March 18, 2010

Bargaining Chips

A Louisville builder shares tips on the art of negotiation.
John Caulfield

WORDS TO THE WISE. Elite Homes' Joe Pusateri has found a second career advising builders how to negotiate with customers, trade partners and lenders

Credit: Elite Homes
Joe Pusateri, president of Elite Homes in Louisville, Ky., knows something about negotiating. In 2006, he helped arbitrate a five-year contract between his city’s orchestra and its musicians union, which kept the orchestra from going bankrupt.

Pusateri now spends some of his time sharing his negotiating skills with other builders. At the recent International Builders’ Show in Las Vegas, he addressed an audience desperately seeking ideas that might get their lenders to loosen their financing leash for construction, development, and acquisition; and might help turn tire-kicking shoppers into home buyers.

What builders must appreciate, Pusateri said, is that negotiating and bargaining are now “normal” elements of any transaction, whether builders are dealing with banks, subcontractors, or customers. The trick is to address each negotiation unemotionally—“when I get mad, I get stupid,” he admitted—and to keep any deal’s consummation from hinging on one intractable negotiating point.

Pusateri breaks down negotiation into three stages, 10 principles, 10 basic rules, and 19 tactics. At each point, the key to negotiation, he explained, is to understand what the other side wants, avoid making quick decisions, leave yourself some wiggle room, and deal from a position of strength, which Pusateri thinks builders can gain even in the direst of circumstances.

“Banks don’t want your property back, no matter what they tell you,” exclaimed Pusateri, who sits on the board of King Southern Bank in Louisville. He also noted that banks are under “huge pressure” not to retrieve land “because they are going to take a hit” in lost loan reserves.

But builders shouldn’t just sit back and wait for banks to act. “We have seven development loans in Louisville, and I have their renewal dates circled on my calendar so that I’m proactively approaching the bank 60 days before that date to set the climate and manage its expectations,” he told Builder in a subsequent interview. In those meetings, Pusateri typically comes armed with graphs and charts that make his case and give his lender a clearer picture of how Elite is faring against the rest of the market.

Pusateri had just put his theories to the test when he successfully negotiated a $690,000 loan for a new subdivision by convincing the bank that its investment “would give them better collateral” with finished lots. And because Elite already had buyers for the homes it would build on this land, the loan was more palatable to the bank because Pusateri could pay it down quickly.
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March 16, 2010 America's Best Housing Markets

Francesca Levy, 02.19.10, 04:50 PM EST

Low foreclosures, rising home prices and affordability make these parts of the country good bets for home buyers.

Families in the market for a house are shopping at the right time: Nationally, homes are near the most affordable they've been in 18 years. In the fourth quarter of 2009 housing was 62.4% more affordable than the same time a year earlier, according to the Housing Opportunity Index, published quarterly by the National Association of Home Builders and Wells Fargo.

The best place to buy right now: Pittsburgh. For a housing market to be attractive it should have appreciating prices that show homeowners are making wise investments; an affordability rating that gives middle-class families with good credit entry into the market; and a relatively low number of foreclosures, which keeps prices stable and indicates there isn't an excess of inventory.

In Depth: America's Best Housing Markets
Pittsburgh has all three. In the metro area, 85% of homes are affordable to those making the median family income of $62,500. At the same time, foreclosures are low: Only one home is in foreclosure for every 120 housing units--the second-best record of all the cities we ranked; and home prices are expected to increase 2.67% by the end of the year.

Yes, the city has suffered greatly since the decline of its manufacturing-dependent economy. But that slump helped its real estate market dodge the rapid run-up in prices that doomed so many markets after the housing boom.

"Manufacturing cities like Pittsburgh have suffered so much for the last two, three, four years that there’s still a population base in that region, and now those areas are sort of attractive," says James P. Gaines, research economist at the Real Estate Center at Texas A&M University. "Home prices are so low, some service-level jobs can be created, so it's not surprising perhaps that there's been a revitalization of some of those communities."

Behind the Numbers
To find the country's best housing markets, we used the Housing Opportunity Index, a metric created by the National Association of Home Builders and Wells Fargo ( WFC - news - people ) that determines affordability by measuring median home prices against median incomes. Using the 40 largest housing Metropolitan Statistical Areas that the HOI ranks, we then factored in Moody's ( MCO - news - people )'s one-year forecast for the S&P/Case-Shiller Home Price Index, a measure of sales prices in major markets, to find out where home prices were expected to rise. Finally we included the 2009 Foreclosure report from RealtyTrac, ranking cities by their percentage of foreclosures. We averaged the rankings for all these measures to arrive at an overall score.

The reason for taking all these factors into account is that alone each doesn't say much about a housing market's health. An area could be affordable because prices were dragged down by a glut of foreclosures. Similarly, a low foreclosure rate doesn't guarantee that home-buying is a good investment, as values could be flat or falling. Even looking at home-price forecasts in a vacuum won't tell you everything about a market, since some areas have dramatic price increases ahead due to severe drops back when the bubble burst.

Like Pittsburgh, Columbus, Ohio, might not jump to mind as one of the country's best cities for housing, but job-rich suburbs surround the city and 87% of middle-income families can afford a home. That combination creates significant pull for homebuyers.

Also looking strong is Louisville, Ky., a city whose low foreclosure rate--only 1.15% of homes are in foreclosure, half the national average--illuminates it as one of the cities least affected by this aspect of the dramatic housing market collapse of the past three years. Louisville had less of a market boom than coastal cities and vacation destinations, so it didn't have as far to fall.

Jobs Stability Equals Housing Stability
Strong industries have bolstered some of the cities on our list: The energy sector has kept jobs flowing into Texas oil town Houston, and that effect trickles into Dallas and Austin (which is also buoyed by technology jobs). A good job market means the housing outlook will stay strong. Houston home prices are expected to rise 1.2% by next year; it's one of only four of the markets we ranked where prices won't continue to slide, according to Moody's

Midwestern cities Indianapolis, Minneapolis and St. Louis make our list in spite of middling home-price forecasts because housing in these places is eminently affordable. Indianapolis has the highest HOI in the country, with decent housing accessible to 96% of families making the median income. In places like this the recession has weighed down home prices, but mortgage rates are still at historic lows, giving families a chance to get in on the ground floor.

Some markets are accessible to buyers because of a price slide now, yet still offer wise investment choices. In Minneapolis-St. Paul, which is ranked seventh in HOI, prices will continue to slide this year by three-quarters of a percent; but by 2012 they will have risen 2.82%.

Most real estate markets are struggling, some quite severely, so discussing the best ones is relative. But between the even-keeled housing climate of some Midwestern cities and the job opportunities in Texas, real estate in these areas is worth keeping an eye on.

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