Achieving Financial Greatness with Clear Thinking Builds Lasting Market Confidence with Jonathan Miller

[0:00] Welcome back to the REI Agent. My guest today is Jonathan Miller, President and CEO of Miller Samuel Inc., New York City’s most cited real estate appraisal and market research firm. Jonathan was the author of Element Reports for 32 years and has recently formed a partnership with The Real Deal. Jonathan is widely considered the most authoritative source of Manhattan and luxury market data in the country, and he is a go-to voice for CNBC, Bloomberg, and the Wall Street Journal whenever the market needs explaining. He does not just track what is happening in real estate, he builds the frameworks that the rest of the industry uses to understand it. Jonathan, welcome to the REI Agent Podcast. Great to be here. Jonathan, I want to hear how you got started, but I have to say really quickly, you said offline that you’re boring, but you’re talking about markets and data and all this kind of stuff, but honestly, I love it. I feel like I’ve been interested in the analysis side of real estate ever since getting started, and I think it’s such an important thing that if you’re not thrilled by that kind of numbers and the stuff to begin with, you have to understand

[1:10] that your clients probably, there’s going to be a section of your clients that are definitely going to be very interested, and having something to talk about is definitely important. So Jonathan, thanks so much for being on the show. What got you started in real estate? Well, Matthias, it’s one of those questions that is really hard to trace where it started. I actually was a hospital executive in Chicago, and my father had a real estate background in the DC metro area, and so I was always interested, but I tried the hospital management thing. I did that for about three years, hated every second of it, quit and became a real estate agent in suburban Chicago, and became the number two performing listing agent within my first six months there. I ended up moving to New York, talking to New York, talked myself into being a sales agent on a newly built condo in Manhattan, and saw some success there. I did a lot of sort of analytics. I literally took the offering plan and the Schedule A, which is all the pricing of all the apartments and our units in the building, and put it into a Hewlett Packard 41C, so I could walk around with this sort of space age. You know,

[2:37] this is in the 80s, a long time ago before the technology have now, and then I saw a bunch of appraisers coming into the building not having any information. New York City, Manhattan specifically, does not have a multiple listing system, so it’s very antiquated. Public record at the time did not exist, and we thought, hey, in this really murky data world, we could start an appraisal company, and we did, and that was about 40 years ago. Wow. So I would imagine that is no longer true, that there is an MLS in Manhattan? So what we have, we have, when I say no MLS, I mean, really, I mean, no traditional MLS. Okay. There is the Real Estate Board of New York, known as REBNY, and they have tried to set up a partnership with, is HomeSnap, but it’s called CitySnap. But we sort of have a de facto MLS now called StreetEasy, which is owned by Zillow, and it has lots of problems. But so, like I said, like the idea of being in New York, in many ways, it feels like the 1950s for being the financial capital of the world.

[4:00] Right. It seems like it’s very primitive in a real estate data management sense. And I think people that are new to this market find that surprising. Yeah. That is very surprising. I can’t believe I haven’t actually heard that before. And it clearly creates a need for you. And any kind of data you can get is really important then, for sure. Well, early on, one of the things as an appraiser, you have to get sales data. And up until about 15 years ago, it wasn’t public records. So, so, you know, our housing stock in Manhattan specifically is about 75% co-ops, which are technically not real estate, their shares of stock in a private corporation. And we used to collect that stuff, you know, early on, you know, there’d be, you know, we get from managing agents that would manage apartment buildings, they would have lists of, you know, co-op sales, and then we would put them into our database. And we ended up having the largest collection of co-op sales at one point before it became public record in 2006. So last 20 years, it’s been, you know, there’s been more transparency, but we still don’t have really this traditional MLS

[5:26] system that I think most real estate agents are used to. Yeah. And so for my market, we’re a tertiary market, like I mentioned off air, but, you know, we, we don’t really have a unified source for rental, you know, data. And, and that’s extremely annoying. If you’re an agent, if you’re an investor, you know, you want to figure out, you know, what’s the financial possibilities of this property, you know, from a marketing standpoint, from a, you know, wanting to invest in a standpoint, and you just don’t have a unified source and it’s really annoying. Yeah. And it becomes, you know, it’s like manual labor when, you know, a good part of the real estate world has that in some form of a database that, you know, there’s consistency in data entry, error checking, all that kind of stuff. And instead, you know, there’s still some markets, like, sounds like what you talked about, which is consistent with, with our struggle, is just getting, you know, a quant, a large quantity of data to, to do your analysis to make an informed decision. Yeah. Yeah. A hundred percent. So, so you, you were then at some point you, you got in with

[6:41] this Element Reports and you were there, you know, author for, for 32 years and, you know, you had a lot of notoriety, you know, you’ve, you’ve spoken in a lot of the, you know, CNBC, Bloomberg, etc. Tell us about how that kind of evolved. And then, and then the, you know, the transition must have been a pretty big deal to go kind of more independent and with the partnership deal. Yeah. So, so in, I think it was about 1994, I was speaking at a sales meeting at Douglas Elliman, which at the time was not a national firm. And, and I was sort of the, the guy that knew everything about Manhattan. And, and they basically approached me to write a report. And I, I said, I’m happy to do it. Uh, but under, I have one specific rule. And if you violate that rule once I, I leave. And that is, you can never, ever, ever tell me what to say, uh, that this is not a marketing brochure. This is a research piece. Uh, and to their credit, uh, I did this for 32 years, uh, and they never once sort of breached that line, that demarcation in the sand, because the most of the market studies that are put out by real estate brokerage firms are sunny and rosy and happy. And, um, and yet they’re not giving

[8:10] credit to the agents in the market. They’re agents that thrive in, in tougher conditions, uh, than others, you know, that, that you can’t just assume that in a tougher market, if you speak happy news, and I’m not talking about me being gloom and doom, it’s, Hey, when sales dropped, I say sales dropped, right? When I don’t hide that data from the report. And I see that a lot. Um, and what I found is, uh, you know, all of a sudden, when I started doing this 1994, the fed reached out to me, uh, I’ve been talking, I’ve interviewed every six or so weeks for the beige book about what’s going on in New York city, metro area in the housing market. It’s an anecdotal survey. That’s invaluable to your readers. Um, there’s 12 federal reserve banks around the country and all them write about all aspects of the economy in plain, simple English. Uh, there’s no stats it’s anecdotal. And, you know, I used to have this dad joke. I have this dad joke when everyone’s uses the word anecdotal. I would say, um, the plural of anecdotal is not data, which, uh, has, you know, its moment, um, in a conversation. But on the other hand, one thing that

[9:35] is clear, um, the fed uses anecdotal for the data that’s in front of the actual data. So think of going down a rabbit hole real quick, but if you think about closed data, right. And then you think about contracts. So you think about contracts as being more current, even though they haven’t necessarily closed. And if you’re involved to market, they’re probably going to be more reliable or on, in terms of price than a closed sale because of the lag. Well, now you have to wait for a contract, right. To, to, to have that as a data point or pending sale, whatever you want to call it. So contracts, um, in front of contracts are anecdotal experiences. So the fed has sort of reached out to people they trust on the ground. And, and it’s like talking to your best friend at a, at a Starbucks, you’re sitting down and they ask you, Hey, what’s going on in the market?

[10:29] And it’s your friend and the friend trusts you. And it’s like this whole, you know, level of quality. That isn’t the same as me just going up to somebody in a parking lot and said, Hey, how’s the housing market? Um, and so in many ways anecdotal is in front of contracts, which are in front of closing data. And it’s just an interesting way to look at, uh, the housing. No, absolutely. That’s, that’s really fascinating. Um, you had, you had said something in the, I don’t know if this is a good time to say it again, before we got on air about how, um, age, how you see agents perspectives on the market and, and what is typically, I thought that really rang true. Yeah. I, um, so, uh, there’s a one saying when I think about it is, you know, real estate agents are, you know, by definition tend to be optimistic and they’re paid on commission. And, uh, I was a real stage for six months. I don’t claim to be an expert on the topic. Um, but I interact for a living with the real estate community in New York city. And what I find, uh, there’s a Warren Buffett saying, uh, never ask a barber if you need a haircut. And, and I say that because, uh, someone that’s

[11:42] involved, they’re paid on commission. You know, they’re not, it’s not a salary. They’re paid on commission for, you know, the, the property to close and then they get paid. So what I found in my own career is that when you, when you talk to real estate agents about how the market’s doing, if you talk to somebody who is a super productive, um, always, you know, just generating like a machine, just generating sales, you ask them how the market’s doing, or you ask somebody that hasn’t sold something in three or four months or a year or whatever, like the time it is in the same sub market of that market you’re talking about, they’re going to have very different responses because the one that’s sort of, you know, lighting the market on fire, you know, really selling stuff over and over again, they’re going to have a different take than somebody who hasn’t done a deal in a long period of time. And so one thing that I learned, um, and this is maybe another rabbit hole, but, um, uh, this applies to reading real estate stories, um, uh, real estate information, seeing a chart in a newspaper, you, before you do anything, you think about the source. So, um,

[13:03] there’s a Yale professor, I think he’s an emeritus professor, um, called, um, I’m trying to remember his name offhand, but anyway, um, he’s very big about how to envision information, how to prevent and present information in a way that’s credible. And what he says, and I look every day, I think about this is any, any chart or article that doesn’t have a source is a lie. And, and you really want to, uh, it’s not about the data, it’s about the source and the data. So if, and that’s the same thing with media consumption, pay attention to the source. If it’s a press release, probably shouldn’t give too much weight to it. Um, and, and I, I actually teach market analysis at Columbia University and, um, and my further grad school program and, um, on their, their future real estate developers.

[14:00] And one of the things that I, I harp to them over and over again is the source of information is just as important as the information itself and never, never shortchange that concept. It’s so important. Um, think about you’re in a sales meeting as a broker and the, you know, one agent, you know, says how great everything is. And they give a couple of examples of their deals, but everybody else in the room hasn’t sold anything in three or four months. Like it’s dead, but that one agent. So imagine, you know, this sort of misunderstanding of a market. If you only talk to that one person, um, anyway, I’m belaboring the point, but it’s worse is everything. I agree. I, I had an interesting take on that. Uh, I was thinking about, uh, earlier this year, I had a couple of listings, uh, back to back that didn’t perform the way that I thought they would, um, necessarily, or they would get a lot of activity and not a lot of offers. Um, so, so I had a very, very well staged, really, really, you know, charming home, uh, you know, really good price. And it was, uh, you know, a lot of things going really good for it. Um, we had, you know, 17 showings in a weekend,

[15:15] which is, which is good for our market, uh, but it was not a postage size stamp lot. And so it was a very teeny lot. There wasn’t really much in the yard and the setting was a bit odd, uh, for our market. And, um, at the end of the day, uh, we were, we only got one offer on it. Uh, and typically when you have, you know, 17 showings in a matter of a couple of days, you’re going to get a lot more than just one. And then I had another, you know, one of our most popular, um, uh, spots in our town, uh, close to downtown, um, a very, you know, very nice street, very well known, um, street, et cetera, uh, a very small fixer upper that we priced aggressively, um, on that street. So very, very cheap for that street that a number and then street name that should have elicited a lot more activity. I thought, uh, but again, it was, it was only 700 square feet and it was, uh, there’s just some outside factors, but, but I had that perception that like this market is, you know, that what is going on with this market? Like I would have expected more from these, uh, listings and, uh, you know, talking to some colleagues that they were like, I think you’re just, you just had a couple weird

[16:22] ones, or, you know, you had a couple of ones that were just, uh, unique outliers, right. And, and you shouldn’t base your whole data set or your whole outlook about the market because of these outlier properties. So a hundred percent. I think that’s an excellent point. And I, when I think of that, um, uh, one of my old timey favorite sayings is one sale doesn’t make a market and, um, you know, you can have, you know, you know, crazy, like a low ball, like foreclosure and, you know, the whole neighborhood is panicked because it, you know, it could influence lower valuations for their properties. Um, but one sale doesn’t make a market. And that’s, if all, if half the sales in the neighborhood are foreclosures and they’re all selling for half of what they did three years ago, well, maybe it, maybe it’s, uh, you know, the market has changed dramatically. We had that situation in Manhattan, uh, after the financial crisis, when Lehman went under and AIG and all that like collapse, um, our housing market, I had a bunch of agents come up to me. I was speaking at an event and a bunch of agents came up to me and said, Hey, uh, we’re just getting a bunch of low ballers. And I go,

[17:39] you know, they’re just offering these ridiculous numbers. And I go, uh, are they everybody doing that? And they said, yeah, everybody. And I said, how much are they? And said, it’s all about 30%. And I said, well, you know, there’s a good chance that the market, um, after, you know, this, this event, uh, corrected. And, you know, a lot of people see price change as this like slanted, gradual line, but in many, many times it’s really a series of steps down or up. And sure enough, I mean, the, a new price point had been established and you know, that within about a year and a half, the prices recovered, but it was like overnight, you know, the, the, and, and it was not one agent. I talked to about a dozen neighborhoods of Manhattan, different, and they were all saying the same thing.

[18:28] And that was, you know, so you, you have to be careful about not, you know, you want to, you want to think you want to keep your eyes and your ears open for changes like that. Sure. I mean, this is a great segue to, to ask you about what you’re seeing, um, in Manhattan now, data wise, what you see, what repulses on the market strength and, and kind of forecasting in Manhattan. And then also, uh, if you can talk about the rest of the country. Sure. Uh, so what’s interesting about Manhattan is, um, first of all, when I was growing, I grew up in the DC Metro area and my grandfather was up in Connecticut and he told me, you know, Jonathan, if you’re not working in New York city, then you’re just camping out. And somehow I ended up, uh, in New York city. I’m not a native New Yorker, but I’ve been here since the mid eighties. Um, um, and, uh, and so when we look at what’s going on in the market here, um, what happened here that didn’t happen in almost every suburban market in the country, including the suburbs that surround New York city is that actually New York city was never stripped of inventory like the rest of the

[19:41] country. What we learned coming out of the pandemic was that when, when interest rates are too low for too long, it actually makes housing more expensive because it wipes inventory off the face of the earth. And, um, and that’s what happened. Um, you know, it’s not like we can build our way out of it. If you tripled new development, new construction across the country, um, the problem is existing property is just very limited. And, um, and there’s certain regions of the country that it’s softer or tight, you know, like, you know, housing is local obviously. Um, but in the Northeast and the Midwest inventory is very tight, extremely tight. But if we’re talking the Sunbelt, like Florida and Texas, inventory is not tight. And that’s because they responded so quickly to, um, to the migration, outbound migration from the Northeast and California. Anyway, I bring this up. This is a long winded way.

[20:44] I’m getting around to what’s happened in Manhattan. What happened in Manhattan is we never were gutted of supply because Manhattan during the COVID was seen as the, um, uh, the, the COVID global hotspot. Yeah. And, and so, uh, we, we just didn’t, you know, everybody was sort of in lockdown and really we were very, I had friends, all colleagues all across the country asking me if I’m okay and all that, because, you know, we’re in multifamily, a multifamily market. It’s co-ops and condos are 98% of Manhattan’s transaction volume. And you don’t walk in during a global pandemic and inspect an apartment or a condo unit. Um, you know, everything was sort of shut down. So as a result, we didn’t have the the complete, you know, sales boom that happened in the suburbs, um, you know, across the U S, including the suburbs surrounding New York city, you know, everybody, you know, fled to the suburbs, inventory was wiped clean, and it’s still about 20% of what normal inventory should be in the suburbs around New York city. So we, so as a result, inventory in New York city has, uh, Manhattan specifically, but the other boroughs as well as was not gutted. Um, but right now it’s on

[22:09] the low side and, and what’s been happening with New York city is, uh, Manhattan, the Manhattan market is 65% cash now. And so I don’t want to say that mortgage rates don’t matter, but you have 65% of the market when the rest of the country is like 24, 20%, uh, 25%. So, so we’re not as sort of, you know, it’s not when mortgage rates go up or down. Yeah. It has impact on the market here, but not as much as say a traditional suburban housing market would. And also we’re, you know, our core business is wall street and, uh, the securities industry accounts for about 20% of the wages in New York city and only employs about 3% of the people, right? So they’re high wage earners and guess what wall street for the last couple of years has had record profits and record compensation. And so guess what those people do? Well, they buy stuff. And one of the things they do is buy higher end. They tend to buy higher and not necessarily the top of the market. So as a result, we have a market that is weaker.

[23:24] I’ll be cavalier and say, if you think about plus, uh, above a million and below a million, just to make it simple above a million, very strong, faster inventory declines because there’s money and not only wall street, but now we’re finding that the tech industry is booming here. They don’t make as much as wall street, but they make a lot more than the average private sector. And then below a million is mortgage rate dependent tends to be. And so, you know, as mortgage rates, since the, uh, around war began have, you know, popped about a half a percent that has taken some of the wind out of the sales for the lower price properties. So when I think about the future, I think about, um, uh, that, uh, the fed now is even with a new fed chair is talking about higher, uh, at least, uh, at least one rate increase from the FOMC, the, um, open market committee for the fed, uh, in 2026, prior to the Iran war, we were talking about two rate cuts in 2026. So the sort of the tables have turned significantly and that’s a headwind for housing nationally. It, it, it doesn’t mean the end of, you know, we’re,

[24:40] but it, it takes a lot of the sort of wind out of the sales of the market. Um, and I think it’s going to, you know, I think the next couple of years are going to be, um, uh, for that reason and tariffs are another reason that, um, are keeping, uh, sort of inflation pressure high. Um, so anyway, the long story short is, uh, Manhattan is expecting, uh, flat sales, rising prices, falling inventory. And that’s the prognosis over the next year, at least. Okay. You, you had said that the, uh, Sunbelt area, um, had responded more quickly. Do you mean that they just, they had a boom and new construction? Yes. They built a lot more and they anticipated, um, you know, this, uh, uh, this boom. And, and it is interesting because after, um, uh, the, um, the tax, uh, the, what do they call that?

[25:39] The salt tax is the nickname, um, from the federal government, um, was passed in 2018. Uh, that was designed to tax, uh, sort of create a penalty for higher tax states like that, that are found in the Northeast or California. And so Florida was anticipating, you know, rubbing the hands together, the brokerage community that you’re going to have a flood of New Yorkers leave New York to go to Florida. And, uh, it didn’t happen. But then when the pandemic hit COVID hit, it was bedlam, right? I mean, uh, you know, Florida boomed. Um, I think that migration pattern is largely done. Um, now it’s more organic, normal migration. I’m not saying there aren’t people coming into Florida, but nowhere near the level that was happening. And I have a lot of friends, um, that, you know, that left New York and moved to Florida. But I think there’s been, uh, our New York’s, you know, this is sort of this image that New York is like, there’s no one here, no one coming. Um, but actually our inbound migration, meaning we have more people coming in than going out. And over the last year, um, our population has

[26:55] recovered to pre pandemic levels. So there are people coming in, but not, um, and not going out as much as sort of the storyline seems to suggest. Okay. Well, that’s, that’s really interesting. Um, and it tracks with the people that I’ve, you know, I have conversations with across the country for sure. Um, the different definitely, I think, I think to your point, there’s definitely the, uh, last past couple of deals, uh, that are infiltrating their, their brains as to their outlook of the market. Also it’s human nature. I’m not blaming them. It’s just, you know, when you’re, when you’re selling, you know, it’s all about like getting those nuggets of information that help make a sale. And so that creates like, you know, a persona that’s, you look on, you know, the glasses have full, right. And, uh, the problem is being objective in like, um, you know, describing a market, you know, I always look at it as, um, and I, I use this analogy earlier, but this is sort of a different, a little bit different to take, but you know, I always, what’s so important, you know, in what I, what I think, when I think of market analysis, market analysis is being able

[28:06] to tell a story about the market. And, um, and so it is when, when your best friend you’re selling a house to you sit down in a Starbucks, you know, you’re telling them objectively what you think is happening and that’s really market analysis. And the problem is that, uh, you know, you can, I, I, I exaggerate maybe is the right word or, you know, overstate or understate. Um, just because that’s human nature. So it’s something always to be aware of. What, what if you’re, uh, you know, if you’re an agent in a hurry or, or what are those books like the history in a hurry for those in a rush or astrophysics or whatever, if you’re, if you’re, if you’re an agent that isn’t going to be, uh, you know, just, uh, you know, head in the stats constantly, uh, but they do want to have talking points that are not just anecdotal, not just based on their experience. Where are you, where are the top metrics you suggest they, they, they look to, uh, they try to find days on market, you know, that kind of stuff.

[29:08] Right, right. Gotcha. So I, uh, I think that, and this has been the story for the last few years, the number one metric of all housing metrics is, uh, inventory, uh, anything that, or it could be months of supply, anything that suggests, uh, how much is available, um, you know, out there for your customer or client. So, um, so for example, in, um, in, uh, Westchester County, which is a county just north of New York city, uh, the market share of bidding wars, meaning when someone pays over the last asking price, that’s, we assume that’s a bidding war. That’s my proxy for someone paying over the last asking price. Um, because people don’t voluntarily pay over the asking price. They’re in a battle with somebody else or five other people. In fact, when my wife and I in 2022 bought our house, we downsized, our four kids became gainfully employed and, um, you know, on their own and everything, we downsized our house and we won a 30 way bidding war. And, um, it was either that or not buy a new house. You know, the market is now, instead of 30 people competing for the same house. Now the market is eight people competing for the same house.

[30:30] So it’s still in balance. There’s still a lot of bidding wars, but it’s not at the same intensity that it was we bought. We have no, you know, buyer’s remorse or anything like that. Um, um, I just happen to think the real estate agent underpriced, you know, as a technique and we probably overpaid by 10 or 15%, but we actually paid about 30%, 36% over the asking price. Wow. And I think it was underpriced by about 20%. So, yeah, that’s, that’s something that I try to, you know, help my clients understand is, you know, you, you can’t base your success, um, or a deal on, on the asking price. You can’t, you can’t, you know, go if you, if you, there’s definitely people that just have the mindset that if they go in the house is being, you know, sold for $500,000, you have to get underneath that price, you’re, you’re, you’ve lost. And it’s, that’s not the case at all. Like you, you could, the house could be worth $700,000 and you know, you pay a hundred thousand. You also, you have people that just price wrong in the market, especially a FISBO or, you know, where somebody really isn’t, you know, engaged in the market and the problem with, uh,

[31:41] incorrect pricing, you know, you know, there’s a tendency now to price close or even a little bit below market value to create this bidding, this sort of frenzy, um, to generate a higher price. The problem is when every home in your neighborhood sold it a bit more close to it, right? That becomes the new price, right? It’s not, the buyer isn’t actually overpaying. They’re paying what everybody else seems to be willing to pay because they’re all paying more than this sort of old older list price, um, um, thinking. So, yeah, yeah, absolutely. Um, and, and speaking of, you know, analysis and all that, um, how do you see appraisal, the appraisal landscape shifting now that there, uh, you know, are, there’s a lot more data out there, um, and there’s advances in AI and automations. How do you see the appraisal landscape shifting? So, um, there are the way to think about appraising in the, you know, your audience is going to think of appraising as a bank appraiser. And, uh, I would think, you know, real estate agents thinking about, you know, who am I going to interact with after it goes to contract on site, that sort of thing. The traditional appraisal

[32:56] sort of career position in the home buying process is basically within about five years of going away. And it’s going to be automated valuations like his estimate, um, uh, and not have a human being walk through. And the reason why I know this is first of all, because, um, in my, um, uh, I have a platform that I write a lot about. In fact, I, I’ve been writing about this topic so much over the years that there was a hearing called in Washington, um, and by FHFA, the regulators over Fannie and Freddie. And, uh, I was on, uh, on my bucket list. I was on C-SPAN for three hours. Um, and we, and this was one of four sessions. And basically it’s the catch 22, the appraisal profession, which is, um, we’re regulated like we’re medical doctors. Um, this isn’t rocket science, but on the other hand, it’s a very subjective, um, skill. And, uh, and like one of my good friends in Oklahoma always tells me, you know, a drive by or something where you don’t go in the property, you don’t know if 250 feral cats are living there. And, um, what Fannie Mae and Freddie Mac, who are doing about 70% of the mortgage or touch 50 to

[34:23] 70%, I’m sorry, touch 70% of the mortgages today, um, are gonna, are, are openly talking about pushing appraisers as just data collectors, and they’re gonna automate all the analysis. Let me just tell you what that means. That means a financial crisis five, 10 years from now, not today. Um, um, we’ve all been down this road before for other reasons, but what’s really interesting about the Zestimate or that’s the consumer version, but there’s a lot of AVMs, automated valuation models. And the problem with the Zestimate or that product, uh, is, and why it’s very dependent on individuals and not just pressing a button and getting a number is because with, um, an AVM, like a Zestimate, they’re on their website, their median accuracy rate, um, for a listing, uh, to when it, what it sells for is about 2%. That means that 50% of its median, 50% of the time, the Zestimate is within 2% and 50% of the time it’s not. So that’s pretty much garbage, right?

[35:36] Mm-hmm. But it gets worse. That’s if the property’s listed. If the property isn’t listed, it’s just there and hasn’t sold recently, the median accuracy rate is 7%. So that means 50% of the time that Zestimate is within 7% of what it actually sells for. And 50% of the time, it’s not within 7%. So the difference between listed and not listed is about 5%. So, so the, the real estate community, the broker, brokers and agents actually, because they’re doing the heavy lifting on the pricing, right? It’s just making the Zestimates more accurate, right? But they’re not accurate because it’s only 50. They’re, they’re metrics on their website. People don’t understand what median means. It literally is only half the time that that 2% number is achieved if it’s on the market. So, right.

[36:34] It’s kind of silly. Um, but that’s the future of Fannie Mae and Freddie Mac, uh, mortgages is, it’s going to go automated. Um, but then, you know, my firm Miller Samuel in New York, we appraise crazy stuff, like things that are not, you know, we do a lot of litigation where we testify in court, you know, a divorce or whatever, but we also do a lot of crazy stuff. Like there’s a hallway at the end of a, you know, co-op building, you know, a 10 story co-op building, the end of the hallway, the apartment, uh, there’s apartments across the hall from each other. And the person that owns one apartment bought the other apartment and connect them. So they want to buy that hallway space. That’s not market value. Cause someone on the eighth floor is going to come down to the third floor and say, Hey, I’d love to have a chunk of that hallway. It is a very specific value.

[37:25] Interesting. And, and we do things like they don’t vent a Starbucks at the, in the retail on the ground floor properly. So your second floor, $4 million apartment now smells like Jamaican blue mountain blonde roast, uh, 24 seven. And, uh, what’s the damage to that? So appraising is not just, Hey, find three to five comps, put them on the form and you’re done. There’s a lot of other types of valuation as well. Yeah. A hundred percent. It’s not an exact science. And I think that’s something that, um, you know, I have one of the hurdles of explaining to clients as well is, is that, you know, it’s, it’s not, it is subjective. Like it is, you know, it’s, and, and there’s, there’s an art to it and there’s times where it’s not done well.

[38:16] Absolutely. It’s a surprise waiting to happen for some real estate agents, especially if an appraiser, you know, the way it’s happening now is, you know, we, we have this sort of saying here in Manhattan, um, that, you know, an appraiser in Albany, New York, our capital, you know, like hours and hours and hours away by car wins the low bid on a bunch of appraisals come into, come, comes into our market, doesn’t know anything, doesn’t know that the values change dramatically block to block and cranks out five to 10 appraisals in one day. Um, you know, that’s a disaster, especially, you know, the, the, the valuations that are sales that, you know, that, you know, there’s a lot of thought going into the process. So, um, you know, we have a lot of that sort of thing happening, which, you know, hurts our profession as well. Yeah. That’s really fascinating. Um, why do you think that the, the, the, the Fannie and Freddie are pushing for this to, to be more automated? It’s not, I don’t see like the consumers. Yeah. I, I think the reason is they have a long history. They have a culture, um, a very sort of, uh, it’s really Fannie Mae cause Freddie Mac is sort of the awkward

[39:37] stepsister to, they were brought in, in the sixties to compete with Fannie Mae, but they really just mirror what Fannie Mae does. Fannie Mae is like the leader and Fannie Mae has a very, um, uh, how do I call it? A very, uh, sort of can do, um, corporate culture, um, where they can just do everything better than anybody else. That that’s basically when you work or talk to them, that’s basically how they think. And they are very arrogant about this, that there there’s, it’s sort of double speak, but they’re, they’re basically making the moves. Um, so for example, during the pandemic praises, we were complaining because we were being forced by banks to go into apartments during a global pandemic. There was no, you know, uh, shots at the vaccines at the time. Yeah. There was, you know, it was just basically going harm’s way, you know, for 500 bucks for whatever the appraisal fee was and risk catching, you know, a disease. Remember we’re multifamily. We’re not like single where, you know, it lives like hallways, narrow elevators, you know, it’s by definition, it’s, it’s, it’s, you know, you’re more in, you’re closer to each other. That’s the takeaway. It’s not like you’re,

[40:59] you know, out in the middle of nowhere. And, um, the, the problem was, so, so they held, we could do like drive-bys. It sounds like a South Central, uh, sort of LA term. Um, but we did a lot of that temporarily for, you know, probably nine months. And, um, and then, and so their mortgage origination of Fannie Mae and Freddie Max went to about over 60% of their mortgages. There was no inspection done. And, and then they reverted after the pandemic to about 10 or 11%, which is sort of the norm. And so in my view and people I’ve talked to, that was, they were testing the waters for, uh, whether they would basically drop the appraiser and, and, um, everything that they’re saying basically suggests that. So I think within about five years, uh, our industry will be, at least on the banking side, we will be gone unless there’s some other crisis beforehand.

[42:01] Yeah. That seems really short-sighted. I, I, a parallel I can make is, uh, um, as I’m thinking about it in our industry, um, and, and real estate agent sales is, you know, if we have the, the, the, you know, AI kind of, uh, overtaking a lot of things and, and, uh, making it seem easy to, you know, you can have AI chatbots, you can have AI, uh, you can clone your voice. You can have your, you know, AI voice, answer the phone. Um, you can, you send out AI emails, you can send out email, AI texts created, whatever. All that to say is that I think that, you know, it, it seems easy and it, and it, it has, you know, it sounds pretty good. Right. But I think that the danger there, um, is, is that real human authenticity. And I think that is something that is going to be, we’re going to get through this. I, and I’m a huge, I like AI. I use, I use computer nerd. Don’t get me wrong here.

[42:57] We’re in the middle of a wild hype cycle. Yes. And I think, I think it’s going to be more and more clear that, that you, you want that human touch, uh, is art. There is genuine connection with people that we cannot, um, really get around. And I think that’s going to be more and more clear as, you know, maybe the hype settles if you will. And, um, just a quick plug to my, uh, CRM since it’s, uh, kind of based on that principle, uh, looking to connect with, uh, people in, um, you know, in a real way using the four metrics, tracking people’s real, um, things like their, their, their kids, ages, their spouses, their occupation, their hobbies, uh, all these things that you can then, you know, more systematically make genuine contact, genuine connection with people. Um, and I, again, don’t think that there’s a great way to have AI do that for you. And I think as soon as people sense it, um, it just, it kind of cheapens everything and there’s so much noise.

[43:58] You establish trust through personal connections and there are some things in life that are just people businesses. And I think this is one of them being a toll collector on the parkway is not one of those. Um, but, but a real estate agent is absolutely one. And that’s, um, you know, that’s just, you know, a key characteristic and why after the industry has just gone, at least in my career, just seemingly there’s all these sort of automated approaches, um, that have never been successful. And I think what you just said is describing why. And I think that to the same degree, you know, when we have, we get into the nuances of really understanding a market and like Manhattan, there’s, there’s nothing like it, you know what I mean? That’s, I’ve, I’ve been my, my, uh, brother-in-law went to NYU and I was, I went to this weird one bedroom apartment that had, you know, uh, like a window that you couldn’t open. Cause there’s going to be a waterfall every so often. Like nuances that, that I don’t think you can really program into software to understand.

[45:05] And, and I think that’s, we got to really, you know, take advantage of technology. It’s, it’s not going to go away, but just like, you know, the, the.com bus, like the, like, obviously we still use the internet. Um, but we have to know what, where, where, where, where it’s places and how to use it and what it can’t replicate. Um, with that, I want to move into the golden nugget, uh, section, if you, you’ve, you’ve given us a lot already, but, uh, Jonathan, what do you have for us, uh, for golden nuggets? Uh, so I think the, I think the first thing is, um, uh, read the whole thing is what I think about. Um, a lot of people read the first, like, whether it’s an article about the market or something that’s going on. I don’t, I think we’re, we’re all in such a hurry. Um, I think we need to invest a little bit more time in critical thinking. And, uh, and I’m, I, I find this, you know, I’m, I’m in a lot of media and I find that people, you know, be at a conference and people say, Hey, you know, I saw your article in Bloomberg and, you know, and you were, it was all about this and they’re telling me, and I’m like, boy,

[46:13] that wasn’t what the article was about, you know, but they, I think when, I think there’s a little bit too, I think we pay short shrift to, uh, spending an extra 30 seconds and just read the whole thing is, it would be. Yeah. The, um, like taking the headline and kind of running with your own interpretation of what it probably was about. Right. It was about, you know, um, you know, something completely different or very nuanced. Yeah. Oh, by the way, just on that topic is that when, when a journalist writes an article, the, um, uh, the, the headline is not written by the journalist. It’s written by the editor. And so sometimes the editor’s objective is maybe to get more SEO than the journalist who’s trying to get it right. Right. So I’m not criticizing editors. I’m just saying like they have different objectives. Right. And, um, and so that’s why, you know, like when, when I read again, I don’t mean to be repetitious, but, but sourcing is important. So like in, when we cover the, we read about the real estate market, there are certain journalists that I just lock into that I read about that I read their stuff.

[47:28] I don’t care what the title is, but I read their stuff because they’re always so accurate and, you know, and, and insightful. Um, and again, it’s the source is the, is the, focus. I love it. Uh, what about a favorite book? Uh, one that you think is fundamental that everybody should read or just, uh, one that you’re currently really enjoying? So, um, I, this is a book I read. It was one, you know, how you have books laying around that you just never get to, and then you get to it and you’re like, Oh my goodness, I should have read this a few years ago when it came out. Um, there’s a book about, um, Jack Welsh, uh, the, you know, he’s passed away, but the former, um, CEO of, uh, GE Capital. And, uh, and it’s basically the title of the book is the man who destroyed capitalism. And it answers so many questions about corporate America and, uh, their relationship with employees. And I think in the real estate industry today, um, you know, with sort of the, the giants, you know, the mergers and all that’s going on, I really think it’s something to pay attention to. I couldn’t put it down. It was spectacular. I can’t think of the

[48:42] author off hand, but it was the man that, um, destroyed capitalism. I think it’s the title. It’s about Jack Welsh, the CEO of GE Capital or GE. Well, Jonathan, this has been a fantastic, uh, conversation. If anybody out there, uh, wants to get, uh, if they’re driving, et cetera, definitely go to our website, reiagent.com and, uh, sign up for the newsletter. We will send out a, uh, you know, summary of, uh, the key points, uh, every week of the two episodes that air, um, including this one, there will also be a blog, uh, written about this, including all of our past episodes. Uh, so you can get that in a different type of format. Uh, but also Jonathan, if, if anybody wants to read your current works, et cetera, where can they find you? Um, our website, are you on social media? Sure. So I, I would say the best way to reach me or see what I’m doing.

[49:33] I’m, uh, I’m unfortunately one of those people that is sort of, I push out a lot of content. Um, so you’re not committed to read everything that I write, but I probably, uh, go over to housing notes, dot com. And, and I, uh, um, write about three to four pieces a year, except a week, rather, um, except when I’m on vacation, I try to avoid that. Um, and, and I’m touching on topics that affect or things to think about in real estate. And there’s a lot going on right now. So I think you might get something out of it. Awesome. Well, Jonathan, again, thank you so much. Um, people please, uh, follow, uh, like subscribe all those good things. Uh, anywhere you get your podcasts, uh, definitely, uh, follow us there, leave us a review. We’d greatly appreciate it.

[50:20] Um, and stay tuned for more awesome guests like Jonathan. So Jonathan, again, thank you so much for being on the show. You bet. My, my pleasure. Thanks for listening to the REI agent. If you enjoyed this episode, hit subscribe to catch new shows every week, visit REI agent.com for more content until next time. Keep building the life you want. All content in the show is not investment advice or mental health therapy. It is intended for entertainment purposes only.