Angelic Real Estate Blog

A Little Late...Some Self Promoting a Promotion of Myself

Gabriel Silverstein, SIOR (Angelic Real Estate) — Sat, 27 Dec 2008 23:48:05 -0600

There was more creativity in that title than the rest of the blog will have, but hey, it's late, and I haven't blogged in a long time, so I have work back into it a bit slow. Since I blogged last we've had a recession (officially) start, more war, TARP, summer and then snow (again - it was here when i blogged last!), and I got featured in a few nice publicity things, the latest of which is here.

For those that don't already know, The Advocate is (I think) the leading (or at least A leading) gay world news magazine. I'm sorry I don't do them more justice in an explanation and description, but since Avi and I don't read or watch the news, I'm a bit ignorant there. I know they only interview gay and gay friendly leaders, professionals and entertainers. Here's the link for those that missed it. It's been so long since I blogged that I actually posted the http:// stuff in here in text before I remembered to make a hyperlink! The article was posted to the internet sometime around the 25th of November (2008) and was in the December 2, 2008 print edition. The interview was from about a month earlier.

Since this interview my views have continued to adjust downward with regards to the current status of the economy, but not at all as it relates to the buying opportunity for well capitalized investors. I got a loan quote on a deal the last week for five year fixed money, 75% LTV, at 5.01% with 30 year amortization! Of course, the non-recourse version of the same quote was for 55% LTV at 6.75% (or that darn recourse thing - some people in this business haven't been around long enough to know what that means!).

The Economy is Dead, Long Live the Economy (and the commercial market)

Gabriel Silverstein, SIOR (Angelic Real Estate) — Sat, 16 Feb 2008 19:44:10 -0600

The economy is dead, long live the economy! Subprime schmubprime. There is a problem in the commercial real estate financing world, liquidity, but it's not at all comparable to the residential world's woes. In fact, Torto Wheaton (the research group now owned by CBRE) in tracking markets across the country came out with a report on Friday a week ago that noted that warehouse space demand in the US is actually stronger now than a year ago!

That's not to say it's all great, they did say that only 12 of the markets they track (of over 50, maybe even more) were down in 2007 from 2006, but that is mostly likely I think to the fact that the warehousing and bulk distribution models most large companies are following are in a state of rapid change. Intermodal transportation was not a word on everyone's lips 20, even 10 years ago, but it's the word-of-the-day among industrial real estate brokers, developers and investors.

In short what's going in warehousing and distribution is that the Wal-Marts of the world are going to even fewer, larger distribution hubs, and they are becoming more aligned with mass freight transportation hubs. That primarily means port cities like Long Beach and Miami, but also railroad hubs like Chicago and Kansas City (Chicago, incidentally, is the world's 5^th largest port, we just don't use Lake Michigan to take delivery of anything but iron ore - it all comes in by rail).

The office market, too, has remained relatively strong, with rent fundamentals remaining very encouraging in most major and even minor markets, but transaction volume for investment sales (unlike leasing) has slowed to a near halt, particularly in secondary and tertiary markets while investors figure out what's going on. As one client of mine put it the other day, they don't care as much about missing out on the market going up 5% from here before they get back in, as long as they don't make the mistake of being in now and seeing it go down 20% before we know it's safe again. As a higher leverage buyer, a 20% value drop for them would wipe out 80% or more of the value of the equity they had in a deal, pretty detrimental to investor returns!

Not everyone is on the sidelines, though. CoStar reported last week that something like $39 billion in "vulture fund" money raising has already taken place for those sharks circling for opportunities to bite those in trouble. This is in addition to the $71 billion (yes, folks, these are numbers with a B) that private equity groups raised in 2007 as reported by the Private Equity Real Estate (PERE) weekly newsletter on the following day. There is a lot of money out there to buy commercial investment real estate and most market watchers are seeing that as buoying the market, even in the current liquidity crisis (who is lending money these days?!). The pundits are split, though, as to whether that just prolongs the correction or whether it actually helps prevent it (remember the old "soft landing" thing Alan Greenspan always looked to achieve?). I am with the later group at present, as there is so much money out there it would take a true, sustained recession to really take down the commercial real estate investment market at this time.

One of the big question areas is hotels, one of the hottest asset classes in the past 18 months. If the economy were to tank the travel and lodging industry is always hurt, but returns and growth of RevPAR and other metrics have been so strong it's hard to keep people out of the market for these assets right now.

Foreign interest is especially high now, since the dollar's decline makes everything here seem cheap vs. historical averages, as long as you're holding Pounds, Euros or pretty much anything other than US Dollars. Even the Canadian Dollar is pretty much on par with the greenback. My entire life memory it seems we could just use 70 cents on the dollar for Canada. No longer. The tough part is that US investors really can't afford international real estate investments, just when those markets are really taking off. The flip side is one might argue that it's never too late - who knows how far the dollar could decline and for how long. If you like the dollar's chances, hedge against the currency risk, but look at foreign markets, because they have been very strong for the past two years, and show no sign of abating.

Here's a bright spot - I just got quoted 175 to 200 bps over 10 year treasuries for an 80% LTV loan on a $70MM office building. The 175 deal is for 5 year fixed money and the 200 deal is for a 10 year term. With where interest rates are now, that's pretty much back to where the CMBS market was giving away money a year ago before things went haywire. Those quotes included 2 years of interest only, something everyone said was never coming back - and here we are 4 months later and it's back aready! The reason is that spreads like that over US government bonds are great yields for insurance companies and others that have to invest their money somewhere and in this interest rate environment aren't getting any yield out of bonds. Are the lenders really back yet? No, I don't think so, because this was a loan for a building that was mostly leased for 8 years or more, with below market rents (and a way below replacement cost price per square foot) and for a strong borrower, but still, I think things are indeed proving we're not in horrific shape.

The other tactic smart borrowers are employing right now is short-term debt placement - 3 year deals at even better interest rates because of the short term. They are less risky for the lenders and let the borrower assume that in 3 years things will be much better for long term financing again.

How Red is Your Part of the World?

Gabriel Silverstein, SIOR (Angelic Real Estate) — Sat, 09 Feb 2008 23:30:40 -0600

I don't normally post pictures this big but this one needs it. It's pretty clear where the red zones are here: CA, NV, AZ and FL. This is the 2007 foreclosure rate map for the entire United Stated (by county I believe). All of OH, half of MI and most of TN and CO are also pretty hard hit.

I'm not sure the cause and effect on CO and TN, but the OH and MI problems seems to stick out here as the steel belt, er, rust belt. In the commercial world I have not looked at Michigan in a long time because long before the subprime crisis it had alreayd been blacklisted by most lenders for commercial properties. Other than that, it seems that it is clear that there is a notable concentration in urban areas compared to rural counties (there is next to nothing of note in the strip that runs from ND south all the way through TX to Mexico). I guess farmers didn't get so caught up in this subprime mortgage craze...

The map is courtesy of Torto Weaton, the research arm of CBRE, though they aren't the original source, they just added to it. Their addition to this map that is not residential related is those 12 black down arrows. They are the only industrial real estate markets in the country that are down from 2006 in Torto Wheaton's rent index. That's a big difference from the residential market, whre there is a lot more red on this than those black arrows. The commercial market continues to hold up reasonably well, especially for rental rates, even despite a liquidity crunch in the lending markets.

How to Make REALTOR.com a Winning Business

Gabriel Silverstein, SIOR (Angelic Real Estate) — Sat, 08 Dec 2007 20:53:01 -0600

I have somewhat given up on REALTOR.com and whether they will ever have a definitive, market leading direction. It seems to me that this site is the worst-leveraged repository of information in the information age's internet real estate site boom. Of course, as an NAR member this is not very encouraging. It seems a classic case of the aircraft carrier unable to maneuver in a war of nimble destroyers and gunboats. Of course, I've so long ago written this off that it's possible something monumental has come out recently and I'm not aware. It's interesting that Fred Miller's recent post of the letter from Mike Long (CEO of Move.com, NAR's partner in charge of R.com) is dated a year and a half ago and quite frankly, for a lot of text, doesn't really say anything, so I guess it should be no surprise that it hasn't turned into anything in the time since its drafting?

The competition certainly seems to have managed to grab the eyeballs of the internet-savvy real estate curious public. However, that doesn't mean those guys have yet found a way to make money off that, and I'm not sure how many of them will survive long-term, even those that have gotten the best recognition (on this site that certainly means Zillow and Redfin), but that's what this post is about.

Is REALTOR.com all washed up? I don't think so. For all the lack of direction that R.com has taken, it still gets millions of people a month and it still has the most vast inventory of homes available and of market data, the later of which is (to my knowledge) still not being used by the site.

There are invariably going to be multiple sites out there with strong niches carved out for themselves, and no one site can ever be all things to all people. Is there a way to be both big and small? I think there is. Here is just the most simple start of the answer: incubate and sell.

1. Incubate. With $100 million or something like that certainly Move.com/R.com can use a few million here and there to start a few smaller, niche sites, sites that operate separately, but with the support (financial and otherwise) and most importantly, access to the data of R.com. If you can't beat ‘em, join ‘em, or in my opinion, even better - OWN them (or at least a big percentage share of them). That's not to say that R.com should become an internet incubator as a primary business line, but given the huge name they put behind a project it will immediately give it additional credibility to get outside venture capital, the single biggest hurdle these companies face before they find a way to actually make money off eyeballs.

2. Sell. Why are we as REALTORS all paying to have R.com service when it should be paying us for what we give it - all its inventory (homes for sale) and all its data (historic sales information). Why is the Zillow Z-Estimate based on flawed information when all the real data is already sitting in the regional MLS systems read to use (that means sell) and it's almost without flaw. Is this just too obvious or is there a gaping hole in the business plan that doesn't leverage that? There are ways to tie in even to Redfin and those like them (don't stone me for this!).

Why did it take Point2 to create the first national MLS, when REALTORS have had the MLS system in place for the longest time - it's an embarrassment if you ask me. I'm not sure, but I'd guess it's still not too late to partner with them to do one or both of the two themes above. At least that would be going with a proven winner that seems to have a plan, since I think they have well over 100,000 real estate agents now in the US and Canada, who get a lot more from Point2 for their money than they seem to get from R.com.

R.com leadership is instead taking that site and information the way of the Detroit auto manufacturers and the steel industry leaders of a generation before them. What both of those industries have seen is that by the time they got (or get) their act together, the world long ago passed them by and they can never regain what they were, ever. The NAR is the largest trade organization in the country, but it's strategic technology partners seem to be taking it the way of the dinosaur rather early on in this "battle" for the internet solutions to residential real estate, while all its members sit here on AR and elsewhere night after night carving out their own niches all alone because their leaders have left them to the wolves.

PS - late add: I just read Lenn Harley's recent post on the now-banned use of the phrase "MLS" by REALTORS who are members of the MLS they are effectively promoting when they put an IDX link on their websites. This is from the NAR, not R.com but in this case it's effectively the same issue...guys you are going backwards, not forwards. :(

New Radon Disclosure Law in Illinois, Plus CO Detectors Required

Gabriel Silverstein, SIOR (Angelic Real Estate) — Sun, 25 Nov 2007 12:47:00 -0600

Illinois homeowners and brokers/agents beware, there is a new radon disclosure form required of ALL sellers in the state as of January 1st, 2008. The new Illinois Radon Awareness Act goes into effect just as you're toasting your friends and singing that corny old Auld Lang Syne song.

Furthermore, before a buyer will become bound on a contract to purchase real estate the seller will be required to provide a pamphlet entitled "Radon Testing Guidelines for Real Estate Transactions" and the "Illinois Disclosure of Information on Radon Hazards," (sellers, get it from your agent, agents, get it from your broker). The pamphlet is provided by the Illinois Emergency Management Agency Division of Nuclear Safety. That's interesting, and scary - the nuclear people are in charge of this - maybe there's more to this than they are telling us?!

On the carbon monoxide detector front, for more information, here is an article on that law which went into effect on the first of the year (yes, 2007). CO detectors are required effective that date in ALL homes in Illinois (rental, owner occupied...ALL homes) and must be within 15 feet of every room used for sleeping purposes.

"But what if I live in a high rise?" you ask. There's good news then for you. There are exceptions to the rule. As per the article "The law exempts residential units that are in buildings that: (1) do not rely on combustion of fossil fuel for heat, ventilation or hot water; and (2) are not connected in any way to a garage; and (3) are not sufficiently close to any ventilated source of carbon monoxide. Buildings that have electric heat are exempt."

For everyone else, not having one is a class B misdemeanor. Tampering with or removing one is a class A misdemeanor. I asked Enoch and angel and none of us know what a class B or a class A misdemeanor are, but they don't sound nice. If you're not exempt, you'd better shell out the $20 - $50 (per detector) and get them installed. Of course, I doubt the governor has a special task force of CO detector police going house to house, so I'm sure the most likely legal targets are owners of rented homes and apartments.

(Thanks to Madlantern for the burning house clipart.)

NO, I'm not Going to Bail You Out!

Gabriel Silverstein, SIOR (Angelic Real Estate) — Sat, 24 Nov 2007 21:08:51 -0600

The cry for some sort of mortgage relief for troubled borrowers is everywhere. Apparently all the subprime homebuyers in the US are in California, or at least they are the largest group to catch "bail out" fever, but then, what can you expect from a state that is so communistic it is oft referred to by its own citizens as the Peoples Republic of California. What a place: beautiful weather, flashy cars, ever-rising real estate prices and when it all goes bad, just get together and scream and you don't have to own up to it. Sounds like fantasy world to me.

As I noted in my last post, all this hubbub is about less than 1% of the homeowning population in this country. You could have fooled me, I would have thought the entire country was going into foreclosure!

I'm not at all callous, I do know what it's like to worry about making payments, and in fact I feel quite bad for those in a pinch, no matter how they go there, but that doesn't mean walking away from your responsibility or expecting someone else to step in to clean up your mess. Sometimes life takes unexpected turns for the worse. Only in this generation, and seemingly only in this country, does everyone seem to feel that when that happens it's okay to just throw up your hands and file for bankruptcy or to expect everyone else to bail you out, be they wall street investors, the Federal Reserve or fellow taxpayers. Whatever happened to a sense of responsibility?

I think it's funny that I didn't get any checks from all those people selling homes in California in 2005 for double what they paid for them only two or three years earlier, yet they want people like me, again as an investor or as a taxpayer or both, to now step in and "rescue" them. Here's a novel idea if your mortgage is $400,000 and your house is worth $300,000 - keep paying your mortgage and keep living there and move on with life. So what if you're underwater on the loan, does that mean the house suddenly doesn't work for you? It must still work for you if you just want the lender to take a writedown to $300,000 as one of the ideas Robert Kerr suggested on Brian Brady's Bloodhound Blog plays out, since you'd stay in it if the mortgage was only $300,000, right? Hmm...

I think my grandparents on my dad's side owned the same house for about 50 years. I'm sure it had great appreciation over time, but I'm equally certain that there were a few down years in there as well. I don't remember the stories about how the Federal Reserve came to the rescue. I do remember from many a person that went through the Great Depression, stories about bread lines and 18 hour work days - when they could get work. How different in contrast is this subprime "disaster"? On the radar screen of horrific events in the lives of the American populous this doesn't make the list, not even near the bottom.

Here's another conundrum I'm stuck on. If the issue is people that bought homes with nothing down and can't make payments now, how is going through foreclosure such a horrible thing - are they really worse off now than before? That does sound callous, I know. Think about it for a second, though. If they didn't have a home before, and have nothing invested in it (remember, nothing down), then they don't lose anything in being foreclosed on do they!? Again, it's almost fantasy land. Their already-bad credit will take beating, but then, it should if they don't want to own up to the financial responsibility they signed on for. Last I knew that's actually what a credit score was supposed to indicate - how likely they are to not live up to their financial responsibilities. Best of all, when the long foreclosure process finally ends, after they haven't paid a dime for six months or more to have those nice digs (which invariably they will trash before moving out) they get to go back into the rental market at a time when oversupply in the for sale market has been lowering rental rates.

This is especially relevant because as I noted to Lenn Harley and as Carole Cohen wondered, this is something of a local situation in some markets, but not in any way a national crisis or equally applicable to people in all areas of the country. May G-d bless us to not have to ever face foreclosure ourselves, and may those in authority have the gumption to handle this fairly - for all involved, not just to make less than 1% of the population happy because they were irresponsible in their borrowing and spending habits.

Worry...Don't Panic

Gabriel Silverstein, SIOR (Angelic Real Estate) — Sun, 18 Nov 2007 21:28:14 -0600

This particular blog is about the residential real estate market, but I'm borrowing the title from an article last Friday by Torto Wheaton Research regarding the commercial real estate market, in comparison to the "woes" of the residential real estate market. The article noted that other than sharing the words "real estate", the two markets share little or nothing in common. But it begs the question, is the residential market really woeful - is it really crashing or might it be smooth skating?

An interesting interview in this month's REALTOR magazine with Lawrence Yun, the NAR VP of research suggests quite a different perspective, and almost upbeat one (though the NAR is known for that). While August foreclosure rates nationally were at their all-time high of one for every 510 households (that data is from a different magazine, the Illinois Association of REALTORS Magazine), Mr. Yun's presentation of the numbers is compelling. Despite existing home sales down seven percent year over year, they are still on par with 2002, which was not a bad year by any measure.

In fact, the NAR data shows that two-thirds of the markets they collected data in showed positive price growth in the third quarter, besting the second quarter's one in every two markets. More importantly, in the markets with price declines, most were down only one or two percent, with only a few markets in the country seeing five percent or greater price declines. It seems overall as though the corner has been turned.

The looming, in progress or perhaps already past disaster that the subprime lending market fallout is supposed to have created seems rather minimal by Mr. Yun's count. Only nine percent of all borrowers fit into the subprime category and only a scant five percent of them are in trouble, so less than one percent of the market is really in a pinch (using the earlier statistic, one in 510 is only two tenths of one percent, hardly worth mentioning). That, the NAR estimates, will result in about 200,000 homes nationally coming back to the market through foreclosure. Given the four million homes on the market, the result is a net increase in supply of only five percent, not exactly cause for great alarm.

What's more, he points out, is that there have been 4.3 million net new jobs created in the past two years and historically that should translate into demand for over two million home sales (roughly one for ever two net new jobs) and that has not shown itself, so whereas some pundits might say there is pent-up supply (would-be sellers that haven't put their homes on the market because it has been perceived as soft), the NAR actually projects there to be a lot of pent-up demand, rather encouraging. The only problem is getting those people into the market and that, we understand from Mr. Yun, is not happening because of the general media-fueled perception that the market is in the tank.

But for that, nothing could be much better for a buyer: prices are moderate, especially given lowered seller expectations, and interest rates are near historic lows. Apparently the old adage is right, though, perception is reality. Given the general media bend towards sensationalism, one could hardly expect anything but tales of woe, which as things become more obviously positive, will surely overnight become stories of market bullishness and price spikes. It's whiplash for the consumer (and that's Snidely Whiplash on the right). The smart advice: if it's time to sell, don't panic. It might take a while, but the market is there. We saw four of the highest priced residences in our building go under contract in a two week span in the last month. If you're a buyer, I'd say get in while the getting in is good, at least as I see it in the downtown luxury Chicago residential real estate market, and by the numbers, that's not dissimilar to much of the rest of the country.

How to Borrow Money “Off Credit” and Preserve Your Credit Scores

Gabriel Silverstein, SIOR (Angelic Real Estate) — Mon, 22 Oct 2007 00:09:54 -0500

Here's an interesting trivia question: how can you use an in-place credit line, at a great interest rate, and not at all impact your credit scores or even have it show up on your credit report? The answer is to borrow from your life insurance policy or policies.

I'm not much in favor of living much on credit to begin with if it can be helped, certainly not as a way of life, but a sudden great need for credit is just when this makes the most sense - when someone who maintains very healthy credit scores needs to borrow something short term, doesn't want to do so at credit card type rates, and doesn't want to hurt that long-defended credit score.

As an example of when this might make lots of sense, maybe you live in a condo and don't own a parking space or want a second space to go with the unit and there is one available to purchase. In downtown Chicago that will run you as high as $50,000. For most, it's not something you can or want to put on a credit card and refinancing your home to do this might not make a lot of sense, yet most people don't necessarily keep a lot of cash around in their checkbook to seize this opportunity when it comes up. Perhaps an even better example is the extra amount you need for the down payment on a retirement home or to lend your son to buy his first place.

I can't speak as a loan officer and this is just based on my personal knowledge and understanding, but with relatively little paperwork and hassle, no review or qualification necessary, and almost no time (inside of a week) you can have a loan off your life insurance policy or policies, almost to the full amount of their cash value. As long as you have had them in place for several years, no doubt those policies have some value. For most people these policies are only thought of as a source of savings during a desperate thought of cashing them in at some point in a financial crisis (don't do that - remember you can borrow almost the same amount from your own policy and keep the policy in place). Best of all, borrowing from them does not show up on your credit report (it will reduce their value on a personal financial statement, though) and the interest rate will probably be around 8%.

There is generally no time-specific requirement for paying back the loan(s), though you will have to pay the interest they otherwise should have accrued at least once per year. As with all borrowings, of course I will always advocate paying them back/down as soon as possible, even if that means the discipline of establishing a forced monthly payment for yourself.

If your policies don't yet have much cash value (common if they are small policies or relatively new) a good way to build the cash values up over time is to use them as a forced savings plan by contributing something extra each month or year to overfunding them, which most policies allow - the extra moneys of which are all automatically invested. Tax planners will tell you that you later have a great tax-free income source in place as well, since the borrowing against future policy values (when years from now they have very large cash values) is all tax free "income" that really never has to be paid back if you play it out so far that you ultimately jus t wait until death for the policy's death benefit to pay off the loan and whatever is left goes to your estate.

Next time you need a low interest, off-credit loan, dig up your life insurance statement and see if there isn't one already approved and waiting for you.

To find the best deals in a bad lending market - go where the money (loan) ALREADY is.

Gabriel Silverstein, SIOR (Angelic Real Estate) — Thu, 18 Oct 2007 22:39:06 -0500

The financing market for commercial investment real estate turned close to upside down in July and August and it's hardly gotten around to righting itself. I saw an article recently by the chief economist for the international brokerage network NAI saying that typically these things take about 18 months to correct.

All is not horrible, though (unlike the housing market in many places around the country, like Poinciana, Florida). Most larger institutional owners (REITS, pension funds, and the like) only leverage 50% to 65% anyway, and those guys can still get loans quite easily, even if the spreads have gone from 110 bps over treasuries to as high as 200 over since earlier this year. At least T-Bills are DOWN overall, something I predicted rather astutely in a CoStar article earlier this year (sorry, hyperlink not readily handy) that became the third most read article to date for them. The market has definitely been effected, though, by the debt market moves, particularly deals that were being driven by the high-leverage players that were living on 80% or greater LTV deals with low interest rates and long interest only (I/O) terms, even 10 years. A correction was long overdue for sure (who thought of 10 year I/O debt at 90% LTV anyway...like property values never go down? - must have been somebody not long in this business).

So how do you get a good deal in a bad lending market - just buy deals with the loan already in place. For the longest time CMBS ("conduit") debt has been the biggest potential burden on deals, with large defeasance costs to get rid of wrong-sized debt hurting deal pricing (where the debt that can be assumed is too small on an LTV basis for the sale price because it was put on at a higher LTV in the previous purchase but the property has appreciated significantly since then). If there is only a few years left on good debt the benefits can be minimal, I admit, but for those more confident in the normalizing of the debt markets in 1-2 years, even a very short term in-place loan can be a long enough bridge to a better future, especially if there is a value-add play on the property that would normally encourage a refinancing a year or two or three into the deal anyway. It's nice to pick up a deal in today's market with an in-place loan with an interest rate in the low to mid 5s, when the market is a point higher. Since I/O has almost gone away, those deals that had gotten through that period and started amortizing are no longer looking as ugly to assume the loan on as they were 6 months ago, either.

In fact, in the right situation, suddenly this market gives deals with in-place financing a huge advantage over deals that are free and clear (or where the debt is so wrong-sized that it doesn't matter). Finding those deals doesn't just make it easier to get to closing, it makes it easier to offer better terms overall. That doesn't necessarily mean just pricing, though that is relevant, but especially important is the ability to make an all-cash/non-financing-contingent offer knowing the financing is already in place (all this assumes, of course, that the financing is readily assumable as it generally will be). Shorter due diligence and closing timing means a stronger offer to a seller every time.

The only buyers that don't get to reap this benefit are TIC (Tenant In Common) buyers, who can't assume traditional debt, whether conduit or balance sheet debt, because the loan servicer will not allow a TIC ownership structure to have up to 35 separate owners jointly assume the debt if it wasn't created originally that way. The next market cycle, though, I fully expect the lending market to have gotten over the TIC assumption issue and I figure it is only a short time before a TIC ownership structure can assume existing non-TIC debt, or at least there will be a hybrid debt model that comes out that will allow that and eventually force others to follow suit, as that industry continues to grow and become, potentially, the next REIT phenomenon.

How do you Define Professionalism?

Gabriel Silverstein, SIOR (Angelic Real Estate) — Tue, 13 Feb 2007 00:17:34 -0600

There certainly are regional differences in protocol and whilst Bermuda shorts and a Tommy Bahama shirt might be de rigueur in, well, Bermuda, they certainly can't pass for a showing in Manhattan. That said, regional and cultural differences aside, I think there has been a substantial lowering of the real estate industry's sense of class and professionalism over the past few decades. Despite my example, this is hardly relegated to dress.

Anyone that reads blogs here or elsewhere at all knows that REALTORS may be the largest trade organization in the nation, but real estate agents as a whole are also one of the most maligned and disrespected professions in the country. That's pretty sad, since few people in this country have not used a real estate agent at least once for a purchase or sale of a home, or even a rental of one. Perhaps if the industry were a little more professional, in so many ways, this would not be the case.

I subscribe to the Internet Crusade group's (Saul Klein's gang, the guys that do the e-Pro designation) RealTalk Digest. There was a debate that must have gone back and forth for two months recently about dress code alone as it related to professionalism in the real estate industry. I should note that there was certainly no consensus of opinion on what really constituted professional dress, not even close.

Our own beliefs and lifestyle aside, there are an awful lot of people in this country that seem to wish things were more like they used to be, and I don't think proclaiming a dedication first and foremost to Jesus is a part of most of their opinion bases. My life companion, angel, and I wear formal hats when we are outside. No, it's not just a Jewish thing, it's a gentlemen thing. You might have heard of a gentleman - or perhaps you (or your parents?) can even hearken back to the days of Carey Grant and the like, when men wore hats (and so did women) and gloves, and suits, even when they were digging up someone's back yard to bury something (like a body - yes, even the murderers had class back then!). Back to the story, those in their 40s, 50s and older smile and often compliment us on our hats, whereas those in their 20s and 30s have told us we look "peculiar". That last comment came specifically from a whore who lives in our building, is a medical doctor, and runs around looking like a two bit hooker. To quote a line from a movie of a younger generation (Ferris Bueller's Day Off) "I weep for the future."

Getting away from just the dress thing, how about not cussing all the time on the phone, does that really make you cool, or as "powerful" as Gordon Gekko in Oliver Stone's "Wall Street"? Here's another - return any phone calls or emails you get, even from the competitor you don't like, within 24 hours. If you can't do that for everyone, at least do that for all your clients and prospects. For some reason this seems a rather foreign concept to a lot of people in the business, especially the younger generation (the 20 somethings and 30 somethings). Here's yet one more - show up to all your appointments five minutes early...not 15 (that, too, is rude) and not one minute late, but just in time to be settled down in case the person you are meeting with is ready on time. And can anyone really say they think it is professional to go into a meeting just after they finished sucking down a cigarette?

One last one I can even say I'm guilty of having to fight myself at times in the days of the mobile phone - when touring with one client, is the next client or prospect really so much more important than the one you are with that you have to take their phone call in the middle of someone else's sentence?!

So many people today seem to want to make endless promises, but deliver rarely. What ever happened to under promise, over deliver? It's a very simple concept, a combination of managing expectations and just plain old being true to your word. I can speak from more experience than my years should indicate that this will save you an awful lot of explaining when things go wrong and you can't meet expectations, because clients, even other agents, will not believe that it was your fault (even if it was).

Here's another I'm adding after the original blog post: is it so hard to say "thank you" and "you're welcome"?

This topic is one that could fill a book, so I saved most of the filler for people to comment, because I just wanted to throw out a few starting point peeves of mine as it relates to professionalism. Being professional is something of a lost art, if you will, to me, and one that could sure stand a good strong comeback.

How do you increase your credit scores...permanently?

Gabriel Silverstein, SIOR (Angelic Real Estate) — Mon, 22 Jan 2007 08:40:14 -0600

This is not about the quick fix 20 point boosts by a Rapid Rescore or any tomfoolery, this is about the long-haul and how to maximize your credit scores over time. No, that's not my screen shot to the left, or at the bottom of this post!

Start at the beginning: for those that don't have a copy of their credit reports, Annual Credit Report is a site sponsored by all three monitoring bureaus, which is (in effect) federally mandated, and will give any consumer their credit report from each bureau for free once a year. They don't give out scores though, only the reports that lead to the scores. My Clean Start is a service that offers for-fee additional products, but also has a free service to get a free credit report and score every 90 days from an unnamed bureau (at least on their front page it's not named, but since it references the FICO score, I suspect it's from Equifax, who generates the FICO score through another company of theirs, Fair Isaac). I thought there was a way to get this free once a year as well from My FICO but I haven't seen that jump out on their site lately. When you get them take a good hard look to make sure things are accurate (like there isn't a collection on there you actually paid off or your mortgage company is reporting you are late on a payment when you aren't).

Disputing errors: the three credit bureaus are Transunion, Experian & Equifax. All three now have ways on their sites to dispute errors in any credit report. In my experience, changing a consumer's bad payment history is hard to do, if it is the reality of what happened. However, there are lots of things often on a consumer's credit report that are wrong or that the consumer just doesn't know about, like the department store credit cards they opened in college and don't even have or use anymore, but still show as open on their credit reports, which can be detrimental to their scores if it results in too many open accounts.

In my experience, since the advent of recent legislation forcing the credit reporting bureaus to make their information more transparent to the consumers they hurt (help?), they have made internet-based disputes of errors on the credit reports much easier to take care of personally than to waste money on a credit repair service. Most (not all) of what I know those credit repair services to do (for a large fee) is just dispute any bad credit report issue, and in some cases actually get it removed even if the reported delinquency was correct, such as a late payment from a credit card company, because the creditor doesn't always reply to their investigation in time to validate their original delinquency report. However, this is also a more difficult strategy to get away with today than it used to be, because most of the credit card and other credit companies have fully automated this and their systems automatically and immediately reaffirm the delinquency report to the bureaus, so they never miss the 30 day response window that gets you off free. Start by calling the credit issuer and asking them to fix it and if they won't, just protest it with each bureau online (see below).

The only way to really get something legitimate removed is to beg (I'm serious) - call the individual creditors and try to get them to remove records of things such as late payments from their systems (a surprising number of them will agree to do if the consumer has a good track record otherwise, especially since that happened).

Fixes you can put in place today: each credit report should indicate the account number for each creditor and the contact information for the creditor, making it pretty easy to close unused accounts (or to pay off unpaid accounts that the consumer didn't even know existed, which happens a lot after someone moves and doesn't notify every creditor). Closing and consolidating accounts, making sure payments (going forward) are all on time and correcting factual errors in a consumer's credit report are probably the three most effective ways to raise credit scores other than the obvious - pay down high balances.

One big mistake people make is closing too many accounts. That's right, if you don't have some accounts open it will hurt you, not help you. The other thing people often get wrong is closing the old accounts and keeping new ones. Bad move - the credit reporting agencies score you higher for long-seasoned accounts. Close the new ones if you can. If you want more credit, ask the old accounts to increase your credit lines (it won't hit your scores the same way a new account opening does) and close the newest accounts if you can.

One tip I have seen proven is that paying balances down to below 35% of their maximum is beneficial to scores. Therefore, it is better to pay three different credit cards down to 35% than to pay off one completely and leave two with higher balances. I think 50% is another hurdle on the way to 35%. The point is this: it's better to have several open accounts with small balances than several with zero balances and one with a high balance (as a percentage of the available credit for the account).

Another good tip is to opt-out of receiving unsolicited credit or insurance offers. This alone can boost your scores as much as 20 points, as well as cut down on all that third-class "junk" mail you get at home (another benefit being that there is less for trash snoops to dig for and steal your identity information). To do so call (888) 567-8688 or go to the online opt out registry. I understand that giving your Social Security number and date of birth are not required to process the request, however, these may ensure that the request is processed properly. This opt-out is good for 5 years.

Going forward: Subscribing to a credit bureau credit monitoring service (we like Transunion's TrueCredit 3-in-1 service with the scores) will usually provide not only credit reports and/or scores, but suggestions on how to improve them as reported by the credit bureau(s). All three offer individual programs that monitor only their own credit reports and also offer 3-in-1 reports that monitor ones credit scores and reports from all three bureaus at a time. These can be updated as often as every 24 hours. There are different rates for getting one report vs. all three and for getting scores included instead of just the reports. The whole enchilada costs $15 a month for all three plus the scores, not too steep for its value. Note that the scores these monitoring services show are consumer scores, and for mortgages they each provide a slightly different score that cannot be monitored the same way (for example, FICO is the mortgage score that comes from Equifax, but will not be the same as the Equifax consumer credit score). Just by subscribing and regularly checking your credit score/report you will almost certainly see your scores go up. Why - they give you points for being credit conscious, and checking your scores through one of their (paid) services counts as doing that in their eyes. Of course, the cynical might note that they are giving points to those that pay them money every month, but welcome to capitalism.

Also, the monitoring services also provide a nice feature that includes email alerts when someone has checked or changed something in a credit report. This is helpful for a consumer to know if something got corrected, or more importantly, got erroneously reported wrong, or even to know if their credit is being checked without their permission or knowledge, since the frequency of the checking of one's credit by creditors or potential creditors is also punitive to credit scores (to the tune of about 3 points per bureau per credit check).

Whether you have been the victim of identity theft or not, I like keeping a fraud alert on my credit report. Any credit bureau will put the alert onto the other two reports. I use (800) 680-7289, which is TransUnion. This only lasts 90 days at a time but will post to your credit report within a day and then lists your designated phone number for anyone that might issue you credit (or issue credit under your name inadvertently to an identity thief) and they will call you at that number before any new accounts can be opened in your name with your information. If you have been a victim of identity theft, you can extend this for seven years, but you have to have a police report to get that put in place.

The last note to this long post is this: use your available credit, at least once in a while. If you pay your balance off in full every month the day before your statement comes out you might think that will help your score, always being reported with a low or zero balance...not so. My scores recently were on a bit of a plateau and then I used one card for a huge amount of purchases over a month or two. After the second month of showing a sizeable balance (even when repaid in between) my scores went further UP, not down. The agencies don't want you to have no use of credit, they want responsible use of credit. (originally posted on Enoch's Blog on Angelic-RE.)

What do you mean it's not a 50/50 split?

Gabriel Silverstein, SIOR (Angelic Real Estate) — Sat, 20 Jan 2007 14:52:43 -0600

The old 50/50, going "halvesies" is NOT in any way a required thing, and in many cases, frankly, in some cases it is short-sighted.

Those that come from the 50/50 background are surprised at times to get to a closing and find they are only getting 50% of what the other broker is (that's not the "50%" deal they were thinking!). However, not only is 50/50 atypical, and not the norm, in much of the country, and in many segments of the business it is almost unheard of. At the very least, there is no legal obligation, no moral obligation, and no rule in the MLS or otherwise that requires it.

Starting with the residential side of the industry, many regions do not have 50/50 as the typical split. Generally in these regions the buyers' brokers get more than 50% of the total commission. In Chicago, where we live and do a lot of work, 50/50 is the norm in residential (but not commercial, keep reading). In the expanded metro D.C. area, though, Lenn Harley always offers more to the buyer's broker (a 7% commission will generally end up 4% to the buyer's broker there). Bryant Tutas also has said he generally offers more than a 50% cut to the buy side of a deal. In some cases this is the market norm, in others it is specific to certain (I would say wise and insightful) sellers' brokers. The logic is simple - offer more to buyers' brokers, get more traffic, more showings = more and faster sales - it's simple. However, if I have really high commission agreement with a seller (maybe it's a relative or friend) I don't have to even offer 50% - if the market co-op tends to be 2.5% and I have a 6% listing agreement, I can still offer 2.5% and keep 3.5% for myself without hurting my buyer (espeically if it's a "pocket" listing and there is no open marketing and it goes straight to a buyer client that I know is looking for something just like that listing).

In the commercial and corporate real estate world, where I spend my time, there are very few 50/50 splits. In Chicago, unlike the residential practices here, the tenants' brokers get double what the listing (building rep) brokers do. This is not atypical across the country, where I have worked in 6% markets in which I got 4% as the tenant broker, etc. Most of the country (for corporate leasing) is this way. The interesting thing in some markets is that if the building representative leases the space to a company who does not have broker (a rarity in any substantial size deal) they get a "full" commission - double what they get if there is an outside/tenant's broker. If there is an outside broker they get a half commission and the tenant broker gets a full commission, so the landlord pays 1 ½ commissions total. I still like to negotiate for a higher commission than even what is offered that way, almost always (hey, I'm worth it). In the commercial world, all commissions are negotiable.

Greatly in contrast is the investment brokerage market. In the small property arena of $1 million to $20 million properties, there is often a co-broker split offered, which may or may not be 50% of the total commission (and again, is not set in stone, so I will invariably negotiate for a higher split/percentage, unless they are overly generous to start). However, for larger properties, there is almost never a co-op split offered. That's right, we almost always get paid by our buyers for large deals. Granted, if the property isn't already on the market and therefore there is only one broker involved, the seller may also pay something (I like those deals!), but again, that's the needle, not the haystack.

Getting paid by a buyer (especially to the tune of several hundred thousand dollars or more) is something many agents can't fathom approaching a buyer on, but we have to do it for every deal. Once in a while a buyer agrees to the fee but then wants the seller to factor it into the deal and pay it. I don't understand why they want this, but it generally doesn't matter, because most sellers won't agree to it (though from the seller side, I also don't see why it matters, it only hurts the buyer to show a higher gross sale price to the extent that hurts the tax assessments later on).

For those not used to anything but a 50/50 deal, my message is this: don't count other peoples' money. If you agree to a certain co-op arrangement, don't throw a fit at the closing table if you find out the listing guy kept more than half - you agreed to what you got, right (it's not like anyone put a gun to your head)? Likewise, listing agents that agree to pay the buyer's/tenant's agent more shouldn't be bitter about that either - again, they did what they did of their own accord to get a deal done, and isn't that why anyone offers a co-op commission to begin with?

Does anyone remember the disco song "Ten Percent" by Double Exposure..."ten percent of something...it beats one hundred percent of nothing at all."

Don't forget to check out the AR WOW photo contest...

The ActiveRain WOW Picture Contest

Gabriel Silverstein, SIOR (Angelic Real Estate) — Mon, 15 Jan 2007 12:24:10 -0600

There is a contest that Microsoft is now holding to select what I think will be a background photo for future Vista releases (?). There is a prize for the winner anyway, I'm just assuming that the winning photo will be somehow incorporated into Vista. In any case, it's always a lot of fun to put your favorites up against those of others and see what people think. Here's the photo that angel submitted of Enoch as His submission.

The real key to winning, of course, is reader votes, so please go see this photo on Vista's WOW contest page and vote for Enoch! Also, submit your own and put the link to them in as a response to this blog so the rest of us can see your handiwork. Note that the Vista WOW contest page distorts them a bit, but I assume Microsoft will get that figured out by the time they publish the winner...(?!)

Here are a few I have that I wanted some input on:

Big Sky, MT - with the pinkish Alpenglow or without?

Or, how about the Land's End arch in Cabo San Lucas (I should have gotten this with the tide up and the beach covered in water but I was more focussed on getting out to sea to catch some marlin)? I only wish I had my new super duper professional 10.2 megapixel digital SLR when I took these (that, though, is where our Enoch photos all came from).

Please post your own favorites WOW photos here for our own little ActiveRain WOW contest, which I will volunteer to be chief judge of, with the input of course of all those that comment to the blog and it's responses. I posted a similar thing on our residential site today. Since that blog module won't yet accept viewer postings, for that we can only have people post the URLs for their own entries to the Microsoft Vista WOW contest.

For this AR WOW photo contest, just like the rules in the Vista version of this contest, no people photos, please, unless they are fully clothed and tasteful (I'll just assume you have permission to post them, whereas Microsoft requires you to certify that you have their legal permission!). Picture post away!

Website Insight - Is an IDX Link Bad for Lead Generation?

Gabriel Silverstein, SIOR (Angelic Real Estate) — Sat, 06 Jan 2007 13:38:26 -0600

Jay Thompson pondered a while back whether or not to require registration from IDX users on his web site.

This is potentially an even bigger issue to ponder - whether to have a link at all (to IDX or not to IDX, if you will). But you say, "How can that possibly be bad for lead generation, isn't that what helps drive people to my site?" Perhaps, but maybe, just maybe, having the link gives them all they really wanted to begin with (including the chance to avoid dealing with a live REALTOR) and they no longer need to contact you (or have you contact them) to give them that same information, or some subset of it. If you don't believe me that this might be real, read this article from Lawrence Schoeffler in a recent Realty Times edition.

I will note that the article seems a little ambiguous as to whether or not registration-required IDX links have the same negative lead generation effect as non-registration-requiring IDX links. One thing is very clear - a web site with something of value to consumers, who have to register to get it, generates leads over and over again(something "Mr. Internet", Michael Russer preaches very hard).

Some people reading this might say, sure, but what good is a lead if all they want to do is find a little information now and they really aren't buyers or sellers (at least not in the immediate future). I think the answer is obvious - you have to start somewhere to build a relationship and by the time they are ready to actually hire someone, let's face it, a lot of the time the deal is already awarded to someone in advance. Even if they do interview more than one agent/team/firm, the consumer has quite often already made up their mind, or nearly so, and therefore the interviews are only to get extra information from others and to solidify the decision they have mentally already made. Agents criticize lead generation sites (in part because of the high cost of their leads) because the leads are often not yet doing anything. Welcome to "isn't that the same as passing out your card at a PTA meeting"? Leads take time to turn into cash. In the corporate world I have worked on a deal for as much as three years before it became "real" and then commissionable (generally those are well worth it, though, when they happen!).

For our residential site, we had all the forms filled out for an IDX link for our site, even sent them into the MLS. A week later we had second thoughts and they hadn't yet charged my Visa, so we called them to cancel and (by the grace of God) they had only started to process the request that morning, a week after getting all the necessary paperwork. To me the message from on high was clear, at least for Angelic-RE.com - no IDX! Let your server relax and skip it.

It's not just the DOJ that will sue you for Price Fixing...it's your Competition

Gabriel Silverstein, SIOR (Angelic Real Estate) — Sat, 30 Dec 2006 00:21:18 -0600

There is a great fear of even discussing commissions in open forums, locally or nationally, in the brokerage/agency side of the real estate industry. The fear that is spread is largely that the Department of Justice (DOJ) will come after real estate agents participating in such a forum/discussion for collusion or price fixing, particularly if they use certain words, like "standard" when describing commissions. In Rockford, Illinois recently, a lawsuit was filed against the Rockford Area Association of Realtors, the Illinois Association of Realtors, six Rockford area real estate brokerage firms and seven individual real estate agents. All are named in a single suit about price fixing in which Greg Hackman, broker and formerly sponsor to multiple sales agents in an office of his name, alleges anti-competitive, price fixing actions on the part of the defendants.

I don't really care to rehash the article that you can read for yourself on the suit, but instead point out that it isn't just the government that can sue based on the same principals of the Sherman Anti Trust Act's anti-competitive behavior prohibitions. In this case the plaintiff was offering 5% commissions to clients when most other firms in the market charged around 7% and the other firms supposedly then refused to show his firm's listings or allow his clients to see their listings. Not a very good job of playing nice in the sandbox if it's true.

I subscribe to a forum or two of real estate professionals, and it's so cliché to avoid to us the term "standard" commission or similar terminology that it bugs me. The word on it's own should not be taboo. Now I can't speak as lawyer here, but from what I remember in my business law classes, there are four things required for a lawsuit to be successful (remember, in this country, anybody can sue anybody else for anything regardless of the merit of the suit, winning somewhat more often requires certain legal proofs).

Duty - the defendant has to have a duty towards those that are allegedly hurt by the defendant's actions
Breach - the defendant has to have breached that duty or a law (which is by itself a duty we all must uphold)
Causation - the defendant's breach must have caused (be directly linked to)...
Damages - there has to be some measurable negative fallout of the defendant's actions

All four, not one or more, are required to be found guilty or to lose such a lawsuit. In the history of REALTORS and other real estate agents being sued for such practices, again as noted by the article, there are very few instances of the plaintiff being able to prove the guilt of the defendant(s) and tie that guilt conclusively to the alleged damages as the cause of those damages. There are situations, mind you, where damages do not have to be proven, however, for civil penalties to be handed out (like fines, etc.) but generally these are far less the concern than an full-on lawsuit for price-fixing.

There are two points in writing this blog (at least!). Firstly, the DOJ is probably (likely) not the one that is most likely to sue someone for price fixing behavior - long before they figure such a thing out and do something, someone in the private sector is likely to take notice and have an issue - and get a lawyer. Secondly, while this runs completely contrary to what the industry says to all its members, discussion about what commission practices are in any given area is not in and of itself in any way collusive, price fixing, illegal behavior. It becomes so only when the discussion leads to something that tangibly, negatively affects the consumers of this country. That, of course, is what happens if everyone decides that based on a discussion or correspondence with others to all collectively charge a certain amount or not less than a certain amount. Note that technically it is a violation of the law to all agree to lower fees at the same time, but since there are no damages (to consumers - there certainly might be to the industry professionals/firms!), by requirement #4, there is no prosecutable violation.

The flip side of this, and the irony of it all, is that the same system that purports to prosecute real estate practitioners for discussions using words like "standard commissions" and the like requires the same real estate professionals, in case of a commissionable procuring cause situation, to prove what the prevailing commission in a market is (notice that I didn't say standard just to play coy, but is there a difference?!). Doing so establishes for the court what the practitioner is owed in the case of the dispute. If it couldn't be established what the going market rate is, a court couldn't award damage awards, because it woudn't know how to calculate them.

Clearly in most markets there is a standard, typical, prevailing, going or otherwise termed commission that is the generally accepted norm for a given set of services provided by a real estate licensee representing a consumer, at least within a general price range for the real estate considered. There shouldn't be anything wrong with talking about that, only with using such talk to manipulate a consumer to thinking that rate is not negotiable on a case-by-case basis (which by law of course it is), or of course, if you're Greg Hackman, refusing to act according to the Code of Ethics and legal fiduciary responsibilities all agents have, regardless of the compensation your competition charges its clients. For all that, most practitioners will tell you they are not (at least under the COE) required to show any listing that does not offer a co-op commission percentage to their liking, though I don't believe that anyone can hide behind the COE or any legal defense to not show the listings of their seller clients to a "discounter", or anyone else.

Unnoticed news: Mortgage Insurance Deduction in 2007 - but does it Matter?

Gabriel Silverstein, SIOR (Angelic Real Estate) — Wed, 27 Dec 2006 18:48:00 -0600

There were only about three blogs I saw on this on all of ActiveRain since this was signed into law on the 9^th of this month. The headline catch is that mortgage insurance premiums will be tax deductible in 2007, but wait, there's quite a catch.

Firstly, the full deduction is only available to those who make $100,000 or less. Also, and this disqualifies so many in that category, it doesn't help if the taxpayer doesn't itemize and instead takes the standard deduction. The article I read on it quotes an economist (yes, they even do this simple folk practical kind of math sometimes) as determining that this requires a loan of at least $130,000 (to have enough interest expense to make itemizing more valuable than taking the standard deduction) and also that this then makes this really only available to people that make between $50,000 and $100,000 (implied but not stated in this last bit is that anyone making less than $50,000 can't qualify for or afford a mortgage over $130,000). At least nobody can say that this administration isn't doing anything for the "average Joe", since that's clearly who benefits most from this legislation.

The mortgage insurance industry supposedly thinks this will save American homeowners $91 million next year. Based on the framework of my last paragraph, I highly doubt it. That said, for someone who fits within that framework, there is not only a benefit, but a very important consideration for how to finance a home, whether a new home a refinancing: it may be more cost effective now to do a 90% LTV loan than an 80/10 structure that avoids the mortgage insurance by keeping the first mortgage under 80% (the threshold at which mortgage insurance becomes required by the lenders). For those who have clients putting very little down (5%, 10%, 15%) this is something to make sure they explore, before their mortgage guy just puts them into a less tax efficient 80/10 or similar structure. Of course, if you are a mortgage broker, this is a good thing to present to your clients to look smart and save them money, and maybe even save yourself some hassle by just doing one loan instead of two.

By the way, the law has to be renewed next year to be in effect for 2008, so there is a risk, even for those that do qualify, that if the law isn't renewed for some reason and they are a year from now in a loan with mortgage insurance based on this calculation, that they are stuck (interest rates are likely going to be higher) with no more deduction and a loan they would have done differently. I think it seems likely to be renewed, but I don't know if I would feel as good about it if I was in the category of those that make a decision based on getting this deduction.

The Michigan Avenue Penthouse View Indicator Says Mortgage Rates Hold Off on Increasing...

Gabriel Silverstein, SIOR (Angelic Real Estate) — Tue, 26 Dec 2006 15:36:59 -0600

You may have heard of the Alan Greenspan "briefcase indicator" which suggests whether the discount rate is going higher, lower or staying the same based on which briefcase he walks into the Federal Reserve meeting with (or how full it is). At Angelic, we have our own indicator, what we see out our windows overlooking Michigan Avenue. Lately, it's been a not-so-good story for retail sales, and that, in turn, should hold interest rates down.

Most mortgage brokers have been seeing a boom in refinancings lately, but they also see a potential end to that boom in the very near term. Rates are anticipated to rise in 2007, bad news for mortgage brokers, even worse news for REALTORS hoping the housing market is going to pick up from a down year in 2006. Higher interest rates help hold down the property market as monthly payments rise for the same given price of a home, making homes less affordable at the same price point and often driving buyers out of the market or to lower price points.

That said, the NAR recently issued a report entitled something like "Now is the Time to Buy" based on the combination of low interest rates (currently the lowest in nearly a year and still near 45 year lows) and the depressed asking prices for homes on the market.

As Enoch looks out our windows over Michigan Avenue and Rush Street, there really hasn't been much for him to see the past week, when normally it should be mobbed with shoppers rushing around in advance of the Christmas holiday. Even if not before the 25^th, certainly for today, the largest shopping day of the year to return things and one of the largest to buy (since everything is now on after-Christmas sale) it's quite bleak out there. I just took the photo of Michigan Avenue and Rush Street, the heart of Chicago shopping, a few minutes ago, and it's been like this for days - plenty of cars, but not many people on the sidewalks (sorry for the glare, it's finally nice and sunny).

According to MSNBC's recently released report on the day's trading, bond prices ticked higher (lowering interest rates) and early reports from MasterCard show a 6.6% rise in year-over-year sales between Thanksgiving and Christmas, whereas last year's holiday shopping season saw an 8.7% rise over two years ago, and that wasn't considered a fantastic year.

If this continues, I would expect that market concerns over higher interest rates coming soon might cool off, lowering interest rates a little and holding them for a while longer. Maybe the NAR was right - now IS the time to buy.

Realogy (the Cendant spin-off) Going Private…for now

Gabriel Silverstein, SIOR (Angelic Real Estate) — Thu, 21 Dec 2006 09:02:58 -0600

Realogy, the world's largest real estate franchisor, made a very quiet announcement Sunday, that they were being taken private for approx. $9 billion, an 18% premium for shareholders to the then-current trading value. They are being bought by private equity firm Apollo. It almost make it under the ActiveRain radar but for blogs by Lawrence Yerkes, Michell Hall and Ken Stampe that seemed to get very few collective comments. Amazing, given their being the master franchisor for some of the biggest brands in the industry, including Coldwell Banker and Coldwell Banker Commercial, Century 21, ERA, Sotheby's and others.

I've often wondered why they never made a push to combine their differently named competitor companies, but that's a much longer post. Regardless, as the parent company they were a pain in the butt to deal with and had none-to-friendly a reputation from most of the rest of the industry (from what I've personally heard and experienced). The only positive comment I saw on this deal so far (except from Realogy and Apollo) was from a principal broker at Coldwell Banker Commercial who seemed excited that the commercial side of Realogy's business will be given more attention now.

What jumps out at me is that the company, which has only about $1.6 billion in debt today plus other liabilities of $750 million, is being bought with about $7 billion in debt (get out the corporate credit card for this one!) and only $2 billion in equity. JP Morgan, Credit Suisse and others are in on the debt side. That's an awfully high level of debt to me, especially in a weakened (note, not weak) real estate market, for a player that's stuck to the most old-school of business models in their franchises (and had Re/Max, Keller Williams and others take massive market share percentage away in the past decade or two). That's not to say they still aren't profitable, just that they seem to be riding this one all the way into the ground one way or another. According to their SEC filings, Realogy's revenues year to date are down 10% from the same time last year (through the third quarter 10-Q) and profits are down a cool 30%+...not a good trend to be buying into - I sense a further spin-off, if not the re-IPO, maybe of the individual brands (or even that unfathomable combining of brands)? Immediately following the announcement S&P dropped Realogy's debt rating to "junk" grade (BB+, from a barely investment grade BBB before the announcement).

It's a great deal for the shareholders, who, again, get an 18% pop on their share price (and almost 30% on the average price since the August 1^st start of trading of that firm spun off of Cendant). I just don't know where the upside is. Private equity firms like Apollo are certainly moving and shaking the real estate world, though. The far bigger buy-out of late was Blackstone's $36 billion (yes, that's four times this deal) buyout of Sam Zell's Equity Office Properties. That one was in the past two weeks as well, in a year where private equity firms, led by Blackstone, bought out quite a lot of publicly traded REITs.

On a much smaller note, Italian investor IFIL acquired a 2/3 stake in one of the bigger commercial real estate companies, Cushman & Wakefield, on Tuesday, for a more palatable $563 million.

Where is all this money coming from, and is there a bubble here somehow? I just wonder how long this deal can stay private with that high a debt load before they have to go back to the IPO market to bail them out, which is not an unheard of move for a private equity firm on a deal like this. Oh by the way, Realogy has the right to shop around for a better deal until Valentines Day, so if you're interested in buying a dinosaur for something over $9 billion, throw your hat in the ring (note: Apollo gets a $100 million break up fee if Realogy accepts a different deal, though).

I still wonder what this will end up resulting in for the well-known Realogy brands. I'm quite certain it won't be business as usual, despite the letter they sent to their franchisees (see Michell's blog post link above).

Is Full-Service Discounter an Oxymoron?

Gabriel Silverstein, SIOR (Angelic Real Estate) — Sat, 16 Dec 2006 11:34:07 -0600

Is sounds like it at first, but think about it for a second - not necessarily. When "full-service" agents talk about "discounters" they seem to think they might not be talking about some of their own. The DOJ suit against the NAR makes me think again about this. Michael Parker's post yesterday touches on it as well (more in the headline than the rambling text, though he makes great points anyway in assembling quotes from others).

Discounter means one that offers services (of some sort, we'll get to that) for a lower price than the norm. While it has become synonymous with the thought that the services being offered are less than that of the services the "full price" providers, that isn't implied in the name itself. Dollar General might be a discounter that offers lower end products, but Wal-Mart, also very much a discounter (the largest in the world) offers a range of quality that is quite high, often higher than most of the non-discounters (and other discounters) it seems to be putting out of business. After all, I can't say that getting apples at the Wal-Mart Neighborhood Grocery Store for less than Ralph's or Winn-Dixie or Dominicks means that I get only bruised and dried up apples at Wal-Mart. They are the same apples, they just cost less.

Enter the internet to the world of real estate home brokerage (I focus on homes because internet based models have not succeeded well in the giant corporate leasing world, though they have for smaller commercial space, commercial space in smaller markets, and commercial space for sale via LoopNet). Most REALTORS think of the discounters as Zillow, Redfin, BuySide, etc. By the way (before David from Zillow jumps in) if you think these are all the same, or even close, you'd better go onto their sites and compare what they really do. There are discounters that provide little or no services, and those that provide truly full service, they just charge less or offer rebates.

The internet is a wonderful, powerful tool. For anyone in almost every business in the world, it can be an enabler, and in many ways a cost-reducer. It has made more information available, cheaper, faster and better distributed than ever before. The realm of the REALTOR in part used to be the power of information that the market didn't know about, with agents walking around lugging large books of printouts for every listing in the area. This is long gone. Now the traditional agents want to keep getting paid the same general commissions they have been paid for years, while being able to better (and cheaper) market their listings (if a listing agent) and better (and again cheaper) find available homes to show (if a buyer's agent). If the cost of operating and performing ones job goes down, it is only a matter of time before the market forces step in and find people willing to make the same amount as before by passing on that operating cost savings to customers. Oftentimes I believe the people that do this are actually using this as an opportunity to make more money than they could before, because they weren't the top agents in the old model, but they see the chance to move in, offer services for less, and capture market share they couldn't get before. This does not, though, mean that discounters are all the lower-end, would-be-washed-out/couldn't-make-it-before agents. In fact some of them are the best agents around, those that saw the opportunity to make even better margins, and capture even greater market share, so they are the number one agents by an even bigger margin. Those are the true geniuses.

If you are a "traditional" agent and you think discount pricing must mean discount service, you'd better rethink that and look around. I believe you get what you pay for and I've never discounted my prices for that reason. I think it's a slippery slope that once you're on, you can't stop the sliding. Full service and discount are not mutually exclusive, though, by any means. If you are a full-price provider, to counter full-service discounters, you have to provide more-than-full-service if you want to justify more-than-discount pricing or better full service. Don't forget Wal-Mart. They provide just as much (or more) than the stores they replaced, and they do it for cheaper. There will always be a place, though, for the higher end (priced) boutiques. That doesn't mean that the boutiques will always have as big a market share, or a share of the same market.

Why the NAR will Win the Battle and Lose the War

Gabriel Silverstein, SIOR (Angelic Real Estate) — Thu, 14 Dec 2006 19:50:48 -0600

The NAR is under fire, sued by the Department of Justice (DOJ - the government's prosecution arm and one of the enforcers of the Sherman Anti-trust Act). Despite what it is being portrayed as by the Department of Justice, that NAR/MLS policies are anti-competitive and negatively effects consumers by hurting discount broker operations, this is NOT what the actual suit is about. Reading the actual documents (a DOJ press release following their win in the appellate court - a win the NAR expected them to get) and the court's ruling itself, it is clear that the suit is really focused on attacking the policies which allow VOW opt-out by listing brokers, so that VOW sites (whether at a discount broker or not) don't show certain listings. DOJ is only allowing it to be portrayed as anti-discount model for public sentiment reasons. In fact every full service firm that has a VOW link on their site also feels the effects, because any opting out keeps listings off all brokers' VOW sites, not just the discounters.

To illustrate my point, here's just one line from the DOJ press release: "NAR's policy enables traditional brokers to exercise an "opt out" right to block their competitors' customers from having full on-line access to all of the MLS's listings." Yes, that's true, but that is not in any way preventing customers/consumers from having access to the MLS data, only allowing certain listing brokers to themselves elect not to let their sellers get that exposure. That's like the DOJ mandating that we all list all our listings on Zillow.com because not doing so is inhibiting the consumers' ability to find out our listings exist, and that it would actually be illegal if we didn't do that. HUH!

Legally, I believe that the NAR and the MLS services have every right to exclude anyone they want (and to let listing brokers opt-out), including certain of their own members, so long as their rules are not discriminatory in a way that violates civil rights. In fact, it isn't even the MLS that's excluding someone, it's the listing brokerage firm that opts out of the VOW program. Just to give the DOJ's PR spin it's due, to me that still holds even if it was really just that refuse to allow "discount brokers" to participate in the MLS VOW programs. That, to me, is their right. Don't forget that the NAR, just like the local country club, is a private trade organization with paid membership requirements to benefit. They have the right to set their own internal rules, just like the country club can have a Men's (only) day on Monday and a Ladies (only) day on Tuesday.

That said, the appellate court's ruling noted a the case of chiropractors against the American Medical Association for similar practices in which the chiropractors won. I do believe there are differences, though, to that case, as I think (don't hold me to this) the AMA was refusing to allow chiropractors to join the AMA even if licensed as medical professionals, whereas I'm not aware the NAR is refusing membership to anyone, discounter or otherwise.

More importantly, though, to me there is a different issue ultimately in play here. The lawsuit may be about what the NAR & MLS services must legally do (and what their obligations are to the general public vs. their members). However, the most important issue that the NAR might be overlooking here is what smart business practices dictate (i.e. Adam Smith's "invisible hand" of market competition, not the iron fist of the DOJ). I believe the NAR will prevail against the DOJ's suit in the end, but I think they are very likely in the meantime to lose the war and further hurt the less-than-optimal public view of REALTORS (which I don't personally share, but which surveys suggest some people think less of real estate agents than even lawyers - ouch). If the DOJ has John Q. Public convinced that we (yes, if you are a REALTOR you are part of this) are acting against the public's best interest, how receptive do you think he's going to be to hiring you?!

Because of this, I think the MLS policies might need to be looked at very differently. As the largest trade organization in the US, the value of the trademarked REALTOR brand is at stake here. Realtor.com may be the biggest (?) internet site for public property (home) search, but it won't be if the public perceives that they are not the most complete source of information, or that they are discriminating against someone (whoever that really is). Enter Zillow et al.

Market based decisions are not always the same as legally defendable decisions. OJ got a "not guilty" verdict in court, but not outside of that courtroom. Ask him how it feels to win the battle and lose the war (remember he's supposedly been bankrupt since). I hope the NAR doesn't realize that too late.

BONUS THOUGHT - I think the DOJ is playing the PR game to get enough anti-NAR sentiment from the public to scare the NAR into being strong armed into a settlement that is well short of what the law allows (which should be, again, no change at all). This is exactly where the NAR is losing the war, the REAL war, the one about the public image.

AFTERTHOUGHT (which I noted in the comments following my next post) - if it is illegal for brokers and agents to talk in the context of "market" or "standard" commissions, how can the DOJ then call anyone a "discounter" because to be a discounter means a discount from something...like a "market standard" commission!

Best Offer Pricing - there’s more than one way to skin a cat (well, the MLS)

Gabriel Silverstein, SIOR (Angelic Real Estate) — Wed, 13 Dec 2006 20:46:36 -0600

So Broker Bryant says his MLS won't allow effective use of range pricing anymore (by forcing the listing to be listed at the high end of the range, not the low end). I completely agree with him that this is an anti-consumer action and I think that frankly it goes against the NAR's own Code of Ethics as such. That sentiment aside, here's my next idea if I get shut down on range pricing in our fair (windy) city: best offer pricing.

Here's my outline on how to do it. Take the low end of the range price strategy and the list the property at the low end on the MLS. Since your intent (and the seller's) is to end up higher (not lower) than that number, state that this property is priced for best offer and that offers at $X [the stated listing price] will not be considered full price offers. This is relevant, as you don't want someone giving a no-contingency offer at the listing price and claiming they are owed a commission for presenting a full-priced offer per the listing. I don't know that there is a legal obligation to state a specific price at which an offer is considered full price, but please enlighten me someone if there is.

The only thing I haven't solved (again, input please) is whether there is any legal obligation to state an outside sales date for the acceptance of offers (i.e. some future date at which the seller must commit to accepting the highest offer in hand). I do not believe there is any such obligation, as all offers are invariably subject to differences, from close dates to financing contingencies, etc. and therefore no two can ever be truly considered "apples to apples". For large investment brokerage deals we've had the sealed bid style process in place since the advent of, well, investment brokerage, so there is always a deadline for bids, but that's a little different because the universe of potential buyers is less time sensitive and more easily captured in one moment for the sending of the offering memorandum. This is a slight derivative of that, without the need for an end date, or again, so I believe.

A start to this strategy was highlighted last week in a sellsius blog, conveniently about a listing in the Chicago area (our home market). This one had a $1 listing price and a statement about best offer. I don't like how that doesn't capture the important bracketing concept for search parameters, especially for higher priced properties, so I disagree with that application of my concept. Other than that, I think it's a strategy whose time has come, and for hot markets that regularly have multiple bids over the asking price, it's what's really going on anyway.

A Brilliant, High-Profile Community Involvement Opportunity

Gabriel Silverstein, SIOR (Angelic Real Estate) — Mon, 11 Dec 2006 00:43:30 -0600

For those that aren't in the Chicago area, the Chicago Association of REALTORS has one of the most brilliant marketing opportunities out there for member agents. The funny thing is the idea almost didn't fly - because they didn't see it as a marketing opportunity when they first started it. Then lightning struck (I believe from a guy named Ted Cucuro (who is with Sheldon Goode & Co., the auctioneer firm).

Years back Ted got a call from someone at CAR asking him to contribute some money to a cause - a local school project. Being a generous guy he was willing to do so (it was something like a few hundred bucks) but he asked what the point of it all was. Apparently CAR was in a bind because they couldn't get enough agents to sponsor an essay contest at a few local schools. Ted saw the brillance of the thing, pointed it out to CAR and it's been sold out for years, with a long waiting list. Here's how it works:

One member of CAR per school in the Chicago metro area sponsors a once-a-year essay contest for the school entitled (I think) "Why I want to own a home when I grow up". The title makes the obvious tie to the REALTOR sponsorship. Now the drudgery of it is that the sponsor is required to read and judge all the essays, from second graders I believe. That can be hundreds of essays! Patience, though, folks, there's a payoff.

The sponsor's money pays for a prize of some nominal value to the winner (maybe it's even the top three winners?). The sponsoring agent, though, presents the winner award(s) in front of an audience of the entire second grade classes and their parents - all of them, of course, potential clients. This is the payoff. The sponsoring agent gets exposure to the parents of every single second grader in the school, EVERY YEAR (sponsoring agents get first dibs to renew their sponsorship if they choose each year). How's that for community involvement and great (almost) free exposure. One client a year pays for the time and money several times over.

This is easy to duplicate in every market in the country. It's easy to do in more than just this way, too (schools are an obvious one, though). This could be expanded to have a follow-on sponsorship of, say, a $500 or $1,000 college scholarship for a similar essay contest or someone that says they are interested in entering the real estate industry (it doesn't have to be for a four/five year institution). This gets the exposure then again at the "kids moving out" stage in life 10 years later. There has to be dozens of other iterations on this, all of them low cost, easy, valuable and appreciated to the community and far more effective than another couple rounds of postcard and flyer mailings. It's easy to get involved, and noticed. Of course, please share other similar great brainstorms and variations on this theme.

SEO Googledygook - a/k/a The Algorithms of PageRank, etc.

Gabriel Silverstein, SIOR (Angelic Real Estate) — Sat, 09 Dec 2006 15:57:37 -0600

Does anyone know what an eigenvector is? If not, I think I have found a great paying job for all the unemployed and underemployed mathematicians out there (even as a night job for all those working as university professors): SEO consulatants. Most SEO consulatant have lots to say and little to back it up with. For a refreshing (if mind-boggling) contrast, check out this article of the month on the American Mathematicians Society web site.

The aforementioned eigenvector (plus stochastics, and other fun math terms) are all set forth brilliantly by this article's author, David Austin of Grand Valley State University (100 ActiveRain points to the first guy that tells me where Grand Valley State University is that doesn't look it up on the internet before answering). I had just about solved for "S" in the formula above as it related to our website Angelic-RE.com when I crashed my computer by loading in too big a formula. I guess one needs a Cray 2 or similarly large bank of servers...like Google of course has.

Nonetheless I haven't given up hope on SEO. angel and I checked Google and MSN the other day and for several different search strings (including my name, plus a few key strings for our market) we ended up in several of the top five spots, even all five I think on one of them, four out of five on some others. Funny, since our sites (AngelicRealEstate.com, Angelic-CRE.com and the previously noted Angelic-RE.com) ALL HAVE A PAGERANK OF ZERO?! (note, to check pagerank, just get the Google toolbar or go here). I've spent time in forums and reading blogs about this, from the top guys in the business like Matt Cutts of Google to some guy in a town of 263 people in northwest British Columbia that can't stop bragging about how (after nine months of setting up reciprocal links to every web site that will take him) he comes up #1 for the search string "Mooseville real estate". Impressive...

Here's the little bit I've figured out, which really comes as no surprise to me:

1. Good, fresh, relevant content, especially that contains your desired search string of words, beats all other SEO strategies I've heard of hands down. By the way, for those that spend all their time trying to enhance their web visibility, with nothing behind it, that same relevant content might actually give a potential client a reason to call you, instead of just clicking the back button on their browser to find a site with relevance to them. Yes, it really is all about content. Go figure.

2. Give up on the reciprocal link thing. An SEO executive that touts it even admits "it's pure drudgery" - and that's from a company that does it all day long to website after website. Think about it this way, you can spend all your time creating reciprocal links to nowhere to get more incoming links to your site, or you can just spend half the time (and little if any of the money) creating content that other people will link to (called "link bait" by the SEO types). Besides, when people do find your site...refer back to #1.

3. Blog, blog, blog. Nothing creates link bait and good relevant content faster and more frequently then blogging about relevant issues to your target clientele. Make sure to intentionally drop your favorite relevant search strings into the text (but creatively, so they aren't out of place). This makes the search engine robots and spiders that read and re-read your site day after day think that must be what your site is really all about. Don't forget to register your blog at places like Technorati, Pingoat, Digg, Reddit and others (I haven't done this yet, but plan on it...when I can break away from blogging long enough to do it). Thanks Barrett Niehus for the recent blog that mentioned some of those. To check how relevant your search string is, go to anywhere Overture's keyword tool is and it will tell you how many people searched a particular string in the past month.

4. Now link to your own blog and site in other blogs you have (like on AR) or when commenting on the blogs of others (note: don't spam people's blogs with garbage responses just to link back to yourself). This creates just as many inbound links to your site as the reciprocal linking does, and it does so in a relevant way, to specific parts of the site, something I guess the search engines like (meaning don't just link to your homepage over and over - link to your blogs). Enoch's blog and his photo album on our site have an enterntainment and consumer focus, whereas this AR blog is about industry stuff, but there's reasons to tie them together from time to time, to the SEO benefit of both. If you want to see how many inbound links there are to your site out there in cyberspace, go here.

There you have it. A whopping two months of learning in three minutes. How does that make me any kind of an expert? - it doesn't. Neither are most of the others out their that call themselves SEO experts, though, and at least our sites are all showing up top five (multiple times) - how many SEO companies can say they are top five in the search string "SEO experts"?! (the answer, of course, is only five - duh!)

What's most amazing is that my ActiveRain profile comes up first in each of our key search strings - BEFORE ANY OF OUR WEBSITES. I guess maybe the simple thing to do is just keep blogging away on AR and forget the rest - obviously they have a few mathematicians of their own in the back working this out for all of us!

Bracketing, Range Pricing, and the Powerful Combination of the Two.

Gabriel Silverstein, SIOR (Angelic Real Estate) — Mon, 04 Dec 2006 10:29:40 -0600

Alternative title: how to avoid 9-think. REALTORS think in 9s ($879,900, $899,990, etc.), except Angus, who likes to think in 812s. Real people, however, think in round numbers, generally zeros and fives ($890,000, $900,000, $875,000, etc.). Since we all know now that most buyers first look for properties on the internet, and that about a quarter of them actually first find the home they buy online (before their agent shows it to them), we need to think like buyers just a little more when listing homes.

I'm quite enamored with Broker Bryant's range pricing strategy and it's results. One thing the odd sale price misses, but the range pricing can be enhanced by, is bracketing. This very effectively targets buyers, and generally even their agents. I must admit that at first I thought range pricing meant bracketing (oops!). As a seller, with a less-than-creative REALTOR (actually two before I listed it myself) its seemed strange that I came up with bracketing idea myself and that my listing agent had no idea what I was saying when I first outlined it.

Here's how it works. Pretend you're Mr. Need A. Home and you're doing your internet research. The search pages you're on want to know what the high and low price points are. Do they ask you for $349,900 to $369,900 or $350,000 to $370,000? (It's the latter for those that haven't looked on these sites.) For bigger values, they start putting in bigger breaks, like $25,000 increments instead of $10,000 (really high values start getting into $50,000 and $100,000, or even $250,000 jumps). Even when they let the consumer enter their own number, I know there is only one person that enters $359,812, everyone else uses $360,000. If they really understood REALTORS well, they'd enter a search string range of something like $349,900 to $370,000, but that's putting too much responsibility on the consuming public to play phsychoanalist to the industry.

What's funny is that most agents don't even account for the 9 phenomenon in their own search strings, and still put in the same $350,000 to $370,000, or $375,000, just like their clients ask (and do themselves). Smart REALTORS, of course, drop down to the lower 9 on the bottom end.

Now, if you're Sella Lot, REALTOR, you might be caught up in the way you were always taught to list houses - like the guys that sell cars (sad parallel). $29,999! (yes, that's the car, by the way, unless you're in a really depressed housing market and selling an outhouse.) It's more like $299,900 for the house. Why not $300,000? Because that's how you were told to do it by Mrs. Longinthetooth that used to mentor you before this internet age came about.

Why so much hassle? Just make it easy on everyone, AND GET YOUR LISTING SEEN BY MORE PEOPLE by bracketing. Always using the $xxx,000 ending helps, but better still, make it at an even $10,000 or $25,000 bracket break point (depending on how pricey the home is). This gets your listing to come up on the top and bottom end of searches, as well as in the middle. If you're listing is $549,900 it will come up for those searching $525,000 to $550,000, but won't show up for those looking in the $550,000 to $575,000 range. Sad, since that $100 difference just cost you the chance to get double the exposure. What's worse is that the exposure you lose is the one that's worth the most - being the lowest price in the higher search range, THE VERY FIRST ONE THEY WOULD SEE (if only you avoided 9-think and instead used bracketing)!

Now put it all together, range price the listing, but not from $349,900 to $369,900, range price it from $350,000 to $370,000 (with all the appropriate comments Bryant notes in his posts) and watch it sell in half the time! Explain this strategy well to a seller and you'll look a lot smarter than the guys you are competing with for the listing that are all going off the cliff like lemmings with their unthought out 9-think. That will get you more listings, too, as well as move them faster.

Why are you afraid of the Big Bad FSBO (& those internet companies)?

Gabriel Silverstein, SIOR (Angelic Real Estate) — Sat, 02 Dec 2006 16:50:36 -0600

Quick, everyone on the bandwagon...no, HOLD UP A SECOND! This is my second and final post about the interesting statistics and insight that the recent NAR survey of buyers and sellers REALLY gives.

"NAR began tracking the FSBO market in 1981; the record high was 20 percent in 1987...A downtrend in the number of for-sale-by-owner transactions is clear, currently at a record-low market share of 12 percent...In addition, a higher share of FSBO properties are not placed on the open market - 40 percent of those transactions were "closely held" between parties who knew each other in advance (family or acquaintances)...When you factor out the properties that were not placed on the open market, the actual number of FSBOs is only 7 percent - the rest are simply unrepresented sellers in private transactions." [I took cut and paste liberties with two paragraphs there to put the same information in a more relevant order than the report did]

What does that say? I'll tell you what it says - despite the internet and all the FSBO enabling it does, etc., etc., blah, blah, blah, there are less and less FSBOs than ever, and nearly half of those don't really count, because they weren't going to hire an agent to do a deal with their brother (for example - though I think many of us could say we'd do that for family harmony!). I will only counter my own point with the thought that discount brokerage services are (I believe) on the rise, taking away market share not from agents, but from the traditional FSBO market, which to me makes perfect sense, as again, those people were pre-disposed towards something other than a full-service agent and now they have a choice of a limited service discount broker model vs. only FSBO. These are the guys, though, that have terrible customer dissatisfaction problems ratings.

Now here's a really notable set of stats about the internet, which so many REALTORS and other full service agents seemed a but on edge about:

"When asked where they first learned about the home purchased, 36 percent of buyers identified a real estate agent; 24 percent the Internet; 15 percent from yard signs; 8 percent from a friend... Eighty-one percent of home buyers who used the Internet to search for a home purchased through a real estate agent, in contrast with 63 percent of non-Internet users who were more likely to purchase directly from a builder or from an owner they knew in advance of the transaction." [emphasis mine]

Read that one more time and pick this up - those that use the internet are far more likely TO USE AN AGENT than those that DO NOT use the internet. This, despite the fact that only 24%, less than one in four(!) first found out about the home they bought from an agent. Translation: most people find out about the home they buy from some place other than their agent, yet they still use the agent, and additionally, those that search around on the internet are far MORE likely to use an agent than those that don't, despite all the hype and fear (within the industry) of the internet companies replacing agents. If anything the internet is feeding MORE (!) business to agents than before.

My last comment is this - don't twist and misquote this statistic, please, PLEASE (I have before done that having been given it wrongly by someone else and not having read it for myself). Per the survey, the average home sold without an agent was 31.9% lower priced than those with an agent, and in the prior year's survey that number was 16%. The article doesn't quite make it clear enough, but THIS IS NOT SAYING THAT AGENTS GOT/GET 16%/31.9% MORE THAN FSBOs. That is a separate study that I do not believe the NAR has done to compare "apples to apples" for prices achieved, time on the market, etc. I wish they would do such a study, and since they started tracking discount brokerage models now for the first time, perhaps they should compare their results as well.