Presidential Perspective - In the words of Rich Rector

President Obama told his Loan Policy is NOT Working by AZ Attorney General Terry Goddard

2009-08-20T12:45:00.000-07:00

This past Sunday, President Obama and his family came to AZ for a brief vacation. They stayed at the Phoenician Resort, which was built by the Savings & Loan Crisis Poster-Boy, Charlie Keating. He took the family to the Grand Canyon, and then spoke to the Veteran's of Foreign Wars Convention attendees. All of this was closely watched by the world-wide press. There was one thing that they missed, though...

Yesterday, Realty Executives held an educational event that was attended by nearly 500 real estate agents in the Phoenix area. The featured speaker was AZ Attorney General, Terry Goddard. According to Mr. Goddard, he had just a few moments with President Obama when he was in town, and took the opportunity to get some choice words to him just as he boarded Airforce One to head back to D.C. The Attorney General revealed yesterday that he was able to make one statement: "Your Loan Modification Policy is NOT working."

The audience's response was applause and cheers! What Goddard told the President was old news to everyone in the audience, and they were pleased that this important and critical message was delivered directly to Obama from someone with some clout. Let's hope that the President heard the assessment and does something to fix it. Even though the President's policies are aimed to help keep families in their homes instead of facing foreclosure, it is obvious to real estate practitioners that more must be done. I applaud AZ Attorney General Goddard for representing the real estate industry's sentiments by directly informing President Obama about where he may need to reassess his policies and programs.

Do you have a loan modification horror-story? Please share it with me, so I can continue the dialogue with Attorney General Goddard and the President.

Scary Precedent - 40 News Organizations in Collusion to Suppress News Story

2009-06-23T22:12:00.001-07:00

We all found out yesterday that the New York Times successfully asked 40 other news organizations to suppress a news story about one of their kidnapped reporters for the last 7 months. I completely understand them wanting to protect their employee and not endanger him, but this is a very scary example of a double standard that is unacceptable.

I am concerned that a "monopoly" of news organizations could essentially get together and create an anti-trust situation, where they would collectively decide what "news" should or should not be disseminated. I am not naive about the fact that most news IS manipulated in some form, but the suppression of information by a collective of news organizations in a variety of countries is a little too much to ignore. They even got some bloggers to remove their posts on the subject.

I question the subjectiveness of their actions; would they have done the same thing if it had been a politician or business person that had been kidnapped instead of a reporter? I doubt it.

Your thoughts?

REO Liabilities not Covered by E&O Insurance

2009-06-21T22:10:00.000-07:00

I have found that most agents and brokers who are listing REOs from a variety of different banks and asset managers are not aware of some risks they may be facing.

Many banks and asset managers require indemnity statements to be signed upon taking the listings, that essentially place all of the traditional seller liabilities on the listing agent and broker. Our industry has spent endless time and effort over the past decades getting our contracts to effectively shift significant liability to the seller for property condition issues and other items. These REO indemnity clauses undo all of that, and the broker's Errors and Omissions policies generally will not cover these issues.

I am curious if any other REO listing agents and brokers have realized this and are taking any actions to protect themselves. Do any of you have any experiences with this or any examples of what is being done to mitigate these new liabilities?

When Is a 20% Drop in Average Prices Really a 0% Drop in Average Prices?

2009-06-19T22:09:00.000-07:00

Here is a post from Tim in Atlanta that makes the point of my previous post much clearer. Thanks for clarifying the issue!

Via Tim Maitski "Video Agent Guy" (HomeAtlanta.com):

Market stats can be deceiving.
Every month the MLS in Atlanta comes out with average home sales prices for the Atlanta metro area. They are useful in general terms but let me show you how easy it is to get an entirely incorrect picture of what's going on in the Atlanta market.
Fulton county is in the middle of metro Atlanta and is a very long county. It could take you one hour to drive from the south side to the north side. Houses in the north part of the county might cost on average $500,000 while houses in the south part of the county might cost on average $200,000.
Here's a hypothetical situation with simple numbers to make the math easier.
10 sales at $500,000
10 sales at $200,000
= ave. price of $350,000
Next year the prices stay the same, total number of transactions stay the same, but the relative number of transactions changes in the two areas.
5 sales at $500,000
15 sales at $200,000
= ave. price of $275,000
The MLS would report that the average price of a home in Fulton county dropped 21.4%, from $350,000 to $275,000 and total sales remained constant at 20.
That would be an amazing number that would be reported in the newspaper. If you are an agent you might recommend that a seller reduce their price, when in fact the only thing that has happened is that more homes sold in south Fulton than north Fulton.
I've spent many hours this week creating market reports that drill down to smaller market areas around Atlanta. I've created average house price charts for specific areas going back to 2002 which show both price and volume. I will start posting them in the next few days.
It has been really eye opening. There are sections around Atlanta that have had average prices drop around 50% in the past year while other areas have remained level. In general, the volume of transactions in the decreasing markets is increasing and the volume in the steady markets is declining significantly. This explains why so many agents are hurting all over. Prices in north Fulton are staying even but there are half as many homes selling. In south Fulton, prices have plummeted and the number of transactions has increased. This will skew the area wide numbers in a similar fashion as my simple example.
The bottom line is real estate is local. Use national numbers with caution and also metro wide numbers with caution. Know the big picture but also know what's happening in your very local area.

Low Median Home Prices are Unrealistically Distorted

2009-06-18T22:08:00.000-07:00

In a discussion with a very wise colleague, he pointed out that the median pricing reports are not truly identifying values of all properties and is actually distorting valuations. The reason for this is that one segment of the market (the higher-priced homes) is not really "open for business" due to the lack of jumbo loans. This means that the median price reports skew to the lower priced houses, which are the majority of most markets right now.

He described it as a "product-mix change" in the market, rather than an overall drop in values. In other words, in a market that once had 40% of its sales above $700,000, and now only has 5% of its sales in that price range, the median price drops, but the value of the $700,000 house does not drop at the same rate.

Many consumers read these reports and have the impression that their house value has dropped a lot more that it really may have. If someone bought a $2 Million house 3 years ago, and the median prices of homes in the area have dropped 50% in the same time frame, that house is not necessarily worth only $1 Million now. I contend that its value is much higher because the median pricing reports have an abundance of low-priced homes dragging the median down.

I am curious if you agree with this thinking, and if so, how are you explaining it to buyers and sellers of more expensive properties?

Let me know what you think.

Republican or Democrat? Switching parties after election is false advertising!

2009-05-23T22:06:00.000-07:00

I have been thinking a lot about effects and consequences when an elected official switches parties...certainly brought to light after the Arlen Specter event recently. I believe that many people vote for candidates based on their party affiliation, and if a candidate switches parties after being elected, couldn't that be construed as a betrayal to the voters? Or false advertising?

It seems like the voters should at least have an opportunity to elect someone else, or confirm that person again after switching. I don't think it is fair, or representative of the voters' wishes if someone changes parties after being elected without the voters having some validation.

What do you think?

Totally Unrelated to Real Estate...Jazz and iTunes

2009-05-20T22:05:00.000-07:00

One of my hobbies and loves is jazz. I learned much about the players and the musical relationships they have and had by reading the "liner notes" on the backs or sleeves of record albums. Many of you may not even know what "records" are because of your age...However there were liner notes in most CDs as well. With the proliferation of iTunes and other music download sites, the learning about musicians and who they play with and what instruments they play, and who did the arrangements, etc, has died. I cannot tell you how much information I learned and retained from those notes.

I think that iTunes should have a function that allows the downloading of the liner notes from recordings...it seems like something that would be easy to do. I would even pay more for that, just to have the information. Anyone out there have a connection to Apple? I think they are missing the boat on this one. They let you download the album artwork, but they need to include the liner notes. What do you think?

Bradley Inman's Top 10 list

2009-04-09T21:55:00.001-07:00

At the Inman Realty Connect Conference in NY this week, Bradley Inman revealed his Top 10 list for the Road to Recovery to begin. Some are on target, some are off-base, and some are insane. Tell me what YOU think:

1. Overhaul the commission compensation model (find new ways to pay real estate agents besides a % of sales price)

2. Regulate the types of mortgages available (outlaw certain types of mortgages)

3. Find more efficient real estate transaction model (too many parties getting paid in the transaction)

4. Consolidate all MLS systems into one National MLS and get rid of Exclusive Right to Sell listing agreements

5. Have tougher regulations for real estate licenses and mortgage broker licenses. (Have a National real estate licensing standard with states able to add more stringent criteria if they want.)

6. Provide buyers and sellers with better "micro data" about their transactions and properties so they can quantify their risks

7. reform the secondary mortgage market and securitization - have the originator retain some of the risk of the loan longer

8. reduce settlement services costs: develop or discover low cost title insurance policies

9. outlaw bundling of affiliated services unless in results in consumer savings

10. remove all barriers to all new business models

Wow. Some good, some bad, some weird and completely wrong.

Talk to me. Tell me what you think.

Bird's- Eye View of the Exhibit Hall at the NAR Convention

2008-11-13T06:00:00.000-07:00

Here is a great view of the exhibt hall in Orlando at the NAR Convention. It was nice to have the walkway up above to get the full perspective on the scope and size of the convention. If you have never attended, I highly recommend it. You will get more than you expected from being at this meeting. Next year it will be in San Diego and you should not miss it. I encourage all of you, especially Realty Executives members, to register early.

New Member of our Team attends NAR Convention

2008-11-12T09:48:00.001-07:00

I am very proud to have Steve Lagoudis as a part of our company. He has converted his former Remax company to Realty Executives recently in Queens, NY. He will be moving his office into his brand new building with a view of the Manhattan skyline from the top floor. He and his company are great addtions to the Realty Executives family. Congratulations!

The Drop-off Point at the NAR Convention

2008-11-11T21:18:00.003-07:00

We really made an impact and first impression for those who arrived at the convention center in Orlando at the NAR convention...you can see that no one would miss us.

Over 300 attend Blogging Panel Discussion at NAR Convention

2008-11-10T16:23:00.003-07:00

The educational sessions at the NAR Convention were well-attended. I went to a panel discussion about blogging, and I was surprised to see over 300 people in the room! It covered the basics, but also got more detailed for those who were more experienced.

NAR Exhibit Hall Entrance

2008-11-09T21:55:00.003-07:00

Here I am again doing my "roving reporter" bit...This shows the entrance to the Exhibits from the convention meeting rooms. As you can see in the video, our company did some creative things to get our name out again this year.

NAR Committee to make recommendations about Fannie Mae and Freddie Mac

2008-11-09T14:45:00.002-07:00

While attending the NAR convention in Orlando, I spoke with one of our members, Sue Wiskowski Fair, who is on the NAR committee regarding Fannie Mae, and Freddie Mac. This group will be crafting the NAR recommendations to the Federal Government on how to proceed with new regulations for these entities. She has read Steve Forbes solution (below a few posts in my blog) and it will be interesting to see what comes of it. What are your ideas or comments?

The Opening of the NAR Convention in Orlando

2008-11-07T14:33:00.001-07:00

The NAR Convention in Orlando is in full swing right now. Here's some video from the entrance of the Convention Center on Friday, November 7th.

Fannie Mae & Freddie Mac: The Steve Forbes Solution

2008-09-07T12:20:00.001-07:00

Much has been said and written about Fannie Mae and Freddie Mac, especially today. Many have hailed the government "rescue" of these companies; others have criticized it. Some have proposed that they merge. I recently read a totally different opinion of how to fix it. This article was published in the August 11, 2008 issue of Forbes Magazine. In light of today's headlines, I believe his advice is worth heeding. The government has taken control, but needs to break them up, not merge them or tinker with them

Steve Forbes, editor-in-chief of Forbes Magazine, and former Presidential candidate, believes Fannie Mae and Freddie Mac should be broken up into 10 or 12 new companies. Why? He claims this would allow for better competition. It would also result in companies with better long-term financial soundness, by reducing the current debt-to-equity ratio of 25:1, down to 4:1. Good idea? Below you can read his entire editorial. What do you think?

Bust Up These Beasts

The Treasury/Fed/Congressional Rescue of Fannie Mae and Freddie Mac is only a stopgap. Unless fundamentally restructured, these two debt-bloated giants will sooner or later blow up. The once implicit, now explicit, government guarantee for these two quasi-government entities was the reason that they could be leveraged to the hilt, with a debt-to-equity ratio of almost 25-to-1. Instead of just packaging mortgages and selling them off, the companies kept hundreds of $billions in these instruments in their own portfolios to fatten profits - and enrich their politically connected managers and political allies. They also went into the junk mortgage business, buying more than $170 billion worth of dodgy paper.

The Bush Administration should vigorously push to have Fannie and Freddie recapitalized and broken up into 10 to 12 new companies, with their ties to the government completely severed. Yes, this would mean Uncle Sam's pumping in some $300 billion in equity capital and, perhaps taking on some $100 billion in those questionable mortgages. But such an investment would enable these companies to have a sound debt-to-equity ratio in the vicinity of 4-to-1. Shares in Fannie and Freddie would then we exchanged for shares of common and preferred stock in the new, solvent firms. Current shareholders could ultimately recover their losses, and taxpayers could eventually get most, if not all, of their money back. In fact, Uncle Sam might even make a profit.

One part of the restructuring should mandate that the federal government sell off its equity within, say, a five-year period.

Having 10 to 12 sound private companies competing in the mortgage market will help revive and reinvigorate that sector. If the Federal Reserve ever learned central banking - i.e., making the dollar stronger and stable - the housing market would quickly snap back.

We are still a mobile nation, and our population is still growing. The world economy will expand despite occasional road bumps like this one. Foreigners will want to own hard assets here, including apartments, houses and land. Once the dollar is stable they will quickly jump in, realizing that the price of such assets will move up again.

What are the odds of such a sensible approach? Not good. Why? Because the two most mammoth political powerhouses in America today are Fannie Mae and Freddie Mac. Their lobbying muscle makes Arnold Schwarzenegger look like a 90-pound weakling. Directly and indirectly they employ legions of ex-pols to help them on the Hill. They hand out largesse of one sort or another to any pol who matters and is willing to take it. Fannie Mae's "charitable" operations have field people in virtually every congressional district.

These monsters are fiercely resistant to any change affecting their ability to tap Uncle Sam's ATM at will while privatizing profits and socializing losses. Freddie is considering floating $10 billion of new shares to avoid restructuring.

The Bush Administration has no appetite for such a fight. Treasury Chief Henry Paulson probably doesn't even realize the need for it. And, of course, Capitol Hill wants no change.

One yearns here for an Andrew Jackson. Our seventh President felt that the Second Bank of the United States - which was chartered by the federal government and combined the powers of today's Federal Reserve and our largest commercial investment banks - was dangerously big and therefore its charter should not be renewed. But the bank had Fannie/Freddie-like lobbying muscle. Nonetheless, Jackson destroyed it. Alas, hedidn't devise a successor entity that would only regulate banks, so we got a banking bubble, which inevitably burst. But Jackson was correct in principle: No outsize government-created creature should exist.

Disturbing New Real Estate Trend - Wikipedia-type Sites Can Distort the Truth

2008-09-03T09:45:00.000-07:00

A disturbing new trend I’ve seen emerging is the electronic mutation of what I call the “cocktail party CMA.” We have all experienced the real estate conversations that happen at the neighborhood cocktail parties...People exaggerating sales prices or not explaining the real reasons for selling. The internet is really good at distributing information, but not all that information is valid or correct. The Internet can actually accelerate the distribution of false information.

Some real estate websites have now created blogs and “wiki” where consumers can add their personal "facts" regarding sales prices, listing prices, mortgage and appraisals and reasons for such. As many in the industry know, not all information told by buyers, sellers, their neighbors and friends is correct. This will eventually lead to many real estate websites spreading false information. Smart consumers will begin discounting much of the real estate information on many sites, and again start to relying on better sources like real estate professionals and documented records of transactions.

We have already seen this happen in education, where many teachers and schools do not allow their students to use Wikipedia as research source, due to its questionable factual information.

Explanation of the Sub-Prime Mess

2007-12-12T18:03:00.000-07:00

This video is about the best explanation of what happened with subprime lending. Check it out.

http://www.dailyreckoning.us/blog/?p=619

Department of Justice vs. Blanche Evans. Blanche Wins!

2007-11-13T01:34:00.000-07:00

I have always had the utmost respect for the intelligent balanced writings by Blanche Evans, editor of Realty Times (www.realtytimes.com). My opinion of her has risen even higher after I saw a recent video she published about the Department of Justice website on competition in real estate. Click on the link below to take a look.

http://img.realtytimes.com/rtimages/johnl2/$file/blanche-pocket-oct-web.wmv

Department of Justice Insinuates Real Estate Buyers and Sellers Lack Intelligence

2007-11-09T14:42:00.000-07:00

In its infinite wisdom, the US Dept. of Justice has created a website to warn the public that the real estate industry is "non-competitive!" Where have they been? They are claiming that new models of real estate companies are having difficulty competing. Of course they are! It is a competitive business!! The DOJ is making the same mistake others have made in thinking of real estate transactions as commodities, like buying plane tickets or books. Every house, and every transaction is different. Paying a professional to guide someone unfamiliar with real estate through a transaction is worth every cent.

For our government to take sides and promote one type of business model over another is completely inappropriate. The DOJ even goes so far as making judgments about pricing, without understanding the true costs of a real estate transaction. (See my comments below regarding this subject). I am outraged by this, and you should be, too. I encourage you to email your Senators and Representatives to demand them to reign in the DOJ. Did the DOJ do a website to warn consumers about car dealers, stock brokers, or plastic surgeons? I can argue that consumers need more protection from those industries.

Here's another way to look at this: There are many different types of retail stores including Wal-Mart, Target, Bloomingdale's, Nordstrom, and many others, including online stores. Customers choose the level of pricing, quality and service they want and shop accordingly. This DOJ website is essentially the same as telling the public they are better off if they shop at Target instead of Neiman-Marcus, and telling the department stores how to price their merchandise. What happened to the consumer making choices for themselves based on their own wants and needs? Our government is essentially saying that consumers in general are not intelligent enough to competitvely shop for services.

The one saving-grace about this website is that it is very difficult to find. I challenge you to find it at: http://www.usdoj.gov/

Scroll down to see some of my comments on this subject from previous posts.

· The MLS system is NOT exclusionary.

The MLS system is open to everyone who pays the fees and plays by the rules, just like the New York Stock Exchange. The MLS was created in the 1950s to bring order to a chaotic market where buyers had to call or visit every single real estate office in the area to find out what was for sale. The MLS motivates Realtors to publicize their sellers’ properties to the world because they know they will get paid if the transaction is successful. This benefits buyers by creating an orderly marketplace where they can view everything for sale.

· The abundance of real estate information on the Internet does NOT reduce the true costs of a real estate transaction.

The truth is that real estate commissions will never be lower unless the most of the customers want to do most of the processes of the transaction themselves (research tells us that they don’t), real estate offices and personnel are not needed (research and experience of new models say they are), and most importantly, buyers and sellers of real estate take full responsibility for their own non-disclosures, mistakes, forgetfulness and changes of mind. In my 30 years of experience, it is this last point that creates the largest costs of real estate transactions.

· Buying real estate on the Internet is NOT like buying books, airline tickets, stocks or computers online.

Those items are commodities: a plane ticket from Dallas to San Francisco on American Airlines is virtually the same as one on US Airways. One hundred shares of Oracle stock is the same whether it is purchased through Etrade or Morgan Stanley. However, a resale 3 bedroom, 2 bath house with a fireplace is not a commodity. One is usually significantly different from the other – even if they are in the same subdivision by the same builder. Also, if something breaks on the Dell computer you bought online, it is pretty easy to return it and get it fixed. Try that with the house you bought over the Internet. You might then discover why the good real estate professionals get paid what they do.

Dale Rector - Patron Saint of the Real Estate Consumer & Professional

2007-10-31T14:23:00.000-07:00

Today marks the 3rd Anniversary of the death of R. Dale Rector, the man who revolutionized the real estate industry in 1965. This humble gentleman completely transformed the real estate industry by creating the 100% Commission Concept and implementing it in his company, Realty Executives. That is old news, because virtually every real estate company has offered some version of his program for years, in order to attract and retain the best professionals. In fact there have been competitors that have copied the Realty Executives' concept right down to using the same colors in their logos. The 100% Concept was not just a new compensation method; it changed the way real estate professionals could do their work to serve their clients better.
Some examples:

*Sellers and Buyers were served better and faster because of the complete vested interest the 100% Agents had in a positive outcome for those customers.

*Buyers were able to get to the most knowledgeable agent about listings without having to go through "floor people". By being the first company to allow "personal marketing" by the agents, the customers gained information and communication quicker.

*Sellers were able to negotiate the commission rates directly with the person who could make the decisions about it.

*The company could easily fire those agents who were not ethical or competent because the company made the same amount of money from each agent, rather than being paid depending on the price of the property or number of sales.

These are just a few examples of how Realty Executives and Dale Rector improved the real estate industry 42 years ago. Realty Executives still lives by these principles and concepts today. It gives me hope that customers, clients, other real estate agents, and regulators will discover our company that not only created itself to fulfill the needs of the real estate consumer, but also brought the top real estate professionals together under one banner.

Why Zillow Needs More Money

2007-09-24T16:07:00.000-07:00

I read a great article on Inman News about Zillow the other day after they had gone back to the capital markets for more money. The author is Joel Burslem and here is the link to the article.
http://www.futureofrealestatemarketing.com/why-zillow-needs-more-money

Here is his message:

Zillow gets $30M more for online real estate raising their total investment to date to $87 Million in Venture Capital following earlier rounds from Benchmark Capital, Technology Crossover Ventures and PAR Capital. That’s an awful lot of bones. John Cook asks the one question I’ve been wondering about for a while - at a 10x return (a hopeful return on a VC investment) can Zillow seriously hope to become an $800 million company?

Just what is their end game? IPO? Sarbanes-Oxley has put a damper on that option, but it’s a (unlikely) possibility. Acquisition? Who’d buy ‘em? Google? Yahoo? MSN? IAC? Maybe one of the big newspaper chains like Tribune or McClatchy. Both are bleeding real estate ad dollars (see McClatchy Reports August 2007 Revenues) and might turn to a web acquisition to recoup some of that revenue. Profitability? Zillow CEO Rich Barton expects great things from this approach. From John Cook’s interview:

Those sales staffers are focused almost entirely on online advertising, a model that Barton believes will continue to grow despite the recent housing slump. “The volume of advertising dollars that are going after these people as they have these conversations around spending money, it is effectively infinite. It is so huge,” Barton said.

Meh.

I’ve always maintained that advertising can’t be a truly viable option for site as big and expensive to develop as Zillow is, especially in the current climate (see Storms Ahead for Real Estate Sites). Barton, in his Q&A with John Cook, even seems to indirectly undersell the popularity of their platform. "We have had over 6,000 advertisers for this local EZ Ads product which is this self-service product that Realtors or plumbers or mortgage brokers can use." 6000 advertisers each buying 10 bucks worth of ads does not an $800 million company make.

But Zillow’s biggest problem is it has become truly schizophrenic in what it’s aiming to do. It has ducked and dived and morphed itself into all sorts of contortions since it launched. Is it a home valuation tool? A home search site? A marketing platform for Realtors? A community conversation around real estate? And now soon to be a mortgage loan service too? I hardly know anymore - Zillow’s value proposition for consumers has become so muddied. And I don’t think I’m alone. Their traffic data alone seems to bear our this trend. Visitors to Zillow have plateaued while their competitors are steadily gaining ground.

Same goes for visitor’s engagement with Zillow. People don’t seem to be spending any more time there. real/diaBlog also comes to a very similar conclusion.

Looking at the two companies, Trulia, who has remained laser-like in its focus to simply deliver a good real estate search experience (and has remained far smaller in terms of VC dollars taken in and the number of staff it employs), has now become the top traffic driver to real estate companies nationwide. Pretty good ROI, if you ask me.

So what does this extra $30 million from Legg Mason mean? Well, it allows Zillow to maintain Barton’s “go big or go home” strategy for a few more quarters anyway. Hopefully, it also gives them enough breathing room to start figuring out exactly who they are in the meantime.

Or maybe they know and they just haven’t told us yet.

Sub-Prime Foreclosures To Create New Buying Opportunity

2007-08-12T23:38:00.000-07:00

In the past 5 years or so, the number of foreclosed properties has been at an all-time low. Anyone in trouble with their mortgage payments had no problem selling their houses, so the number of foreclosures was minimal. That meant that those people looking to BUY foreclosures had very few choices. In particular, the "Teacher Next Door" program through HUD was not viable because most teachers who used this program did not want to live in the neighborhoods where these foreclosures were located.

Today is a different story. This HUD program allows teachers to buy FHA foreclosures at 50% of the appraised value of the home! Now there is an abundance of foreclosed homes in a variety of different neighborhoods throughout the United States. So, for example, in the Phoenix area, where the median price of a home is $250,000, a teacher could buy a median-priced foreclosed home for only $125,000!! And there are plenty of them available now, where a few years ago there were none.

Even with qualifying criteria being somewhat more stringent, this is a huge opportunity for our teachers in this country. Realty Executives has created a program called HOMEWORKS, which is designed to help teachers buy houses. This is one example of the opportunities in our program. So if you are a teacher, or if you know a teacher who needs to buy a home, please contact me directly, or one of our Executives (Agents) to find out more about the HOMEWORKS program.

Remax to go public?

2007-08-01T13:57:00.000-07:00

There have many recent signals that suggest that Remax International may be preparing for an IPO. In the recent past, they changed their Board of Directors to include a significant number of new people, mostly "outside" directors. This was done, most likely, to comply with Sarbanes-Oxley rules for public companies. Most recently they have been buying up many of the regional franchises they had sold over the years. International now owns California, Hawaii, Florida, North Carolina, South Carolina, Arizona, Nevada and probably others that I am not aware of. I believe that this acquisition path is to create a larger individual company that will be easier to take public. These moves have been financed by the company going to the financial markets (ie, Wall Street) for a large private debt offering.

It seems like they are preparing for the Initial Public Offering before too long. This would increase the number of franchisees who are Wall Street driven. (GMAC, C-21, Coldwell Banker, ERA, Prudential, Sothebys, and now Remax)

The feedback I get is that many top real estate agents are feeling like they are getting lost in the fray and will be seeking out those franchises that treat them like family members instead of like numbers.

Jitterbug & iPhone: Analogy for Real Estate Companies

2007-07-02T14:09:00.000-07:00

I was struck by the huge contrast of two ads in the New York Times for cellular phones. Both ads were on the back pages of inserts in the newspaper. The first was for a basic, feature-less phone called the Jitterbug. The compelling differentiator for this product is that it is simple and does nothing except make phone calls. Nothing else. The ad copy for this phone was wordy and busy with lots of fine print and explanations. The cost of this phone is very inexpensive.

The other ad was for the new iPhone from Apple. It is not only a phone, but also a music player, internet browser, text messenger, camera, and perhaps other things that I am unaware of. This is a very expensive phone. The ad copy was clean, compelling, and attractive. The iPhone ad contained only 17 words. The FIRST LINE of the other ad contained more words than the iPhone's entire ad.

If I was in the market for a simple phone like the Jitterbug, the ad would make me turn away from it...there are too many asterisks, conditions and explanations that keep me from believing its simplicity.

The iPhone ad elegantly shows the product being used, and assumes that I want a product that doesn't need to explain itself. It also even challenges me to try the iPhone, and once I do, I will be a believer in it.

We see these two ends of the marketing spectrum in many industries, including real estate brokerages. Customers are bombarded with ads for "do it yourself" brokerages that overwhelm the consumer with disclaimers, conditions and explanations. Our company's goal is to show our customers straight-forward, compelling messages that offer multiple choices and features, and charge a fair price for them.

I compare the great majority of real estate agents to the Jitterbug: only able to do a limited number of functions, talking too much, confusing the customer with overwhelming data. I compare our Realty Executives to the iPhone: professionally offering its features and benefits, allowing the customer to actually experience the service and understand and appreciate the value received.

There will always be a market for the inexpensive, do-it-yourself customer, but in my 32 years of real estate experience, the great majority of customers want a professional to help them through the process at a fair price.

Valuations of Real Estate Brokerages

2007-06-30T21:29:00.000-07:00

Topic #3 from Real Trends Gathering of Eagles: Values of Real Estate Companies

The playing field for acqusitions has changed. The big buyers were NRT and HomeServices. Both have either slowed their pace or stopped buying real estate companies recently. After Apollo Group took Realogy (the parent of NRT) private, their acqusition formula changed. The multiples people are seeing for stellar companies is somewhere between 3.5 and 4.5 times EBITDA. This is not too different from the past, but now they are not offering cash of 80% of the price upfront like they used to.

Another player has emerged since they went to Wall Street for a large private debt offering - Remax International. They have been buying back their own regional franchises recently, and may also start buying other brokerages - but at the same terms as mentioned above.

This is a significant change in the industry; HFS-Cendant-Realogy has been the large acquisition player through its NRT subsidiary for years. It will be interesting to see how this plays out.

My Response to 60 Minutes' Segment from 5/13/2007

2007-05-25T16:07:00.000-07:00

In a segment on CBS’ 60 Minutes show which aired on May 13, Leslie Stahl reported on the decreasing consumer need for traditional, full-service real estate agents. She interviewed the startup company, Redfin, a Seattle-based online flat fee brokerage that alleges its virtual agents are able to provide better customer service than the average Realtor at a fraction of the price. I find it extremely dissatisfying that 60 Minutes and Leslie Stahl hold such little regard for fair journalistic reporting that they failed to allow the National Association of Realtors (the nation’s largest trade association, not its governing body like 60 Minutes suggested) to represent its point of view. Many accusations and statements were made in this segment, all portraying to the consumer that full-service real estate brokerages are simply out to make more money, regardless of the impact on the consumer.

The reality is that while housing prices have increased in most markets in recent years, so has the cost of the real estate transaction. And no, the cost of the real estate transaction does not solely consist of “driving around to show properties, making a flyer and hosting an open house” as CBS and its RedFin client interviewees suggested. In fact, there are several other factors to the overall cost of a real estate transaction including: the increasing cost of Errors & Omissions insurance premiums (which is necessary in this litigious society), increasing gas prices and the increased cost of marketing properties with the growth of consumer needs and wide-range of marketing opportunities that exist, among other things.

In the segment on 60 Minutes RedFin talks extensively about how their business model saves the consumer money by charging a flat fee versus a traditional commission. However, are the sales associates who work for Redfin knowledgeable experts who are going to help a consumer properly stage a house or negotiate fiercely on their behalf? Many times over the years I have personally seen how discount agencies charge a low, flat rate but in the end the consumer is worse off because they got less for the house they sold, or paid more for the house they purchased because of shoddy representation.

My company and I are in full support of NAR’s logical explanations which address the inaccuracies as they were reported but I do think it is important to make one final point. Using a Realtor is the choice of the consumer – no one is, or ever will, force the consumer to choose or not to choose a full-service Realtor. My suggestion is that consumers shouldn’t treat hiring a Realtor any differently than hiring a lawyer, or accountant, or doctor or investment manager. Do you simply look for the cheapest option when hiring any of the aforementioned? Or, do you take the time to interview the people who are going to look out for your best interests, who are the most knowledgeable about their given field and who have the education and training background to ensure you get the results you want? Much like consumers have the choice between shopping at Wal-Mart, Macy’s or Nordstrom for clothes, they also have the choice of which route to take when buying or selling real estate. Each of the three may fit for different needs or consumer-types but people should be given the option. It seems to me that CBS chose to only highlight the “Wal-Mart” business model when they spoke exclusively with a company like RedFin.

At Realty Executives International we make it a priority to invest in finding the right broker/owners and the right Realtors who are ready to provide their clients with unsurpassed support, negotiation prowess, marketing skill and interpretation of information - more than you could possibly get on the internet. All of which enable the consumer to garner the best results.

Realty Executives has always stood by the point of view that it is our goal, and the goal of the industry, to compete on a level playing field – making it a better experience for both the consumer and the industry alike.

Ultimately, CBS has participated in doing the consumer a disservice by only reporting one side of a complex industry and that is unfortunate.

Real Trends - Gathering Of Eagles - Needs New Energy

2007-05-04T08:03:00.000-07:00

I left the Real Trends conference on Thursday, a day early, after a snooze of a General Session. I remember in the past, exciting dialogue among competitors in the open forum and passionate debate between regulators, brokers and service providers. None of that was present at this session. I was surprised and disappointed, because the real estate industry is in such turmoil right now. There could have been great exchanges of differing opinions so attendees could form their own positions on many topics. However, this meeting was dull, at best. There were an abundance of attendees who should never have gotten past the front door. For example, there was one publisher of a real estate magazine who continually interrupted meaningful conversations to try to impose his low-class product on people who had no interest in it. I have a feeling that he was allowed in just to receive another registration fee. He was not an "Eagle" by any means. Vendors and obvious "new product" sponsors should be banned, or limited to an "exhibit hall" of sorts. They should not be allowed in the meeting sessions or cocktail and meal functions. The registrants should be monitored and limited to those people who are truly the top people in the industry. The "Eagles" have been infiltrated by numerous "vultures" and "turkeys."

Steve Murray should take the stage for half a day and state his views, knowledge and observations about the industry. He should then challenge others who may take opposing views to some debate. My registration fee would be worth it just for that session. It used to happen, but this meeting has slipped into mediocrity.

Steve, please revamp, re-energize, re-invent this gathering.

Real Estate Market Conditions

2007-05-03T20:00:00.000-07:00

Topic #2 from the Real Trends Gathering of Eagles: Market Conditions

First of all, it is important to note that there is no such thing as a "national real estate market." All markets are much more local. Most experts agree, though, that the real estate markets throughout the US (with some exceptions) bottomed out in the 4th Quarter of 2006. However, there has not been much of a recovery yet; inventories are still high and prices are still soft.

The NAR reported that transactions were down only 9% in the 3 Quarter of 2006. This number is suspect because most other sources, including Realogy and Real Trends reported a 16 to 18% drop. The average should be somewhere in the 16.5% range.

Also, for the 1st time in 16 years, the median commission rate INCREASED. I believe this is because the consumer really doesn't want to "do it themselves" and are willing to pay for professional marketing and representation in their real estate transactions. This becomes even more important to them during slower markets.

Also, a representative from Countrywide Mortgage reported that he believes the current market doldrums will continue through the middle or to the end of 2008. Inventories will continue to increase and prices will continue to soften. However, this is great news for buyers, even though some lending criteria will get tougher, especially for 1st time buyers. The popularity of private mortgage insurance is rising and will allow those buyers more ways to qualify.

Department of Justice and NAR Suit may Drive Brokers Out of MLS

2007-05-02T17:30:00.000-07:00

The first session of the Real Trends Gathering of Eagles was the "Billionaire's Club" meeting. This is only for those owners of companies that sold more than $1 Billion in real estate in the past year. Steve Murray, our host, started out the meeting with some personal opinions and observations about issues in the industry.

Topic #1: NAR and DOJ lawsuit. The DOJ's point of view is simple; it believes that the broker should have no right to opt out of the MLS. The NAR and Steve Murray conversely believe in the fundamental right of the broker to advertise where ever and when ever they want. Steve then went on to suggest that if member brokers of the MLS are forced by the DOJ to comply with posting everything to the MLS without choice, brokers would leave the MLS system. He contends that industry members would find new and creative ways to advertise their inventory without MLS. Steve also reported that the DOJ said "Brokers will never leave the MLS." With that comment, the room was filled with cynical laughter...the people in the room were those decision-makers for the most successful real estate companies in the US.

This echoes my writings regarding this subject last year; if the government wants to stick its nose into the MLS structure, the MLS structure will fail and the industry will find other ways to fulfill the needs of their companies and their customers.

Topic #2: Market conditions , and Topic #3: Valuations of Brokerages and the landscape for acqusitions. I will address these in future posts.

Real Trends - Gathering Of Eagles - Anything New? or Same Old Thing?

2007-05-01T11:11:00.000-07:00

I will be attending the Real Trends - Gathering of Eagles again this year and I hope it has a new formula...I do enjoy the networking and exposure to new ideas and companies. Steve Murray is a great host, but in the past, many of the presenters were there pitching their products and services. It has felt like advertorials on TV to some degree.

I was invited to speak 3 times in the past and always took a point of view to create dialogue with my peers. I am optimistic that the speakers this year will do the same.

I will update my blog from the meeting this week, to let you know how it is going.

Remax Shuts Down Its Relocation Business

2007-04-30T11:12:00.000-07:00

Remax International has closed its Relocation Business because their agents are confused about the referral fees their own company charged for the leads. The president of Remax International, Vinnie Tracey, admits that their own internal systems were confusing their members. Their website is also confusing...it still has buttons for Relocation, and there is no indication that they have gotten out of this business. It makes one wonder if they are just inefficient at updating their website, or if they are intentionally trying to give the impression that they are still in business, when they are not.

The corporate relocation business, in general, has been cannibalized by the very corporations who want relocation services. The motivation for professional real estate people to work with corporate transferees has been diminished by the corporations taking so much of the available commissions. However, it is still a viable business for those who know how to manage it properly.

Update: Arizona vs. Zillow

2007-04-27T19:52:00.000-07:00

After the State of Arizona issued a cease and desist to Zillow, there has been a flurry of activity in the AZ Legislature. Several bills have been introduced to allow these types of "guestimating" websites without licensing as appraisers. Arizona re-iterated that it would not allow Zillow to operate without proper licensing last week, but state representatives have written proposed legislation to allow them to operate without being considered appraisers.

I still have trouble with any state trying to validate Zillow and other sites like them as professional appraisers. Their sites continue to be very unreliable for placing proper values on real estate. States should ignore them and not give them any creedence because they really can be harmful to buyers and sellers of real estate, especially in markets with volatile pricing over the past few years.

My guess is that the legislature will be lobbied hard to allow them to continue operating without appraisal licenses.

Arizona makes Zillow Cease and Desist

2007-04-27T10:25:00.000-07:00

I am torn about the state of Arizona making Zillow stop its online "appraisal" service. The state has said that because Zillow is not a licensed appraiser in the state, it must cease and desist marketing in Arizona. This bothers me because it implies that Arizona thinks that Zillow is a real appraiser! NOT! I don't like the idea of the state validating that idea; Zillow is like Wikipedia...just because someone thinks they know what is true doesn't mean that it is...Zillow's opinions of value on their website continue to be wildly inaccurate. Sellers and Buyers beware! Do not rely on any website for pricing your home for sale or for making an offer. Please do yourself a favor and hire a professional Realtor to represent you; that investment in expertise will pay off for you.

"Public" MLS?

2007-04-20T07:43:00.000-07:00

I read that some are proposing a "public" MLS. What I think they mean is that they want a place on the internet where they can view every single property for sale. This is pretty much a done deal already. There are numerous websites that contain a large percentage of them already, and there will be more soon.

Most people don't know that a true MLS (Multiple Listing Service) is much more than a list of homes for sale. It is also an efficient way of allowing the listing agent or company to be an aggressive marketer of those homes for the sellers. Without that, an MLS is nothing more than a bunch of classified ads. Because of the rules and "exclusive right to sell" aspect of the MLS, a Realtor is assured getting paid for his or her efforts for marketing when the home sells. This allows the lister the ability and motivation to market that property to the world. If those rules go away, listing agents and companies will not be compelled to market the properties as aggressively; they will want to keep the information harder to get so buyers could only get the details from that agent or company. Buyers would lose, Sellers would lose, and the whole real estate sales process would take a giant step backwards to the 1950s.

Anyone who advocates opening the MLS to everyone without maintaining the rules or exclusive listing concept, is an advocate for an inefficient and chaotic real estate process.

For further discussion on this topic, scroll down to read my post titled: "Realty Reality - Continued."

Banks in Real Estate Lending- Supreme Court Ruling

2007-04-18T10:57:00.000-07:00

The Supreme Court ruled the other day that subsidiaries of national banks that are real estate lenders, do not have to comply with the state laws for lenders. This creates a dual standard: those local lenders must comply with state licensing laws and fees, while those national bank subsidiaries don't. Not fair, in my opinion. If states have the right to create their own regulations, any entity operating there should have to play by the same rules. Does this open the door for banks to now have real estate brokerages that don't have to be licensed in the states where they operate? Do their employees not have to be real estate licensees like other practitioners in the state? Big can of worms, in my mind. Your thoughts?

Freakonomics got real estate wrong...

2007-02-16T00:28:00.000-07:00

In the book, Freakonomics, the authors, Steven D. Levitt and Stephen J. Dubner, claim to be experts on hidden incentives that drive human behavior. In the introduction to the book and in Chapter 2, they refer to real estate agents, and they have made some major oversights.

Levitt and Dubner cite a study that was done in the Chicago area that supposedly showed that real estate agents sell their own personal homes slower and for more money than their listings of clients' homes.

After reading the complete study (which is not in the book), I found that there are flaws in their methodology and conclusions.

Levitt and Dubner claim that because the incremental difference in the commission amount is so small, the agents advise their clients to accept offers for an average of $10,000 less than on their own homes.

One flawed assumption they make is that all real estate agents are on 50/50 splits with their companies. This is ludacrous. In the real world, the great majority of real estate agents receive much greater splits, and many receive 100% of the commissions. For experts on incentives, the authors entirely miss the point that 100% agents have a huge vested interest in their clients' getting top dollar and being satisfied with the service and representation they get from their real estate agent. In fact, their study specifically excludes 100% agents, who happen to be the most productive and experienced in the business.

Oh, and by the way, it is not the decision of the real estate agent to accept the offers brought to the sellers. It is sellers who decide to accept or reject offers on their properties.

In addition, most real estate agents would prefer to receive their compensation on the sale of their own house as a capital gain instead of ordinary income. As a result, prices of homes can be adjusted for the commission to be waived, but built into the selling price to accomplish this tax maneuver. The study shows that on average, real estate agents' homes sell for $10,000 more than their clients'. Taxes on $10,000 ordinary income could easily be $4000 for the agent, where taxes would be $1500 on the capital gain.

How could the "incentive experts" miss this one?

Exit signs need to go to radioactive dumps.

2007-02-14T13:09:00.000-07:00

I got a real charge out of this article in BusinessWeek magazine! One of my competitors has based its marketing program on exit signs...Now we find out that exit signs are toxic trash.

Evidently, most of them contain tritium, a radioactive isotope of hydrogen, and the old ones get discarded into landfills where the tritium, a known carcinogen, percolates into the area's drinking water.

It is now required that exit signs must be taken by licensed haulers to special radioactive dumps.

Response from USA Today reporter, Noelle Knox

2007-02-14T11:43:00.000-07:00

I received an email back from the USA Today National Real Estate Reporter, Noelle Knox. She had a couple of points that I need to address: She claims that some MLS systems were/are/can be exclusionary and that is why the FTC and DOJ have started legal actions. My response to that is: Even though there may be some rogue MLS operations excluding members based on their business models, the great majority of MLS systems are open to any members regardless of the way they do their business. I would hope that the Department of Justice would not broad-stroke the entire concept of MLS because of a few bad seeds.

She went on to say that she believes or has heard that much time has been saved on chauffering clients around from house to house, and clients now narrow down their choices because of the Internet. This is true, but my point is that these are not major costs in real estate transactions. She did agree with me that buyers and sellers have, in general, not been willing to take full responsibility for themselves when mistakes or changes of mind occur in the transaction. This is what really impacts the costs of a real estate transaction.

Noelle then agreed that she would never advise anyone to buy a home 100% over the internet as the subjects of her article did.

USA Today Article - "Home shoppers do their hunting online"

2007-02-14T11:28:00.000-07:00

On Friday, February 9th, the Money section of USA Today ran a story by Noelle Knox regarding how the internet has changed how people buy and sell real estate. It featured a couple who had purchased a home over the internet without ever seeing the home or even visiting the city where it is. Below are the headings of my response. For the full version of my reply scroll down.

The MLS system is NOT exclusionary.

The abundance of real estate information on the internet does NOT reduce the true costs of a real estate transaction.

Buying real estate on the Internet is NOT like buying books, airline tickets, stocks or computers online.

Dear Ms. Knox,

I enjoyed your article (“Home shoppers do their hunting online” Feb. 9, 2007) today about the couple that bought their home sight-unseen over the Internet. I believe that they are the exception to the rule and will continue to be. Here are a few points regarding the real estate industry that seem to get overlooked when discussing this topic.

· The MLS system is NOT exclusionary.

The MLS system is open to everyone who pays the fees and plays by the rules, just like the New York Stock Exchange. The MLS was created in the 1950s to bring order to a chaotic market where buyers had to call or visit every single real estate office in the area to find out what was for sale. The MLS motivates Realtors to publicize their sellers’ properties to the world because they know they will get paid if the transaction is successful. This benefits buyers by creating an orderly marketplace where they can view everything for sale.

· The abundance of real estate information on the Internet does NOT reduce the true costs of a real estate transaction.

The truth is that real estate commissions will never be lower unless the most of the customers want to do most of the processes of the transaction themselves (research tells us that they don’t), real estate offices and personnel are not needed (research and experience of new models say they are), and most importantly, buyers and sellers of real estate take full responsibility for their own non-disclosures, mistakes, forgetfulness and changes of mind. In my 30 years of experience, it is this last point that creates the largest costs of real estate transactions.

· Buying real estate on the Internet is NOT like buying books, airline tickets, stocks or computers online.

Those items are commodities: a plane ticket from Dallas to San Francisco on American Airlines is virtually the same as one on US Airways. One hundred shares of Oracle stock is the same whether it is purchased through Etrade or Morgan Stanley. However, a resale 3 bedroom, 2 bath house with a fireplace is not a commodity. One is usually significantly different from the other – even if they are in the same subdivision by the same builder. Also, if something breaks on the Dell computer you bought online, it is pretty easy to return it and get it fixed. Try that with the house you bought over the Internet. You might then discover why the good real estate professionals get paid what they do.

Realty Reality - Continued

2006-09-17T20:22:00.000-07:00

The Multiple Listing Service (MLS) has come under attack recently by people who have no clue about why it exists or what it does to help create an orderly marketplace for real estate transactions. In addition some of the people attacking it are real estate brokerages who do not want to "pay the freight" and follow the rules that apply to all members.

Myth #2: The MLS is exclusionary and doesn't allow all real estate brokers access to all of the inventory of houses for sale.

Realty Reality: This is absolutely false. The MLS system was set up in the 1950's because the real estate business was totally inefficient. A buyer would have to go to every single real estate office in town to find out what was for sale at each office in order to see the entire market. In addition, the real estate brokers had no way to expose their inventory of homes widely to each other and to the buyers interested in that area.

The Multiple Listing Service was started to bring order to a chaotic marketplace, much like the New York Stock Exchange did for the securities market. The stock exchange created memberships for those brokers who wanted to participate in an orderly method of marketing stocks. The stock exchanges charge a fee for membership, and there are strict rules that must be followed, not only by the stock brokers, but also by the companies who list their companies on the Exchange. Today, companies have many choices of markets: they can choose to list on the NYSE, or on the NASDAQ, or they can be traded "Over the Counter", or they can choose to sell their stocks themselves to private investors only.

Real estate brokers have similar options: they can choose to be members of the MLS in their areas, or they can choose not to. Home sellers also have many options: they can choose to list their homes with brokers who are MLS members, or they can choose to list their properties with brokers who are not. They can also choose to market their properties themselves without using a broker. Depending on the choices they make, the methods of marketing the property will vary.

If a real estate broker chooses to be a member of the MLS, he or she must pay membership fees, and follow the rules, just like a stock broker must as a member of a stock exchange. Those memberships are not restricted to certain types of brokers in either industry; Charles Schwab, as a "discount" broker can be a member just as Morgan Stanley can. In the real estate business it is the same; Help-U-Sell can be a member of the MLS just as a Realty Executives broker can. They all must pay the same membership fees and play by the same rules.

The MLS system allows a broker to be the best advocate for their sellers by protecting their rights to a commission no matter who buys the property. This makes it possible to be aggressive in marketing the property to the entire world without hesitation.

Anyone who thinks that the MLS system is hindering the marketing of properties or is excluding brokers from the marketplace, is just plain ignorant of the facts and history. Without the MLS, buyers and sellers would have limited access to homes and buyers, and would not get the advantages of the free market that determines the true values of the properties they are selling and buying.

The MLS is open to any broker no matter what business model chosen by the company. However, all members must pay the same fees and play by the same rules. Any real estate broker who complains about MLS access is most-likely too cheap to pay the fees to participate in an orderly market, or has a business model that has failed to account for the true costs of doing business.

Realty Reality

2006-09-14T10:04:00.000-07:00

The recent article in the New York Times authored by Damon Darlin (referenced in my previous posting) contains many statements that are common myths about the real estate process. In my next few entries I will point out those fallacies and hopefully bring to light the "reality of realty."

Myth #1: (Stated in several different ways) "The Internet has radically changed the way consumers buy books and airline tickets, trade stock and learn news." "You can find out more about an Ebay Beanie Baby than you can about a $1 Million house." "Buying a home online is not too different from ordering a book at Amazon.com or a computer at Dell.com."

REALTY REALITY: People are forgetting that an airline ticket, a book, a share of stock, and computers are commodities. That means that there is no real differences among many of them. For example, a plane ticket from Dallas to San Francisco on American Airlines is virtually the same as a plane ticket from Dallas to San Francisco on US Airways, or Southwest, or Delta, or United. 100 shares of Oracle stock is the same whether it is purchased from Etrade or from Morgan Stanley. If you buy a copy of "The Da Vinci Code" from Amazon or Borders, no one would know the difference.

However, a resale 3 bedroom, 2 bath house with a fireplace IS NOT A COMMODITY! One is usually significantly different from the other - even if they are in the same subdivision by the same builder. It takes market knowledge and personal experience to understand the differences in those products. The differences could be in the locations, or in the improvements made by different owners. One may have white carpeting and the other may have hardwood floors. Perhaps one property is in a flood zone and the other is not. One may be in a different school zone than the other. One may have had a fire in it and the other one didn't. One has a kitchen window that faces east into the morning sun, and the other has no kitchen windows at all. It takes an experienced person to have the market knowledge and understanding to know if the values of the properties are valid and in line with the specific differences unique to each house.

Also, if something breaks on the Dell computer you bought on the internet, or Amazon shipped you the wrong book, it is pretty easy to return them for the right things...Try that with the house you bought over the internet. You might then discover why the good real estate professionals get paid what they do.

The internet is a great tool for buyers, sellers, and real estate professionals. It helps everyone get information more quickly and narrow down possible properties for buyers, and exposes sellers' homes to those buyers. However, that does not lower the true costs of a real estate transaction.

The Biggest Fallacy of Real Estate on the Internet

2006-09-04T17:00:00.000-07:00

Here we go again...the media is jumping to conclusions again about what is true about the process of buying and selling real estate.

On Sunday, September 3rd, the New York Times published an article by Damon Darlin, titled "The Last Stand of the 6-Percenters?" In it, Darlin proceeds to talk about some new internet-based real estate firms whose models are to rebate commission dollars to buyers. What Darlin doesn't say is that this practice has been going on for years. Price Club, now Costco, has offered this for a decade or more. This is nothing new; why does it warrant such ink?

The writer prolongs the colossal fallacy that so many people, unfortunately, now believe - that available information on the internet actually reduces the cost of a real estate transaction. This is utterly UNTRUE. In fact, Redfin, the subject of the article, came to this conclusion, too, when it admitted that it isn't a technology company, but is a real estate brokerage. It had to increase its overhead by renting prime space in the "stylish" part of town because the customers preferred meeting the agents in person.

The truth is that real estate commissions will never be lower unless the customers want to do most of the process themselves (research tells us they don't), real estate offices and personnel are not needed (research and Redfin's experience says they are), and most importantly, buyers and sellers take responsibility for their own non-disclosures, mistakes, and changes of mind. (In my 30 years of experience in the real estate business I have found that many buyers and sellers want to blame the real estate brokers and agents for most every thing that can go wrong in a transaction, even when those things are due to the buyers' and sellers' own actions or inactions.)

It is this last item that generally causes disputes and lawsuits. Until buyers and sellers are willing to take on the liabilities for things that can go wrong in a transfer of real estate, commissions will always reflect those potential costs.

My guess is that any of the "commission rebate" real estate companies that get sued for problems created by buyers or sellers will either go out of business or change the way they charge for their services.

Look also at my post on January 19, 2006 titled, "Why Do We Charge a Percentage of the Sales Price?" for further input.

Trulia - A Breath of Fresh Air for Real Estate Searches

2006-07-24T21:15:00.000-07:00

Imagine a real estate search tool that gives the consumer what they want and need, and also gives the real estate brokers what they want and need, too. Go to www.trulia.com and you will see what I mean. Cool maps, different ways to sort the listings that appear, and great information about the area, makes this a very robust site for any consumer looking for houses.

But that's not all. As a real estate broker, it makes me really happy that the consumers that want to see my listings are taken directly to my site, and are not hijacked. I don't get charged any referral fees for the leads. What a difference from all the free-loaders who have sites that do! The concept is simple: get the consumer directly to the broker or agent who knows the most about the property as quickly as possible without any interference from a "middle-man" who wants to get paid for doing little or nothing.

Trulia is designed to get the right parties together quickly to get real estate sold. They have based their model on selling advertising to those who want more exposure on the site, without getting in the way of real estate commerce.

3 Cheers! Check out www.trulia.com

Cendant Changes its Name AGAIN!

2006-07-19T23:42:00.000-07:00

It almost seems like they are running from something or trying to hide something, doesn't it? First it was HFS, then CUC, then Cendant, and now the real estate spin off will be called "Realogy." ("REEL" "OH" "GEE.") Just rolls off the tongue. I actually think they meant for it to be "Realology," ("REEL" "AWL" "OH" "GEE") which is how most people will probably pronounce it, but they spelled it wrong if that's what they wanted.

When you consider all of the shareholder lawsuits, SEC investigations, and internal bickering from franchisees, maybe they have to keep changing their name to confuse those who want to get to the real facts behind the company. I wonder if it has anything to do with them having to cut $50 Million from their operating budget this year...

Skeletons at HomeStore.com

2006-07-12T01:02:00.000-07:00

What a tangled web of intrigue at HomeStore.com...I remember when the public offering was made and there was a "lottery" system for allocating shares to members of the NAR. It seems like some were more priveleged than others...take Joe Hanauer for example. He is now the Chairman of the Board of this public company, but in the initial offering he had obtained some shares under his name, but what may not be evident is that one of his companies also obtained a large percentage of the shares. It was not clear to the person on the street that Mr. Hanauer was the controlling person in that company. It appears that this was done to avoid detection of how much stock he actually controlled. In any case, it smells funny...

If you have been reading the real estate industry news lately, you will know that two of the principals of HomeStore from the past have been convicted of major fraud crimes involving the company. Stuart Wolff was just sent to jail, and Peter Tafeen has also been in the news. What you may not know is that HomeStore has paid over $22 Million to these two men to help them with their legal costs! I would think that the shareholders would be up in arms!

In addition, HomeStore has an outstanding obligation to pay to one of our competitors, Cendant, approximately $2.3 Million, plus almost 4 Million shares of HomeStore stock. This is all a result of some behind the scenes monkey-business that resulted in a class-action lawsuit. That lawsuit is not resolved yet.

And so the big news now is that HomeStore has announced that it is changing its company name to Move.com. Funny, though, they announced the name change prior to the shareholders voting on it. I guess Mr. Hanauer may control enough of the stock to name it anything he wants without any other shareholders votes...

If I had been involved in all of these shenanigans, I would want to change my name, too!!!

REALTY EXECUTIVES International introduces HOMEWORKS Program for teachers

2006-07-04T12:10:00.000-07:00

On Saturday, I unveiled a new program called "HOMEWORKS - Opening Doors for Teachers." This is a national program designed to help teachers buy houses.

I feel like teachers have a huge impact on our future, but our society has chosen to pay teachers poorly. I wish I could do something about that problem, but I don't really know how to. So I invented HOMEWORKS, which is a grouping of a number of loan programs that are designed to help teachers to buy houses, or refinance houses they already have. Most of these programs will allow teachers to have about 30% more buying-power than they could have had otherwise.

In addition, we have arranged for "bundled" closing packages through First American Title which reduces closing costs for teachers by about 20%.

If you are a teacher, know a teacher, or are related to a teacher, you need to let them know about this program. With the market slowing in many areas, prices may be more flexible, and there are many more homes on the market right now, making it the perfect time for teachers to buy homes that they may not have been able to buy in the past few years. Contact me at: richrector@realtyexecutives.com for further details.

I do know that affordable housing remains a big issue in many areas, but this is one small step that can help our teachers live in homes closer to their work, and in neighborhoods that are suitable to their lifestyles.

Further Warnings About "Home Valuation" Sites Like Zillow

2006-06-13T22:37:00.000-07:00

There recently was an article in the Wall Street Journal regarding how it has become a "parlor game" to go on these sites and see what your neighbors' homes are worth or what they sold for. The sites referred to were Zillow.com, and RealEstateABC.com. And, yes, it does feel like a game when you search these sites...they certainly cannot be relied on for serious information.

The article by Kevin J. Delaney failed to point out that the values that most people are finding and thinking are valid are way off! The side-bar of his article referred to three properties, their true value as reflected by a recent sale, and the values according to the two sites. I added three properties of my own to check validity as well. If you read my blog entry from back in February regarding Zillow, I decided to see if there were any changes...As of today (6/12/2006), my simple research confirms that Zillow's values were, on average, 45% TOO LOW!!! RealEstateABC's values were, on average, 31% TOO LOW!!!

I just need to reiterate how dangerous these sites can be if you are a seller or a buyer. If you rely on them for pricing your home, or for making an offer, chances are real good that you will be hurt. Please contact a professional Realtor to help you understand the values in your areas; there is more to valuation than just tax records, recorded sales, and comparables. Your professional Realtor will take all of those into consideration but will also know the current market conditions as well as specific characteristics of the property in question.

Live Webcast of Industry Update

2006-03-30T11:39:00.000-07:00

Check out this live webcast I did back in February at our International Convention. It is about 30 minutes long, but well worth the time if you want to catch up on what is going on in this crazy real estate industry. I would love to hear your feedback and opinions.

Webcast URL: http://www.expert-u.com/convention/webcast/live.php

Sellers Could Get Hurt Severely If They Use Zillow

2006-02-16T09:13:00.000-07:00

There has been a tremendous amount of hype about a new website called Zillow.com. It supposedly has valuation information about 60 million properties, and is designed to get sellers to sell their homes themselves to "save money."

I have tested the site twice with different property information that I know the true market of, and in both cases, the valuation from Zillow came back 20% below market! If the seller of a property really worth $500,000 used the Zillow valuation to list their home, the listing price would be $400,000! I am having trouble understanding how that saves the seller money.

Using (and paying) a professional real estate executive would actually save the seller a lot more money!

Your thoughts about, and experiences with Zillow?

One of our competitors doesn't believe his people are worth their price!

2006-01-31T20:01:00.000-07:00

In an article published last week by the Denver Post (http://denverpost.com/business/ci_3437532) Dave Liniger (the founder of Remax) predicted that the average real estate commission will drop to 4% of the sales price of a property in the next 5 years. This prediction makes it appear as though Liniger has lost confidence that the members of his company command value for their services. The article states that commissions will be reduced because agents will spend less time showing houses due to consumers searching for properties on the internet. The only reason I can surmise that Liniger might make this prediction is that he has bought into the fallacy that the abundance of information on the internet reduces the cost of a real estate transaction. As I have mentioned in earlier posts, we know that the true costs of real estate transactions have in fact risen, not fallen. Transaction costs are driven by other variables like insurance, governmental regulations, litigation risks, office overhead, advertising, etc. At Realty Executives we believe that consumers really do deserve professional guidance and skills from knowledgeable real estate associates. We know that the average commission rate for the top companies in the U.S. has actually increased in recent years, despite overall average commission rates decreasing. This tells us that people who hire professional real estate associates (or Executives in this company) are willing to pay for skills and services they find valuable. We also know that consumers also want relationships with professionals, even though they do spend more time on the internet searching properties of interest. One of your jobs as an Executive is to help consumers sort through all of the information and help them interpret it. Just because there is less driving around showing properties, doesn't mean that the professional real estate person is not working harder or smarter. Finally, and most importantly, I think it is imperative that I emphasize to you how valuable I think your services are to the consumer...despite what my counterpart at Remax thinks.

The Spirit of Youth and The Richness of Diversity

2006-01-31T13:07:00.000-07:00

Over the weekend I attended our Northern California Region's convention and awards dinner. It was so gratifying for me to see so many of our executives, and to get caught up in their incredible energy! As I looked around the room, I was struck by two major things:

1. The average age of the people in this region is quite young. After inquiring, I found that the average age in our Northern California Region is 34! The average of a Realtor nationwide is 52. I feel like this is a huge step forward in the regeneration of our business, as well as our company. Kudos to those young entrepreneurs who have seen the benefits of joining our company.

2. The cultural diversity within the room made me proud to be the President of this company. The number of different nationalities, languages, backgrounds and personalities in this group is a true statement of "getting it." I think this a reflection of the values of our company and I think this diversity is inherent in Realty Executives in many of our locations.

I am so glad to have attended that meeting and I hope the people who were there got as much take-away value from my comments as I did from theirs.

"Why do we charge a percentage of the sales price?"

2006-01-19T16:32:00.000-07:00

Over the long weekend I was traveling. By amazing coincidence, I was seated in the airplane next to one of my executives (we call our real estate agents "executives"). He has been in the business a short period of time, and we had a great dialogue.

He posed the question to me: "Why do we charge a percentage of the sales price as our commission?" I really don't know how this form of compensation began in the real estate industry, but it made me think.

I believe that real estate professionals should get compensated for the skills they bring to their customers and to the marketplace: skills like marketing expertise, negotiation skills, market and product knowledge, transactional expertise, to name a few.

Few people realize that real estate people pay for many items for their customers (advertising, inspections, meals, gasoline, etc) with the real possibility that they may never get paid for their time, effort and expertise. This risk is one reason for getting compensated on a percentage of the sales price.

Another reason is that the risk of litigation, the costs of malpractice insurance (called "errors and omissions" insurance), and the cost of any possible settlements if something goes wrong is in direct proportion to the sales price of the home. Therefore, getting compensated in proportion to the same basis makes sense.

Consider if a real estate professional gave a seller a choice: "You can pay me for results only, in the form of a percentage of the sales price. I take the risk that I may never get paid if I don't perform, but I have an incentive to sell your home for you quicker and more efficiently, OR you can pay me by the hour for my time, reimburse me for all my expenses and you will pay me whether your home sells or not. I have an incentive to work less efficiently because I will be charging you by the hour, not for the ultimate result."

Which do you think the client would prefer?

The Horse May Have Left The Barn, But...

2006-01-13T19:04:00.000-07:00

It sounds like many of you have already dealt with the issue of the lead generators and referral companies in several different ways. I commend you for creating your business strategies and moving forward with them. Some have decided to never pay any more referral fees to those companies and go after creating the leads yourself on your own websites. Some have chosen other tactics. No matter what your strategy, the Internet cannot be blamed as the culprit for the reducing or removing the real estate professional from the transaction. The blame for that must lie with those who refuse to acknowledge the power and efficiency of the Internet for our business. It is imperative that you design your strategy around that.

The "Discount" brokers have chosen to say to the consumer, "Real estate services are not worth much. You don't have to pay me for the value of my services." This gets the consumer's attention for low prices, and then the "discount" broker either fails to provide any services of value, or switches the consumer to menu pricing that actually costs the consumer more money.

The Lead Generators and the Referral sites have chosen to say to the consumer, "We will be a repository for your information and then we will find you a professional real estate person to help you. We believe in real estate professionals, but we are going to charge them a bunch of money for giving them your information." Someone described the Lead Generators as the person who shows up at the church pot-luck dinner with only a fork, and then expects everyone to pay them for bringing dinner. I think that describes them very well.

Unfortunately, we as real estate people have not been very good at letting the public know the value of our services. Most people think that just because there is an abundance of information about properties on the Internet, that the cost of a real estate transaction has gone down. This is absolutely false. The costs of a real estate transaction are not about the information database; the true costs are about advertising, insurance, governmental regulations, risk of litigation amongst others.

We must continue to let the consumer know the value of our skills, rather than let them think that access to real estate properties for sale is all we get paid for.

The Great Give-Away

2005-12-05T14:51:00.000-07:00

The increase in the number of internet real estate sites that are capturing leads and selling them back to the real estate agents who do the work of the transaction is disturbing. Why do real estate people continue to allow this to happen? I have no issues with the sites themselves, but I do have a problem with most people who think that the access to the listing information is public record. It is not. The aggregated compiliations of real estate listings is a product that should be sold to the sites, not given to them!

Let me use an analogy of a clothing manufacturer. Ralph Lauren makes, or hires someone to make, a line of dresses. Ralph Lauren then sells those dresses to a clothing Wholesaler, who, in turn, sells them to a variety of Retail stores. Ralph Lauren may retain certain exclusive designs for his own retail stores, or may include the designs sold to others in his retail stores, too. Customers come in the various stores to look at the dresses, and hopefully buy them.

In real estate, sellers and their listing agents and brokers create a product (the listings.) Those listings are given to the Wholesaler (the MLS.) The Wholesaler gives those listings to the Retailers (real estate offices, real estate websites, and internet referral sites.) Customers come in to real estate "stores" or go to websites to look at houses and hopefully buy them.

The differences are that in the clothing manufacturing business, the maker SELLS the product to the Wholesaler, and the Wholesaler SELLS the product to the Retailer. In the real estate business, the product is being GIVEN AWAY!

The aggregation of the listings is a valuable product that many Wholesalers and Retailers want and should be willing to pay for. The people creating the listings should get paid for them, and the Wholesalers should get paid for aggregating them for the retailers. Why do we still insist on giving away this information?

It is quite possible that the Government may REQUIRE that the products be provided to ALL the retailers. That would be similar to requiring Ralph Lauren to provide his dress lines to ALL retailers, including his competitors. The reality is that the manufacturer can choose to provide his dress lines to as many or as few retailers as he wants. He can even choose to not make them available to any of them; he could open a boutique on Rodeo Drive and that could be the only place in the world to get the product.

Your thoughts?

Rich's Ramblings

2005-11-30T14:10:00.000-07:00

Wow, what a year 2005 has been for real estate! With all the talk of bubbles, "discounters", internet referral companies and much much more, there are lots of questions floating around out there. In future blog entries I want to address these topics in much greater detail.

It has also been an interesting year for Realty Executives International. It was a sad day in October 2004 when we lost Dale Rector, my father, and the founder of the company. I am sure he would be proud today seeing the tremendous growth of this franchise. That growth has not been without its challenges. Bill Powers and I have built this company for the past 18 years together as eager entrepreneurs, and having grown it to its current size, we both have realized the need for new talent on board. Bill, himself, has realized that his main talents lie in selling franchises and growing a business in its entrepreneurial stages, and has elected to take on our Texas region as his to develop. I have stepped back in as President, and I am pumped up! Our management team, led by Glenn Melton our Chief Operating Officer, is ready for new challenges.

Speaking of challenges...our website provider suddenly filed bankruptcy and pulled the plug on our servers without any notice to us! We have obviously changed vendors, but in the mean time we are running a temporary site. I am still amazed at how quickly our team responded to this crisis, and rallied to handle all of the phone calls and questions. I am certain the new site will exceed what we had before and I appreciate everyone being patient using the temporary site for now.

The weekend before Thanksgiving we invited a dozen or so of our franchise owners and regional developers to a retreat to get their input and direction to help us formulate our strategic plan for the coming 3 to 5 years. The amount of information and input from this group was overwhelmingly positive. Our management team will be crafting our strategic plan in December from all of that information, and we will present it first to the same group that helped us.

That's it for now.

2005-11-08T08:24:00.000-07:00

Rich Rector, president and CEO of Realty Executives International.