerge.3. Governments come under greater pressure from voters to implement laws around rent control and stabilization. Penalties for vacant properties are also possible.4. When people spend too much on rent, they don’t have money left to spend on other things and this can lead to recession.5. When rents soar, fees come under attack…..including agent fees!
Most extremes don’t end well. Yes, some rental properties were under-valued in areas where new demand seems long term, but most seem very, very frothy.
When those planes crashed into the World Trade Center on 9/11 and then into The Pentagon and fields of Pennsylvania, the world experienced a devastating, sudden shock. Anything that happens quickly, unexpectedly and boldly is very difficult to process and navigate.
In the real estate sphere we have had to navigate some rather difficult sudden shocks too. In March 2020 as the world shut down due to COVID, we as a profession were in shock. What were we to do? When would markets come back? How would we manage deals in play? There were hundreds of unanswered questions and touchpoints that required urgent attention. This makes life – and business – very difficult. Without exact precedent, predicting outcomes is tough. Reeling from rapid change requires considerably more effort, time and energy. It is emotionally draining. Doubt about choices and fear of the unknown linger and taunt you. It ain’t easy!
More recently we are dealing with another sudden shock: the unusually rapid mortgage interest rate hikes, faster than at any other time in recent history. All of a sudden buyers and sellers are experiencing heightened levels of anxiety and doubt and we as a profession are scrambling at times to define strategies, re-structure the advice we give to our clients as conditions change almost daily. The stresses of this market are new, although stress abounds in every market. This is just a different kind of stress, a relatively new kind because of the speed. Some listings are taking longer to sell. There are fewer multiple bids. Fewer showing requests. After many months of forming habits and becoming acclimated to certain routines and realities, again we have to shift gears and adapt to new circumstances and new realities…..FAST. All of this would be much easier had we been able to adapt slowly and adjust over time. But alas….here we are! You may lose listings. You may become the second or third broker on others. You will be blamed for lots (that’s not new!). Just always be the calm force of reason, facts, data, insight and intelligence in the face of the storm and your services will remain invaluable.
Unusual times call for unusual measures. Just take one look back to June of 2020, how two short months after our world changed so instantly, our entire profession had adjusted and changed DRAMATICALLY….and was functioning close to full steam. A quick peek at the World Trade Center in Manhattan will leave you CERTAIN we can adjust to anything. So buckle up, move fast, be creative, think, discuss, strategize with colleagues, attend seminars and webinars, read lots, study your markets daily, do the homework – fast – and you will adapt fast too and identify new and old opportunities. They abound in ANY market. Markets will ALWAYS change….that’s the only certainty we have left.
Do We Play An Active Inflation Role?
What can YOU AND I do to curb rising inflation? I hate to tell you this, but we could actually do LOTS. In an unreal world. But we live in the real world, so……
One of the key drivers of inflation is the cost of housing. In many parts of the country COVID has fueled new audiences. Housing costs, accounting for almost a third of the Labor Department’s consumer-price index, were the largest single driver of inflation in the Atlanta area and similar places in 2021. We in the real estate profession are helping facilitate rising prices …..often MASSIVE price hikes. Have you EVER said to any of your clients in a multiple bidding scenario to take the asking price instead of the offer 10% over ask because it’s their patriotic duty to keep inflation down? HAH! I wouldn’t even attempt to do so. I know the answer. Have you ever told your sellers or landlords not to raise prices when the market is rising? The reality is we live in a free market system driven by supply and demand. I have yet to meet a lottery winner who wishes to redistribute their wins to everyone who lost. I have yet to meet a seller/owner who wishes to take a lower price to help the US economy tame inflation too…..
The reality about inflation is that when demand far outstrips supply, prices rise. That excess demand is fueled by multiple factors. And thrown into the mix is some good old fashioned greed…..and why not if everyone else is doing it? Why not, if we live in a free market capitalist system? We are reaping the rewards on the rise: chances are we will also feel the pain when the markets shift. They always do. I don’t ever recall myself sympathizing with a retail store when they had to discount their products deeply because of a lack of demand……I do recall the pains of real estate markets when we had to slash prices and accept low offers…..or had no showings and no offers. Markets change and they always will. We all play a role in them, consciously and unconsciously…..
Because of COVID, many parts of the US are reeling from even higher inflation rates because those moving in from more expensive parts – accustomed to far higher housing costs and higher wages – are willing to pay much higher prices than traditional ‘local’ pricing. When housing costs rise for locals, they command higher wages. More people moving into one area fuels demand and diminishes supply. Higher wages add to inflation by triggering rising corporate pricing on the goods and services they sell to pay for this.
So next time I complain about rising prices, I will turn to the mirror and ask myself: am I truly innocent of playing a role in this “BECAUSE YOU CAN” pricing moment? No, we are not responsible for inflation but to better understand it, we are witness to its primary causes each and every day. And we are part of the process that facilitates it. Most people will sell something for a higher price – if they can – regardless of costs.
And yes, prices can and do come down…..triggering DEFLATION and discounting…..and we will be active participants in that too when/if the time comes. Free market pricing is all about supply and demand.
by Leonard Steinberg
The past 2 years has triggered heightened rage even in places less prone to this: airports and airplanes, retail stores, restaurants, and yes, even in the brokerage world. Rage is defined as feeling or expressing violent, uncontrollable anger. It is also a historic symptom of pandemics: Spanish flu survivors reported sleep disturbances, depression, mental distraction, dizziness, and difficulties coping at work. Sound familiar?
We all have to pay a big price for rage: usually the damage costs, added security, insurance payouts, etc. are all passed on to the rest of us in the form of higher prices to pay for all of this. Stores that close stop producing sales tax revenues leaving us to pay higher taxes to compensate for these losses. Lost jobs cost more in government payouts. Hopefully the current rage subsides over time. As much as I think there is never a good excuse for this bad behavior, there is always a reason: many people feel marginalized, frustrated, controlled, bullied, angry at the world, etc. While yes, we did lose some of our freedoms during this sometimes painful 2 years, for the most part our version of loss of freedom pales when compared to REAL loss of freedoms that others around the globe experience all the time. Most of us are still the fortunate ones.
Lecturing, belittling, insulting, demanding, commanding never work. Persuasion requires love for your fellow human being. It is the greatest lesson to all of us who negotiate every day. Without love/respect/empathy for your colleagues, clients, buyers, sellers, landlords, developers, etc it would be impossible to navigate the often complex and emotional negotiations we encounter. The one thing we all know destroys (or at best diminishes) chances for successful persuasion is angering the ‘other’ to the point where they stop listening.
We can always persuade others of our point of view (or hard )facts only when they keep listening.
So LET’s all KEEP LISTENING!
The Energy (R)evolution
by Leonard Steinberg
We are in the midst of a rather exciting revolution. It started decades ago when in 2006, US President George Bush – a Texan – boldly claimed: “America is addicted to Oil”. That was a startling admission. Now Texas – the US’s largest oil producer – produces about 7,352 megawatts of new wind, solar and energy storage, the most in the US. The runner-up, California, produces about 2,697 megawatts. I seriously doubt oil is going away, but it is incredible to witness how we are in the midst of a massive transition to more, cleaner (and possibly cheaper) energy.
We are experiencing a massive transformation in our cities, states, towns – and homes – as electric vehicles will shift issues around ‘filling up’, charging stations, power storage, air and noise pollution, energy use, and geopolitical risks associated with energy-related commodities. Auto executives say more than half of U.S. car sales will be EVs by 2030….that’s very soon! Imagine quiet garbage trucks and delivery vehicles in bigger cities. Quieter highways. Our entire infrastructure will need to be updated, not unlike the internet and cable TV which required similar changes decades ago. We are also seeing a rapid growth in Solar use amongst individual homeowners, buildings and corporate America that is adding massive swaths of energy producing entities to buildings and warehouses…..not just because they want cleaner air: Many are doing so for PROFIT and SAVINGS, possibly the best motivator of all.
Around 50% of a home’s energy use is for heating and cooling. The average US home has around 40 lightbulbs…..switching from 60 Watt incandescent bulbs to 8 Watt LED’s reduces lighting energy consumption by 90%! The EPA estimates that the average homeowner can save 15% on heating and cooling costs (11% of total energy costs) by simply adding insulation in attics, crawl spaces, and basement rim joists. A new modern combi boiler is likely to save between 20-35% on gas usage. Ah, the combination of high and low technology can serve homeowners well!
While we currently are suffering from dramatically higher energy costs – mostly driven by Opec’s monopoly – the upside is these higher costs may be the ultimate motivator for towns, cities, states, countries, corporations and individuals to produce their own energy – preferably clean, renewable energy – to reduce the exorbitant healthcare costs (Air pollution from fossil fuels costs each American an average of $2,500 a year in extra medical bills -Reuters) and suffering (Some estimate 100,000-200,000 Americans die each year related to air pollution) associated with pollution. Not to mention the big savings most experience when creating their own clean energy. Ask Walmart that has become a power company creating a big chunk of their own energy usage. Ikea reduced its outside energy use by 57% at a Baltimore location. The rooftops of US big-box stores offer enough solar potential to power the equivalent of 8 million American homes…. Homes with (attractive) solar generation now sell for a premium in areas. Lots has to be done to make solar more attractive for homes and integrated rooftiles seem to be the best solution but they still require some refinement.
Most revolutions are a bit messy and can hurt. Governments sadly mostly don’t plan in 10 and 20 year segments, remaining more focused on election cycles. We are experiencing this pain right now. But the future is very bright. Soon we may be living in a cleaner, quieter, healthier world. Far from perfect as all energy sources have their downside too. Bravo to our Texan friends and colleagues for setting such a great example for what is possible!
We would like to get your take on this article since we found it informative so what do you think? Let us hear from you! Have a great day!