Calling All Zillowers

If you're not living in a cave, you've surely heard of Zillow.com by now--it seems to be the talk of the world, and even got it's own Fortune cover a few weeks back. If you DO live in that cave, then get out more. Zillow would be that ever-addictive site that allows you to look up values of any house, more or less, in the US. Yes--you can look up your co-workers, your boss, your parents, your kids, and your neighbors. A whole new type of voyeurism.

Personally, I have enormously high hopes for Zillow. I think the combination of Zillow and Redfin (the real estate agency that rebates 2/3 of the buyer's agent commission to the buyer) could alter the course of the real estate industry, and my previous posts have certainly condoned that idea. Zillow, aside from feeding our voyeuristic tendencies, democratizes the previously closed world of real estate valuations. In our own searches, we've used Zillow as a benchmark every time, and it serves a definite value there. It's particularly useful for comps--those houses that have sold in the vicinity. And I am ever hopeful that Zillow will fully democratize real estate. A few weeks back, Zillow introduced the "Make Me Move" feature, which allows owners to market their home and name a price without putting the house on the market. Aside from being interesting, it has the potential to faciliate more sales and cut out the middlemen that have historically controlled the market.

For all my hopes, Zillow has some issues. We're looking at a particular house in the San Francisco area. Zillow still lists the house--which is 2 condos--as a single family house, though it wsa condo-ized in 2006. But--forseeing that they can't be omniscient at this stage--te creators wisely allow users to create their own estimates, so I can go in and change the specs. After changing housing type, square footage, beds, baths, etc, I can create a new "Zestimate," Zillow parlance for a value. And here's the problem today--the algorithm isn;t yet perfect. When I change this particular house from 1 bath to 2 baths, the price goes DOWN. Adding a 3rd bedroom does the same. There's no way to adjust for parking (a major value in SF) unless you know what that adjustment is worth (in which case you hard code it into the estimate), and their estimates of location value seem to be well off. I really hope that Zillow can continue to refine its algorithms--it'll be a great tool. Until then, by all means use, but don't treat as gospel.

Tales of Bay Area Real Estate, Vol 2

After 8 months of looking high and low (in price and geography), LadyThinker and I found a place we loved—a little small, but a great location with room to grow as we grow. It was pretty damn close to being perfect, though it had a couple minor issues. As quirky SF real estate goes, however, it was more than good enough.

So we put our heads together, I created my customary anally-retentive spreadsheets (which LadyThinker believes to be silly) and she became emotionally attached (also customary). We knew this was the one, and we set out to win it.

And win it we did—in every sense except actually winning. You see, we were the most qualified (verified by the mortgage broker handling arrangements) and submitted the highest bid. In most circles, that’s enough. But not the world’s last remaining legal cartel.

No—in the world of real estate, the sellers agent (important distinction—not the SELLER, but the SELLER’s AGENT) evidently needs to like and be comfortable with your agent in order to get the house. And since our agent isn’t a typical agent—it’s a broker that refunds part of the purchase to you—we were screwed. And the agent screwed his fiduciary oath to the seller.

Of course, I’m pissed as can be, but there’s nothing I can do about it. Another reason why the real estate marketplace must change. For anyone with some angel capital to spare, I’ve got the motivation to turn this industry upside down…and do the economy a favor by minimizing the friction that inhibits the housing market in the first place. I’ll spare you the rest of my rant, dear reader…

Old World Sophistication

I’m writing this from one of the unique places in all of Europe—snowy Luxembourg. It’s a place that intrigued me when I first traveled through here during college in 2000, but then I only had a few hours to explore the city. This time I have about the same, so I can’t claim to be an expert.

But Luxembourg fascinates me. It’s a mix of Old World Charm, pretentious sophistication, and so much more. Nowhere outside of Texas will you see as many SUVs—the airport parking lot is littered with Porsche Cayenne’s (and not the base model). Nor will you find such an emphasis on banking anywhere else in the world. From the moment you get off the airplane, the only ads in sight are private client banking and investment banking adverts.

It’s also a place that I would pose has an identity crisis. Everyone speaks French, German, and the national language, which sounds remarkably like Old German. However, tell them that it sounds like German (or any derivative), and they get a little frazzled—seemingly desiring to separate themselves from their easterly and southern neighbors. The people, however, are universally friendly, but distinctive in dress and the way they carry themselves. Reminds me a little of a more innocent Switzerland.

It’s also a hell of a hard place to get to. Trains to major European cities are 3 hours+ and often require a change along the way. Intriguingly for a banking center, flights aren’t much better. From London—Europe’s air hub—there are only a couple flights per day on BA. And my flight had all of 9 people on a 737, and 3 of those were flight attendants.

All in all, I need to spend some more time here. There’s still a charm I can’t quite put my finger on…

Notes from London

My favorite part of travel is still wandering the streets of a foreign city, observing, window shopping, etc. The following are notes, observations, and lessons learned in this fine city:

• The latest food trend I noticed in London: Gourmet Hamburgers. Yes, every time you turn a corner in London, there’s a place with the best burgers in the West End. Those of you who have had the fortune to eat in London know how funny this is. The country of the Mad Cow is now claiming gourmet burgers. And if you’ve ever had UK beef, you know it has a very funny taste to it. $15 for a crappy burger? No thanks.

• Do your shopping in London in late Jan/early Feb. The sales are insane; it’s even cheaper than buying in the US, despite the absurdly weak dollar (more on this sometime soon).

• The Sheraton Skyline at Heathrow is FAR superior, in every aspect—to its sibling the Sheraton Heathrow (which should probably be torn down). Kudos to the staff at the Skyline.

• The Great Court at the British Museum is still one of the coolest places around. Even if it is in the world's largest depository of stolen goods.
  

Help Wanted: How to Deal with the Passenger Seated Next to You on a Transatlantic Flight

I am wondering around Europe as I write this—UK and Luxembourg on meetings—and had an interesting, to put it kindly, neighbor on the flight over. Normally interesting seat mates talk; not this one. He didn’t say one word to me the whole way, and that was much appreciated.

BUT…I may have preferred him to be a talk over the schiz that he was. Rather than traditional annoyance, this man constantly rubbed his index finger under his nose—sometimes violently—like he was trying to sniff something. Last time I saw this was in grad school as the girls came back from their Coke sessions in the bathroom.

In addition to the finger conniption, he randomly had these mini “seizures.” The quotes are because he could obviously control them and make them stop, but several times in flight in hands went nuts. More, he’d lean over towards me—to the point of being in my air space—like he was going to say something, and then went back to his little world. This continued, uninterrupted, for 7 hours. In business class. Weirdest, freakiest neighbor I have ever had…

How would you handle this one?

Real Estate: In Need of Massive Reform

LadyThinker and I have been in the market for a house for about 8 months now. While we started looking in San Jose, LadyThinker came back from a trip to Europe and let me know she really wants to live in a more urban environment--namely, San Francisco.

So 6 months ago we shifted the search north to the 2nd most expensive city in the US. Lovely. We've gone back and forth, had some heated discussions over what we will make an offer on, what we won't and what classifies as a legitimate reason either way. After seemingly ages, we agreed on a house, not you on the market, that we had an inside angle on. Supposedly, an offer that they considered strong would win the house before it hit the market.

On the assigned night, we made our way to the "City" to see the place and agreed it was just about right. No house is perfect, but this was a strong 8 of 10 in a city full of 6s. In the kitchen that night, with BOTH agents present, we discussed the plusses and minuses. OUR agent proceded to wax poetic about the hot market, how no house goes for asking in this area, and brings up comps of houses in recent months that went for $60k above asking. Needless to say, I was a little peeved at the agent.

We made the offer--at the "asking price." Only contingnecy was a home inspection--rather common in this flat market. Well--they came back with a counter offer $46k above the asking price. We were the only bidder. Very frustrating time. Very.

As to why the market should be reformed...

1. Buyers agents have an inherent conflict of interest in the current framework. 3% commission doesn't encourage them to get the best price--a $50k cut costs them $1500.
2. Buyers agents cannot possibly be worth 3%. OK--in some cases, where the buyer is lazy or requires a TON of work, yes--3% is fine. In cases where the house costs $200k, yes 3% ($6k) is fine. But in san Francisco, where the median price is $755k--the median commission therefore $22.5k, something's wrong. I find possible places before my agent does.
3. Kickbacks. Our inspection was to cost $700 on a small condo. Most inspections cost $300-400 tops. I smell a kickback.
4. Lack of transparency. For example, there is no way to track seller contributions or other under the table elements of transactions. The numbers say real estate is up a trickle in the Bay area. Most think otherwise, but we'll never know. We shouldn't rid ourselves of such tools, but this should be transparent.

As for me, the search goes on. With a few changes: I'm firing our agent and using Redfin.com, which does the same thing that a realtor does, but only takes 1%. The adventure continues...

Land of the Wii

I am not a video gamer. Haven’t been since my original Nintendo (the original) was broken by my sister’s friend back in 1992 (and yes, I am still bitter). However, I have found myself swept up in the search for a Nintendo Wii. I’ve also found it to be quite a trek, and rather revealing, both of people, and of the power of a market.

For those of you who aren’t aware, the Wii is Nintendo’s new gaming system. Rather than compete with the PlayStation3 and the Xbox360, Nintendo intelligently opted to focus not on raw graphics and power, but rather appeal to the rest of the world—the non gamers, if you will—those who can’t and don’t want to sit in front of a monitor all night playing against some 12 year old in Poland. Nintendo just may revolutionize gaming with its motion sensor remote controller, which allows players, for example, to play tennis by swinging the remote. You can imagine the myriad other applications, as well.

This one is a win for Nintendo over Sony on a lot of levels—a win no one expected. On the marketing side, expectations were so high of Sony that they could not possibly deliver, especially for the $500-$700 price. Yes, it has a BluRay player, but, really, who can take advantage of that today. Yes, the PS3 is more powerful, but who the graphical capability won’t be realized by developers for another year or more—when they cost much less. Long story short, I can find a PS3 anywhere right now (and that was not expected).

But I cannot find a Wii, and it’s not for lack of trying. Nintendo has masterfully shipped small quantities, keeping everyone’s interest and also maintaining scarcity (and therefore desirability to some degree). It’s also an interesting view into the market. People with too much time or no jobs are hoarding Wiis, creating a cartel effect and driving up prices (it’s not uncommon to see someone on CraigsList or eBay who has sold 6-8 at $150 profit each). As Christmas passed, prices on eBay dropped from $500 to $400, and then to $330 this weekend.

But my quest continues. I could make a living reporting on the shipping and logisitics of big box stores now. It’s an interesting little world here in Wii-land. There are online support groups; a cottage industry has popped up with automated inventory notifications (by SMS and email); and of course, there’s eBay and Craigslist. It just proves that while markets, as a whole, are rational, people aren’t. And for the first time in my life, I’m in the camp with the people, not the market; yet I refuse to pay the $50 premium on eBay—which makes me wonder: am I in it for the Wii at this point, or just for the kill?