Are real estate agents an endangered species? — upcoming article

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Heard an interesting interview with economist Steven Levitt on NPR this morning. He co-wrote an article that will be coming out in the New York Times Magazine titled Endangered Species – The future of real estate agents. He dicusses all of the innovations going on right now in real estate and how like travel agents we will become obsolete as “all we do is connect buyers and sellers on the MLS system“. Oh how easy my life would be if my work ended at the point I put a listing on the MLS.

A second point he makes in his radio interview is that in spite of the “high commission” most agents don’t make that much money. The reason is there are so many agents chasing the available deals that they have to spend so much time finding new clients. Look at California where 1 in 75 people has a real estate licences. This touches on my pet peeve. If the real estate industry really wants to be viewed as the profession it should be, than they should raise the standards of what it takes to become an agent. I’ve just looked at too many incomplete contracts, had an agent try to force his way (without prior notice) into a rented unit at a duplex I was selling and other instinces that demonstrate an individual with the intellect to fog a mirror but not much else.

It should be an interesting article. So what do you think? Is the real estate agent going the way of the Dodo? Do people really want to buy a house from an “Amazon.com for homes” or an agent that can guide them through the whole process? How about the idea of fee-per-service or hour basis instead of percentage of sale?

– Robert

Cancel Your Plans And Join us for a Trulia Chat Tonight!

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I just spoke with Sami Inkinen and Kelly Roark of Trulia. They are currently making the rounds in Seattle, and we all agreed that it would be fun to spend some time talking “real estate technology” while they are in town! (Why aren’t they in Seattle yet???)

However, knowing that I’m not the only person interested in learning a little more about Trulia, I’ve cajoled them into attending a “Trulia Chat” tonight at a local coffee shop.

So, here’s the plan… Sami and Kelly are going to be at Fremont Coffee (459 N. 36th St.) at 7pm for an hour of informal chat. Anyone interested in welcome to attend and there is no need to RSVP (although a comment if you plan to attend is welcome!).

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If you’re a real estate professional interested in learning about one (very interesting) team’s view of the future of real estate, then I recommend that you cancel your current plans for tonight and attend this free event.

Without a doubt these guys have one of the nicest home search interfaces around and when they finally do decide to launch in Seattle, they will be sure to drive a lot of traffic to the websites of a few local (and lucky) brokers.

Actively Searching for Another Zillow to Announce in March

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And following John’s lead, here were the five most popular posts on Rain City Guide (in terms of total hits) in February:

The five most popular posts (in terms of comments) for February:

Something’s Afoot in the Real Estate Business – but what does it mean and where is it going?

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(Editor’s Note: I few weeks ago, I sat down with Chuck Reiling to discuss an MIT Enterprise Forum he is helping to organize that will feature leaders from some of the top real estate technology firms. His excitement at the idea of bring people from Zillow, Redfin and HouseValues together to discuss the future of real estate was obvious and contagious. Hence, I asked him if he would be willing to give some background on the project, which led directly to this post. Interestingly he’s not the only one who is excited about this forum as he the story was already picked up by both Robert Gray Smith and John Cook. Chuck and his wife are local RE/MAX agents.)

There’s been lots of local and national press lately about new online real estate offerings like Zillow and Redfin. With lots of investor money moving into the arena, we know there is change afoot. The question is, how much change, and for whom? Change for the consumer? Agents? Both?

As Ardell described recently in her “History of Real Estate” articles (Part 1, Part 2 and Part 3), the residential real estate business is always in a state of change. Ten years ago the online MLS systems caused a lot of change. The listing books got thrown away, and a few agents who couldn’t adapt went with them. Then the MLS derivative sites started appearing, with MLS download data becoming available to the public. People could start doing their own online searches without having to call an agent, or cruise the streets on Sunday afternoon looking for open houses. So change is ongoing, and maybe there are only a few real (no pun intended) points of stability.

My daddy and my uncle were both brokers years ago. The only points we still have in common with their businesses seem to be clients, agency law, and the For Sale sign in the yard; almost everything else has changed. For a long time, ‘public’ records in boxes in warehouses were not very publicly accessible for most of us, but government agencies (state, local and federal) are rapidly putting their public records information online to support their operations, and incidentally help us too. And new services like Redfin, Zillow and House Values make that data even easier to use in support of their own business models. As we see locally, the big four real estate companies, Windermere, Coldwell Banker, John L. Scott and RE/MAX are also exploiting that data in conjunction with MLS data on their sites. None of this has changed the basic business model of professionally assisted transactions with buyer and seller agent commissions. While the traditional model has been a subject of debate for a long time, and a lot of creative alternative business models and offerings have been tried, the industry is still seems to be running on business as usual.

However, there is also a lot of technology-driven change right now. Someone with a background in the high-tech industry might observe that real estate looks like just one more industry about to be disrupted by the Internet – changes caused by dramatically improved information availability, rapid communications and online business models. But residential real estate is still dominated by local interests, its product is both expensive (understatement) and unique, and there are a lot of local and national consumer protection laws on the books – some good, some bad, and more coming. So who is right, and what will happen next?

To try to pull together a picture of the impact of these changes, and where they might lead, a local organization called MIT Enterprise Forum is focusing one of its dinner programs on the topic of Online Real Estate (clever title). The Forum focuses on highlighting business issues and opportunities for tech-driven companies and entrepreneurs. The Online Real Estate program will be on Wednesday, March 15, at the Bellevue Hyatt Hotel. See www.mitwa.org for program details and reservations.

These MIT Forum events typically draw 200 to 400 attendees, and this one will probably be on the larger side. For better or worse, it seems like everyone is interested in real estate these days. The program will be panel-based, with a traditional real estate broker, a top online agent and execs from Redfin, Zillow and House Values, with an open Q&A session at the end. I’m on the program team that is pulling the program together, and I’d have to say I expect a very lively conversation on the stage that evening. 🙂

Is Your Earnest Money Protected By The Finance Contingency?

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While the purpose of the Finance Contingency is to protect the buyer in the event they are not able to obtain a mortgage, more and more the buyer is not covered all the way to the day of closing.

In a perfect world, the buyer submits an offer with a Finance Contingency that runs through the day of closing.  If the buyer’s loan is rejected, the sale becomes null and void and the Earnest Money is returned to the buyer.  The seller puts his property back on the market and finds a different buyer.

Finance Contingency addendums are two pages long and much more complicated than the simple explanation above, and much more dangerous to the buyer than they often expect.  I have not met a buyer in 15 years who did not expect to get their Earnest Money returned if their loan is not approved.  I also have not had a buyer client in 15 years whose loan was not approved 🙂  

It is becoming common practice in the last few years for the seller to counter the offer by shortening the timeframe on the Finance Contingency.  Often this is deemed a minor date change, when in fact it is a major change for the buyer.  I have even seen buyer’s agents write offers with a 30 day escrow and a 15 day finance contingency because that is “common practice” :0 

If you have a 30 day escrow and a finance contingency that expires in 15 days, you are not likely covered if the loan is rejected on the 23rd day.  You are also not covered if you did not apply for your loan on time or if you did not submit the documents to the lender in a timely manner.

VERY IMPORTANT, you are also not covered if you do not have enough cash to close. 

I am hoping the attorneys here will have something to add, or will have something on their blog explaining this further.  In the meantime, suffice it to say that just because you have a Finance Contingency, that does not mean that you will automatically get your Earnest Money returned, if you can not close due to financing issues.

Did you sell your SOLD before the bell?

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As you may know, HouseValues (NASDAQ: SOLD) is a publicly traded company. As you may not know, they reported their earnings for the quarter and year ended December 31, 2005, this afternoon.

To quote the highlights from the press release from MSN MoneyCentral

“For the year, HouseValues reported annual revenue and net income growth of 82 percent and 101 percent respectively. For the quarter, HouseValues reported revenue of $25.2 million, an increase of 75 percent from the comparable quarter last year. Fourth quarter 2005 net income was $4.0 million, up 117 percent from the prior year. Fourth quarter 2005 earnings per diluted share were $0.15 compared to $0.08 per diluted share in the fourth quarter of 2004. Net income for the fourth quarter and the year included an increase of $1.2 million as a result of the favorable settlement of a state tax audit.”[photopress:hv_logo.gif,full,alignright]

Blah, blah, Growth Opportunity, blah, blah…

“A recent National Association of Realtors study showed that 77 percent of consumers used the Internet as part of the home search process in 2005. The study also found that buyers who use the Internet to search for a home are more likely to buy through a real estate agent than non-Internet users.* Real estate and mortgage professionals are projected to follow consumer behavior, dedicating more of their marketing spend online than to any other medium by 2009, according to Borrell Associates.”

Blah, blah, Mortgage Opportunity, blah, blah, blah….

“On November 3, 2005, HouseValues announced its acquisition of The Loan Page, Inc. TheLoanPage.com helps consumers find the best deal on all of their home related financing needs by providing them with up to four competitive bids from the nation’s leading lenders.”

So far so good, right? Not according to “Buy on the rumor, sell on the fact” nature of the Street…

To quote another press release from MSN MoneyCentral

“Shares of HouseValues Inc. plunged in aftermarket trading Tuesday, after the company reported a jump in fourth-quarter profit, but said its first quarter and full-year 2006 results would come in well below Wall Street expectations. Shares of the online subscription service for real estate agents and mortgage bankers dropped $3.26, or 25 percent, to $10.14 in after-hours electronic trading, after closing down 25 cents at $13.50 on the Nasdaq.””HouseValues said it expects first quarter 2006 earnings of 3 cents to 4 cents per share, including about 3 cents per share in stock option expenses. Revenue is projected at $25.5 million to $26 million. Analysts were expecting earnings of 14 cents per share, not including stock options, on revenue of $28.8 million.”

What’s your take on this? Does management think an upcoming war with Zillow is going to hurt HouseValues earnings? Is the slowing housing market at fault? Have enough people seen Ardell’s “Bottom feeder post” to cause this market cap hemorrhaging? Can TheLoanPage.com mount a credible threat to LendingTree.com? Can Batman & Robin save us?

Conspiracy theories and comments?

What makes Commercial Real Estate Different from Residential Real Estate?

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(Editor’s Note: I recently came across an interesting blog put together by Stephen Cugier and Nick Papa from Grubb & Ellis that focuses on Seattle’s commercial real estate market. In talking with them, I thought it would be interesting to have them post an occasional article on aspects of commercial real estate that might be of interest to people who generally follow the residential side of things. This first post by Nick will likely be particularly interesting for investors thinking of expanding into commercial real estate. )

The fundamental difference between commercial and residential real estate is the fact that all commercial properties are potentially income producing while most homes are occupied by their owners. While you can obviously purchase a home and rent it out, it is not considered commercial real estate. The four main product types that comprise commercial real estate are office, industrial, multi family (apartment) and retail properties. There are other commercial property types such as hotel/motel or mobile home parks, but these are the primary products and those that an individual investor might consider investing in.

Each product type has its pluses and minuses depending on a variety of factors including, but not limited to the management of the property, the size of the investment and amount of inventory available. Naturally the value of any particular property is also subject to typical market conditions such as location, physical attributes and current demand for that type of product.

For most investors entering the marketplace who have owned residential properties that they have rented out, multi-family is where they feel most comfortable. The benefit to these investors is that multi-family properties tend to be the most attainable commercial properties because you can start with something simple like a duplex and go up from there. One note here; apartment property five units and larger comes with much stricter financing requiring a higher LTV (loan-to-value) ratio while duplexes to fourplexes can be purchased within single-family financing parameters. Apartment properties also allow owners to save money on property management fees by maintaining and managing the properties themselves, typically for buildings less than 10 units.

Office, industrial and retail properties typically require a greater amount of initial investment because it is more difficult to find smaller properties (i.e. less than $1M) to purchase. These types of properties also require, in most cases, some form of professional management. This is because negotiating commercial leases with businesses is much more complicated and difficult than negotiating leases with individuals in rental property. This element can also be a benefit as it allows the investor to simply purchase and monitor their property without having to deal with the day-to-day hassles of management. These types of investments can be very attractive when there is a solid long-term tenant in place or where there is potential to substantially increase rents on the property.

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One other factor that needs to be mentioned in this discussion is IRS Code 1031. This part of the tax code allows owners of commercial property to defer the payment of capital gains taxes when they sell an investment property as long as they purchase a property of greater value within 180 days. This is very common in commercial real estate and is a great way for an investor to increase their real estate holdings and as a vehicle to gain tax free cash while leveraging their real estate assets.

If you do consider commercial real estate as an owner or user, it is best to work with trained commercial specialists. They can help guide you through the complicated process of identifying and purchasing (or leasing); which often entails working through proposals, offers and considerable analysis. Commercial specialists often know of unlisted properties that may be available through their network of landlord and owner contacts. They are also a great resource in assessing the financial viability of properties, which ultimately will determine their worth as an investment.

Forget tradition! The New World of Buying and Selling Real Estate

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I’ve been going to the MIT Forum’s dinner topics for years as a technology geek. Now that I’m in real estate, I’m still finding applicable topics. Let me put my plug in for the MIT Forum first — The Northwest Chapter of the MIT Forum hosts monthly dinner meetings with topics relating to business and technology. The topics cover the spectrum from computer technology, biotech, nano technology and yes…now real estate technology trends. Always interesting!!

Topic:

Transformation is afoot. Remember how Expedia revolutionized the travel industry? Now companies in our own backyard, including Redfin, HouseValues and Zillow, are offering online technologies that are transforming the real estate industry. From online valuations and lead generation to completing the legal transaction, these companies aim to exploit opportunities in the business of residential real estate. Home buyers, sellers and real estate agents are changing the way that they do business.

Panelists:

  • David Eraker, Founder, Redfin
  • Spencer Rascoff, CFO, Zillow, Inc.
  • Nikesh Parekh, VP of Corporate Development, HouseValues, Inc.
  • Gordon Stephenson, Co-Owner and Managing Broker, Real Property Associates, Inc., Director, Zillow, Inc

March 15, 5:30PM – Tickets are $50 at the door (less if you buy ahead of time). Visit http://www.mitwa.org for further details.

The 5:30 time is no-host cocktail with doors for dinner opening later. Come on by and join us.

8 Common Mistakes Made By Real Estate Bloggers

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In putting together Rain City Guide with Anna, I think we’ve made every blogging mistake that is possible… [photopress:lots_of_banners.jpg,full,alignright]In the spirit of learning from our mistakes, here are the top 8 mistakes that are made by real estate bloggers:

  • Mistake #1: Posting your listings. Treat your blog as a community resource and you will be rewarded. Treat it as an advertisement, and you will be unread.
  • Mistake #2: Too much stuff on the front page (See photo on the right!). In a previous iteration of Rain City Guide I noticed that the site was slow because I was asking users to load too much stuff when all they really wanted was the content! I’ve cleaned up the interface and I feel much better about the site.
  • Mistake #3: Create multiple blogs. Except for Jonathan Miller, I’ve never seen a good real estate blogger who could keep more than one blog interesting to read.
  • Mistake #4: Using a generic theme. Take the time to personalize the theme of your blog. Simple steps like adding your photo, editing the header graphic and changing around the colors can make a huge difference.
  • Mistake #5: Not reading other blogs. I built the original blog for Anna before I began reading other real estate blogs. No one ever linked to that site because I never linked to anyone else. Unless you were one of the originals, you won’t be able to get away with this and expect anyone to read your blog.
  • Mistake #6: Too much self-promotion. I stop reading blogs that include a paragraph about the author’s exceptional services at the bottom of every post (especially if this paragraph is filled with links!). Again, unless you were one of the originals, you can’t get away with this and expect anyone to read your blog.
  • Mistake #7: Expecting people to comment just because you asked a question. If you want a response out of your readers, you really have to make it interesting. Before asking a question, make sure you’re providing some content that is going to provoke them to respond!
  • Mistake #8: Writing a post inspired by another blogger without linking to them. The temptation to keep readers on your site is great, but the benefits of being a good linker are even greater!

As always, I’m interested in your feedback 😉 , and would be interested to hear if people could add two more so that we could come with a even ten.

Futures and property values: you can bet on the bubble

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Last November, Slate magazine posted a piece on the housing market futures. The gist: you can hedge a drop in your house’s property values by buying derivatives that pay if the region’s property values drop a specific amount over a specific time period or even if predicted growth doesn’t materialize:

Next spring, however, investors might finally have a better hedging product. Just in time for the apparent top of the housing market, the Chicago Mercantile Exchange is introducing futures and options on housing prices in 10 cities for the second quarter of 2006.

It’s pitched to big institutions, but it would probably benefit individual investors immensely. That is, if they used it. Unfortunately, the individual home owners it would benefit the most didn’t have enough cash on hand to put money down on their house and are currently just paying interest, so they probably don’t have extra money to invest in hedges.

Also, as Ardell eloquently pointed out a while back, different sectors of the market can “pop” at different times and at different rates. Unfortunately, this could only protect against region-wide shifts:

These options will cover large markets—it will be tough to hedge the value of your own house, which depends so much on your particular neighborhood.

I liken it to buying an index fund (or mutual fund) instead of a single stock, although maybe insurance against extreme price swings is a better analogy; the effect is to reduce the upside and the downside of your investment. It doesn’t seem very exciting in the least so I’m putting this one in the “popular after the crash” basket, as it’s hard to plan for hard times when the good times have lasted so long.

So who’s buying on opening day? And can the market correctly predict housing prices over the next few years, or are investors so oriented toward a bubble popping that they can’t see the inherent strength of the market (or vice versa)?
Galen
ShackPrices.com