Virtual Discrimination by Real Estate Brokers

A real estate broker who operates in 23 states has filed a complaint with Federal authorities against the local MLS for “restraint of trade” practices, according to Inman News. Ryan Gehris, who is a broker of record for flat-fee real estate company in 10 of those states, alleges that the North Carolina MLS’s requirement to physically attend specific MLS orientation classes discriminates against non-traditional web-based brokerages. I think he has a point.

handcuffed to laptop

Do I have to be here?

While I can see an argument for the advantages of attending specific events, I think that the mandatory requirement of attendance takes it too far. I think of it like networking – It makes sense to do it, but if you don’t it’s your business that is likely to suffer and that’s your choice.

In this age of WebEx, Skype or UStream.TV online meetings, it just isn’t necessary to physically go somewhere for most types of training, especially computer training. And the cost and time concerns associated with attending far away events can make it prohibitive, especially for agents that have other obligations and commitments.

The spokesperson for the MLS said the training is “not intended to be a burden to participants and is required because of the substantial changes in technology.” But if people can get a college degree with online training, it’s hard to imagine why basic MLS user training requires someone’s physical presence to be effective.

The real reason may be that the MLS would like to make it hard for non-brick-and-mortar business models because they do not like the competition. I say let their business model succeed or fail on it’s own merits, not because of discriminatory road blocks put in their way.

Obama plans on tighter regulations for mortgage brokers

From the New York Times

The Obama administration plans to move quickly to tighten the nation’s financial regulatory system. Officials say they will make wide-ranging changes, including stricter federal rules for hedge funds, credit rating agencies and mortgage brokers, and greater oversight of the complex financial instruments that contributed to the economic crisis.

Aides said they would propose new federal standards for mortgage brokers who issued many unsuitable loans and are largely regulated by state officials. They are considering proposals to have the S.E.C. become more involved in supervising the underwriting standards of securities that are backed by mortgages.

None of this should be a surprise for regular readers of Raincityguide.  I’ve been talking about tighter rules for mortgage brokers since 2001 and here on RCG for two years.   Mortgage brokers will always argue that they are already tightly regulated. In some states, brokers have tougher regulations than consumer loan companies.  Hey, wait a minute.  Is President Obama going to let the consumer loan companies slide by without proposing tougher regulations for them as well?  The top two largest predatory lending lawsuits were against consumer loan lenders Household Finance and Ameriquest. Both companies settled out of court and “admitted no wrongdoing” even though there was lots of evidence that their sales people were meticulously trained by management on how to do wrong. 

Maybe tougher minimum sanctions and penalties are in order as well.  We must also realize that these new regulations mean nothing without enforcement.  I would rather see the states be in charge of enforcement than the federal government (well, with the exception of Florida where they have proven their supreme incompetence.) We need only to look at RESPA and the miserable job HUD has done trying to enforce this massive piece of regulation since 1975.  So if it’s going to be up to the states, then the industry should prepare for a higher cost of doing business as a mortgage broker or consumer loan lender.  This will be passed on to the consumer in the way of higher fees, rates, or both.

NWMLS to Allow Brokerages to share more Data

The Northwest Multiple Listing Service has announced policy changes that will allow brokerages to display more information on their websites. This means that if brokerages choose to, people will be able to see the length of time a property has been on the market, referred to as days-on-market (DOM), as well as cumulative-days-on-market (CDOM), along with the listing price adjustment history. The NWMLS will only allow the DOM to be shown if the CDOM is also displayed in order to insure that consumers are not mislead.

Another change for brokerages is that they now have access to three download feeds instead of just two. This could be significant for brokerages that want more options and vendors to choose from to manage their data feeds for property searches, which they make available to agents and the public.

The Mortgage Witch Hunt

Just in time for Halloween, officials from various levels of government are gathering together over the [photopress:salemexamof.jpg,thumb,alignright]frightful happenings going on in the mortgage industry. Home values were going down, mortgage payments were on the rise and consumers did not contact their mortgage professional for advice. Some were provided opportunities to own homes by using “non-traditional

There are now five drink sizes at Starbucks: Short, Tall, Grande, Venti, and Chuck Cross

Chuck Cross, former Director of Consumer Services for the Washington State Department of Financial Institutions is on his way to the other Washington to serve within the Conference of State Bank Supervisors.

[photopress:chucknorris.jpg,full,alignright]Quoting from the CSBS press release, “Chuck was one of the key investigators, architects and negotiators of the multistate settlement with Household Finance and Beneficial Finance in 2002, which was the largest predatory lending case to date. From late 2002 through 2005 he investigated Ameriquest Mortgage and served on the multi-state Executive Committee for the country’s second largest predatory lending case, which was filed and settled in March 2006.

Faster than fast, Quicker than quick, Ka-chow!

While spending quality time w/ the Cars addict in my family (the 3 year old who says “I wanna see the race car movie Daddy”) got me thinking about something that moves faster than Lightning McQueen, the relentless march of high technology.

A couple weeks ago, Real Central VA, had a link to an interesting NAR Center for REALTOR Technology survey on what agents/brokers plan to spend on technology.

Some of the more interesting findings were

  • 95% of agents use digital cameras
  • 90% of them use cell phones
  • 77% of them use PCs
  • 71% have web business sites
  • 60% of agents have IDX search features on their web site
  • Sites with IDX listings generate more leads than sites without listings.
  • 30% of agents spent more than $2000 on technology in 2005
  • Less than 15% of those participating in lead generation programs are satisfied with the results.
  • 67% of agents want their broker to expand their technology offerings.
  • 84% of agents want the MLS to expand the technology and service offered.
  • Most internet leads come from broker web sites or agent web sites
  • was the 3rd largest source of internet leads
  • The Internet is the third most important source of leads (after referrals and repeat business), it is surprising that the majority of agents spent less than $500 to build or maintain their website, and that a super majority of brokers (67%) spent less than $1,000.

The net take away for me was that agents and brokers have an appetite for technology second only to MindCamp attendees, and yet the vast majority of them probably spend more money at Starbucks in given year than they do on their web sites! Given the importance of internet leads, the effectiveness of broker / agent web sites in capturing them, the disappointing effectiveness of lead generation problems, and appetite for more technology it seems to me that the industry on a whole is seriously under investing in technology. There are exceptions of course, but it seems that real estate tech spending is going to have to trend up. Otherwise the tech leaders around here, both inside & outside the industry (RedFin, John L Scott, CB Bain, Zillow, Trulia, etc) will increasingly make real estate professionals look like real estate amateurs.

So where are your tech dollars going in the next year? How much do you plan on spending? How will technology change how and where you use your marketing budgets? More Zillow, Craigslist, and Google ads, and less paper-based ones?

It may be broken, but here's a plan to fix it!

Ah, finally get to catch up on reading some RCG posts. What a prolific group this is! Makes you wonder just how important a degree in creative writing might become to the average agent in the future. I’ve been busy cuz I’ve been doing alot of recruiting these days.  So, when Eric, in a recent post  wonders about the mega agent model works I can’t help but commenting that it works great for the mega agent and not so great for the mini agents on the team and especially not so great for the customers of said Mega Agent who may not want to be foisted off on a newbie. Ardell says that the industry is broken because agents don’t help train newbies anymore. Couldn’t agree more. Fact is, there are agent training programs within offices, called Mentor Programs, but they cost the newbie a lot. I just heard about one such program that offers the mentoring agent 70% of the commission! No wonder its broken, but I have an idea of house to fix at least a part of it.

I wonder if people outside of this industry know that 85% of all new agents have left the business within 2 years and that average agent income is around $32,000 below the average household income of $34,000! When we talk about the industry being broken, how could it not be when out of every 100 agents, 85 of them have under 2 years of experience practicing in an industry that demands a high level of legal education and an equally high and complicated knowledge base. I’ve blogged before about the need to raise the bar for new agents. But I don’t see it happening unless I want to get on the Real Estate Commission which I don’t want to do. Untrained agents are like driving over a train track with the train coming. Shoot, I once had a seller move out a month early because his agent misread the financing deadline for closing of the transaction! Like Ardell, I could tell thousands of other stories. Isn’t the fact that there are so many newbies who are inadequately trained but allowed to handle any kind of transaction greatly affecting the quality of service to the clients? Doesn’t this create most of the problems with transactions?

So, now I’m in a position to make a difference. I can’t affect the other agents but I can sure affect the ones at LTD. There is a huge fault with the traditional business model for a real estate company, starting with recruiting.  When recruiting, brokers use the same practices to recruit new agents that you find in multi level marketing. They point to the super agent making all kinds of money and driving the ego car and hold them as the example of what the newbie can become. It’s enticing and makes the mouth water. The newbie can hardly wait to get a piece of that fortune and so eagerly joins the firm with all the zeal and ambition that should make them succeed. They are given the standard goals: take forms classes, establish a farm, knock on doors, do open houses, develop a sphere and take floor time.  But sadly, they don’t usually succeed with this advice. At least not 85% of the time.

Part of the problem is the upside down business model in the traditional company. This model and the model taught in broker training, is that once an agent has earned enough, typically $50,000 and splits this 50/50 with the brokerage, then that agent no longer earns money for the company, and is, in fact, a drain on the office, supples, training, etc.  Instead of being tied to the ongoing success of the agent, the office does just the opposite and depends instead on recruiting new agents instead of developing what talents they already have. Why, because their model is make $25,000 from as many agents as they can. Thus the revolving door.  Agents that carry heavy listing farms are also recruited but not for the reasons many might think. The heavy listing agent is sought after by almost all companies because they get the companies name on the streets with signage and have listings advertised to get the phones to ring. Do sellers know that their home isn’t advertised in the paper to necessarily get it sold as much as it is to take up print space and serve as image marketing? Plus the phone rings at the office to give the ‘up’ agents leads thereby providing a way for a new agent to get business.The newbies often do the open houses, not to sell the home, but to develope clients.

But what I think is an even greater cause of this failure are the many, many hats an agents wears, all requiring a different personality, skill and intelligence level. They must understand and implement all of the forms used in listings, sales, Federal forms and laws (asbestos, lead paint, fair housing) without which they can look at jail time and/or fines, disclosure subleties, etc. A typical agent must also learn how to read people, how to know just when to push and when to hold back. They must be strong enough in a listing presentation to sell themselves as the best while empathetic enough to work with buyers and understand their points of view. A good buyer’s agent must know how to perform a buyer consultation.and know how to find the exact right house out of the many thousands that are on the market, and not have buyer’s remorse.   A typical agent must know geography, house styles, demographic trends, know how to price, employer information, school information, church and communtiy information, transit information, structure and design.  Additionally, this practice requires a high level of negotiating skills, assistance during the inspection where many deals take a nose dive, plus the ability to stay on good terms with other agents in the market place without which they are doomed.   Agents are asked for advice on mortgage progrmas, title issues, need to understand and explain builder addendum (if that’s possible) and warranties, understand the escrow process and data base management, etc.

This is but a small list of the knowledge and skills an agent must have or fail. But, as if that weren’t enough, they have to be able to wear a marketers hat, as well. What is the best way to attract clients? How do you ever set up those lucrative programs aimed at building a referral base. Do you advertise in magazines, newspapers, online, do you buy lead sources like House Values, do you blog, do massive mailings, do you establish a farm?  Who will build a web site and teach how to make it a useful lead source. And on and on.

Do you see why it is ludacrous to ask all these skills of one person? How could any well balanced individual know all of this stuff and still have a life. Even the mega agents who scale as Eric has suggested might be a good real estate model, these agents must be even more talented since now they must also be managers, and, worse, they are ultimately responsible for errors made at any level by the team, any lawsuits, ommissions or mistakes by the assistant will be born also by the mega agent.

What we see in other companies in America are several different departments with different specialties and responsiblities.  When I owned two restaurants, a nightclub and a boatyard and marina, as you might imagine that I had 10-12 departments reporting to me at any one time. And I certainly didn’t know how to repair a twin screw diesel engine nor could I entertain as well as the All Male Revue! I contracted out marketing, I hired bookkeepers, I paid well for department heads that were specialists in their fields. Why not have a real estate company set up the same way, i.e., with different departments doing what they each do best. The agent should be the person who is face to face with the clients, not the person who is mailing out postcards or doing the research on the different lead generator sources. Even deciding how to outsource the different parts of the job is time consuming.  Each agent should work with the PART of the business that best suits his or her personality style, and you determine this with a personality assessment and lots of coaching, i.e., if you want to work at night and you are not shy and have a commanding presence, you’d probably like being a listing agent. If you get your kicks out of assisting someone in finding their dream house, you’d probably love working with buyers. If numbers fascinate you and you love the work of high finance, you’d probably prefer investment real estate and if you can’t tear yourself away from watching a home get built, you’d probably love new construction. For the well connected, whether by church, networking groups, family, and all kinds of social groups, and you love to give parties, then a referral based practice might work best for you.

Agents need to know themselves and find their own best fit in the business, then I firmly believe that they will succeed at a much higher level and make it through the first two years better than if they follow the typical one size fits all advice of their broker. Or, worse yet, take every referral coming from the relocation department and only make about 30% and lose belief in themselves.  As the agent grows, learn the ropes and learn what they love to do best, then migrate throughout the different departments within the company and take on more challenges.

We need a new model. We need to create companies where the agents are treated as individuals and trained as such. Where it’s acknowledged that they can not wear all the hats at once.  We need to have all the effective marketing in place and offer assistance with implementing it. We need to provide FREE leads to our agents. We need to create an economic model where the agents continuing success is directly tied to the continuing success of the office.  We need to give agents the reason to stay loyal to the company and to take away all the stumbling blocks to success.

It’s a huge order, but doable. I know and it works. Start out with bright, likeable and agressive people, have programs set up in the different fields within real estate so there is enough diversity, have the marketing materials and programs researched and implemented so that the agent can be with the client and do what they do best.  Have the negotiation, legal and transactional support to augment the knowledge base of the agent, and mentor and coach as long as necessry. This is no Walmart model, nor is it a Costco model. It’s not the super agent model where only the super agent makes a good living, it’s a Super Office model where all can do well, all are supported, teamwork is highly regarded and there is incentive to grow the company, too. A happy and successful and nutured agent will cure this industry of what ails it. 

Inman’s Innovation Awards!

Congrats goes out to all the contributors on Rain City Guide! We were nominated as a finalist for the “Most Innovative Blog Award” by Inman News. In my world, contributors are not only the people with their photo up on the sidepanel, but also those of you who return to give your comments on a regular basis. This site thrives off of your continued involvement!

The winners in each category will be announced in SF at the Inman Connect Conference. I’m definitely going to be there (I’m speaking on a panel on lead conversion)… Additionally, I would really enjoy organizing a meet-up of bloggers one evening. If you’re interested in joining us, then leave a comment below and I’ll send details as things get closer!

[photopress:Luther_engineering.jpg,thumb,alignright]In the meantime, I’m not proud to say that I didn’t know many of the non-blog nominations so I spent some time this evening on google researching the other companies nominated. Here are some notes (or at least links) I took while scanning the other nominees.

Most Innovative Brokerage

I wish Inman provided some more context so that I could know why they picked these particular real estate brokers. If anyone can let me know what sets these firms apart, please share!

Most Innovative Web Service

[photopress:Luther_engineering_2.jpg,thumb,alignright]Most Innovative New Business Model

Most Innovative Real Estate Blog

Most Innovative Real Estate Data Site

[photopress:Luther_engineering_3.jpg,thumb,alignright]Most Innovative Technology

Most Innovative Mortgage Company or Service

Most Innovative Media Site

Most Innovative Rental/ New Home Online Service

Discount brokers…

[photopress:donald_playing_guitar.jpg,thumb,alignright]I had a long discussion with my grandfather this past weekend regarding the utility of full-service realtors. He’s been around quite a while, so I have no intention of dismissing his opinion on anything. Especially considering that he’s been an investor in real estate for most of his life.

He point blank asked me why anyone would use anything other than a discount broker to sell their home. He mentioned that on a typical home sale, they could easily save you a couple thousand dollars in commissions. He mentioned that if he had to sell a house, he would list with a discount broker, price it a little higher than he would be willing to accept and then negotiate to an appropriate price. For him, this strategy comes right out of a Capitalism 101 course that we all learn along the path of life… And then today, CNN mentions a related issue in one of their top stories:

The article discusses how some discount brokers are complaining that they are not getting access to the multiple listing service (MLS). I know nothing about the background of this story, but I do have an opinion on discount brokers.

My take on using a discount broker?

Discount brokers play an important role in keeping full-service real estate agents on their toes and are definitely here to stay. For some people, a discount brokerage makes a lot of sense, and will get them a fair price for their home. However, a typical discount brokerage is not going to provide the value added services that can potentially raise the value of a home substantially. What are you missing out on by using a discount firm?

  • Preparation. Home preparation (including staging, painting, gardening, and other simple improvements) can make an otherwise ordinary house extraordinary. Owners sometimes have a hard time being objective about their belongings, and an experienced real estate agent will make sure that your house house really shines.
  • Marketing. This is where a savvy real estate agent can really earn their commission. A really nice house can only sell itself if the people show up to look! A tech-savvy agent can create brochures, flyers, slideshows, websites, newspaper ads, CDs, etc, that are beyond the capability of the typical home owner.
  • Pricing. My grandfather’s comment about pricing the home a little higher than he would have liked and then negotiating down might not be the best bet in the current market conditions. I’ve found that fast moving houses seem to be selling for the most money and the fastest moving houses are the ones with LOTS of interest. The best way to get a lot of interest is to price the house a little low and let a bidding war begin. While this doesn’t work for every house, and especially houses that are truly remarkable (and therefore only appropriate for a very small subset of buyers), it does seem to be a very successful strategy for most homes in a hot seller’s market as Seattle is currently experiencing.
  • Presentation. Once again, many owners have trouble being objective about their home. When potential buyers visit, an owner is often tempted to tell stories about each room. While the stories might be great, they don’t allow potential buyers to “imagine” themselves in the home. A potential buyer is much more likely to begin imaging how things can be redecorated and personalized if an agent is showing the home.
  • Time. A well prepared, marketed and presented home takes a lot of time, and many owners simply do not have the skill and/or time to do it as well as an agent.

In the end, if you are using an agent who is just rolling through the motions, then you may do just as well to use a discount broker and sell your home yourself. However, if you find an exceptional agent, you will inevitably find that the work that they are doing and their stored up knowledge about the local market conditions will allow your home to sell for substantially more money.