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Remodeling ROI Not Always Great

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | March 17th, 2023

Bathrooms are receiving a lot of attention from homeowners who are staying put rather than braving a housing market beset by high prices and climbing mortgage rates.

Last year, according to one major supplier, sales revenue from vanities with countertops grew 27%. Sales of soaking and jetted tubs were up 22%, and sales of tub and shower surrounds grew 20% -- even while prices of those products were up roughly 20%.

Hopefully, owners who chose to remodel are enjoying their new spa-like retreats. Because if they went to all that trouble so their places would sell for more, they likely won't come out ahead.

Actually, you won't come out ahead on any of the 34 different remodeling projects covered in a new report from Today's Homeowner, a media company based in Mobile, Alabama. You'll only get back 60 cents on the dollar for a midrange bathroom remodel.

In hard dollars and cents, if you spent $15,737 to update a 35-square-foot bathroom with a new tub, vanity, toilet, lighted medicine cabinet, tile floor and wallpaper, only $9,500 of your eventual selling price can be attributed to the remodel.

You'd do a tad better by spending big bucks for an upscale bathroom addition, according to the research. It will cost $74,882 to add a 100-square-foot bath with a high-end soaking tub, shower, stone double vanity, separate commode area and in-floor heating. But when you sell, just 64% of that -- $48,020 -- will be recovered.

You'd do even better by making a bathroom in your house wheelchair-accessible, with wider doors and an accessible toilet and shower, along with various cosmetic improvements. Here, the cost would run $16,554, but you'd get back $13,000 -- 78% of your outlay -- when you sell.

There are all kinds of surveys like this one. The trade journal Remodeling has one, the National Association of Realtors has another, and so does Modernize.com. But they rarely agree on which home projects are worth the time, expense and hassle.

The differences, basically, rest in their methodology. While some surveys rely heavily on the opinions of local realty pros, the Today's Homeowner study took a "very granular" approach to both sides of the equation, says researcher Elizabeth Thibodeau, whose firm, Three Ships, conducted the study on behalf of the media company.

On the cost side, researchers built a data set based on discussions with suppliers, who were then vetted by contractors. And on the value side, they combed through 70,000 Redfin listings in 1,300 cities, looking for a number of geo-specific factors.

Of course, just as all real estate is local, so, too, are all remodeling projects. The cost-vs.-value figures mentioned above are all national averages, meaning that some undertakings do better on the local level -- and some do worse.

For example, replacing a garage door was the only project with a 100% payback on the national level in the Today's Homeowner study. But do that in San Francisco and you'll get back 180% of the cost when you sell.

Nationally, a screened-in porch nets only 92 cents on the dollar. But add one in Honolulu and your return will be 182%. (In decidedly colder Cleveland, your return will be just 72%.)

Similarly, replacing vinyl siding, a net 91% expense nationally, is worth 140% in Seattle, according to the study, but just 83% in El Paso.

The research also found some interesting anomalies. For one thing, the least expensive improvements tended to offer the greatest returns. Take that garage door again. The cost, a little over $2,000, had the same return, at least nationally. Replacing your windows, adding a concrete patio, installing hardwood floors and replacing your gutters also did fairly well.

On the flip side, finishing a basement had the worst ROI of any of the projects covered. The cost nationally was estimated at nearly $50,000, but the price gain at sale was just $11,300 -- a measly 22%. Other big-ticket improvements such as remodeling a kitchen did twice as well, but still only earned back about 53%.

Another surprise, at least on a national basis, was the return on adding a backyard swimming pool.

The conventional wisdom is that pools are a poor investment: one that turns off many buyers who don't want the maintenance, hassle or cost. But the research found that an in-ground pool that cost $46,802 coincided with an extra selling price of $42,150 -- a 90% return.

Also, while replacing your old, worn-out appliances is always good for living more comfortably, you can expect to get back 74 cents on every dollar you spend. If you're redoing your kitchen, stay away from the more costly counters: The net on both quartz and granite is only 62%.

Finally, homeowners who are about to put their places on the market would do well to invest in their homes' exteriors: All seven projects with an ROI exceeding 90% in the survey were outside jobs, including siding, roof and gutter replacements.

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Some MLSs Are Slow To Adapt

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | March 10th, 2023

Real estate agents who are up on the latest technology are at a distinct advantage these days. They can search the market on behalf of buyers and set up appointments almost instantly; for sellers, they can create videos and marketing plans at the touch of a button or two.

Those who still operate like they did in the old days -- that is, just a few years ago -- can still get the job done, but it's often a slow, arduous task. It's like driving a six-cylinder car on five cylinders. It will still get you there -- eventually -- but it won't be a smooth ride.

Whether old-fashioned or tech-savvy, though, some agents are being held back from the best, newest versions of their greatest tool: their local multiple listing service, or MLS.

An MLS is a cooperative database of houses for sale in a local or regional market. There are nearly 600 MLSs across the country, powering more than $2 trillion in annual residential sales. Using a specific format, agents can search these databases for houses listed by other agents. They can specify any number of criteria, from the number of bedrooms and bathrooms to swimming pools and acreage.

Even when people shop online before contacting an agent, an MLS is valuable because it sets the rules of the road -- protecting consumers as well as agents and brokers.

In effect, MLSs are the governing bodies by which houses are bought and sold within a given market area. Listing services rule the roost. Without them, there would be chaos.

But some MLSs are being prevented from modernizing by their own business rules -- the foundational instructions that guide technology firms in deploying their products and services inside their systems. And that's keeping their agent-members from adopting the newest technology.

No one disputes the need for these rules; they are vital in allowing MLSs to copyright their proprietary information and determine how that data is organized and presented.

But without getting too deep into the weeds here, some listing services are still operating under outdated, sometimes inaccurate, regulations and controls. They may have switched vendors, for example, or changed their software in some way that is in conflict with what the rules require.

For example, suppose an MLS wanted to adopt a new technology that would speed up the system and keep listings up-to-the-minute fresh. But if the rules contained an outdated mechanism that requires two software components to communicate with each other -- or if the mechanism no longer existed -- the tech firm would have to start over from scratch.

Consequently, vendors tell me that flawed business rules extend the time it takes to integrate the latest software, as well as the time it takes to deploy it after it is successfully incorporated. And they could create a liability and possible litigation risk for the MLS, leading to increased costs.

Ocusell, a platform working to modernize the listing process, is one firm finding it difficult to penetrate the boundaries of the outmoded firewalls around MLS data. And it is not alone.

"It's not just us that's trying to break through antiquated rules," co-founder Hayden Rieveschl told me in an interview. He said outmoded rules have become "a huge barrier to implementation. They are creating major headaches."

Bill Fowler, a real estate technology veteran, said he has "repeatedly run up against" obsolete rules over the course of his 23-year career. He adds that MLSs, which started out as printing companies publishing books of listings but are now basically technology firms, have been slow to adapt.

Greg Moore is chief technology officer of RMLS in Portland -- one of eight MLSs in Oregon and the only one with its own development team. He says the rules many listing services use "have evolved over decades."

"(Services) don't have a single document that says, 'These are our rules,'" Moore explains, "so they almost have to reverse-engineer the process to get to the point where they can add or change content."

Both Rieveschl and Fowler have empathy for listing services trying to deal with the problem. "Business rules often are unreliable because they can be tedious and expensive to maintain," Rieveschl explains.

"It's not because they are against change," adds Fowler. "It's governance that's the problem. They recognize they need to change with the times, but they are not structured to work that way."

The good news is that MLSs are accelerating their adoption of new technology from various vendors. And as more of them merge with one another, they acknowledge the need to update their business rules so they can onboard new tools for their agents and brokers -- and ultimately their members' clients.

Fowler, for one, says "the tide is turning." Some MLSs, he reports, are now hiring staff whose job is to "go out and find the newest technology."

"The easier we can make it for MLS members to integrate with cutting-edge tech," says Rieveschl, "the more MLS members, buyers and sellers will benefit."

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Fraud, Fraud, Everywhere Fraud

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | March 3rd, 2023

While late-night TV scams and robocall schemes are coming under increased scrutiny by state and federal officials, new real estate-related swindles continue to come to light.

The latest is what title company executive Thomas Cronkright calls the “owner-not-present” ruse in which fraudsters claim to be the owners of vacant lots and unencumbered properties to shoot for a quick sale by offering below-market prices.

Cronkright, who also owns CertifID, a company which works to uncover and prevent wire fraud, says the crime has “grown quickly” into the second-largest risk category of real estate fraud.

The scam first hit his radar last summer when a ring out of Germany was discovered to be focused on non-owner-occupied houses. But “now we’ve seen enough of it to realize there is a definite trend growing around vacant and unimproved property without mortgages.”

Here’s how the scam works:

The swindler searches public records to find real estate that is free of mortgages or other liens -- often vacant lots or rental properties -- and identifies the true owner. Then he poses as the owner and contacts a real estate agent to list the property for sale.

That’s exactly what happened to a lot owner in Nantucket, who found out his land was being targeted when someone who had seen the listing on Zillow called to see if he would take a lower price. He immediately ordered Zillow to remove the listing, and no harm was done.

But he’s lucky. Most owners don’t find out they’ve been had until they discover their taxes haven’t been paid.

According to Cronkright, all communications are done digitally, either through email, messaging or other means -- but never in person. The listing price is generally below market to stir immediate interest. The scammer prefers an all-cash transaction, and when an offer is made, it is quickly accepted.

The scammer refuses to sign documents in person, though. Instead, he asks for a remote notary signing. But when the papers arrive, he impersonates the notary and returns falsified documents to the title company or closing attorney. And at settlement, the proceeds are transferred to the sharpie.

Typically, says Cronkright, the fraud isn’t discovered until a point at which the documents are recorded with the applicable county, which can take days or even weeks in some jurisdictions. “The detection level is almost nil,” he told me. “And it can be an absolute mess if it reaches the courts.”

CertifID has worked with federal authorities on several of these kinds of cases. In North Carolina, a title agency and real estate agent were scammed out of $33,000 on an empty lot transaction. But CertifID worked with the Secret Service to freeze and ultimately gain the fund’s return. In two other cases, one in Ohio and the other in Florida, the supposed owners contacted real estate agents online, out of the blue, with no previous connection.

Meanwhile, Texas Attorney General Ken Paxton is investigating Home Title Lock for possible violations of the state’s Deceptive Trade Practices Act by allegedly misleading consumers with deceiving statements concerning the prevalence of the theft of real estate titles and the need for the company’s services.

Paxton is trying to determine if Home Title Lock’s claims and advertisements are false, misleading or deceptive. Toward that end, the California-based company has been required to turn over documents concerning its advertisements and all documents substantiating specific claims.

“I won’t tolerate false, misleading, or deceptive advertisements targeted to any Texas consumers,” the AG said in a statement. “If Home Title Lock is misrepresenting its services or the need for its services, I will put a stop to its unlawful behavior.”

Last summer, this column warned consumers about Home Title Lock’s claims that the FBI says title theft was “one of the fastest-growing” crimes in America. The FBI said it has no record of making such an assertion. And the document the company sent to ABC News to justify its claim was more than 20 years old and was about mortgage fraud, not title theft.

For about $20 a month, the company says it will monitor a subscriber’s title and notify him right away if it is tampered with. But homeowners seemed to be left to themselves if Title Lock found something amiss.

Moreover, monitoring your title is something consumers can do for themselves. And in many places, the county recorder’s office will do it for you at no charge.

At the same time, the Federal Communications Commission has taken steps to squelch the ability of MV Realty to run a robocall campaign aimed at pushing unsuspecting homeowners into signing 40-year leasing contracts. I covered this outfit in October.

Acting after attorneys general in three states -- Florida, Massachusetts and Pennsylvania -- have filed suits against MV for using misleading robocalls to “swindle” and “scam” owners into effectively mortgaging their homes in exchange for cash payments, the FCC has told telecommunications companies not to carry the suspected illegal pitches. MV Realty told me that it “only engages” with people who respond to its advertisements.

“Mortgage scams are some of the most pernicious types of robocalls we see,” said FCC Chairwoman Jessica Rosenworcel. “Sending these junk calls to financially stressed homeowners just to offer them deceptive products and services is unconscionable. That’s why we are shutting down these calls right now.”

The FCC received some 1,500 unwanted call complaints from consumers related to mortgages last year.

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