For the seventh year running, the Nob Hill Gazette gathered some of the best and brightest of the region’s real estate world to get an inside look at the market. This year also saw the addition participants from related industries outside of real estate—finance and general contracting—to further round out the discussion.
Participants were eager to share and learn, especially given the strange new economic climate. Gazette publisher Lois Lehrman hosted the occasion in the private dining room of Tommy Toy’s. What resulted was the following honest, and realistically optimistic, look at area real estate, and a little more.
Participants in the 2010 Real Estate Roundtable (l to r): Mark McLaughlin, Tim Murray, Donna Crowder (up top), Anita Head, Stephen Patton, Katherine August-deWilde, Lois Lehrman, David Papale, Charlie Moore, Elisa Stephens, Jay Costello, Mark Best, and Rich Muratore
The lively conversation was moderated by Academy of Art University President and philanthropist Elisa Stephens. Participants around the table included (in alphabetical order): Katherine August-deWilde (First Republic Bank), Mark Best (Coldwell Banker), Jay Costello (Hill & Co.), Donna Crowder (TRI), Anita Head (Paragon), Mark McLaughlin (Morgan Lane/Pacific Union), Charlie Moore (McGuire), Rich Muratore (Muratore General Contractors), Tim Murray (Alain Pinel), David Papale (Laurel Village), and Stephen Patton (Gomez & Patton).
After a warm welcome from Lois, the panel got down to the business.
Elisa Stephens: I’m going to start a little bit broadly. What advice are you giving buyers and sellers in today’s market?
Donna Crowder: With federal and state buyer tax credits, low rates, and low prices. It’s a good time to buy. I think the market is flat. Perhaps in some sectors it’s still loosing a little. We did a graph yesterday of properties over a million dollars, tracking the median price over twenty-four months in all districts. The individual bars go up and down, but the median line is pretty flat.
Mark Best: My advice right now is think local. Don’t even just think San Francisco, think within your own block. Too many people are being influenced by media that has nothing to do with their neighborhood. It’s a very different story.
Charlie Moore: I agree. I would say, more so than ever before, the price barometer is ultra sensitive. So, where we’ve used the axiom, “location, location, location,” perhaps we should start off with, “price, price, price.” If the sellers are fishing for the market to go up and catch their hope price then they’re not really sellers. They’re putting their prop on display. It seems like a lot of our sellers are relenting sellers, more relenting than by excited [laughter]. But these are our realities. Real estate is a commodity. We’ve seen it go up and we had a wonderful twelve-year prosperity run. Now we have to adjust to the new normal.
Stephen Patton: I think we’ve seen the sharpest decline. Right as the whole financial market implosion happened. I think most appraisers and realtors will agree that we’ve seen a drop somewhere between 15 and 20 percent. The good news is that it’s possibly stabilizing. I’m finding that one of the more difficult scenarios in terms of making a transaction happen is when a current owner bought in ’07 or ’08, in that pinnacle moment, and then trying to persuade them about this market decline. It’s a bitter pill to swallow. And some sellers, like you said Charlie, will put it on display, but they don’t want to go there in terms of what current values are.
Elisa: Do you recommend pricing the property 20 to 25 percent over what you think you’ll get, knowing that the buyer is going to come in and ask for 20 to 25 percent less, or do you price at the value of the property with maybe 5 to 10 percent negotiating room?
David Papale: Definitely look to the value and what the snapshot of the market is at that time. It’s not what it was before. It’s not what you hope. It’s what is now. Convincing your sellers that they have to be real.
Jay Costello: I think we need to price it right about where we think it’s going to be selling. If you could price it lower and have the conversation with the seller that says it is impossible to under-price a piece of property but it’s very easy to overprice one. If you under-price it by 5 or 10 percent you’re going to get multiple offers. That drives the price up to where it should be selling. Very few buyers are going to offer 10 or 15 percent under the asking price. And the agents don’t generally encourage it.
Anita Head: We’re talking to our agents about keeping their heads in the game and making sure they are concentrating on what the goals of the seller or the buyer are. We’ve had numerous transactions where the back and forth has taken a few weeks and sometimes almost a month in one case. It’s a lot harder work, and it takes a lot of tenacity.
Elisa: Given the tremendous loss of jobs in the Bay Area, what is the profile of the buyer?
Mark McLaughlin: Our observation is that the job market is the most significant driver of our business. Housing is at a 15 to 20 year low and debt at a very affordable price, but if you don’t have confidence in your job, it doesn’t matter what that interest rate is. You’re not going to borrow money. The job recovery is the most critical part of our vibrancy.
Tim Murray: I think you’re going to see a structural change in the market. The consumer now is more debt averse than they’ve ever been. They’re not going to buy beyond their means. I think the savings rate will continue to go up, and in many ways it’s healthy for our market.
Charlie: We’re developing new habits. It’s a tough reset but necessary.
Donna: I think being willing to wait is the key. There’s no real particular pressure for the buyer. That being said, we’ve seen multiple offers recently. But I think the value was there for that particular property, and there was more than one person who recognized it and had been waiting and was ready to go.
Charlie: We’ve moved from a habit of panic buying to deliberate buying.
Elisa: Is it fair to say that buyers are only motivated to buy if they can steal a property?
[Answers of “No” from around the table.]
Charlie: They’re willing to do that. [Laughter.]
Stephen: I think most of the brokers here would say that those deals that were available a year ago aren’t available today, and that’s an indication of where the market’s leading, too.
Elisa: What do you think is fueling that shift?
David: Demand is starting to come back.
Tim: The lending is changing. A year ago there were certain major lenders who were not in the market to lend. They made the requirements so onerous, even for someone with a very high credit score. We’re seeing a change in that slightly in that people are able to get loans a little easier.
Charlie: As well, we’re all accustomed to a V-shaped recession, so following a recession, it bounces back. This is going to be a long haul. All the economists say we may be in recovery but it’s going to be anemic, fragile. Those who were fence-sitters, hoping that the V-shaped recovery was yet again here are finally acting. They’re saying, I’m going to go on with it now that I realize this is the way it is.
Katherine August-deWilde: The market appears to be improving. That’s what we’re seeing from our clients. They say, I lost this house by a little bit; I shouldn’t have done that.
Elisa: Some properties are selling off market. How common is this in this market?
Mark M.: Common. Ten percent of the market maybe.
Jay: I think it depends on the price point. The higher priced are more inclined to do an off market sale.
Mark B.: I think during the boom years there was a little bit of a stigma—if you couldn’t sell your house it was a failure. Through these past few years, if you went on the market and didn’t sell, there is no real stigma; there just isn’t really a buyer for it.
Stephen: I take issue with that. During ’09 I found a lot of buyers, their first question was, How long has this been for sale? It was a predatory thing because clearly their position was, Hey, you’ve been out there a long time, I want a steep discount. But let’s be honest. The reason a lot of those properties are out there for so long is that they were overpriced.
[Reactions of agreement from around table.]
Donna: Sometimes it’s a very moderate price adjustment that will create a buyer. It always amazes me—where was that buyer and why didn’t they make the offer before?
Mark M.: Part of the mentality behind that—we find buyers to be somewhat dismissive unless a property is in the right pricing tolerance. Because if I make the offer on that property and you accepted it, I’ve left money on the table. But if it’s in a tighter pricing band and then we go back and forth three or four times, you’re going to feel better, and I’m going to feel better. We haven’t found people to step up and make a low-ball offer except for maybe on a distressed property.
Charlie: Maybe we should flip it around to the seller. When there are so many choices, the seller needs to compete with other sellers. You need to distinguish your property, and the one thing you’re in control of is your price [agreement around the table], and to the extent that you marginally overprice, you can make a magnificently bad result for yourself.
Donna: They don’t like to hear that.
Charlie: There are many things we have to say that aren’t pleasant to say but that are necessary to say.
Mark B.: I think we’re all optimists here. We’re largely in residential sales. We see some recovery. But the other cloud, other than unemployment and cautious lending—I think the commercial market is threatened, it’s lagging behind. I think it’s going to be a pretty bumpy year commercially and it will effect us even though we’re primarily residential agents.
Elisa: Some people say this is just a sugar high in the economy because of the stimulus money and that it will dissipate by September. Where is the market going to be this time next year?
Donna: Along the road to recovery—it being more or less an L-shape. On a day-to-day basis, it looks [makes jagged line]. But if you look at it over time, it probably shows a long slow increase. So I think it’ll be better next year, but between then and now we’re going to see weeks of strong activity and weeks when the wind is out of the sail.
Charlie: So it doesn’t really matter if it’s a dead-cat bounce or a sugar high. You practice good habits going in; that’s the first step. The fundamentals are still needing further adjustment. The mortgage-backed securities aren’t being bought by the government any more. We’ve run out of the $1.25 trillion, so interest rates may start to trickle up—there is some debate about that. Nonetheless with unemployment at 12 ? percent and underemployment maybe at 12 ? percent, you can look at one out of five Californians out of a job. This doesn’t bode well for a recovery. So jobs, I think, are everything.
What you do is when you plan a business, you sell with optimism but you budget with a healthy dose of pessimism because if you’re off on your budget by a little bit, by a margin of 10 percent, you may be out of business. We’re trying to find efficiencies. When there was allowance for slop in the old days, and there was a lot of it, it was OK, because we could cover it up. Now it’s about extreme efficiencies, budgeting properly.
I don’t see anything on the horizon right now that would lead me to make an optimistic budget until into 2011 or ’12. In the meantime, it’s hunker down, survive, get through this, practice good habits. And preach optimism because, in the end, real estate will continue to outperform gold, stocks, and everything else.
Elisa: What technology tools are you using that you feel are valuable?
David: Technology has changed our business significantly. Those agents who don’t know how to do anything other than turn on their computer aren’t going to survive. You have to field, punt and kick. That is, use all available advertising venues and communicate via Facebook and other sites. You have to be master of these apps to do well.
Charlie: The consumer today excepts the five-minute response; these expectations, fair or not, have become the new rules of engagement.
Jay: Technology is great, but I think in our business it still remains that the best meeting you can have is face-to-face with your client.
Rich Muratore: I know without you brokers people who do remodeling, like myself, would have nothing. I’m sitting here trying to think, How can I help you? We do have expertise in, say, a high-rise building. Say, if someone wants to do some alterations when you bring them in, and if you bring a contractor in, someone that knows the rules of the building, that contractor could probably help. If you get someone you know or who knows the building, because there is a lot of different expertise that we have, we could help answer questions from your clients who are interested in remodeling.
Katherine: Would it make sense to, on a quarterly basis, create a package where you bring someone who does contracting, someone who finds tenants, and a lender—all the different services that your client may wonder, How can I get this done? I’m not saying you say, Only use the following people. Just share your resources. I’m hearing you say, for example, that loans are hard to get. Well, I’m here to tell you they’re not. Contractors are eager to do more business—
Rich: We’re not hard to get at all. [Much laughter.]
Tim: I think what Katherine is bringing up is that there is value to having a panel come in and have some available experts from each field to talk about the state of their business right now. I think that’d be a benefit. It’s not about quoting prices, it’s just about whom to go to. I think that’d be valuable right now because things have changed and people want that knowledge.
Katherine: I’m even thinking, if you take a house listing or you have a client who’s preparing to do a large renovation, Do you all know that it’s easy to get a renovation and construction loan? Do your agents know that? So when they start thinking, OK, I have the money to buy the house, but how am I going to do the rest? Well, there’s no prob at First Republic.
David: Aren’t construction loans a lot harder to qualify for?
Katherine: No. If you’re buying a house, you have a down payment and a loan, and you want to spend a certain amount of money renovating it, you also need to put down a percent of the renovation costs. Your client needs more liquidity, and we will lend the balance. But it’s not hard to qualify for. For example, if your client qualifies for an X-dollar loan but instead you want to buy a house for half that price and spend the same amount again on reconstructing it, we would finance the project.
And with that, the 2010 roundtable concluded. Hugs, thanks, and well wishes capped the gathering with anticipation of how exhilarating next year’s event will be.
