Category Archives: Investing

FSBO will not take over the world

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And with a title like that, I might just eat my words. There was an interesting story in New York Times story about FSBO yesterday. It describes a (ugly!) FSBO online service in Madison Wisconsin that has grown immensely over the past few years. I feel a little like a curmudgeon when I say this, but I agree with the sentiments of the real estate agents quoted – FSBO sites don’t directly threaten the real estate brokerage industry. That said, the real estate agents are just as wrong about their own business if they think that margins won’t drop and market conditions won’t dramatically change over the coming 10 years.

As I see it, this is a great illustration of a large scale change that the real estate industry (and many other industries) is undergoing right now. Consumers today have vastly more information available to them, which means they rely less and less on a realtor to guide them through the process. Imagine (as I must) what it was like 15 years ago as a home shopper; you either drove around the entire city to see what was for sale or asked a realtor to essentially do it for you. The realtor held the cards and had the computer system with all the information. You, as shopper, really couldn’t make a short list of 5-10 houses you were really interested in without the help of a realtor. Today sites are springing up left and right to give consumers lots of information.

Today, home shoppers can (but don’t necessarily) figure out exactly what they’re looking for, sellers can get an approximate value of their house with free tools (like by site, ShackPrices.com) and in the end, are real estate agents really do not provide the same service they once provided. Supporting my assertion is Steven Levitt’s research that shows the extra amount that real estate agents make on sales of their own home versus the homes of their clients has dropped over the past 10 or so years (which I maddeningly can’t find a link to now); customers today can much more accurately assess the value of their home without a real estate agent.

Ms. Miller and Ms. Murphy, however, built a separate and alternative listing service – a parallel market, much like the Nasdaq, which rose in recent decades to challenge the New York Stock Exchange’s dominance and sparked competition that eventually reduced transaction costs for all stock investors.

This is an interesting, but misleading comparison, at least for the time being. Consumers can look up Nasdaq and New York Stock Exchange quotes from the same place and can buy those stocks from the same people. In fact, your broker will be happy to sell you stocks from either market. My real estate agent will not be happy to sell me a FSBO property and I certainly can’t look them up on Windermere’s web site.

These cracked me up:

To real estate agents, “for sale by owner” conjures up some cranky tightwad trying to sell an overpriced, ramshackle house. Agents utter FSBO as if there was something foul stuck to the bottom of their shoe. “It’s a commission-avoidance scheme,” said Sheridan Glen, manager of the downtown Madison office for Wisconsin’s biggest real estate broker, the First Weber Group.

Kevin King, executive vice president of the local Realtors’ association, runs the multiple listing service but says he pays no attention to FsboMadison. “It’s not important; I don’t follow it,” he said. “I don’t even know the people.”

First – commission avoidance scheme!? That’s like saying the classifieds are a low trade-in value avoidance scheme for cars. This looks much more like a agents-aren’t-worth-six-percent scheme. The problem seems to be that even the discount brokers aren’t doing a good job at covering the market; Madison effectively has a (usually) 6% commission market and a no commission market. The future is probably somewhere between, with most agents working on a flat fee model (Steven Levitt agrees).

Agents swear up and down that they’re worth every dollar they charge, but is that usually the case? Here’s a scenario: A friend of mine moved to Seattle last year and decided he wanted to buy a home with his girlfriend. They looked at a few places and decided they would buy a townhouse that wasn’t yet finished. They picked the place they wanted after doing much research on their own and then hired an agent to do the paperwork and cover the details. They effectively worked out a flat-fee agreement, which the agent was happy to sign.

FYI: the NYT article really struck a chord and has been the most emailed story for the past two days now.

Galen
ShackPrices.com

Real estate is a smaller part of American's income than ever before… and rent is an even smaller part

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Yesterday, the New York Times reported that “Twenty Years Later, Buying a House Is Less of a Bite.” Two points on this:

1. It’s a macro-level article and points out that housing on the coasts is not necessarily a deal:

In high-profile places like New York and Los Angeles, home to many of the people who study and write about real estate, families buying their first home often must spend more than half of their income on mortgage payments, far more than they once did. But the places that have become less affordable over the last generation account for only a quarter of the country’s population.

2. They entirely ignore the fact that 20 years later, most things are cheaper. For instance: food, beer, wine, appliances, computers, telephone service, and so on. Some things, particularly services, have become more expensive, but the most important thing when you’re talking about the relative cost of houses, rent, is still cheap. An older article from the New York Times points this out:

In the Bay Area of California, a typical family that buys a $1 million house – which is average in some towns – will spend about $5,000 a month to live there, according to the Times analysis. The family could rent a similar house for about $2,500, real estate records show, and could pay part of that bill with the interest earned by the money that was not used for a down payment.

Seattle is not the Bay Area, but owning here is still much more expensive than owning in Dallas. I think this fits with anecdotes about buying rental properties. Twenty years ago, it was fairly easy to buy a rental property in the Seattle area and have the rent pay for repairs and the payments; you could earn equity for the cost of finding tenants. Today, the search to find a property like that is a challenge.

So will house prices plummet or flat-line this year? I don’t think anyone can say. A lot of people seem to be betting on increasing prices (they are still buying rental properties), however I believe that the stock market is beginning to bet against builders because they fear an over-supply of housing. My advice: If you have above 50/50 odds of staying in the same house for 10-20 years (unlike most Americans), you should definitely buy. If you can’t save money to save your life, maybe you should buy because your home could serve as a sort of inefficient savings scheme (again assuming you won’t sell right away). If you really value owning a home, buy one. Just don’t expect prices to continue increasing at the same rate as they have over the last 5 years. And don’t get an interest only loan!

-Galen
ShackPrices.com

Introduction, The CanterHole and other reasons you shouldn't live near a bar

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Howdy folks, I’ll be guest blogging here for a while. Like Dustin said, I’m the co-creator of ShackPrices.com. I’m not much for introductions, so I’ll jump right in.

Since Washington’s smoking ban went into effect, I have been happily wearing my nice-ish clothes to bars and generally enjoying the dank, non-smoky smells of the bars near my house. I tell you this because if you live near a bar or are considering buying a place near one, you might soon be savoring the sweet smell (and noise) of smokers hanging out at the door. In densely populated Capitol Hill, the complaints have already begun, as supra-bar apartment dwellers have found that just enough air gets through the cracks in their windows for them to reconsider their hip living quarters. The Stranger reports:

Maybe a case can be made for the enforcement of the laughable 25-foot rule that comes with the smoking ban. Just ask those on the first floor of the apartment building above Canterbury Ale & Eats on 15th Avenue. On Friday night they felt like a chimney for the pack of smokers who gathered outside the bar’s entrance. The Seattle police told one apartment dweller that they weren’t enforcing the 25-foot rule but that the public health department was. Naturally, the health department said the police were enforcing it. Which is it? In practice, none of the above.

I will definitely keep this in mind when I next move. If it’s bad in the middle of December, imagine smoke sneaking into your sealed condo at 7 P.M. on a 90-degree summer day.

On a side note, I went to check out the “smoke-free” Canterbury last night (it wasn’t after 9:30) and met the “Rosa Parks of smoking.” I guess I have no idea what a hard life smokers live.

Understanding Credit Score and Credit Repair

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Credit remediation is a subject consumers often face with fear and trepidation, and for good reason. With the exception of recognizing that the best score wins, the average home shopper knows very little about the whole credit scoring process. Sub-prime borrowers who are eager to move into A-Paper territory often find themselves at a loss when trying to find ways to upgrade their credit history. The good news is there are ways to improve less-than-perfect credit scores and obtain a loan for the home you really want.

The first step in the process is making sure that you have a current copy of your credit report. Congress recently amended the Fair Credit Reporting Act so that consumers may now receive one free credit report annually. There are three major credit bureaus: Equifax, Experian, and Transunion. Since entries can vary across bureaus, you’ll want to request a free report from each of the three companies. (Go to www.annualcreditreport.com)


It’s also important to know just what a good credit score is. Most A-Paper scores generally begin around 680, although this number may differ slightly among lenders. Don’t despair if you come up shy, there is always room for improvement. Increasing your score just 5 points can save a significant amount of money. For example, if your score is 698 and you increase it to 703, then you could save yourself thousands of dollars over time as a result of a slight improvement to your loan’s interest rate.

While credit repair is necessary for some, it’s not the only way to increase your credit score. Even if you have stellar credit, you can enhance your score through these steps:

  • Evenly distribute your credit card debt to change the ratio of debt to available credit. Let’s say you have a credit score of 665. If you have debt on only one card, and four additional credit cards with zero balances, evenly distributing the debt of the first card could move you closer, and possibly into, that ideal bracket.
  • Keep your existing accounts open and active. The average consumer is usually anxious to close credit card accounts that have zero balances, but doing this can cause them to lose the benefits of a long-term credit history and increase their ratio of debt-to-available credit. The bottom line is don’t close those old accounts!
  • Keep credit inquiries to a minimum. Each inquiry into your credit history can impact your score anywhere from 2-50 points. When it comes to mortgage and auto loans, even though you’re only looking for one loan, multiple lenders may request your credit report. To compensate for this, the score counts multiple auto or mortgage inquiries in any 14-day period as just one inquiry, so try and stay within that time frame.

Remember, credit scores don’t change overnight. Improving them requires time and diligent effort on your part, so it’s a good idea to get the ball rolling at least three to six months prior to submitting your application for home financing.

If credit repair is what you need, you can either begin the process yourself or seek out a repair service. If you decide to make your own improvements, visit as many websites as possible to get information regarding credit laws and consumer rights. Diligently search through them and educate yourself to ensure that you don’t sustain any self-inflicted wounds. A good place to start would be the Federal Trade Commission’s website, which contains a wealth of helpful literature.

If you’re facing severe or complicated credit issues, then you’ll probably want to enlist the assistance of a professional credit repair company. Before you do, be sure to familiarize yourself with the FTC’s regulations on credit repair. With over 1100 credit repair companies to choose from, it’s important to be certain you are dealing with a reputable firm. Examine the FTC’s information on fraudulent practices to avoid falling prey to credit repair scams.

Addressing credit issues can be uncomfortable to say the least. But by taking these steps now, you’ll be that much closer to obtaining the home of your dreams.

Additional Resources:

To order your free credit report, go to:
www.annualcreditreport.com

To read the Fair Credit Reporting Act, go to:
www.ftc.gov/os/statutes/frca.htm

For the Federal Trade Commission’s information on consumer credit, go to:
www.ftc.gov/bcp/conline/edcams/credit/index.html

Swiss Real Estate Map Search Tool

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I really like some of the search options available on Immobilien-Suche, a Swiss mapping site.

Granted, I speak no Swiss whatsoever, (Now we need a universal translator!), but this site is quite easy to figure out.

Swiss Real Estate Search

So here are some of the things I really like:

  • Sliders
  • Sliders for Price, Rooms, and Size
  • Sliders with Statistics for Price, Rooms, and Size

Sliders, sliders, sliders! They are so easy to use! I wish more real estate search sites had them!

Ajaxian and Gregor Rothfuss have some more highlights of the search tool including:

  • tighter integration between list view and map (just mousing over a list item to show it’s location)
  • histograms for the search terms to give you a quick idea what the spread in prices is, for instance
  • shows matches in context (public transport, shopping etc)
  • leverages the superior map quality from endoxon
  • allows you to take notes for each object
  • shows you new matches for your search since your last visit

ShackPrices Gets an Upgrade

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It looks like ShackPrices just had their first major update.

ShackPrices is a Seattle-based outfit that focuses on helping sellers value (or “appraise”) their homes.

The new layout is clean and very straightforward. If you’re a King County resident curious to find out what homes in your area are selling for, then using their site will be a breeze. In addition, they have some nice goodies like a direct link from each home to King County Records (and bus stops!).

ShackPrices Screenshot

For what they are trying to do (provide information for home sellers), they do it really well… But it seems pretty obvious that ShackPrices will need to expand into helping home buyers at some point. The obvious missing ingredient is real-time MLS data.

With that in mind, I think the hardest part for them will be creating something that is not easily duplicable. Their interface is easy to use, but at it’s current state, a similar functionality is available to King County residents through Redfin. (and even more data is available without the mapping interface through Property Shark). In addition, Redfin is a few steps ahead in that they already have the infrastructure to display MLS data and to incorporate user/agent data.

Propsmart does some stuff right!

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I really like some of the tools that Propsmart has just released!

They’ve added all the features that one would expect from a web2.0 real estate site (map-based searching and RSS feeds). Some of the great features I’ve found so far include:

  • Nationwide residential, commercial, land and apartments
  • Map-based searching over Google Maps
  • RSS feeds for each search
  • Exports to Google Earth
  • Comments on listings
  • Forums for general discussions

Overall, it is an impressive set of features and includes a fun, easy-to-use interface.

Propsmart Screenshot

The problem?
There were also some minor software bugs (like when I tried to export one of my searches to Google Earth, I ended up with a different set of listings), but I’m sure those will be worked out in the near future.

Their big problem is that they don’t have MLS data. I know this is by design (and even a central part of their manifesto), but without a more comprehensive database of information, I just can’t see this site getting much traction.

Let there be no doubt that they could get a small slice of a very big pie, but like Trulia, I just wouldn’t recommend people to the site unless they can get “all” the listings!

Republicans in Seattle?

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Everyone knows that Seattle is a Democrat town… So when I threw my zip code into this handy google map hack that maps political contributions, I expected to see a lot of blue markers:

Conclusion: Despite what you may have thought, there ARE some Republicans in Seattle. 😉

And for those of you who are building innovative real estate search sites, you should definitely include political contribution information! It would be a fun way to test neighborhood compatibility!

Republicans in Seattle?

Didn't Pay Your Mortgage? Don't Worry.

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[photopress:garden_wall.jpg,thumb,alignright]I always enjoy reading the perspective of Slate economist Daniel Gross… and when he covers real estate issues, it’s all the better.

In Didn’t Pay Your Mortgage? Don’t Worry, David explains how banks are more forgiving than ever…

With the passage of the consumer-unfriendly bankruptcy law and the cram-down rampant, the personal finances of those with limited means are getting more precarious. But even in this Scrooge-y world, there are pockets of sweetness and generosity. At least one group of kind-hearted folks in the finance industry is willing to give customers a break when things don’t go their way: America’s heart-of-gold mortgage lenders, who are behaving with curious benevolence toward suffering clients. Even as housing prices have risen and grown more unaffordable, and as bankruptcy filings have soared, foreclosure rates have fallen. According to the Mortgage Bankers Association, the foreclosure rate has fallen from 1.49 percent in the third quarter of 2002 to 1 percent in the second quarter of 2005.

He goes on to explain that ” foreclosure—on anyone—is an onerous, time-consuming process. (Read: It costs money.) It also forces banks to get into a business far from their core competency.” In addition, “getting aggressive on foreclosure can damage a lender’s reputation.”

“It used to be that only gigantic banks and corporations like Citigroup and Chrysler were regarded as too big to fail. Today, the humble homeowner enjoys that status as well.”

It is definitely worth noting that if you are having trouble paying your mortgage, talk with your lender. For all the reasons that David notes in this article, it is quite possible that you can work a deal out that will allow you to keep your home until your finances improve!

Linkation, Linkation, Linkation

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(I enjoyed writing my previous article on the reasons that real estate agents should blog, and it got me thinking about all the other bits of advice I’d like to share with real estate agents… I have a bunch of ideas, many of which are still only half-baked, so I’m looking toward your comments and suggestions to see where I should take this mini-series on blogging basics for real estate agents.)

What are the three most important factors in determining the value of real estate?

  1. Location
  2. Location
  3. Location

grow-a-brainWhile this well worn mantra forms a fundamental building block of real estate value, the concept of location is nearly irrelevant in the on-line world. I’m located in Seattle, WA, the servers hosting this site are in Santa Monica, CA, and you could be reading this from anywhere in the world.

If you’re an agent thinking of moving on-line, there are a bunch of real estate fundamentals that you’re going to want to relearn if you are going to be successful. I’ll start be revising the well-worn mantra to make it relevant on-line…

What are the three most important factors in determining the value of your real estate site?

  1. Links
  2. Links
  3. Links

And just as all locations are not created equal, not all links are created equal.

If you’re looking to build up a website that ranks well with search engines, then you’re number one focus should be on getting high quality inbound links (i.e. other sites linking to your site!). In particular, you want to build up as many inbound links from popular blogs and websites as you can. It’s common knowledge that 3 high-quality inbound links are more valuable than 1000 links from lame link farms… You want links into your site, but more importantly, you want quality links into your site!

Note that you do not get any search engine benefits from outbound links (links from your site to other sites). At best, outbound links won’t affect your ranking and at worst, they can seriously damage your ranking should you link to spam sites. In other words, if you’re linking to quality sites, you’re fine… If you’re linking to spam sites, you can expect the search engines to label you as spam.

Since there’s no benefit to outbound links, does this mean that you should not link to other sites?

No Way! Quite the contrary! Linking to other sites is critical to building up your site’s credibility with other bloggers. Join in some of the wonderful conversations that makes up the web and you’ll likely find that more and more people begin to link to your site. Find a blog you really like and then write articles about their articles! Link back to them and you’ll be surprised how quickly they start linking back to you! It’s actually a lot of fun to be part of this process.

There are very few sites that can build up credibility without linking to other sites and if you’re reading this blog looking for advice, you are probably not one of them. My advice to new bloggers: link… link… link… and link some more. Link to a blog saying something nice about their site, and there’s a pretty good chance they’ll link back to you!

So why are links so important

Links are the lifeblood of the web. The search engines rely heavily on links to determine how to rank your site. And more than any other factor, the rank of your site on search engines determines the value of your site. Granted, if you’re writing a blog for personal reasons, then you might not care how many people reach your site via search engines, but if you’re blogging to get clients, then you’re sites success depends on your how you are ranked by Google. Ranking high on Google searches generates web-traffic which generates leads which generate sales.

There are other ways to generate web-traffic, but none of them are as cheap and/or effective as generating leads through searches. (This site has a nice overview of how of how search engines work!)

So, all of this leads to an obvious question… How do you generate inbound links? Check back in a few days. I’ve got a bunch of ideas/thoughts on this subject. I’ll try to gather my thoughts and turn them into a post!

On a related note, I get asked by other bloggers on a regular basis if it is okay if they link to Rain City Guide. My answer is always “Yes”. I love links! Any business blogger who refused a link would be nuts.