A report published by the Chicago Tribune on Sunday based upon data provide by Zip Realty is totally bogus. In the report titled Near South Side homes selling, on average, for more than list price the Tribune states that “sales in the Near South Side have averaged 106.4 percent of their asking prices, amounting to $579,630.”

But we know this can’t be true because the home inventory situation in the Near South Side is abysmal. So I went into the MLS to check out the underlying data myself. While the basic statement is technically correct, the data doesn’t at all mean what you think it does. In fact, the data is full of garbage and you know what they say about data: garbage in, garbage out. You see the problem is that the home sales data in Chicago’s Near South Side for this time period includes lots of Museum Park’s new development sales - in particular, sales at 1211 S. Prairie. When you look at the details of those transactions in the MLS you see examples like unit 5002 which closed October 29 at $962,970 while it was listed at $850,500. I think we can all agree that whoever bought this unit probably did not beg the developer to let them pay more than the list price. What really happened is that the final selling price includes lots of upgrades and a parking space that costs an extra $35,000. So a preponderance of these listings is skewing the data.

This is a great example of what happens when you have a computer churn through massive quantities of data without any human review. You get mathematically correct numbers that don’t really mean anything.

I run into a fair amount of discussion about how the olympics being held in Chicago in 2016 would be such a boon to real estate values on the south side. Interestingly, everyone believes that hosting the olympics would benefit home values but I haven’t really heard any discussion of exactly how this works. Presumably, the construction, the activity, the redevelopment of a few key areas, the attention, and the proximity to a high visibility event would raise all boats.

The following map from Crain’s shows the plan.

As you can see, the affected areas on the south side would be Douglas, Kenwood, and Hyde Park.

As I have often said, people shouldn’t think of a home purchase as an investment but rather as a place to live. For one, you wouldn’t want to live in a community in which you were not happy just for the promise of a future investment return. Secondly, there is clearly no way to know ahead of time what purchase is going to provide a great return, if any. In the case of the Chicago olympics I can imagine a scenario whereby, after the olympics are over and they dump 5,000 former olympic village units on the market as condos, home prices plummet on the south side.

Nevertheless, everyone would like to know what the odds are that the olympics will be held in Chicago. As of the time of this writing there is a 65% chance. And how do I know this? Well, there is a prediction market called Intrade where people trade contracts on events like who the International Olympic Committe will announce as the host of the 2016 olympics on October 2, 2009. Much like a futures market, a prediction market trades contracts which will settle at some date in the future at a price determined by some future event. In this case, the 2016 Olympics in North America (Chicago) contract will settle at either 100 if Chicago is selected as the olympic host or 0 if some other city is selected. In the meantime the contract trades at a price that theoretically represents the probability that Chicago will be the 2016 host because the contract price represents the collective wisdom of everyone trading this contract. If someone believed the probability was significantly different than the contract price then it would make sense for them to either buy or sell the contract because of the favorable odds. This would then drive the price towards their perceived probability. The graph below tracks the current Chicago olympics contract in real time so that you can get a sense of what “the market” believes the current odds are. 

Looking closely at the graph above you can see that the contract price recently rose about 20 points right after the election. The reason for that was that there was a belief that Barack Obama would participate in the Chicago presentation to the International Olympic Committee and that that would help seal the deal.

Well, 65% odds is clearly not a sure thing and as you can see above the odds fluctuate quite rapidly. So this should convince you of one thing: gambling on the olympics coming to Chicago when buying a house would not be a smart move.

What else is new? The NAR is asking the government for handouts.

As I’ve mentioned before, the last thing we need is for the government to prop up inflated home prices. Nevertheless, the NAR came up with their four point housing stimulus plan a while ago, in an attempt to do just that. Last week they emailed realtors with a Call To Action to get them, and their clients, to email their representatives in Washington in support of the handouts. Chicago Association of Realtors President David Hanna is quoted: “Your action has never been so important, now is the time for you to stand up for your industry and demand the changes we need. Every Realtor must participate in this Call to Action, please contact your representatives and urge your peers and clients to as well.”

Here, in a nutshell, is what they are asking for:

1. Make the $7500 tax credit available to all buyers and eliminate the repayment requirement.
2. Make the 2008 FHA, Fannie Mae and Freddie Mac loan limits permanent.
3. Target more funds to mortgage relief and create a federal mortgage interest buy-down program to make below-market rates available.
4. Permanently bar banks from engaging in real estate brokerage and management.

Here, in a nutshell, are the problems with each of the four points:

1. Why should people who make $200K per year get a tax credit from the government? For that matter, why should anyone? The government should not be subsidizing home purchases. Not to mention that this would cost at least $38B per year.
2. As if Fannie and Freddie weren’t already spread too thin.
3. The very existence of Fannie and Freddie is a buy-down program. They effectively lower mortgage rates. In fact, the entire economic bailout program is helping to lower mortgage rates and low mortgage rates is what got us here to begin with.
4. And this will help the economy how? By keeping real estate commissions high? The NAR is positioning this proposal as necessary to keep the banks focused on fixing all their problems. But come on! Could anything be more blatantly anti-competitive?

It’s stuff like this that gives Realtors a bad name.

As I’ve written in the past, the real estate industry is full of really weird rules - or maybe they’re not that weird in light of the fact that the intention is often to undermine competition.

One such set of rules pertains to the arcane world of IDX and VOW - two different ways for MLS listings to be distributed across the Internet. The rules regarding these two different protocols are so convoluted that I always need to refer back to my notes to remember what the deal is.

IDX stands for Internet Data Exchange and is also known as Broker Reciprocity. Brokers who participate in this program agree to allow each other to display their listings on each other’s Web sites. When a listing is distributed via IDX it can be shown on any Web site without the user needing to register. However, the local MLS may restrict the display of some data fields and the Web site must display the name of the listing broker. OK…with the exception of the data restriction and the fact that brokers can choose not to reciprocate (why in the world wouldn’t everyone reciprocate?), this seems to be the way things should work. So why is there any other way to do business? Because this is real estate and nothing is simple. Hence, there is VOW.

VOW stands for Virtual Office Web site. The idea of VOW is that the Web site is a virtual office of the real estate broker and therefore the broker has established a client relationship with the visitor - provided the visitor has registered. Once the visitor registers, the broker is allowed to interact with that client just like they would if the client walked in the door of their office. They can show them all the information on any listing, whether or not the listing agent is participating in the reciprocity program. Seems to me to be a trivial distinction in order to show consumers something they should have access to without restriction.

When I first started researching the real estate industry the Multiple Listing Service of Northern Illinois (MLSNI) told me that only 60% of the listings were available through IDX in the Chicago area. Therefore, a Web site operator really needed to get users to register in order to show them all the listings. However, since then MLSNI merged with the other local MLS system (MAP) and in the process IDX became the default process. As far as I know this had nothing to do with the recent settlement between the NAR and the DOJ. Today around 97% of the listings are available through IDX. In other words, registration is really not necessary.

So then why do many broker sites still require registration, often with messages like the following when searching on their Web site?

It looks like Remax is only showing their own listings without registration but requiring registration to see anyone else’s listings, under the guise of MLS rules. Just to be clear, it is a flat out lie that the MLS requires registration - a great way to engender trust.

So why is registration required? Because they want your contact information so that they can follow up with you. We would love to follow up with you also but we don’t want registration to stand in the way of you getting what you want right now. We figure that if you would like us to follow up with you you will contact us.

Barack Obama’s house at 5046 S. Greenwood in the historic Kenwood district of Chicago can be found on the MLS system. Built in 1910 and sitting on a 70 x 150 foot lot on the west side of the street, this 3 story Georgian home has 14 total rooms, 6 bedrooms, and 5 1/2 baths spread over 6500 square feet and a 4 car garage. Here are a few other key stats on the Obama house:

• Master bedroom is 19 x 14
• His office is 22 x 15
• Kitchen is 20 x 20
• Family room is 38 x 36
• Property taxes appear to be about $22,000 per year best I can tell

I wonder if the size of Barack’s office relative to his bedroom is any indication of his priorities.

I found the following photo of the Obama house on Flickr:

The empty lot on the left of the house is owned by Tony Rezko and has been the subject of much speculation regarding the relationship between Tony and Barack. The two properties were purchased from the same seller and closed on the same day, June 15, 2005. Subsequently, the Obamas purchased a strip of the empty lot from the Rezkos in order to expand their yard.

The Obamas got their home for $1.65 MM compared to a listing price of $1.95 MM. From the public release of the Obama’s tax return for 2007 we know that they deducted $58K of mortgage interest. So I assume they put a fair amount down on the purchase. The CCRD site has no record of this transaction. Perhaps it wasn’t recorded or some legal maneuver was used to avoid the public record. I do know that the transaction was done through a trust to maintain Obama’s privacy. So much for that idea.

I found a very interesting article from someone who lived in the Obama house many years ago. He provides an in depth description of the history of the house and what it looks like on the inside.

The picture above was obviously taken well before Obama won the nomination. The secret service and the Chicago police had not yet taken over the neighborhood. I drove past this area a few weeks ago and noted a couple of interesting things. First, there are signs on 50th St. about a mile away from the intersection with Greenwood requesting all trucks to divert. That seems reasonable except that I didn’t see any capability to enforce that displayed. Once you get to the intersection they have concrete barricades set up on Greenwood to prevent any vehicle from approaching the house and there were numerous Chicago police cars and officers manning the entrances. I didn’t see any donut eating.

If the Obamas decide to sell the place - it’s going to be vacant for the next 4 years - I would be happy to cut them a great deal on the commissions. I suggest that as part of the realtor vetting process the secret service should administer a lie detector test to any prospective realtors.

For those not familiar with Chicago here is a map showing where the house is:

Special Thanks

Special thanks to David Dalka, who runs an Internet Marketing strategy blog, for suggesting this post.