Living Next to the Obamas: Worth $500,000?

The home next to Barack Obama's in Hyde Park, Chicago, has just gone on the market. Reports The New York Times,

The price? Hard to know, real estate agents say, because not since Richard M. Nixon lived in a New York City apartment has the market tried to assess the value of immediate proximity to the president in a dense urban neighborhood. (The Greenwood Avenue neighbors are separated by about 20 feet, a line of thin trees and an iron fence that is more decorative than forbidding.) The Grimshaws paid $35,000 in 1973; other homes in the area have sold for $1 million to $2.5 million.
“We think there’s a premium,” said Matt Garrison, the listing agent with Coldwell Banker, who does not intend to put an asking price on the house. “We don’t know what the Obama effect is.”
Mr. Garrison said he had tried to scout similar parcels of residential property, but pointed out that there was no family living next door to the White House.
“I tried to look at 12 Downing Street, but that’s all offices,” Mr. Garrison said, referring to the building next door to the British prime minister’s residence in London.

Needless to say, the Obamas aren't spending much time in Chicago these days. Thus the value of living next-door to "Barry" and Michelle amounts to a rather vague bragging right. This can't be called an "entertainer's house" as the Secret Service bars the street to non-residents. (Yes, that's even with the Obamas in Washington.) Sellers Bill and Jackie Grimshaw were urban pioneers who bought a down-at-heel mansion in a gritty neighborhood. Now the area has gentrified, and like most people in that position, the Grimshaws live a bit more modestly than the pool of likely buyers. (“I didn’t lavish attention on the house,” Professor Grimshaw admits. Mocking an outraged, imaginary potential buyer, he said: “Where’s the granite? How can people live like this?”) By current Hyde Park standards, it's a fixer-upper.
Evidently the listing agent chose not to have an asking price out of fear it would be too low (cheating the seller) or too high (scaring off buyers). There is considerable evidence that it would be wiser to set a high price and be willing to come down. The list price is an "anchor" that exerts a powerful influence on estimations of value. In a 1987 paper, Gregory Northcraft and Margaret Neale, then at the University of Arizona, studied the effect of listing prices on perceptions of real estate values in Tucson. The effect was huge: even practicing real estate agents could be swayed 14 percent in their estimations of fair market value. For regular folks, the effect was twice that. That's an advantage no home seller should ever willingly cede.


Zillow estimates the value of the Grimshaw house (5040 S. Greenwood Avenue, centered in the aerial view above) at $1,837,000. It also appears to confirm a substantial Obama premium. This Zillow chart traces the house's estimated value over the last year, compared to average values for the 60615 zip code and Chicago. Not surprisingly, Chicago values are down 10 percent over the past year. But Hyde Park's zip code is flat, and the Grimshaw house is up a hefty 38 percent.


Zillow's pricing formula doesn't factor in an Obama premium, not directly. And the estimates for the Grimshaw house actually dipped after the election. That may reflect the time lag for nearby houses to go on the market and close escrow at prices reflecting the Obama premium. If accurate, the Zillow figures imply the Grimshaws are up about half a million, thanks to the neighbors.

SEE ALSO
Northcraft, Gregory B., and Margaret A. Neale (1987). “Experts, Amateurs, and Real Estate: An Anchoring-and-Adjustment Perspective on Property Pricing Decisions.” Organizational Behavior and Human Decision Processes 84, 87-93.

Frank Lloyd Wright Money Pit, $15 Million

In the hard-to-price real estate department, a foundation has listed Frank Lloyd Wright's iconic Ennis House, in the Los Feliz district of Los Angeles, for $15 million. Completed 1924, it's the grandest of Wright's "textile block" houses, constructed from molded concrete blocks. Wright had the utopian notion that these concrete blocks would be the lost-cost housing material of the future. It didn't work out that way. Only four textile block houses were built, all for rich people in Southern California. Wright wrote: "The concrete block? The cheapest (and ugliest) thing in the building world.… Why not see what could be done with that gutter-rat?… It might be permanent, noble, beautiful."
Well, two out of three isn't bad. The textile blocks began crumbling at the first drop of rain. Earthquakes didn't help, either. Exasperated owners tried well-meaning conservation treatments, like sealing the concrete, that did more harm than good. The Ennis House, severely damaged by the 1994 Northridge earthquake and some monsoon-like rainy seasons, was red-tagged by city inspectors in 2005.
How much would you pay for a Frank Lloyd Wright masterpiece needing perpetual TLC?
Pluses: The architecture, of course, and unparalleled views of the city and Hollywood Hills. The foundation invested $6.5 million on repairs. The home has been in numerous movies, including Blade Runner. It was in a Ricky Martin video.
Negatives: It's estimated the new owner will need to spend $5 to $7 million in further repairs. Zillow's "Zestimate" for the place is only $2,131,500, presumably reflecting what it would be worth without the Wright name or the upkeep issues. The last price paid for the house, in 1968, was $119,000.

Listed by Hilton & Hyland and Dilbeck Realtors with international marketing by Christie's Great Estates.

Are Two Prices Better Than One?

In Australia, it's been the custom for home sellers to list two prices, a minimum and a maximum. The practice has turned up in suburban Long Island, reports Marcelle S. Fischler in The New York Times.

…Ms. Karekinian has joined a small group of pricing pioneers on Long Island: Rather than settling on one number for her five-bedroom colonial, she opted for a “value range price” of $999,000 to $1,194,876. She decided to adopt the tactic in listing the property last fall with Carol Poetsch of Prudential Douglas Elliman’s East Meadow office.
“I am not just going to say I want $1.3 and that’s final,” Ms. Karekinian said, signaling her flexibility but vowing that she won’t sell below the range. “Now I’m flexible — not stupid flexible, but flexible.”

Prudential Douglas Elliman is said to have begun using the strategy in 1996. The Times says that 180 homes in Nassau County and 360 in Suffolk County are currently listed by a range.
One advantage is obvious: Buyers scanning listings online usually set a minimum and maximum price, and these are round numbers (often chosen from a menu on the listing site). In the example above, a buyer whose maximum price was $1 million would presumably see a house listed at "$999,000 to $1,194,876," but not a house listed at a single price higher than a million. (Of course, this depends on listing sites being able to handle price ranges.)
I can think of a couple of other reasons why this may work. The range probably acts like an advertised reference price. Discount stores will have price tags saying something like "$14.99 COMPARABLE VALUE OF $25.00." Empirical studies and retail practice confirm that customers, even those who know better, are more likely to buy at $14.99 when reminded that they could be paying more elsewhere. In the case of a house, buyers will figure that if they can get it near the low end of the listing range, it's a bargain.
I suspect the biggest advantage of this trick may be simple confusion. Just about everyone knows that a listing price of $X typically signals that the seller is willing to accept a good deal less than $X. In this market, few sane buyers are going to offer list price. Having two prices upsets this comfortable strategy. Do you offer the low price of the range? Less than the low price? Or do you make an offer somewhere in the range? Maybe you really, really want the house and want to make a preemptive offer. Do you offer the high price?
All of the above make a certain amount of sense. Range pricing is likely to spread out the bell curve of offers. Since sellers choose an offer from the high end of the bell curve (or did, back when there were buyers) that ought to result in higher transacted prices.
Prudential apparently has some weird algorithm for devising its range prices. Another example given in the Times article is a Cape Cod listed at $399,000 to $458,876. The $399,000 is easy to understand. But where did they get $458,876, with six significant figures?