I am trying to do a final push on my forthcoming book, Paying For The American Dream: How To Reform The Market For Mortgages (Oxford University Press), this summer, so I will not be keeping to my regular blogging schedule.
Tag Archives: Reiss
Noise Pollution and Property Values
Realtor.com quoted me in What Is Noise Pollution and How Does It Affect Property Values? It opens,
When it comes to a home’s value (and your sanity), noise pollution can be a major downer. But what is noise pollution exactly? Most people have different definitions of what noise pollution actually is—anything from sirens to a barking dog, or the noise of traffic on the street outside.
While outside noise isn’t totally escapable (even the prairie has ambient noise), home buyers will want to be on the lookout for excessive noise pollution, because it could affect a property’s value. After all, you don’t want to live in (or have to eventually unload) a place that requires a lifetime supply of earplugs.
First, let’s define what noise pollution actually means.Re
What is noise pollution?
In defining noise pollution, there are several variables in the mix.
“Noise pollution is basically any noise that you don’t like, but I guess we would define it as noise that most people generally don’t like,” says Brooklyn Law School Professor David Reiss, research director for the Center for Urban Business Entrepreneurship. “When governments regulate noise, however, it is usually based on how loud a noise is.”
For example, Reiss explains that according to A Guide to New York City’s Noise Code, in that city, “Noise that exceeds the ambient sound level by more than 10 decibels (dB) as measured from 15 feet from the source as measured from inside any property or on a public street is prohibited.”
Of course, the ambient sound level in NYC is considerably louder than in a rural area.
How to measure noise pollution near a home
Although decibels are used to measure the intensity of a sound, there are more accurate ways to identify noise pollution around a particular house. When it comes to getting ballpark figures for typical noise levels, Tom Davies, Co-Founder and Manager of the property buying company Accelerate Homes, suggests that most buyers figure out the day-night average sound level (Ldn) or the day-evening-night average sound level (Lden), which are measurements that can help assess the impact that road, rail, air, and general industry has on the local population. Either of these measurements give a potential buyer a much more accurate assessment of overall noise pollution near their home. To measure these levels, get a regular decibel meter, take hourly readings, and plug those numbers into this online noise calculator.
You can also check this interactive national transportation map created by the U.S. Bureau of Transportation Statistics to get a general idea of noise pollution levels created primarily by interstate highways and airports in your area. Just type in your address (or the address of any home you’re considering) and get a general reading. Red means loud—think vacuum cleaner (like 60dB-80 dB), and purple means even louder, like the constant sound of a garbage disposal (80 dB and up).
Identifying noise pollution culprits
It’s not always easy to figure out what’s making all the noise, but it is possible.
“While some of the main factors could be easily spotted—like the proximity of highways, stadiums, airports, train, and bus stations—other factors like specialized traffic (regular truck deliveries or rubbish removal), or the presence of neighbors with loud dogs, are far less likely to be spotted at first sight,” says Davies. The only way to get to the bottom of it is to talk to the neighbors.
Reiss also suggests taking it a step further.
“Visit at different times of the day. For example, if there is a bar across the street, drive by on a Saturday night,” he says. “Also, ask local government officials, like community board district managers, about noise complaints.” Basically, it’s up to you to do your due diligence on sound.
How noise pollution affects property prices
High noise levels don’t automatically correlate with lower prices, Reiss says. Some of the most expensive homes in New York City are located in midtown Manhattan, a busy area that’s home to the theater district, the tourist magnet Times Square, and many major corporate offices.
“But within a certain market, there will be those who value quietness and those who value being in the middle of the action,” he says.
To get a true reading on how noise pollution will affect the value of a property, “you would need to distinguish short-term noise—like a neighboring construction site—from permanent noise—like from a neighboring firehouse,” says Reiss.
Cities With the Worst Rent
Realtor.com quoted me in Cities With the Worst Rent: Is This How Much You’re Coughing Up? It opens,
Sure, rents are too dang high just about everywhere, but people living in Los Angeles really have a right to complain: New analysis by Forbes has found that this city tops its list of the Worst Cities for Renters in 2018.
To arrive at these depressing results, researchers delved into rental data and found that people in L.A. pay an average of $2,172 per month.
Granted, other cities have higher rents—like second and third on this list, San Francisco (at $3,288) and New York ($3,493)—but Los Angeles was still deemed the worst when you consider how this number fits into the bigger picture.
For one, Los Angeles households generally earn less compared with these other cities, pulling in a median $63,600 per year. So residents here end up funneling a full 41% of their income toward rent (versus San Franciscans’ 35%).
Manhattanites, meanwhile, fork over 52% of their income toward rent, but the saving grace here is that rents haven’t risen much—just 0.4% since last year. In Los Angeles, in that same time period, rent has shot up 5.7%.
So is this just a case of landlords greedily squeezing tenants just because they can? On the contrary, most experts say that these cities just aren’t building enough new housing to keep up with population growth.
“It is fundamentally a problem of supply and demand,” says David Reiss, research director at the Center for Urban Business Entrepreneurship at Brooklyn Law School. “Certain urban centers like Los Angeles, San Francisco, and New York are magnets for people and businesses. At the same time, restrictive local land use regulations keep new housing construction at very low levels. Unless those constraints are loosened, hot cities will face housing shortages and high rents no matter what affordable housing programs and rent regulation regimes are implemented to help ameliorate the situation.”
Fight Over The Community Reinvestment Act
Bloomberg BNA quoted me in Community Investment Revamp for Banks Likely To Spark Fight (behind a paywall). It opens,
Community groups and banks agree that the Community Reinvestment Act needs an update, but with regulators beginning an ambitious overhaul of the 1977 law there is little agreement on how that update should look.
The Trump administration has been targeting the CRA — which measures how well banks lend to low- to middle-income areas — for a rewrite since last June. Comptroller of the Currency Joseph Otting said March 28 that the first draft would be coming in early April.
Otting set out some broad ideas that his agency, the Office of the Comptroller of the Currency, and the other regulators that oversee the CRA will present to the public. The Federal Reserve and the Federal Deposit Insurance Corporation also have responsibility for measuring banks’ compliance with the law, and the OCC says that it hopes the two agencies will sign on to the coming advanced notice of proposed rulemaking.
Banking industry experts and community groups all said that the broad strokes of the regulators’ plan sound promising, but few expect that comity to continue when the details come more into view.
“I think you can assume that everybody is not going to be happy,” Laurence Platt, a partner at Mayer Brown LLP, told Bloomberg Law.
The CRA’s Present
The Trump administration first put the CRA in its sights in a June 2017 Treasury Department report outlining its broader views on altering the rules banks operate under.
The law calls for the OCC, the Fed and the FDIC to periodically measure how much lending the banks they oversee do inside geographical assessment areas based on their branch and ATM locations. If banks are found not to do enough of such lending, regulators can stop some business activities or hold up branch expansions and mergers. But it hasn’t been updated for nearly two decades.
The Treasury Department followed up the June 2017 statement on the CRA with an April 3 report outlining its thinking on ways to modernize the law. The report largely aligns with the path laid out by Otting.
“Our recommendations will improve the effectiveness of CRA by enhancing the assessment and examination process, enhancing the ability of banks to deliver services in the communities they serve while considering technological advances in the financial industry,” Treasury Secretary Steven Mnuchin said in a statement accompanying the report.
Changes to the Community Reinvestment Act have already begun, with the OCC under former acting Comptroller of the Currency Keith Noreika in October declaring that the OCC examiners would no longer include enforcement actions that are not linked to a bank’s CRA compliance in their rating.
That change was minor, and affected only one of the three regulators responsible for the CRA. Otting on March 28 laid out a host of other changes likely coming in a new proposal.
The CRA’s Future?
The broad outline Otting provided on March 28 largely highlights the areas in the CRA that community activists and banks have said need to be addressed.
Among the changes Otting said will be put out for comment include expanding the types of lending that would be included in calculations of banks’ CRA compliance to encompass small business, student lending and other money going into a community.
“I think there’s a sense that community-based activities, beyond individual lending, should be given more credit, such as small business loans and infrastructure loans,” Mayer Brown’s Platt said.
Other areas that are going to be addressed in the proposal will touch on the way CRA information is calculated and reported to the public. Currently, banks are examined for compliance every three to five years, and the banks’ reviews take an additional year.
Overall, Otting said the changes would be significant.
“This is monumental change for America,” Otting said in an appearance March 28 at the Operation Hope Global Forum in Atlanta.
The changes Otting discussed all sound promising, but they are vague. So fights are likely to emerge when the details come out.
“The comments that were made were vague enough to give you both concern and possible joy,” Taylor said.
One other aspect of the CRA that is ripe for reform is the geographic assessment areas regulators use to evaluate banks’ lending efforts. Otting and other regulators have yet to specifically outline their ideas for making changes to that, but both the comptroller and Fed Vice Chair for Supervision Randal Quarles have discussed including mobile banking, online lending, and other financial technology tools into their reviews.
How they elect to make that change is likely to be contentious as well.
“If the assessment area is poorly defined, then the CRA will lose its teeth and that’s going to drive CRA policy for a long time to come,” said David Reiss, a professor at Brooklyn Law School.
The Regulation of Residential Real Estate Finance Under Trump
I published a short article in the American College of Real Estate Lawyers (ACREL) (ACREL) News & Notes, The Regulation of Residential Real Estate Finance Under Trump. The abstract reads,
Reducing Regulation and Controlling Regulatory Costs was one of President Trump’s first Executive Orders. He signed it on January 30, 2017, just days after his inauguration. It states that it “is the policy of the executive branch to be prudent and financially responsible in the expenditure of funds, from both public and private sources. . . . [I]t is essential to manage the costs associated with the governmental imposition of private expenditures required to comply with Federal regulations.” The Reducing Regulation Executive Order outlined a broad deregulatory agenda, but was short on details other than the requirement that every new regulation be accompanied by the elimination of two existing ones.
A few days later, Trump issued another Executive Order that was focused on financial services regulation in particular, Core Principles for Regulating the United States Financial System. Pursuant to this second Executive Order, the Trump Administration’s first core principle for financial services regulation is to “empower Americans to make independent financial decisions and informed choices in the marketplace, save for retirement, and build individual wealth.” The Core Principles Executive Order was also short on details.
Since Trump signed these two broad Executive Orders, the Trump Administration has been issuing a series of reports that fill in many of the details for financial institutions. The Department of Treasury has issued three of four reports that are collectively titled A Financial System That Creates Economic Opportunities that are directly responsive to the Core Principles Executive Order. While these documents cover a broad of topics, they offer a glimpse into how the Administration intends to regulate or more properly, deregulate, residential real estate finance in particular.
This is a shorter version of The Trump Administration And Residential Real Estate Finance, published earlier this year in the Westlaw Journal: Derivatives.
Tips for First-Time Homebuyers
Cheapism quoted me in 21 Tips for First-Time Homebuyers. It opens,
The Little-Known Escalation Clause
The Wall Street Journal quoted me in Escalation Clauses: A Little-Known Bidding-War Strategy. It opens,
For home buyers locked in a heated bidding war, there is one weapon that may help ensure victory: an escalation clause.
It’s an addendum to a real-estate contract, typically when the offer is made, in which a prospective buyer says, “I will pay X dollars for this house, but if another buyer submits a verifiable bid that’s higher, I will raise my offer in increments of Y dollars to a maximum price of Z.”
These clauses are particularly useful in a competitive real-estate market where homes typically get multiple bids. If a bidding war erupts on a home, the escalation clause will automatically raise the buyer’s offer on the house by the predetermined increment, up to the maximum amount the buyer authorizes. It eliminates the back and forth of offer and counteroffer and helps the buyer avoid paying too much for a house by getting caught up in the frenzy of a bidding war. But they can be risky for buyers who use them.
“A buyer can think of an escalation clause as a ‘have your cake and eat it, too’ clause,” says David Reiss, a Brooklyn Law School professor who specializes in real estate. “But in real estate, as with cake, it is hard to have it all.”
One concern is that the buyer is tipping his hand to the seller by using an escalation clause, Prof. Reiss says.
By indicating the maximum amount he will pay for the house, a buyer is revealing important information—that he’s willing to pay more. For example: Seller lists the house for $1 million. The buyer bids $950,000 with an escalation up to $975,000. The seller can counteroffer at $975,000, knowing that the buyer can both afford it at that price and is willing to pay it.
“Sellers get more money than they ever thought they would have,” says Carrie DeBuys, a real-estate agent with Realogics Sotheby’s Realty in Seattle. In her market, it isn’t uncommon for a seller to receive “10, 15 or 20 offers on a property.”
On the flip side, an escalation clause may not be in the seller’s best interest, explains Prof. Reiss.
Say a house is listed for $1 million, and there are three bidders. Buyer A offers $950,000. Buyer B offers $975,000 with an escalation clause that could go up to $1 million in $5,000 increments. Buyer C offers $980,000. In this scenario, the seller would get $985,000 from Buyer B after the initial offer escalates over Buyer C’s offer. But, had the seller not relied on the escalation clause and instead asked the bidders for their best and final offer, he might have sold the house for $1 million. “We know that the buyer was willing and able to go up that high,” Mr. Reiss says. “Thus, the seller is likely getting $15,000 less in the escalation-clause scenario.”
