Affordable Housing Institute : US

What’s the professional value of experience? 

 

What’s this house worth?

 

If you have to play only one hand of poker, will you play better knowing the chips are your own real money?

 

I think the house is worth $750,000; what do you think?

 

Anyone who hires a consulting professional — such as a broker or advisor — pays a fee (usually contingent, but still a fee) in exchange for expertise.  That places the customer at an information disadvantage, so when it comes to the crunch, the client is proceeding mainly on trust. 

 

“Trust me just this once.” 

 

The internet is dissipating the information cartel at a dizzying pace, so buyers and sellers can now tap real-time market price information and can find one another in for-sale-by-owner (FSBO) listings.  Given time, the plummeting cost of information and networking will squeeze real estate brokerage fees down, as a decade ago on-line stock trading squeezed those brokerage fees. 

 

But will it be a pure commodity?  Or will there always be a value premium for experience and judgment?  Brokers and other professionals do not simply know more, they have seen more, and that experience and dispassion may make them better card players, as Ada (pronounced ah-dah) Focer recently found out when she decided to sell her own home, herself, via an on-line auction.  As the Boston Globe reported:

 

Grace Marlier (left), Focer’s daughter, showing the home.  Focer is in a small but growing cadre of Americans who have spurned real estate agents and are selling their homes themselves, through on-line auctions. She set a minimum, or “reserve,” price of $750,000 for the house, with bids due at 9 p.m. last Tuesday.

 

This is a great experiment, for when it comes to real estate, Ada is no novice:

 

Ada Focer is a Boston-based journalist with a focus on banking, real estate, and the inner-city housing markets. She is also the former deputy commissioner of banks in Massachusetts and a FDIC-trained appraiser.

 

She set out to do it right:

 

Focer advertised her listing in newspapers and on the Internet. She mass-mailed and emailed friends and her vast network of contacts with flyers about the coming auction, vetted the bidders and handled the bidding process.

 

Ms. Focer was motivated in part to tackle the job herself because, with the market having crested, the thought of paying a 6% commission ($45,000 on a $750,000 house) was eating her:

 

The Internet makes it possible for anyone to auction a house. Their appeal may be heightened because they give sellers a feeling of control [Reversing information deficit — Ed.] at a time Boston’s housing market is in a downturn and a glut of properties makes it difficult to find a buyer.

 

She also recognized that it involved Actual Work:

 

She knew marketing would be critical to attract as many bidders as possible. Focer did it all herself, putting ads in newspapers and mass-mailing and e-mailing flyers to her vast network.

 

Focer’s “support group” included daughter Grace Marlier, 25, who hosted the Sunday open houses in May and June. The auction idea came from Jonathan Carson, chief executive of cMarket.com, which auctions, say, George Clooney’s Oscar gift bag, to raise money for charities.

 

To be sure, auctions for charity have a different dynamic than for economics — no one planned to overpay Ms. Focer out of kindness. 

 

On Carson’s advice, Focer’s opening bidding was $750,000, the least she was willing to take for her house. Her son, Ian Marlier, 26, set up and tracked her website, 107ocean.com. A week before the bid deadline, Focer was encouraged by her son’s analysis of traffic on 107ocean.com.

 

While the interest reduces the cost of finding, it also reduces the cost of gawping, and as everyone knows, internet loyalty is only a click deep.

 

Marlier, who joked that his full-time job is “`the entire development and analysis team” for StudentUniverse.com, a budget air fare site, counted more than 700 unique visitors to his mother’s site in a month — better than an open house. 

 

Certainly true … but how many of them were the observant herd of other potential sellers watching to see how this one went?  As any broker will tell you, such snoop-o-philes are the bane of open houses; how much easier to snoop from home?

 

In one five-day period, a solid majority of 45 visitors read the auction instructions, looked at photographs of the home’s 3,320-square-foot interior, and read the valuation information.

 

As her anxiety rose, Focer’s analytic mind kept it in check.

 

Is this an offer I see before me, the signing pen toward my hand?

My analytic mind keeps it in check.

 

While admitting she would be “disappointed” to sell for $750,000, she prepared for anything.

 

Realizing that many who peep may merely be frivolous, Ms. Focer required bidders who planned to use mortgage financing to provide a pre-approval — an intriguing analog to the normal certified-check-at-the-hammer approach of foreclosure and other auctions.  That shrank the universe of prospects from several hundred to … one:

 

 

With five days to go, a bidder surfaced.  He personally delivered his mortgage pre-approval to Focer, a requirement for all bidders. Asked about the bid’s significance, she downplayed it and hoped for a second. The offer was below the “zone” she’d hoped for, $825,000 to $875,000.

 

“She is amazingly excited. This is where the nervousness comes in,” her son said.

 

A rain-soaked weekend passed with no more offers.

 

 

On Tuesday, with bids due that night, Focer swam laps at the YMCA and then prepared a roast-beef dinner for her support group and friends.

 

“I think the market’s going to be frozen awhile. There’s huge aggravation in doing this,” said Focer, as she stuffed deviled eggs. About selling, she said a house “is a complicated thing to let go of.”

 

Exactly!  Here’s the dual challenge of real estate:

 

·         For sellers, it’s a very large investment, and the cash sums blur the judgment.

·         For buyers, it’s a very particular and specific asset — high-complexity in mathematical terms.  The more complex an asset, the rarer is the buyer who will offer the best price. 

High-complexity assets and transactions required longer search and selection periods. 

 

Here thus are two things a broker or specialist provides:

 

1.       Efficiency of search

2.       Improved decisions from experienced-based decision-making

 

Ms. Focer thus faced a very hard choice, alone.  Perhaps by stating a floor, she’d inadvertently tipped her hand?  Had her announcement of a reserve price actually lowered the buyer’s offer?

 

She’ll never know.

 

She agreed to accept the $750,000 offer, because she’d save thousands on broker fees — an attorney will close the sale.

 

On the other hand, if via a broker Ms. Focer had been able to secure $800,000 (still a bit below the “zone she’d hoped for”) she would have done better to have used a broker, and saved the time costs of her ’support group.’

 

If it goes through, she’ll have the freedom to pursue her dream to complete a doctorate on the impact of religion on social action.  

 

When she achieves that, said Focer, who is 56, “I can die happy.”

 

When: or if?

 

 

As of today (July 17), the Web site indicates bidding is over but says nothing about the sale being closed.

 

Here’s hoping it’s when, not if.

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