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Persuading Reluctant Sellers

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | June 22nd, 2018

One of the main reasons for the lack of homes for sale is that people don’t want to give up their low-interest-rate mortgages. Another reason for the low inventory: Folks are leery about being able to find a suitable place to replace the one they have now.

Buyers can’t do anything about loan rates, which at this writing were at their highest point in seven years -- but still reasonably priced at less than 5 percent. But there are ways to make would-be sellers more comfortable about finding another house.

They’re called seller contingencies, a catch-all phrase that covers any number of ways to allow owners a sensible amount of time to move on. If the seller is unsuccessful, the contract becomes null and void and the buyer has to continue their own search.

One contingency that has become more popular of late allows the seller to remain in the house for 30, 60 or even 90 days while shopping for a new place. Renee Cox, broker-owner of Acorn Real Estate Professionals in Fort Wayne, Indiana, a market she says is “going gangbusters,” has successfully used this clause several times.

Typically, Cox says, sellers are allowed 30 to 60 days to shop. But if this is the house you really want, she adds, you can always give the seller more time.

The drawback to such a tactic is that the buyers don’t really know if they have a deal or not. It’s the reverse of a sale that is contingent on the buyers selling their house in order for the deal to proceed. In that case, the seller doesn’t have a strong contract, either.

Also, buyers may not want to tie themselves and their money up for long periods of time. With so few houses for sale, they may miss out on other top-of-the-line places that come on the market while they’re waiting -- and waiting, and waiting.

Other issues pop up, too. Lenders may not be willing to work with buyers whose contracts are so iffy. For example, they may not want to lock in the interest rate for longer periods, especially in a rising-rate environment such as this. Or maybe they’ll demand a somewhat higher interest rate.

“What’s good for the seller is usually bad for the buyer,” says David Gibson, an agent with Long and Foster Real Estate in Prince George’s County, Maryland.

Still, if this is the place you absolutely, positively have to have, it’s worth a try. You just have to be patient. And you might even be able to negotiate a somewhat lower price by being extra patient.

Bruce Ailion of RE/MAX Town and Country in Atlanta, another hot market, says this contingency is a lot like a short sale in which the buyer is betting the deal will be cleared by the seller’s lender. And it can be used in all kinds of situations.

In one deal Ailion worked on recently, the buyer was going to tear down the house and build a more modern one. “The buyer didn’t have to get into the house right away,” he says, “so he gave the seller 90 days.”

Another way to give sellers time to find new digs is to rent the house back to them at a reasonable fee, perhaps just enough to cover your mortgage on the place. Gibson finds this option far more attractive, explaining that at least “the buyer knows he bought the house that he wants.”

David Burke, who hangs his shingle with Evers and Co. in Washington, D.C., likes this option, too. In a seller’s market like this, he says, buyers “really have to be creative.” To persuade reluctant sellers to move on -- “to sweeten the deal” -- Burke suggests allowing them to stay free of charge for two or three months while they search for another house, or offering to pay their mortgage for a couple of months while they house-hunt. And if it takes an extra 30 days, then offer to pay their loan for the extra time.

With this kind of contingency, he says, “I’ve never had a deal go south.”

Of course, in this market, the absolute best way for a seller to be certain they find suitable housing elsewhere is to buy first, then sell the current place. With so few houses up for grabs -- a seven-month supply is normal, but the current supply is under four -- sellers shouldn’t have much trouble getting top dollar.

Absent that, though, it may take some prodding to get a potential seller off the sidelines. One seller contingency or another may do the trick.

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Lagoons Still the Hot New Amenity

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | June 15th, 2018

Regular readers of this column may remember a story from a little over a year ago about Crystal Lagoons, a Santiago, Chile-based company which builds huge water features on what are otherwise landlocked properties.

The company recently opened its first project in the States, an 8-acre lagoon at the Epperson development in Florida’s Pasco County. A second lagoon, this one of 14 acres, is ready to go in St. Augustine, Florida, and a third is under construction in the Houston area.

But that’s not all. Crystal Lagoons, which has its U.S. headquarters in Miami, has some 60 projects either under contract or in the negotiation stage here in the U.S. One of those is a deal with Wynn Hotels to turn a 38-acre golf course behind its two properties on the Las Vegas strip into a lagoon where guests can not only swim and sun on white, sandy beaches, but also water-ski, paddleboard and paraglide.

What makes Crystal Lagoons so special is that they are far less expensive to build than a golf course, and use far less water. Plus, they offer residents far more activity options than even an Olympic-size swimming pool.

So far, the company has been dealing mostly with private developers of master-planned communities: places where only residents have access to the lagoons. But it is thinking much broader than that, said Executive Vice President Kevin Morgan in an interview from his Dallas office.

“Real estate certainly is a growth sector for us, and we’re just scratching the surface there,” Morgan said. “But there’s also a high level of interest from outside private real estate development to make Crystal Lagoons more accessible to the public at large.”

Here’s where the company is heading in the future:

-- Open access. Crystal Lagoons is working with developers whose projects aren’t large enough to support the cost of building and maintaining even a small lagoon. In these cases, the lagoons would be open to the public for a fee.

-- Conversions. In an effort to bring traffic back to shopping malls, the company would take an anchor space abandoned by a large retailer such as Sears or J.C. Penney and re-purpose it as a combination lagoon and fitness center or food operation. Morgan calls the result “a synergistic co-amenity,” and says there is a lot of interest from mall owners.

-- Municipalities. Local governments would use public land to build public-access lagoons on ground that may have little use otherwise. Morgan thinks that the feature would generate enough income to recoup the initial cost “very quickly.” The lagoon would operate as a jurisdiction-owned business, but it also would help give value to the land around it and support further development.

-- Colleges. As universities compete for students and student-athletes, a lagoon would become part of a school’s amenity package, for both recreation and water sports. Morgan reports that his company is “beginning to see a lot of traction” in this area.

-- Repurpose. Golf courses are expensive to build and maintain, and many are not seeing enough use to remain profitable. Crystal Lagoons is in discussion with several operators to scale back 18-hole courses to nine holes and build 8- to 10-acre lagoons on the former front or back nine.

What is it about Crystal Lagoons that is generating this much interest?

For one thing, the typical 5- to 10-acre lagoon is relatively inexpensive to build and maintain. They cost roughly $650,000 an acre to build, versus $1 million a hole for a typical golf course -- and up to $1.7 million per hole for a high-end course. Morgan wouldn’t reveal what it costs to monitor water quality from the NASA-like control room in Miami, saying only that it is minimal.

For another, the lagoon-bottom liners can withstand the sun’s ultraviolet rays without deteriorating. And they can last for up to 100 years, according to the company.

Any kind of water can be used to fill a lagoon, even saltwater and brackish water. In Cabo San Lucas, Mexico, a 27 million-gallon lagoon was filled with seawater diverted from the Pacific Ocean. By the time it reached the lagoon, it was clean and clear.

The lagoons use less water, too -- 10 times less then a golf course, and half the water of a park of the same size. Using a patented pulsating mechanism and electronic sensors embedded in the liner, the water is kept pristine at all times. Controlled pulses use only a small quantity of chemicals, as compared to the high level of chlorine and other disinfectants used for conventional swimming pools.

But perhaps most important of all, at least to builders and developers, the lagoons lead to faster sales at higher prices.

According to an independent, third-party study at the 2,000-house Epperson property near Tampa, sales are running at twice the pace experienced by its competitors. Also, prices of the houses are up 20-22 percent, compared to just 4-5 percent for the same models at another Tampa-area location.

Is it any wonder, then, why real estate consultant John Burns reports that Crystal Lagoons has become the top amenity among the 50 best-selling master planned communities?

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Two Startups With Big Futures

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | June 8th, 2018

You paid a premium to live near a rapid transit station. If only you had known that the station was going to be shut down for two or three years for repairs and upgrading.

Or perhaps you realized there was an airport nearby, and even checked out the flight patterns to find out if planes would fly directly overhead. But had you known how darn noisy those jets would be, you might have chosen another house.

Now there’s an app for that. Or there soon will be, promises Steve Kalifowitz, president and head of U.S. Operations for Localize.city. The Tel Aviv-based startup recently opened in New York City, and will expand to up to 10 more cities within the next year.

This column rarely mentions startups, since their futures are so uncertain. But Localize is one of two new companies I learned about recently that seem to have a better chance of survival than most.

The other is Irene, a firm that purchases the homes of seniors with the promise that the sellers can remain there for as long as they desire. The company pays the property taxes, insurance and most operating expenses, allowing seniors to stay in their homes at a much-reduced cost.

Both outfits have raised significant funding from private investors, which is another reason they should make it beyond the beta phase.

Localize began life in 2016 in Israel. It gathers and analyzes “tens of thousands” of data sets, Kalifowitz said in an interview. Its sources include public and commercial databases, plus social media, which it scours for anything people might complain about -- or boast about -- as it relates to housing.

For example, you might enthusiastically buy a house because of the nearby park. But you had no way of knowing the place was an after-school hangout for teenagers, or a favorite spot for drug dealers when the sun goes down. Or maybe the city just doesn’t maintain it very well.

With Localize’s technology, you could find that out ahead of time -- as long as you live in the Big Apple. (Kalifowitz would not reveal where Localize is headed next, so stay turned.)

Consider a family thinking about buying a particular house. They can find out where the schools are, the shopping, the best routes to work and so on. But they can’t know what it’s really like living there until they actually do.

Says the firm’s CEO, Asaf Rubin, “This is the biggest consumer problem the internet has yet to solve.”

In creating its own logarithms, Localize interviewed hundreds of frustrated homebuyers who spoke about mistakes they made because of a lack of information. It analyzed forums and social networks, which are flooded with talk about a wide range of failures in the homebuying process.

The result: an “Insight Engine” that helps people make more informed decisions.

People “choose an apartment for the breathtaking views, without knowing there is already a building permit in the pipeline for a high-rise next door that will block the view completely,” says Kalifowitz. Or they rely on an elevator, only to later learn that it breaks down so often that their fifth-floor apartment is basically a walkup.

“Localize.city’s technology reveals these and many other insights,” says Kalifowitz.

Meanwhile, Irene is taking root as another option for seniors who want to age in place. The company will pay anywhere from 40 to 80 percent of a property’s market value, depending on that value, the life expectancy of the sellers and how much it will cost to maintain the place, according to co-founder Fabrizio Tiso.

The concept is much like a reverse mortgage, except with a reverse loan, seniors still have to pay their own taxes, insurance and maintenance -- and face foreclosure if they don’t. They also have to give up the house if they choose to move out.

With Irene, they don’t relinquish the place until they die. In other words, you keep it for the rest of your life. If you move elsewhere -- say, to your grown child’s house or into an assisted-living facility -- you retain the right to rent the house for extra income. Irene doesn’t take over until you’ve passed.

As with reverse (or home equity-conversion) mortgages, Irene will own the home after you pass. But your heirs can buy back the house if they like.

This kind of relationship is common in Europe, especially in France and Italy, according to Tiso, who is from Milan. There, individual investors -- and sometimes a group of family members -- buy the right to inherit the house when the seller passes away.

“It’s a big innovation for the U.S. market, but it’s definitely not new,” says Tiso. “We see our solution saving tens of thousands of seniors every year across many different European markets.”

A few other details: Irene pays the seller in one lump sum, but monthly payouts are “under consideration,” says the co-founder. Also, the “operating expenses” the company covers are limited: For instance, the company will repair appliances, but won’t replace them -- although that, too, is “under consideration,” Tiso said.

If the company should falter, protections in their contracts allow seniors to remain in their homes. And if the company’s investors fail to make good on that promise, Tiso says seniors will get back the titles to their homes.

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