The Importance of Making Stuff Up as You Go Along…

Jon Strum of the LA Real Estate blog put together a very interesting article manifesto that outlines what it will take for real estate agents can be successful in the future. It is a fascinating article and was picked up by both the NYT real estate blog and Redfin’s blog.

While he was picked apart in the comments section of the NYT’s blog, I think a lot of what he has to say is extremely relevant and that the successful real estate agents of the future will be the ones that learn how to re-invent what they do!

Jon’s point that “real estate professional is in the unique position of adding massive value on behalf of their client to the final outcome of the sale or purchase of a home” is extremely important. Many people are simply not equipped to buy and sell their own home on their own and are going to benefit from the assistance of a professional. While programs like Redfin Direct that allow people to buy and sell homes via the internet may some day capture 10 to 20 percent of the market that still leaves 80 to 90 percent of the market requiring more assistance. (This comment is not meant to invalidate Redfin’s business model as 10 to 20 percent of the real estate market is a HUGE chunk of change!).

broken water wheelThe crazy part is that anyone would disagree with Jon’s general premise that real estate consumers are becoming better equipped (information-wise) and they are going to continue to demand more “value-added” services from their agents. The vast amount of money that is currently spent on “branding” techniques by agents (ads on postcards, billboards, magnets, super-market dividers ???, etc) will inevitable need to give way as the commission structure on many deals change and successful agents learn how to operate on a much leaner budget. People are going to turn to the internet to find out about not only the value of their home (Zillow?), but context around how that value might change (blogging?). People moving to a new area are not only going to want neighborhood information (homepages), but context around those neighborhoods (blogging?). The agents who figure out how to use the efficiencies of scale that the internet can provide are the agents who will be successful into the future!

So what are the internet tools that agents should be using? I had a great email today from a Seattle real estate agent who has a very prominent position in the local search engines (he or she shall remain anonymous). They mentioned that they had been following Rain City Guide for a while, but it took them a while to figure out what I was doing… That brought a big smile to my face because I’m not sure that I’ve figured out what I’m doing! I’ve seen a huge growth in Rain City Guide traffic as we’ve added some wonderful contributors, but I’m convinced that there are still hundreds of ideas and opportunities that I’m yet to take advantage of. Will Rain City Guide learn about those opportunities? You can bet on it!

My advice? Agents who do not want to get lost in the internet shuffle that is sure to take place in the near future should get involved in internet. But don’t waste your time posting your marketing materials on-line because people rarely read that stuff when you spend good money to send it to their homes! It seems like a no-brainer to me that agents should start blogging… But do more than that… Put interesting and challenging ideas on your blog. Blogging may not be the panacea for the future of real estate agents, (there is a lot more to being a good real estate agent than being an engaging writer), but by blogging to learn more about the internet, you will learn about the trends that are shaping the industry!

You don't know the power of the dark side

vaderAfter playing with Zillow for the past couple of days, the first words that come to mind are “Impressive, but you are not a Jedi yet”. I have a hunch the guys at HouseValues are going to get “Netscaped” if they don’t take their game to next level.

The Good
The UI is slick. The mapping isn’t quite Virtual Earth / Google maps slick but it’s close (if you add mouse wheel zoom, arrow key navigation support and resizeable maps, I’d put it in that league). Seeing all the lot boundaries displayed on the map is something that I haven’t seen done well before and is a feature that will be expensive or difficult for Zillow’s competitors to match. I like the fact that they partnered with GlobeXplorer, since I believe that will enable them to out map RedFin.

The Ugly
I find all the trash talk about uptime and availability amusing. As any experienced software engineer will tell you, the first days for any web based service that has had the anticipation & hype of Zillow are going be rough. After all, if the mighty Microsoft had troubles with X-Box Live when Halo 2 was launched a few years ago, the fact that Zillow’s first day had some minor troubles is hardly surprising. Besides, I’m sure Rich Barton and the boys will buy a few AMD Dual Core Athlons CPUs with the new WD Raptor drives during the next few days and cure that problem.

The Bad
I suspect biggest problem with Zestimates is the current lack of high quality data. (Gee, the same issue I keep complaining about). Any realtor will point out, doing an accurate completive market analysis house is a problem that involves many, many variables. I understand it’s a hard problem, but the fact that the Zetimates are so far off for my house (which I thought should be an easy case) is disappointing. I don’t expect accurate estimates for waterfront, hilltop views, high rise condos, Bill Gate’s house or rural properties. But my house is a cookie cutter house is suburbia (with lots of similar houses for sale). I would think my house would be an easy one to get right.

Just for kicks, I implemented a quick & dirty Compeitive Market Analysis feature for the Rain City Guide home search. I found it to be more accurate than Zillow for my house, and Dustin thought my estimate was right on the money for his home (after he entered the correct square footage). Anyway, play around with it and let us know how close to the “right” price it is for your area.

BTW – My version just goes against active NWMLS listings (so forget about trying it if don’t live in Washington). It’s pretty crude and it’s not as cool as Zillow, but then again, I hardly have $32 in venture capital (much less $32 million), so cut me some slack!

I think the nay sayer would be wise to recall the words my former boss once said, “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don’t let yourself be lulled into inaction.” Zillow’s Zestimates may be off in Safeco Field right now, but I have no doubt they will get much better over time. And when they do get better (not if), you better be ready.

Well, I’m going to shut up now and let my code do the talking. I’m sure the engineers at Zillow are following suit.

Robbie
Caffeinated Software

Who Benefits from a Buyer's Agreement?

(Editor’s Note: I’m happy to introduce Russ Cofano as a new contributor on Rain City Guide. He is a practicing real estate lawyer in Seattle with a tremendous amount of legal and business experience. Among his many roles and accomplishments, Russ is the former retained General Counsel for the Washington Assn of REALTORS (“WAR”), Seattle-King County Assn of REALTORS and Tacoma-Pierce County Assn of REALTORS; he was a key contributor/drafter of important real estate legislation in the State of Washington such as the Real Estate Brokerage Relationships Act and the Residential Transfer Disclosure Act; and he is an expert on MLS and Intellectual Property issues having been invited to speak at national real estate conferences including Inman’s Connect in San Francisco and MLS Connection. Russ can be reached at Russ@cofanolaw.com)

In the 90’s (sounds so long ago, doesn’t it), the concept of buyer agency entered the real estate brokerage world. For years, buyers working with agents were always surprised to find out that the agent typically was a sub-agent of the listing agent and legally represented the seller, not the buyer. This was true even though that agent almost never had any contact with the seller and usually had a much more significant relationship with the buyer. For a variety of reason (mostly because it made sense), the historical concept of sub-agency went away and agents working with buyers actually started representing those buyers.

As this concept took hold, folks like me would tour around far and wide and talk about the virtues of getting an agreement in place with buyers. This seemed to make sense because, heck, listing agents got sellers to sign listing agreements so why wouldn’t a buyer sign something similar. Well, if it wasn’t for my quick feet and years on the basketball court, I would have had many a projectile hit me in the head when I would suggest to agents this new way of dealing with buyers. The response was usually based on the fact that most agents felt that buyer’s would never be willing to commit themselves to a single agent like seller’s do in the listing agreement. In the same breath, those same agents would curse about those cheating buyers who would use them for days, weeks and months and then leave them at the last minute to work with someone else or (egads!) work without representation.

Fast forward to 2006. In Washington (as well as many states around the country), we have agency laws that define both seller and buyer agency roles. In Washington, if an agent is working with a buyer and is not the listing agent on the property that buyer wants to purchase, that agent will be the buyer’s agent (unless they have an agreement otherwise).

So what do buyers legally get from buyer agents. Well, look behind door number 2, and you will see the following duties:

  1. To be loyal to the buyer by taking no action that is adverse or detrimental to the buyer’s interest in a transaction;
  2. To timely disclose to the buyer any conflicts of interest;
  3. To advise the buyer to seek expert advice on matters relating to the transaction that are beyond the agent’s expertise;
  4. Not to disclose any confidential information from or about the buyer, except under subpoena or court order, even after termination of the agency relationship; and
  5. Unless otherwise agreed to in writing after the buyer’s agent has delivered the Agency Law Pamphlet, to make a good faith and continuous effort to find a property for the buyer; except that a buyer’s agent is not obligated to: (i) Seek additional properties to purchase while the buyer is a party to an existing contract to purchase; or (ii) show properties as to which there is no written agreement to pay compensation to the buyer’s agent.

My question is this: Doesn’t a good buyer’s agent deliver significantly more value to a buyer than those measly duties outlined above? If so, why would a buyer not be willing to sign an agreement that requires the agent to deliver all those “extras

History of the mls – Part 3

The mls was created to protect the seller, not to provide a means of sharing listing information between brokers. As you have seen in The History of Real Estate – Part 2, the brokers already had a loose system of sharing info and cooperating among one another. Some companies were excluded, similar to the “opt out” provision being challenged by the DOJ today. If a local broker was not supervising his agents and the agents were leaving doors unlocked, tracking mud into people’s homes, misrepresenting the house by “puffing” or outright falsehoods, that company was removed from membership. That is why the mls reserves the right to “opt out” by not cooperating with a company doing “bad” things and refusing to be associated with a company that does “bad” things. “Guilt by association” should not be forced on anyone and brokers should have the right to “opt out” and not allow their listings on that “bad” members website. But that’s a whole nuther thread.

The mls, as a system of rules, was created to protect the seller. The mls is a system of RULES, not an inventory of homes. The rules protect sellers because we, strangers, come into their homes with other strangers (buyers). We agree to abide by many, many rules when given the privilege to enter their homes while they are off at work.

The rules also protect the seller from multiple claims to be paid. The seller was happy to have every agent in town bringing buyers, but worried that he might have to pay two agents who both brought “ready, willing and able” buyers to his house. And so the mls was created to prevent the seller from multiple claims to be paid the buyer agent fee. Now of course buyers’ didn’t have agents, this was then (and by some still) called “the co-op” fee. The fee paid by one broker to another. The fee the listing broker pays to the “cooperating office” who brings the buyer.

The mls books were not “the mls”, just as “the mls” is not a system of data. Books were just “inventory” and mostly stale inventory. They were picture books for buyers to look at the same as viewing property on the mls is today. Agents still came in and wrote listings on the chalkboards, as the books weren’t printed quickly enough nor often enough to be the information sharing tool. Agents writing down where new signs were posted and coming in and putting that on the board, was still the key to knowing what was for sale on a day to day basis. Before you assume this is “ancient history”, know that in many markets where multi million dollar homes sell within hours of people knowing about it (often before it hits the mls), this system is still used today. Three years ago in some markets, relying on the mls computer system to find property was useless, as the property had 5 offers by the time it was entered and available to be seen. This is true to some extent today.

The mls system is to provide rules because we are entering peoples homes with strangers in tow. The mls is a system to provide rules because we have keys to lots of people’s homes and need lots of rules in that regard.

Establishing an mls for members only, was a means to control the conduct of agents in peoples homes, as well as a means to determine which agent the listing broker would pay. That took the seller out of the loop and made the listing company responsible for knowing whom to pay. This is called “The Doctrine of Procuring Cause”. When one agent brings an offer, but another agent claims that he was the one working with the buyer all along, the seller does not have to worry. The seller does not have to try to figure out who actually “sold” his house.

The listing broker decides whom to pay “the co-op/Buyer Agent” fee. If an agent disagrees with the listing broker he submits a claim to the mls and the mls has a panel who reviews “the chain of events that led to the eventual sale” and determines who is to be paid. If they determine that it is a different individual than the one who wrote the offer, they take the money from whomever received it and pay it to the broker “deemed to be the procuring cause” of the transaction.

That is why when a buyer looks at property on the internet and then goes to see that property with an agent, they have initiated a “chain of events”. If that buyer then goes directly to the listing agent saying “I don’t have an agent so I want the buyer agent fee taken off the price”, the listing company may still have to pay the agent the buyer used to see property.

Nothing has really changed, Robbie, except that there are people who are becoming members of the mls, without any intention of knowing or abiding by the rules of entering people’s homes, because they think it is a data source. Unfortunately, those non LIBB members have the same access to people’s homes as we do. Maybe they think they can bring all of their friends through a 3 million dollar vacant house, because now they can get the key.

Having non-LIBB members (Legitimate Internet Based Businesses) gaining licenses and mls membership, who have no intention of representing either buyers nor sellers, but having the same access to keys to homes, is nothing to take lightly.

The mls is not a data system, not even close. It is the means by which we enter people’s homes and the rules that control our conduct when in their homes. Common fine for “rule breaking” is $5,000. That includes the rule “not to advertise another broker’s listing without their express permission”, as the seller may not want everyone peeking in his living room on the internet. And only the listing broker knows what restrictions each seller has placed on that information.

What was your question again? Hope I answered it somewhere in these three posts 🙂

Electricity isn't a competitve advantage anymore

I find all the F.U.D. regarding opening up MLS data to be kind of overblown. Perhaps, it’s because I’ve been a software engineer my entire career, and the notion of technology changing business models and society at large seems anti-climatic to me. Perhaps, I have this attitude because my former employer, embraced the notion of “Only the Paranoid Survive“? Regardless of the root causes, the fact that the N.A.R., and other members of the real estate industry are so scared of the upcoming tidal-wave of technology changes just seems so short-sighted.

Your friendly neighborhood realtor from the 22nd century?
After all, during the past 100 years or so, the only constant has been change. So the fact that more technological change is coming, shouldn’t surprise anyone. I don’t remember the explosion of digital photography during the past decade cause anywhere near this much fuss, do you? What about the growth of photocopiers & other printing technologies during the last 40 years? Before computers, I’ve heard that people used to use a device called paper to exchange & store information, and the ability to manage these paper records efficiently was a key competitive advantage for many businesses. And yet, I can’t help but wonder if the MLS placed the same kinds of restrictions on printed property listings 30 years ago that they are trying to place on digital property listing today. Surely those all free real estate magazines at the grocery store are harming agents & brokers, by giving away valuable information for free?

I’d argue that associating digital photos with electronic MLS records on free web sites has done more to decrease the value that people place on a real estate agent, than anything I or other software engineers are going to invent during the next few years. Maybe the embrace of digital photography was just a way to get back at all those real estate magazine publishers?

Anyway, my advice would be to tell the powers that be to get over it. Things are changing: deal with it. Nobody thinks electricity is a competitive advantage anymore and in a few years from now, I suspect nobody will give the new generation of real estate web applications a second thought. I suspect very few realtors are afraid of the value that maids, handymen, and landscappers bring to the real estate industry but yet somehow software engineers & database administrators are out to destroy the industry. I can’t speak for all IT professionals, but I think it’s safe to say our area of expertise is NOT in the sale, finance, or purchase of properties (which should be the core competency of any real estate agent/broker). Similarly, it’s foolish for the real estate industry to think that they can job a better job of developing tools that let Joe & Jane Consumer search & browse listing data than software engineers. After all, if the engineers at Google can search 20 billion web pages in a fraction of second, processing the 20,000 properties in the MLS is sleepwalking by comparison.

On a related thought, how did people buy & sell homes in the “dark ages”? That seems more mind boggling to me than anything I or the folks at Zillow are going to be doing in the next year.

In closing, it’s not geeks with SQL Servers or even free web servers you should be scared of. It’s those real estate androids showing homes at a holodeck near you that should keep you up at night. That’s REALLY going to shake things up.

Robbie
Caffeinated Software

Playing With Rain City Guide's Real Estate Search Tool

Robbie Paplin of Caffeinated Software has built a great home search tool for the Seattle area and he put some very interesting posts together giving background on his effort, but I’m not sure he’s done a great job letting everyone know just how cool it is.

So, let me clarify the situation… The search tool is AWESOME!

What’s so cool about it?

  1. google earthGoogle Earth. It exports any and all of your searches to Google Earth! This means that you can get extremely clear aerial images of the home and nearby neighborhood.
  2. RSS buttonReal Simple Syndication (RSS). Every search can be exported as an RSS feed an imported into a Blog Reader.
  3. Sort by Price/SqFoot. . This is subtle improvement, but it can lead to some surprisingly relevant insights. On any search, let’s say “Seattle Homes” or even “Million Dollar Listings“, you can sort the results by the price per square foot. (This would be an even more useful feature if more homes didn’t have “0” listed as their size, but that’s better left for another post… 🙂
  4. Rain City Guide Search StatisticsSearch Statistics. With every search result, a box is presented that gives you statistics like the average list price and size for homes for that search.
  5. Complete Seattle Listings. Unlike some of the other search sites that are cropping up, we’ve got a complete list of homes that are for sale by real estate agents in Seattle. (I’d tell you that it is “MLS” data, but I don’t think I’m allowed to say that… 🙂

So who might find this search tool useful?

  • Home buyers who want to be updated on new homes as they hit the market! (it only takes a few hours (minutes?) for a home to be listed by an agent before it hits our servers and is picked up by the blog reader of your choice!
  • Home owners who are curious what homes are being listed in their neighborhood (or zip code!)
  • Real estate agents (like home buyers) who want to be notified of listings as they hit the market via their RSS reader!

And I’m sure there are others…

By the way, because of the nature of RSS feeds, I’ve been able to present the results from selected home searches as they get listed on my sidepanel. I’m sure that there are a ton of other interesting ways to use RSS feeds on real estate sites… Any recommendations?

Heard around the web:

Real estate search sites hit data control sore spot

Inman news had an interesting article today about how some of the innovative real estate search sites are causing headaches across the country. Considering all the conversations on Rain City Guide recently about the future of “data” this seems quite relevant and is a very interesting read. However, Inman will make the article subscriber-only after today, so catch it fast if you’re not a subscriber (or just read below for some of the more interesting quotes):

Out of companies that have released real estate search tools, the two most interesting (to me) are definitely Trulia and PropSmart. (The Inman article also features some background on Oodle, but they don’t seem to have the laser-like focus on real estate like the other two)

Here is Ron Hornbaker of PropSmart view of the situation:

While (Ron) said the response to Propsmart has been mostly positive from agents and brokers, he has received a bit of pushback from a few people in the multiple listing service community. “First of all, they’re using the word ‘illegal’ and … ‘copyright infringement.’ I’ve just been polite and talked to them. We don’t want to do anything people don’t want us to do.” Hornbaker said he has complied with the wishes of industry professionals who wish to remove their listings from being included at the site.

“My concern is they are speaking for way more interest than they should be. I do not believe we are a Napster-like model, and that’s what we’re being equated to,” he said, referring to Napster’s past problems in offering up a service that allowed users to illegally download music. “I would ask the people who say we’re doing illegal things to point out where the harm is — who are we damaging?”

That last quote would be sure to get a few comments from concerned agents should Ron have posted it on a blog… 🙂

The property listings displayed at Propsmart, he said, “are being used simply for display to consumers to point them to a home for sale. I would think that the opposite side of this could be argued more effectively: By restricting consumer access to the listings, that has more (potential) for being illegal.

“I believe it’s the seller who’s being forgotten in this situation. It is the seller we’re trying to stand up for and do the right thing for,” Hornbaker said, adding that sellers may not be aware — and may not approve — of efforts by brokers to block the listing from being viewed on some Web sites.

“I don’t buy the ‘copyright infringement’ for a second. They see their old model slipping away and they’re grasping at what they can,” he added. “We’re not trying to make money from the brokers. We’re not a middleman. We’re just trying to be a useful tool for consumers. I think this is going to backfire on the (opponents) in time.”

The gang at Trulia also gave some background on their view of where Trulia fits into the big picture:

Sami Inkinen, COO and co-founder at Trulia, said the site’s development team made a concerted effort to bring brokers to the table. “Most importantly, even before we launched we talked to all of the key brokers in advance to make sure the product was acceptable to what they want.” Inkinen said that Trulia is also careful not to access IDX, or Internet Data Exchange property listings information that is protected through broker agreements with MLSs.

While brokers seem to get it, Trulia CEO and co-founder Pete Flint said MLS’s are “frankly a mixed bag. Some of them have yet to understand … that this is in the best interest of their members. Some of them are not friends of innovation. Really what we’re focused on for now … (is) communicating how search is really positive to the real estate industry.”

Inkinen said, “We understand who we’re serving and we’re serving the brokers. We don’t want to own content. Our motto has always been the search-engine approach, the search-engine model — help brokers to place the digital yard sign on the Internet and then point to the actual source.”

Flint added, “We’re very aware that listings are a very delicate matter. We’re not looking to reinvent the industry in any way. We’re trying to improve things a little bit for consumers, and … a little bit for brokers.”

(Thanks to Jim of Central Virginia Real Estate News for tipping me off about this interesting article)

Where's the Beef?

In my last post, I awoken Ardell from her winter hibernation. To which I feel I should both apologize and take the credit . Ardell raised many interesting points, that I feel that merit a response. First and foremost, I’ll admit I am somewhat biased, since I tend to view things through buyer-colored glasses and I overlooked the reasons why a seller might be less than completely forthcoming with their listing information.

Where's The Beef?Admittedly, my gripe about bad zip codes is pretty minor (less than 1% listings are affected). However, entering an incorrect zip code is like misspelling a street name, it just shows buyers a lack of attention to detail. If I’m a buyer looking for vacant land in an Issaquah zip code (98029), I don’t want to see listings in Bellingham. If I’m looking for rental property in a Redmond zip code (98052), I don’t want to see listings in Mercer Island.

Regarding my beef about school information; since only half the schools surrounding Lake Washington are above average, are only half are listed? I wonder if the MLS near Lake Wobegon has this problem? Besides, who makes the decision that the school that serves a property is bad? The buyer might think XYZ school district is great, but because the seller had a differing opinion (and didn’t disclose that information), they just lost a potential buyer who won’t bother looking at a property that they otherwise might have.

Regarding my beef about latitudes and longitudes; OK, you the agent have no control over this. It still doesn’t explain why the MLS does such a bad job of geocoding! Admittedly, most people probably don’t care (unless they use a computer). Unfortunately, since many people use computers to find property information (and that number is only increasing), it’s a problem that will only become more noticeable.

When you combine latitudes and longitudes with free digital maps and inexpensive computer databases, you can see the location of listings in the neighborhood and other points of interest with an ease that was impossible to do (or at least very expensive) only a few short years ago. As they say, the 3 most important words in real estate are “Location, Location, & Location”, which means the most important part of a real estate listing web site is going to be “Maps, Maps & Maps” (as you can see by the growth of map-based real estate listings web sites this past year). Not having accurate latitudes and longitudes, makes it harder for software engineers to develop features the real estate buying, real estate selling, & internet surfing public increasingly are going to demand.

Pop quiz, which house is the better value? This ~$800K house or this ~$800K house? Without knowing how much living space I’m getting for my $800K, it makes my job as a buyer more difficult.

Just because you can’t get an exact measurement, doesn’t mean you shouldn’t measure. Most real estate listings & transactions have more legal paperwork & disclaimers than a Microsoft EULA! Furthermore, the NWMLS has the source for the square footage information associated with a listing. Couldn’t an agent argue the source should be liable? I assume the agent pays only pays if the error was in the sellers favor? Otherwise, isn’t listing a property with 0 square footage is asking for a lawsuit? Granted, I’m not an attorney, but if the risk was meaningful, I’d suspect all properties would have a square foot value of 0! So, if you get 3 different answers, pick the lowest value! Throw out the measurements from the French & Russian judges! Inaccurate data is always better than no data (at least for buyers).

Lastly, as computer based listing search & analysis tools become easier to use and more sophisticated, bad data is only going to be easier & easier to spot and less & less tolerated. Missing data makes the buyers job harder. Perhaps ironically, it also makes the sellers job more difficult as well. How can you draft an accurate competitive market analysis report if you don’t know what the size of your competitors are / were? Sure an agent could do the extra leg work of looking at the county records, but it’ll cost you more time (and time is money).

I guess the moral of this post, is caveat emptor. Although buyers may want to trust MLS data, sellers have a motivation to give you a reason not to. Perhaps, there is a market for a CarFax like service, that provides better MLS data, than the MLS? Despite my complaining, none of these obstacles are going to stop software engineers from giving the internet home buying public what they want (complete & accurate listing data). The internet has given the buyer more knowledge & more power in the marketplace. Sellers (& their agents) would be wise to embrace this trend, instead of avoiding it.

Robbie
Caffeinated Software

PS – This blog posting information is not warranted. Reader should verify all information to their satisfaction. Information is based on data available to the poster, including county records. The information has not been verified by the poster and should be verified by the reader. To the maximum extent permitted by applicable law, in no event shall the poster (Robbie), Caffeinated Software, or its suppliers be liable for any special, incidental, punitive, indirect, or consequential damages whatsoever (including, but not limited to, damages for loss of profits or confidential or other information, for business interruption, for personal injury, for loss of privacy, for failure to meet any duty including of good faith or of reasonable care, for negligence, and for any other pecuniary or other loss whatsoever) arising out of or in any way related to the use of or inability to use this blog post.