Bully Boss – What You Must Know!

-Sid Som, MBA, MIM

President, Homequant, Inc.

homequant@gmail.com

Link to the Book

How does an Investor Analyze a Housing Market? – A Philly Case Study

The Single Family Housing Market

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The Philadelphia Single family Housing (“housing”) market demonstrated a linear growth in median prices between 2016 and 2018, rising from $175,000 ($129/SF) to $194,900 ($149/SF). However, after having peaked in 2018-Q2 and registering a solid 16% growth off 2016-Q1, it has been on a downward trajectory ever since.

Of course, the 2019-Q1 does not include the March sales, so it could be an aberration at this point.

Since the housing market in the US is highly seasonal (May through August are considered peak months), the quarter-over-quarter median sales analysis – though the industry standard – could be deceptive. Therefore, the seasonally adjusted quarters like 2016-Q2 ($138/SF) vs. 2017-Q2 ($143/SF) vs. 2018-Q2 ($149/SF) are more comparable in establishing the market trend and, in turn, the time adjustment factors for automated valuation modeling (AVM).

Moreover, the Price per SF (SPSF) is a more meaningful metric for the investors than the traditional Median Sale Price (SP) considering it is normalized, thus ironing out the variations in sizes (in our example, the quarterly Median Living SFs).

When an extended time curve (twelve quarters in this case) is analyzed, the statistically smoothed trendline is a better indicator of the market. For example, the rapid rise in 10-year bond yield in early 2018 forced many buyers sitting on the fence to promptly return to market, spiking the 2018-Q2 prices. The bond yield steadily declined since 2018-Q3, stabilizing the market. The smoothed trendline is therefore more meaningful for the investors as well.

The Condo Market

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Since the condo market is often the leading indicator of the local housing market, investors try to take a little longer term view of the condo market. That is why the yearly performance of the condo market since the last recession is depicted above.

First off, the condos are significantly pricier than the comparable single family homes. Two reasons contribute to the higher pricing: Age (newer properties – Median Home Age of 1930 vs. Median Code Age of 1970) and the Type (mostly high-rise buildings in expensive locations).

While the Assessor's office lagged in capturing the impact of the recession on the market – Tax Roll Value/SF continued to front-run the market i.e. SP/SF until 2014 – they have been on the defensive since the market peaked in 2016, meaning Assessor values have been significantly trailing the market. Of course, one has to be careful in case of the statutory fractional assessments, requiring value equalization to avoid having to compare apples with oranges.

Needless to say, when the Assessor values front-run the market, they tend to encourage unnecessary appeals (of course, if that had occurred in this particular instance is unknown), thus forcing them to be on the defensive the next time around.

Investors tend to follow the Assessor's actions closely while buying or selling portfolios. Obviously, the prospective sellers become a bit nervous when the tax roll values start to trail the market. Conversely, it makes the potential buyers more aggressive while negotiating.

Again, a longer term perspective is critical in dealing with any condo market.

-Sid Som, MBA, MIM

President, Homequant, Inc.

homequant@gmail.com

Link to the Book

Protecting Small Businesses from Unscrupulous Foreign IT Vendors

You are a small business owner ("you" "owner"). You have successfully used the web in marketing your services, but the cost of your IT services keeps growing 30-40% each year, despite the much-needed switch to a Cloud platform.

You keep hearing how others have been saving a ton by off-shoring web development/maintenance services, leading to all of their IT services. Yes, even smaller outfits have been outsourcing to vendors in emerging countries ("vendor") for a while. And one can anecdotally confirm that a well-researched exercise could save owners some decent money as well. But, as an owner, what you may not necessarily hear is the negative ("dark" is more appropriate) side of off-shoring IT services. Here are some of the negative issues, usually unreported, you must be aware of:

1 . Quality – When dealing with a small vendor, you are practically dealing with engineers and other technical graduates from 2nd and 3rd-tier (mushrooming and mostly export-oriented) schools. Given this axiom, you are getting significantly lower quality products and services from the get-go. By the time you figure this difference out, it might be a day too late, meaning you might be stuck with them for a while. Have you ever seen a Harvard MBA working for a local butcher? If you ever see one working for the butcher, he is probably developing a global franchise. The point is, do not expect to work with superstars there. Of course, the crooks may use a superstar to close the sale, but nothing more! 

2. Communication – Though they are all English-speaking, you will be lucky to understand every third word (over the phone), if not every third sentence. And, with their inferior telecommunication system, you are faced with the proverbial unintended consequences. Your primary business quickly turns into pleasing ("begging" is more appropriate) to get them to do something, however substandard the quality might be. The stress will continue to mount, but you will be in denial that things would get better.

3. Time Difference – It's a huge issue, particularly if you are planning to outsource to Asia. For example, after returning from lunch with a prospective client, you are ready to place a call to your Asian vendor to discuss a few changes to the existing client profile. As you are prepared to speed-dial, you realize that its midnight there. Now you have to wait 12 hours to make the call. And, if you happen to hook up with a crooked vendor, you are now unimportant to them. Email communication (you'll receive replies once in a while) is the only way out. Though you got an excellent deal while signing up with them, it now costs you an arm and a leg for every simple change you ask for. That's how the crooks operate. If you ever question them about the skyrocketing pricing, you will get tons of mambo jumbo – all structured talks from different sites where thieves of the world unite.

4. Due Diligence – It's challenging to conduct any meaningful due diligence of small vendors in emerging countries. While there are many ways to check the standing of a small vendor in the US - from D&B to BBB to Licensing boards to Trade organizations to local Chamber of Commerce, etc. - there is hardly any such reliable source there, making it almost impossible to separate the honest from the crooks. It may so happen that due to change in ownership, the honest ones are not-so-honest anymore. Moreover, the vast majority of thieves maintain fake references (and fake/shared sites) in the US. Clients may not stand by old recommendations either.

5. Hidden Cost of Apps – To identify and separate the real ones from the crooks, you must try to zero in on the accurate pricing. If the first project entails developing a website, you must ask if the site would be mobile-friendly. Nowadays, most small business sites, including e-commerce sites, are mobile-friendly without developing a set of separate iOS and Android Apps. When a vendor insists on keeping them separate, you must be a bit careful. The crooked vendors often offer very attractive pricing on the initial website, followed by exorbitant pricing on the Apps. However, if the separation makes business sense, you must ask for the vertical pricing (site + apps), in writing, and upfront (must be valid for at least twelve months), to be in the know before signing any contract. 

6. Update Capability – All other factors remaining constant, you must also insist on having the full capability and flexibility to update and upload news, data, video, etc. on to your new site. "Send us the changes, and we'll take care of it" is a serious red flag. There are no free lunches, so you must not walk into this trap. The cooked vendors use this trap to churn owners, and it gets exponentially worse over time. Even if the vendor is honest, owners must realize that it's not a workable solution, as no business is all-proactive; they need to promptly and intelligently react to momentum situations as well (and this is where the trouble starts, generally resulting from the time difference, frequency of updates, immediate availability of right personnel, etc.).

7. Employee leasing – And this goes hand in hand with #6 above. Unlike here in the US, most emerging markets do not have clear-cut laws regarding temporary staffing and employee leasing. To create a round-the-year income stream, the crooked vendors try to own/retain the update capability. Later, citing frequent and volume updates, they try to promote employee leasing. They package and market the very ordinary kind at the prevailing rate (with fake resumes, etc.) and simultaneously lease them to multiple clients. Therefore, it is critically important that the owners retain the full update/upload right from the get-go, without which it could pose serious trouble, just a matter of time!

8. Local Legal System – It is not easy to fight the crooks in their territory; they know all the tricks to play the legal system. When I played soccer, I did believe in 'it ain't over till it's over,' but this concept does not necessarily work for a small business. Sometimes when the writing on the wall is abundantly clear, it's better to cut the losses short and call it a day. It could be a defeat emotionally, but a real victory intellectually. Smart business owners understand there is a better use of the R & D capital than wasting it on fighting some crooks overseas. Alternatively, this could be a boon or a silver lining to bring the business back home and try out a real engineer who is smarter and inherently more ethical.

9. Tip of the Iceberg – You must strictly keep the relationship at the business level, meaning the vendor should be treated as a professional services vendor; anything more personal than that will cause trouble down the road. Suppose the relationship becomes friendlier than that, one sunny morning, you may get a call or email (one of those rare occasions!) from the principal of the vendor firm indicating (actual email quote follows), "I have got a personal medical emergency in my family, and looking to arrange [$$] ... If you could help me in providing [$$], I can arrange (to pay it) back before 10th of the next month." This event could be the tip of the iceberg. If you become emotional and fall for this type of ploy, it will be the end of your business relationship with them. Forget about the loan; they will walk away from all unfinished projects, leaving you in a real lurch. It's not all that green on the other side!

-Sid Som, MBA, MIM

homequant@gmail.com

Link to the Book

How to Use Case-Shiller Indices to Predict Housing Trends

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Sonya, a fresh college graduate with a major in Economics, is interviewing for an Economic Analyst position with a major economic consulting firm.

Question # 1
Interviewer: Is there any difference between these two Case-Shiller* housing trends?

Sonya: They are very similar trends. In fact, even the monthly growth rates are almost in lockstep. By the way, am I looking at the seasonally adjusted data here?

Question # 2
Interviewer: Yes, you are. Are these month-over-month data comparable?

Sonya: Yes, since they are seasonally adjusted; otherwise, we would be comparing April, 2019 with April, 2018, etc. 

Question # 3

Interviewer: Why do you think the top-20 markets are moving in tandem with the top-10?

Sonya: Because the US housing market, overall, has returned to normalcy. Right after the last recession, known as the Great Recession, a number of major Wall Street companies started buying up the inventory, in large volume, creating a highly asymmetric market around the country. For the last 2-3 years that trend has significantly subsided, paving the way for a more normal market.

Question # 4
Interviewer: How did their involvement create an asymmetric market?

Sonya: Because they concentrated primarily on Sunbelt markets and as a result the growth in prices in those markets far exceeded the other markets.  

Question # 5
Interviewer: How would you characterize the health of the current market?

Sonya: It's still a healthy market considering 4.0% to 5.0% annual growth rates. Of course, these are muted rates compared to the prior run-up rates when the Wall Street investors were active. 

Question # 6
Interviewer: In terms of the index components, are there any duplications?

Sonya: Yes. The Composite-20 has all of the Composite-10 components, plus 10 more markets.

Question # 7
Interviewer: Can you name a few components that are mutually exclusive?

Sonya: Atlanta, Charlotte, Cleveland, Dallas, Detroit, Minneapolis, Phoenix, Portland, Seattle and Tampa.

Question # 8
Interviewer: Wow! That was sensational. Would you have graphed the data differently?

Sonya: Yes. Since these are seasonally-adjusted data, I would have bar-graphed the month-over-month (percent) changes.  

Question # 9
Interviewer: Would you use the NYC Case-Shiller data to show the Brooklyn trend? 

Sonya: Yes, to perform a quick-and-dirty trend analysis. If I were performing a trend analysis for a client, I would not use this MSA-level data which is quite broad in nature. I would start by collecting the parcel-level sales data from the Borough of Brooklyn itself.

* Case Shiller is a registered trademark of S&P CoreLogic.

Link to the Book

How to Excel at Work and Outclass the (Internal) Competition

By looking at the corporate ladder, winners promptly realize that their peers are their primary competitors while their boss happens to be the secondary competitor. As they establish that maxim, they understand the need for a set of creative and consistent strategies to narrow the competition down – gradually. Of course, the winners recognize this winning path quite early in their career, clearly defining their intermediate and long-term goals and steadfastly working on and fine-tuning the strategies. In the process, they also learn to remain unwaveringly focused, making navigational changes, as and when demanded by today’s fast-evolving corporate environments.

And, that’s how they win – just a matter of time! Meanwhile, the competition remains busy on Monday morning quarterbacking, falling behind, often far back. The goals vary even amongst the winners, but the strategies they follow (to achieve those goals) tend to be similar. So, what do the winners have in common?

1. Winners Never Underestimate or Lose Sight of the Big Picture. While they discharge their daily duties extremely diligently and efficiently, they are always in the know as to the positioning and importance of their work relative to the big picture (i.e., how their departmental work, directly and indirectly, contributes to the corporate goal). This skill comes naturally to all visionary leaders. On the other hand, the competing start-up folks who get bogged down, however ethically to their daily work only, end up becoming successful operational technicians, rather than enterprise-level solution providers. While the new management trainees are generally (hired and) trained together, this fork becomes increasingly apparent and visible to the bosses, quite early on. They easily stand out to the smart bosses as their questions and concerns are generally the big picture-oriented.

2. Winners Rarely Develop a Rigid 9-to-5 Work Mindset. From the get-go, they learn to condition their work mindset and ethics on the heels of the other successful corporate leaders, so they rarely nurture the conventional 9-to-5 habit; instead, they enjoy taking full ownership of their work, thus letting the work dictate their daily hours, irrespective of any allowable paid comp or overtime. In other words, the winners always know how to take total ownership of their work, while the rest tends to succumb to a structure of pre-defined rules and some superficial responsibilities. The smart bosses also foresee the budding leaders in the folks who believe in taking total ownership of all assigned projects and are always eager to take on new challenges.

3. Winners Know how to Get into the Groove of Aiming High. Winners understand the value of time, so they prefer working lunches with the smart bosses rather than lunching out with their peers. They recognize and appreciate that the vast majority of intelligent bosses rarely have an extended time to enjoy outside lunches. Therefore, the working lunch idea makes more sense to both as they build better professional chemistry. Since the budding winners also realize that even during a working lunch, they are being watched and evaluated as if it were a staff meeting, they learn to come prepared and stick to the most critical issues and concerns related to the project(s) being discussed.                

4. Winners Know how to Build a Brand to Make their Work Stand out. It’s in the DNA of all winners to reject even the straightforward work. Instead, whatever they do, they try to excel and outrival the competition by building their brand. Over a short period, the smart bosses start to recognize and appreciate the additional effort. Even in a group project, their brand becomes clear and present. The branding not only gives them instant recognition and enhances their image, but also protects their work from being inappropriately used or abused by others. Such brands also help bosses as they can easily present that class of work to their higher-ups without spending days preparing a special report for a short one-off meeting. Linking brands are more uncomplicated and time-saving as the same feather forms them.       

5. Winners Develop the Moral fiber always to help Staff, Peers, and Bosses. Winners know their help is ever needed not only by their staff or peers but also by their bosses, making them some of the most highly sought after employees in their departments. But it’s never a negative or an annoying issue for them. They take it very positively from the beginning of their career and continuously build upon them, so much that it becomes part of their work ethics, even as they move up the ladder. Developing this moral fabric is inherent in visionary leaders. The great CEOs are generally easily approachable. Jack Welch, the former CEO of GE, used to maintain an open-door policy to walk in and talk to him without prior appointments.   

6. Winners always Know when and how to Walk away from the Herd. Their primary professional attributes – ability to critically think, solving enterprise-level challenges, staying focused through the work stages, and the determination to reach the finish line – are so different from the general competition that they start challenging the status quo and conventional (group) thinking as they settle into the job. The fact that the winners understand the importance of the big picture immensely helps them articulate inherently better and more convincing cases and enterprise-level or, at least, broad-based solutions. Of course, they also realize that the only way they can promote better ideas and solutions is by walking away from the group from time to time, and they are generally unafraid to do so, as it’s always for the greater good, not for the individual championship.

7. Winners Develop Strong Personality to Fend off Bully Bosses. Given an unrestricted domain of authority (due to weak superiors), bully bosses often resort to the reign of terror, especially targeting the smartest (who make the vile look inferior!) and walking down on the curve. While the winners are generally some of the most polite and pleasant personalities, they also realize that developing a strong character is equally important, and they tend to nurture that trait in themselves from the school days, leading into the corporate life. Often, to make an initial assessment of the environment, many new graduates from the top schools insist on personal meetings (job interviews aren’t enough) with the future peers and bosses before accepting an offer. They also understand the importance of an exit strategy when the environment remains polluted beyond repair.  

8. Winners Learn to Take Full Advantage of Leadership and Management Opportunities. While the competition remains iffy (makes and rationalizes excuses) of taking advantage of proper leadership or management opportunities, the winners not only recognize them, but they confidently line up at the gate as well. They know it quite well that the early attempts to climb the ladder – even when the outcome is a foregone conclusion – are critical. The winners never balk at meaningful opportunities as they know the ladder turns into a pyramid, getting narrower and narrower as the climb continues and reaching the inflection point where the major league gets separated from the minor league, so to say. The winners become the EVPs, FVPs, and CEOs, while the old competitors wish them good luck.

9. Winners Learn the Do’s and Don’ts Early on and Practice them throughout their corporate life. It is generally beneath their dignity to even talk about their performance or achievements, let alone bragging about them -- a practice that becomes their fail-safe second nature. Likewise, while they are incredibly respectful of all races, religions, ethnicities, cultures, orientations, etc., they always avoid unnecessary talks or discussions on such issues. They develop the habit of evaluating everything based solely on merit resulting in net positives; in other words, when they spend any time on any discussions, they make sure that the positives far outweigh the negatives, a priori. They enjoy their work to the brim, thus always looking forward to Monday mornings. In the process, they learn to avoid all negative stimuli, distancing themselves from all negative personalities (as much as possible) and meaningless social talks around the water cooler (they will smile and walk away). Last but not least, as they start their career, they do not waste time wondering where to start, often getting into the habit of writing self-addressed work summaries on Friday afternoons, so they do not waste time on Monday mornings wondering where to start.

The early start is critical. Procrastination means whiling the career away. Aim High.

-Sid Som

homequant@gmail.com

Link to the Book

Want Fair and Equitable Assessment? Consider Electing New Generation of Assessors!

Why?

Here are the reasons: 

1. Independently Elected Assessors will be Free from City Mayor or County Executive's Political Agenda -- Until very recently, Tax Rolls used to be generally regressive, favoring the rich at the expense of the middle class, meaning the middle class used to subsidize - often heavily - the wealthy homeowners. Now with the introduction of the SALT Cap, the wealthy homeowners are not happy campers anymore. Therefore, it is high time to return to the independently Elected Assessors replacing the hand-picked political appointments. Municipal political positions could stoop to shallow levels. Since "home" comprises the single most significant financial investment for the vast majority of taxpayers, they need to regain control of property assessment and, in turn, their property taxes. Electing Mayor/County Executive must be mutually exclusive (de-coupling Administration and Assessment), so they are neither armed with the power of assessment nor bogged down by its never-ending complexities.    

2. Elected Assessors will be Enticed to Undertake Forward-looking Experiments rather than just Vaguely Meeting some Antiquated Industry Guidelines -- Unfortunately, as long as some antiquated industry guidelines are met, the Roll gets published, with the Review Board picking up the fall-outs from there. This feedback loop (feeding off each other) perennially continues while the taxpayers are left in the lurch. Meanwhile, the current Administration continues to point the finger at the former Mayor/County Executive of slashing the human resources budget. A visionary and gutsy Elected Assessor would look at such scenarios positively and explore forward-looking solutions instead of more government employees. Taxpayers need a real solution to this age-old challenge. Independent and innovative leadership could be the step in the right direction. The old-age experiment of more government employees has not worked.

3. The New World of Artificial Intelligence could provide the Solution the Assessment Industry has been Waiting for -- if the new generation Elected Assessors are keen on having this age-old challenge solved, they should seriously consider the world of AI solutions. Therefore, an Elected Assessor needs to be someone with a background in solving complex problems, perhaps without assessing or Valuing whatsoever. A brilliant problem-solving mind will quickly realize the need for AI/Robotics technology in getting arms around this challenge. Such reasons would not buy into the idea of the old-fashioned statistical modeling with high "under-the-surface" error rates. For example, an AI-based data collection and data update application will do a far better job than competing human judgment (despite the homogeneous definitions and guidelines).    

4. The New Generation of Elected Assessors will help Change the Existing Guidelines, which have become vastly Antiquated -- The existing valuation modeling (CAMA) guidelines revolve around the multiple regression models. That modeling environment provided an excellent start to the industry, but, over the years, the over-dependence on the modeling stats to meet and exceed the industry guidelines often paved the way for significantly less surgical dissection and analysis of the population data, resulting in sizable appeals, especially in urban jurisdictions with a high degree of heterogeneous housing stock, thus calling into question the effectiveness of the overall Roll. A new generation of Elected Assessors with advanced quantitative and problem-solving backgrounds would be needed to introduce rules leading to meaningful guidelines.

5. Elected Assessors would be more Amenable to FOIA/FOIL Requests on Automated Valuation Models and Formulas -- In the event of an error-filled Roll, the Assessors who are part of the ruling Administration would be less than forthcoming to disclose their models and formulas, whether internally developed or by their favorite consultants, to the public. The new generation of Elected Assessors would be more than happy to make them public, emphatically citing the progress that has been made and highlighting the pipeline that is being worked on, even if it involves taking on some short-term pain to achieve significant long-term gain (i.e., to solve the age-old challenge). They might even encourage a series of brain-storming debates with local experts to factor their inputs into the process. Playing hide-and-seek game with the taxpayers is antagonistic to the fortitude of public service. 

6. Elected Assessors will Meaningfully Evaluate Cost Benefits of Outsourcing certain Functions and Services vis-a-vis Conventional New Hires, Consultants and Vendors -- The new generation of Elected Assessors will bring a wealth of expertise in making sound business decisions, including BPOs, KPOs, etc. Their choices will conform to the election manifesto that put them in the office in the first place given their independent status (off of the ruling Administration). The knowledge of the make-shift internal modelers (from assessing/data collection to quantitative modeling) and the expertise the industry's leading consultants and vendors bring are perhaps backward-bending, forcing them to consider other more forward-looking alternatives like hiring AI Engineers, outsourcing to AI firms, retaining Public Relations firms for outreach, etc. The alternative is the status quo, with wishful thinking (will fix the next Roll). 

7. Elected Assessor's Vision will help many Veterans to leave yielding place to the New -- Tennyson's immortal poem may ring a bell again, "The old order changeth yielding place to new And God fulfills himself in many ways Lest one good custom should corrupt the world." As the new vision anchors, many veterans unwilling or unable to keep pace with the changes might retire, freeing up significant budget dollars for the modern workforce, technology, and futuristic services. Since the veterans are some of the highest-paid employees, the savings from their departure could be significant. Perhaps, the new generation of Assessors' election might finally work as the catalyst or the leading indicator of change for the other interacting agencies as well, proving how forward-looking vision backed by disruptive business models could bring about system-wide changes.   

8. Elected Assessors might take a fresh look at the existing Data Warehousing and Modeling -- If only 5-10% of the data undergoes annual changes, the question one should ask: Is it worthwhile to spend millions of taxpayer dollars on warehousing the static data or is it prudent to switch to a significantly scaled-down data warehouse? A straight-forward AI model based on just size and location could be more effective than a regression-based Juggernaut requiring a whole host of modelers applying personal judgment to improve model stats. Therefore, future data warehousing should be tied to future valuation modeling, eliminating the need for any wasteful data. If a house has two full baths, who cares about keeping track of the number of bath fixtures? Just an extravagant piece of data and costly warehousing! Therefore, the new generation of Elected Assessors would be expected to cut to the chase as to the future data requirements, saving a ton on wasteful data collection, inspection, and warehousing.   

9. Appeals Review Assessor must also be Elected -- Almost all major jurisdictions have Appeals Review agencies (under various names) headed by Commissioners, etc., usually hand-picked by the ruling Administration. While this separation (generally by the Charter) might be useful, their total independence is more critical to effectively serving the taxpayers. Therefore, to make the system politics-free, taxpayers must have "Elected" Review Assessors as well. While electing the Review Assessor, taxpayers should zero in on the candidates with significant Quality Control/Assurance expertise. Of course, independence comes with a financial cost, meaning an independent apparatus has to be maintained. Since the review window is short-lived (seasonal), employees could be leased to avoid employing them during the off-peak season, incurring unnecessary legacy costs.    

There is no certainty that an Elected Assessor or Review Assessor would always pan out; then again, the power remains with the people.

Of course, the only permanent solution to this perennial problem is to gradually replace property taxes with middle-class friendly progressive consumption taxes (see the link below). 

-Sid Som, MBA, MIM
President, Homequant, Inc.
homequant@gmil.com             

Replacing Property Taxes with Middle-Class friendly Progressive Consumption Taxes