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Mortgage Mania - Part 5 in a continuing series

June 8th, 2007 · 3 Comments

If you have been following the Mortgage Mania saga on 3Oceans which looks at how fallout from the increasing numbers of homes bought with subprime loans are going into foreclosure, you might enjoy this tidbit from an article posted on Inman News on Tuesday. . .

Speaking via satellite to the International Money Managers Conference in Capetown, South Africa on Tuesday, Fed Chairman Ben Bernanke forecasts a slowdown on the nationwide housing industry as a result of tightening lending restrictions.

Excerpt from article:

“Tighter standards in subprime lending — along with bad publicity that may keep eligible borrowers from applying for loans — will continue to restrain demand for housing, Federal Reserve Chairman Ben Bernanke told international bankers Tuesday.”

Click here to read the complete article.

We are seeing it here as well. A couple of loan instruments that were available to an investor that I work with a couple of months ago are now gone. That hasn’t prevented him from being able to buy that million dollar fixer upper, but the increased carrying costs of his purchase are cutting into his profit, making “deals” harder to come by.

If you have been planning to purchase a home, and you are now finding that you qualify for less, or that you can’t qualify, post a comment and let me know.

Thanks for reading . . .

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Tags: Real estate

Are Newspapers Dead?

May 17th, 2007 · 9 Comments

I wanted to have a compelling title for a little experiment I recently did with my listing at 206 Palmita Place in Downtown Mountain View. It’s a newer construction home and I thought the location and price would appeal to couples or small families. Based on that demographic, I assumed more people would be searching for homes online, so I built a custom website for the house, and posted links to it on a number of real estate websites in addition to the ones like mlslistings.com that link to data on the MLS.

I also followed conventional wisdom and ran ads in the Palo Alto Weekly and Mountain View Voice newspapers, and an entry in the Open Homes Section of the San Jose Mercury News.

I then did some informal polling at the various open houses, asking visitors where they found out about the open house, leaving it as an open ended question. I also tracked hits to the website and looked at who the referring domains were. I found the results interesting and surprising.

Where did they come from?

Over the course of 4 days of open houses (Thurs and Fri evenings, Sat and Sun afternoons) we had 135 groups of visitors through. Of these, only 2 said they came based on the ad in the MV Voice, 1 from the Palo Alto Weekly and 1 from the SJ Merc. Another 11 groups had seen the open house directional signs (I blanketed the neighborhood) or the For Sale sign in the yard as they were passing by. That’s 14 out of 135 groups, or about 11%. The other 89% of visitors either found the listing online or were referred by their agents.

Online sources

I also tracked where hits to the website came from. There were over 2200 hits to the website, and initially 70% of those came from Movoto which is an online real estate information / referral site. After the first two days, mlslistings.com caught up, and after the first week was the source of about 70% of the hits. The house went under contract after a week, so I stopped tracking then.

While I admit that I am biased, I have had a theory for a while that newspaper ads for listings, especially in Palo Alto and surrounding communities, are more for advertising the agent and getting him or her more clients than getting potential Buyers into your home.

The National Association of Realtors estimates that 74% of home buyers begin their search for a home online, and the estimate for Silicon Valley is 92%. I’m still running an ad for my new listing in Redwood City, but it is only 1/4 page and that is because the sellers believe that potential buyers read the paper. I am also flooding the internet with placements and links, and I’m trying an experiment by posting the home on Zillow as well. It’s another experiment, and I’m partially doing it to get under Kevin’s skin as Zillow is a hot-button for him.

I’m tracking the marketing response on the Redwood City house as well, and I’ll do a post on the results from that when it goes under contract. In the meantime, I welcome your comments and hope for a bit of banter on online vs. print marketing.

Thanks for reading.

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Tags: Real estate

Glenn Kelman and Russell Shaw: Flip Sides of the Same Coin? (AKA The Genius and the Tension in Redfin’s Business Model)

February 18th, 2007 · 10 Comments

Glenn Kelman (Redfin) and Russell Shaw -- Flip Sides of the Same Coin?Apart from both being in the real estate business, what could these two polar opposites — Glenn Kelman, Redfin CEO and industry maverick, and Russell Shaw, mega-producing Phoenix Realtor — have in common? On the surface — nothing, especially when you consider that Russell has been in the business for more years (29, I believe) than Glenn has months (about 13).

Here’s one thing they do have in common: they both aim to move a lot (and I mean a lot!) of real estate. Russell and his team currently sell about 400 homes per year but they’re aiming for 2000. The number of transactions Redfin has had is not public, but however many it is, they certainly also have ambitious expansion plans, including a future foray into Chicago, Boston, and D.C.

How do you do this many transactions? How do you scale any business, for that matter? It’s simple (but not easy): you find ways to outsource and you find ways to become more efficient. And here’s the other thing they have in common: they’ve both found ways to do these things…Russell primarily on the listing side, and Glenn primarily on the buying side.

Russell has apparently built his business the traditional way most large-scale brokers have, by leveraging the natural advantages of the listing agent in this business. You get a listing, put up a yard sign, toss it in the MLS, throw a couple ads in the paper, do an open house or two (or, more likely, get some other agent to cover for you)…and then have dozens of other area agents (your competitors) show the property to their clients and (hopefully) find a buyer for you. Sweet deal. Because of the way the real estate industry is structured, one listing agent can handle perhaps 10 or 12 listings at a time, and if you hire an excellent assistant that number can easily double.

You outsource much of the work to get a home sold to your competitors (for which you compensate them through the “co-broke”) and you increase efficiency by specializing within your team. Russell, for instance, appears to have 12 people on his team. Two of them are “listing specialists” — which I presume means their job is to go on as many listing presentations as humanly possible. They’re really good at it, and every listing they get, they probably hand it over to the “seller consultant” and “listings manager.”

Russell’s team also has three “buyer specialists.” Their job is (duh!) to service the buyers. But here’s the rub: achieving scale on the buy side is much more difficult. A really good full-time buyer’s agent, whose job is nothing but previewing homes and then showing them to the buyers, can perhaps handle 4-5 concurrent clients — and that’s a stretch.

Enter Glenn Kelman and Redfin. If listers can outsource a good portion of work to other agents, why can’t buyer agents also outsource? They can, and Redfin does — to its clients and to its competitors. The buyers themselves do much of the work that a traditional buyers’ agent would do — namely, keeping up with the MLS and viewing homes at open houses, in exchange for which they get compensated by getting a piece of the commission. The sellers’ agents, on the other hand are enlisted (often against their will) to show the properties when there isn’t an open house, in exchange for which their compensation is…absolutely nothing (except avoiding appearing on the “hall of shame.”) Now the buyers’ agent’s job is mostly at the back-end — consummating the transaction — and, voila! now you can scale the business. A Redfin buyers’ agent can probably handle as many concurrent clients as a smoothly running listing agent can: around 10 or 12.

Therein lies both the genius and the tension in Redfin’s business model. The genius is in recognizing that the Internet makes it possible for buyers to do a chunk of the work themselves, but the tension comes about when Redfin — without any compensation — outsources another chunk of work to its competitors.

The other problem is whether Redfin will ever achieve enough profitability to cover the costs of its smart programmers. We’d need more numbers to figure out exactly how many transactions Redfin will have to do in order to go cash-flow positive, but whatever that number is, it’s got to be pretty big.

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Tags: Business of real estate · Glenn Kelman · Real estate · Redfin · Russell Shaw

In dentibus anticis frustrum magnum spiniciae habes*

February 4th, 2007 · 9 Comments

Sufficiently warned by Michael Price about the quality and content of entries submitted to this week’s Carnival of Real Estate, let me dispense with my gratuitous Latin phrase by boldly placing it in the title…and assuring you that my post has absolutely nothing to do with spinach in your dentures.  It’s just that I couldn’t find a Latin translation site that would reliably render the following headline: Creative Internet Advertising Your Broker Never Thought Of.

One of the first things you learn from many of the old-timers in the business is the importance of listings, for at least two reasons:

  1. Your “sales force” — the other agents in your area, some of whom may have competed with you for the listing — does much of the legwork of showing the property to prospective buyers.
  2. Having a listing gives you an “anchor” from which to further advertise yourself: an ad in the paper, a sign in the front yard, a brochure, a neighborhood mailing, an appearance in the MLS. This may well lead to further business for you…and as a side benefit may even help you sell the home.

The buyer’s agent, alas, has no such anchor. The fact that I represented the most recent buyer of 123 Main Street doesn’t offer a good opportunity to advertise myself. The new owner — my client — is unlikely to allow me to put a “Buyer Proudly Represented by” sign in his front lawn for too long, and if he did, he’d be inviting a host of unwanted guests, thinking the home is still for sale. I could send out a postcard to the neighborhood, trumpeting my success, but postcards are a pretty ineffective marketing mechanism unless you send them out regularly and for a long time. I could take out an ad in the local paper announcing my success, but that’s unlikely to generate any calls since the public has been trained to look in the paper for listings, not recent sales.

The excitement, the story, the marketing value of a transaction has always been quite firmly on the listing side. The buyer’s side is, well, yesterday’s news. While that makes sense, it’s not in sync with the fact that a home spends only a tiny fraction of its life as a listing. During the vast majority of the time in which the home is not on the market, shouldn’t there be some way of getting some marketing around my involvement in the purchase of that home?

The answer, of course, is “Yes.” The Internet does indeed present an opportunity for buyers’ agents to strut their success. At least two examples come to mind.

  1. Sites like HomeThinking.com ask clients to rate their agents’ performance. The “anchor” for this rating and the (hopefully!) positive exposure is not only the listing side of the transaction, but also the buying side.
  2. Zillow and its AVM brethren potentially present another such opportunity, though those sites don’t currently have such functionality. While most real estate sites concentrate on today’s news — the listings — Zillow’s inventory is all homes, not just homes that are currently for sale, and the history of those homes has some marketing value. If I wanted to highlight my buying agent experience in a particular neighborhood, I could — for a fee, of course, — perhaps add a virtual “Buyer of this home proudly represented by…” sign that would appear next to my past transactions.

Increasing the marketing value of the buying side of a transaction is unlikely to fundamentally shift the balance of power from the listing side, but it certainly does present an interesting new form of online advertising.


* Translation: You have a big piece of spinach in your front teeth.

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Tags: Advertising · Business of real estate · Homethinking.com · Online advertising · Real estate · Zillow