Author Archives: Russ Cofano

Day Two – Realtor Mid-Year

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Yes, I am tardy with my report for Day 2. There was not much going on from an interesting meeting standpoint so I visited the tradeshow floor. For anyone that has not been to a Realtor tradeshow, it is certainly an experience. Flashing buttons, contests, people throwing free things at you. Having been to many of these, it always amazes me the types of companies that have booths. For example, there were several jewelry and makeup booths. While I am not a woman, it seems odd that they would come to a real estate tradeshow. It would be like having Titleist as a vendor. Lots of real estate guys like to play golf but they don’t really fit at a Realtor tradeshow. Then again, I am pretty dense about this stuff and they seemed to have a bunch of women buying stuff so I guess they are the smart ones.

I visited a bunch of booths but a couple stood out for different reasons:

Realtor.com – They intro’d a Zillow/HouseValues-like feature on their home page called “What’s Your Home Worth.” It is a lead generation system for agents that provides basic home value data and then let’s the consumer elect to get more refined info if they want from a “featured” agent. Agents can buy territories and they apparently will rotate as consumers access the feature. Once a consumer asks for more info, the “featured” agent will get an email and that consumer will see the particular “featured” agent for a period of time each time they return. With the large amount of traffic that R.com gets, it will be interesting to see how well the lead gen system works. I tried my zip code and there was already an agent signed up! I think this will be a winner for R.com and the agents that jump on it but I also think that agents will squak when their choice area is sold out.

HomePoint – This is a Trulia-like company (although the get data via the MLS directly) that is trying to become a portal of sorts. Agents sign up for territories and get “featured” when a consumer clicks on a listing. Again, this is a lead-gen system for agents that even extends to listing agents and FSBOs. The thing that I did not get was how they were going to generate traffic. No eyeballs, no leads.

More later….

Russ

Day One – Realtor Mid-Year

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I just attended my first meeting at the NAR Mid-Year. It was the MLS Association Executives Committee Meeting. There were three presenters to the group and I will provide some highlights of their presentations.

Laurie Janik, NAR General Counsel

Laurie indicated that claims against MLS under the NAR EO Insurance Policy have for the first time surpassed the number of general association claims. Out of 32 claims made this year, 18 involve MLS issues. Of the 18, 8 involve the FTC, 7 the DOJ and one involves a state attorney general. Most of the claims revolve around whether an MLS can exclude Exclusive Agency listings from data feeds to third party websites (e.g. Realtor.com). Since Exclusive Agency listing allow the seller to sell the house themselves, MLSs argue that allowing these listings to be displayed on the Internet basically enables the seller to have free advertising to attract a buyer without paying the listing side of the commission.

Laurie also discussed the DOJ lawsuit. NAR filed a motion to dismiss which raised three arguments:

First, that the DOJ is seeking injunctive relief for the VOW policy that has been rescinded and never implemented and as a result, there is no relief that can be granted under this claim.

Second, that the VOW Opt Out provision is neutral on its face, there is a presumption of cooperation and that decisions to Opt-Out are based on independent action of each broker.

Third, that the DOJ’s claim against the current Internet Listings Display Policy does not allege any anti-competitive effect.

Laurie cautioned that Motions to Dismiss are rarely granted in the 7th Circuit (where the suit is pending). She also said that 14 MLSs have been involved in DOJ subpoenas and that the NAR insurance coverage for this claim is gone so the MLSs that are involved are now spending their own money to respond to the subpoenas.

Lastly, she indicated that there was a productive settlement conference. She believes a key issue in the case will revolve around the MLS definition of “Participant

Unintended Consequences

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According to an article in Advertising Age, a NY-based Ad Agency is suing a blogger for copyright infringement, defamation and trade libel and injurious falsehood. Appears that the blogger, Lance Dutson, made negative remarks about the agency on his blog that revolved around the agency’s work for the Maine Office of Toursim. The agency apparently tried to get Mr. Dutson to remove the remarks and apologize. He said no. They sued. Repeat after me, “Never, never, underestimate the power of the blog for unintended consequences.”

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Unforunately for the agency, the blogosphere flew to Mr. Dutson’s plight like bees to honey. According to Mr. Dutson’s latest post on his site, more than 200 blogs are now referencing him compared to just 2 before the suit. Seems that the negative PR to the agency from the cumulative effects of bloggers may have surpassed the harm they suffered from Mr. Dutson’s original comments. At the very least, there are a lot of eyes reading this story that would never have seen the original comments on Mr. Dutson’s blog.

This is another example of how blogging can alter the historical power dynamics of business. I don’t know anything about the financial strength of either Mr. Dutson nor the ad agency but if I was a wagering man (which I am), I would guess that the agency has the resources to use the legal system to make Mr. Dutson spend a lot of money on his defense. This is a common practice in the legal profession and explains why many small firms back away from challenging the entrenched larger firms even when the small fish have good cases. Bottom line is that it takes a LOT of money to litigate a dispute and power goes to those that can afford it. Justice is blind but it ain’t cheap.

While Mr. Dutson will certainly spend some money on attorney fees, it cost him NOTHING to have positive PR spread across the Web. In the old days (like a couple years ago), litigating a case in the press would require the press to actually want you to win. In the blogosphere, Mr. Dutson does not need to worry about the political will or economics of the traditional press to get “web time.” And there is NOTHING that the agency can do about this. The cannot enjoin the collective blogosphere from commenting on this case and opining on its merits or what they think about the agency themselves.

In the end, this is just one example of how blogging can play a part in leveling the business playing field.

How does this impact the real estate industry? Many of us who are (as we like to think) “in the know” debate about the future of real estate, about the new oohs and ahhs in real estate technology and the tidal wave of change that is looming. But the average joe or jane knows nothing about this stuff – yet. They buy and sell homes each and every day just like they did for the last 20 years. As blogs proliferate, so too will communication about the new and the old, and the good and the bad, in real estate. Average joes and janes will spread their opinions about new companies and new offerings and just like the ad agency, there will be an impact on how business is done.

Visionary brokers will figure this out and harness the immense power of social networking. Others, like the ad agency, will operate at its mercy.

Full Service for 1%

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I came home today and as usual, looked through the mail.  There was the ordinary bills (yuck!), magazines, no fan mail (rats!) and the assorted direct mail pieces (which I normally drop in the round file).  One piece stood out because it was a picture of a house with the words “How much is your home worth?  Interested, I turned the postcard over and it went on to say “Full Service and Marketing for 1% commission fee”  So what, there are all sorts of discounters out there looking for business.  Not so fast.  The discounter on this direct mail piece was a ReMax agent.  Don’t know about you but this is the first outright solicitation that I have seen from one of the “big brands” brazenly advertising a discount commission.  Anyone else seeing stuff like this? 

Clooneygate and Real Estate Blogs

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I just read a fascinating story in the the NY Times (subscription required) about a “post” by George Clooney on a liberal Blog, The Huffington Post.  Seems that the Blogger, Ms. Huffington, cobbled together some responses that Clooney had made in news interviews and created the post.  She then ran the content by Mr. Clooney’s PR folks for approval and was given the right to publish the post (as written by her) but attributed to George.  When it was discovered that George did not really pen the message, all hell broke loose in the Blogosphere.   According to the story, even confirmed loyalists to The Huffington Post were upset.   Seems that the medium carries a significant representation of authenticity to it and despite the content of the message, the authenticity that the thoughts were the writer’s thoughts carries more weight. 

So, you ask, what do we learn from Clooneygate as it relates to real estate bloggers?  Be real.  People reading your Blog are interested in the context of your thoughts as they relate to information.  It is not the information so much as what you think about the information.  Your spin.  Your opinion.  

All too much, real estate brokers and agents all want to look and act the same.  Differentiation has, many times, been frowned upon.  Just look at most agent web sites.  Take the name and picture off and most of them look the same.   Blogging is different because of the medium.  Resist the urge to do things like everyone else, especially if it means copying information written by others.  That is not interesting.  You are! 

Russ     

New Construction Warranties

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I recently had a conference call with an agent and his buyer who was purchasing new construction from a small builder. In the course of the conversation, we started talking about the builder’s warranty (which there was none) and the agent chimed in with the following: “Well, even without a written warranty, the buyer will still get the one year warranty that is required under state law.” Unfortunately, I had to correct Mr. Agent in front of his buyer by letting him know that the only warranty that a builder provides by law is the Implied Warranty of Habitability.

[photopress:oldhousecrunch.jpg,thumb,alignright]Good news was this warranty is an implied warranty in the contract and the statute of limitations on bringing a claim under the contract is 6 years, not one (subject to a bunch of other issues too complex for this post). Bad news was that the Implied Warranty of Habitability is very limited and basically means that the home can be lived in. In recent years, it has been extended to things like conformance with building codes. It does NOT, however, cover things that a new construction buyer usually deals with post-closing. Things like paint chipping, floors warping, siding going bad, window cracks, carpet coming up, etc., etc., etc. These defects are usually smaller items but can add up in total to a lot of money and even more frustration. The only warranty that would cover something like this is a written warranty from builder to buyer. If one does not exist, then no warranty and no recourse to Buyer. Buyers should also read the fine print as many builder warranties contain more holes than swiss cheese. Don’t rely on the fact is says “Warranty” on top of the page. In my experience, the good builders usually provide pretty decent warranties. The smaller builders are across the board. In this case the old adage applies — Get it in writing!

The Impact of Cooperation

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Most of you have (or should have) read the recent article by STEPHEN J. DUBNER and STEVEN D. LEVITT (Freakonomics) in the NY Times. As may be expected, there were plenty comments on the Freakonomics Blog. As I was reading the comments, one struck me. It was from a very sincere sounding broker who, in defending the broker’s role in the transaction, said:

“As an agent on the buyer side or the seller side, I have a fiduciary responsibility to prosecute the interests and goals of my clients……If you want to succeed in this business, become a fierce advocate for your clients, give them all the data they can handle, use your sales, negotiating, and analysis skills to their advantage.”

I pondered this a bit as it sounded like a legitimate strategy for success. I then recalled an article on Inman the other day about a company called RealtyLegacy. The company promotes a program where it will connect buyers and sellers with agents from other companies and those agents will agree to rebate a portion of their commission to their client after closing. The story was interesting from several angles but it surprised me that one such agent did not want to disclose her name because of fear of reprisal to her and to her clients (i.e. other agents would not show her listings if they knew she was discounting).

I then thought back to the NY Times story and the analogy of the real estate brokerage world to stock brokers and travel agents and the author’s forecast of the impending doom to the industry. The real estate brokerage industry has a major advantage that the stock traders and travel agents did not have. To buy a stock for a client or to purchase an airline ticket, there is no need to cooperate with another stock broker or travel agent. Those brokers deal with the principal to put the deal together. In real estate, cooperation is at the heart of the industry (some (the DOJ?) would say that this cooperation has artificially upheld commission rates and traditional business models).

I then remembered the above quote from the broker. He believes that diligent representation of his buyer will preserve his relevance. What happens, however, when he comes to a home that he knows his buyer client will love and he looks at the SOC (selling office commission) in the MLS and sees 1%. If I understand the theory, do what is best for your client and you will have value. It is without argument that this buyer client will value this “perfect” home over and above the amount of commission that the broker will receive? However, it is commonly understood in the industry that if a seller wants their home shown, they will pay the “going rate.” They are told that if they don’t, other agents will not show it. If this was not an issue, why did the RealtyLegacy agent have to hide her identity? Why was she so scared to let people know that she was discounting? If buyer agents in fact act this way, what does this have to do with “prosecuting the interests and goals of the client.” Why should a buyer get short-changed on seeing available inventory when the seller has refused to pay the standard SOC?

It then hit me like a brick upside the head: A major strength of the real estate brokerage industry is at its core a major weakness.

Buying Investment Property – Entity Protection

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Many “average” Americans are dipping their toe into the world of investment real estate. Not satisfied with owning REITs, many non-real estate professionals are turning to buying vacation homes, single family rental properties, small multi-family dwellings and even small commercial buildings.

If you are in this group (or thinking of joining this group), I want to give you three letters to remember as you begin your journey – LLC.

LLCs is an acronym for limited liability company. It is a form of entity recognized by states as providing liability protection for its members. At the same time, it receives different tax treatment than traditional corporations. It also is much more flexible than corporations when structuring relationships between members. The following is a very high level discussion on some benefits of forming an LLC. While forming LLCs can be done by laypersons, you should consult an attorney or CPA before taking that step.

TAX TREATMENT – When an individual forms an LLC, the feds disregard the entity and tax the individual as if no LLC existed. If more than one unmarried persons form an LLC, again there is entity protection like a corporation and the individuals are taxed as partners by the feds. So, instead of filing a separate corporate tax return, the members file form K-1s as part of their individual return. The benefit of this is that there is no double taxation as there would be if the investor(s) had created a C-Corp. Moreover, the members can have a much more flexible relationship than had they formed an S-Corp.

LIABILITY PROTECTION – This is the main reason to form the LLC. Say you want to purchase a rental house. If you purchase it in your own name, all of your personal assets are subject to risk in the event that something goes wrong. If you and your renters get into a lease dispute, they may sue you and your individual assets are on the line. What if someone gets hurt on the property and your insurance coverage is not enough to cover the loss? Again, your assets will be at risk. If you form an LLC, you have just created an entity that is separate from you. Its assets are only those that the LLC owns – usually the property. Thus, if something goes wrong, usually only the property is at risk and not your life savings. This can be worth a lot of sleep at night.

While LLCs may not be for every real estate investor, they are certainly three letters that need to be discussed when buying investment property.