Insomniac Dustin Luther couldn’t quite stay up late enough last night to witness the launch of the US version of Dothomes.com. But here it is, yet another real estate search site: dothomes.com, already live in South Africa and the UK.

I commented yesterday that recent property search entrant Roost.com’s business model is clever, unique, and possibly illegal non-MLS-complaint.  [1/30/08 update:  I’ve been thinking about my choice of words, and “illegal” is definitely not the word I should have used.  “Illegal” is mugging somebody, or stealing something.  What Roost is doing is 100% legal and above-board.  It may — and I emphasize may — be viewed by some as being non-MLS-compliant.]

A first glance at Dothomes suggests a similar, though unfortunately more damning verdict: extremely clever, very unique, and definitely illegal non-MLS complaint.  [1/30/08 update:  What Dothomes is doing is absolutely 100% legal, but again may be interpreted by some as being non-MLS compliant.]

The clever and unique part is easy to see: they’ve managed to pull off what Google Base real estate could have been, and may well still become: a Google-ish type search experience — with a whimsical “I’m feeling wealthy” instead of “I’m feeling lucky” button — where instead of choosing your criteria from input boxes or sliders, you simply type in what you’re looking for.

Right-oh then, let’s give it a try, shall we?

And, as the Brits would say, “Bob’s your uncle!”

A quick glance at the 99 results confirmed that they all had 3 bedrooms and were under $850K. Pretty slick! (As a sidenote, many of the results were in South San Francisco, an entirely different city. But I’ll cut them some slack on what is, after all, a pretty new product.)

So that’s the clever and unique part. Here’s the (tragically) illegal non-compliant part: per their own FAQ/blog, they get their data from either a feed that a broker sets up or by crawling the broker’s site.

From a feed the broker sets up: So far, so good…as long as it’s only that broker’s listings.

By crawling that broker’s site: At most MLS’s this is strictly verboten.

Most of the first few pages contained only listings from Realogy brands Coldwell Banker and Century 21. Since Realogy has been fairly open of late with distributing their inventory online — e.g. with Trulia — it is possible that Dothomes has an agreement with Realogy, though I have not heard such news.

A few pages later I see a few listings from my ex-Broker Alain Pinel Realtors. Now the warning bells sound. Unless things have changed dramatically since I left a few months ago, Alain Pinel would never ever distribute its listings to a non-IDX site — Trulia being the exception (probably because Sami is such a sweet talker!)

My prediction: tragically, Dothomes will be forced fairly quickly to adopt an alternate and legal listings acquisition strategy: either MLS-by-MLS, or broker-by-broker.

Further commentary:

• Future of Real Estate Marketing weighs in.
• Mashable wonders if Dothomes will be able to compete against Trulia et. al.
• SearchEngineLand notes that in real estate search, just like travel search, there is no one comprehensive site with all listings. (Realtor.com could lay claim to the title of “most listings” by virtue of having most broker-listed homes, but it does not include FSBO’s…plus the site just, well…sucks)
• Todd Carpenter, in what I believe is a quote from Dothomes founder Douglas De Jager, says:
  

  Because DotHomes does not serve up those details pages, they do not need permission from the listing agents.
  

  I hope this isn’t Dothomes’ understanding of what most American MLS’s allow, because if it is, he’s in for a nasty surprise.

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Trulia! Zillow! … and now Roost! Where do they come up with these names?

Roost, a new startup in the increasingly crowded real estate search space, launched last week to a cacophony of commentary from the re.net. Joel Burslem covered its feature set, its performance, and noted that Roost has the complete MLS inventory because it gets its listings from MLS’s, albeit indirectly. Greg Swann fawned over its business model and complete inventory.

If I understand Roost’s business model correctly, it intends to make money in a way that’s clever, unique, and possibly illegal non-MLS-compliant.  [1/30/08 update:  I've been thinking about my choice of words, and "illegal" is definitely not the word I should have used.  "Illegal" is mugging somebody, or stealing something.  What Roost is doing is 100% legal and above-board.  It may -- and I emphasize may -- be viewed by some as being non-MLS-compliant.]

The unique aspect of its business plan: it offers brokerages the opportunity to sponsor search results and get the resulting click-throughs to their own site. A search in Sacramento, for instance, reveals that the current sponsor is Sacramento heavyweight Lyon Real Estate.

The first three listings I see are from VM Group, Gold Financial Services, and Prudential CA Realty, all clearly identified in compliance with Sacramento’s Metrolist MLS services.

Here’s the tricky bit…if you want more information, you click on “View Details on Featured Broker’s Site.” When you do that for, say, the Prudential listing, you get information about the Prudential listing on the Lyon Real Estate site:

This sleight-of-hand is accomplished through a too-clever-by-half url manipulation, much to subtle to be noticed by the average consumer, but apparently kosher enough to pass muster from the Sacramento MLS — at least for now. What if Prudential gets upset that the click-through on one of their listings on a public MLS-ish site goes through to one of its competitors?

Here’s how (I believe) Roost and Lyon defend themselves: Look at the url. When you search in Sacramento, you’re not actually using the Roost site at all; you’re actually using the Lyon site (GoLyon.com). For as long as Lyon is the sponsoring broker, the search is being conducted at golyon.roost.com — a (sub)domain under the control of Lyon Real Estate — and hence in compliance with those silly old arcane MLS rules.

Watch what happens when you go back to the site. In my case, I ran another search, and this one was sponsored by Intero. Same results, same look and feel, but the search is now running at InteroRealEstateIDX.com…and sure enough, the click-through goes to Intero’s own site.

Very, very clever. I really like this part of their business model, for reasons I’ve explained before: The current real estate business model heavily favors the listing side of the equation, and I’ve been clamoring to the likes of Zillow and Trulia to think about buy-side advertising offerings. If I’m a small brokerage in Sacramento, and I currently only have, say, 5 listings, I could decide to spend, say, $5000 sponsoring X number of real estate searches in that market. The number one bait that still seems to draw eyeballs in real estate is listings, listings, listings, and if I don’t have many of my own, why not leverage those of my competitors?

Now for the questions of MLS legality compliance …without going into all the details, I tried something like this trick about 2 years ago. It involved subtle manipulation of a url so that searches on a heavily-trafficked site were done — technically — using a url that was under my control. A good lawyer could easily have argued that this was in strict compliance with all the MLS rules. No dice. Within hours I got slapped down — not just by the MLS, but by my own broker!

I certainly wish Roost all the best, but I’m afraid they’d better put a sign on their front door that says, “Couriers please deliver cease and desist letters here.” Any business model that requires MLS compliance involves by definition an order of magnitude more headache. Why do you think Trulia and Zillow decided to get their listing feeds straight from the brokers?

Further commentary:

• TechCrunch, predictably, gets a few facts wrong. It’s not clear they understand the difference between a broker (e.g. Redfin) and a listings site (e.g. Roost.) Also, if I understand this bit of fine print on Roost’s site, they don’t get their data directly from the MLS, but by piggybacking on broker IDX sites. Subtle but important difference.
• Dustin notes that piggybacking off IDX feeds is a great way to scale your listings database quickly, but it puts some pretty onerous restrictions on what you can do with the data.
• Michael Price explains the url sleight-of-hand.
• Jay Thompson notes that, once again, the business model is about brokers providing listings, then paying for traffic.
• Sellsius praises Roost’s comprehensive and accurate results.

And still more commentary:

• Brian Boero* notes the irony that Roost is built on fairly antiquated technology — IDX — but provides a pretty rich user experience.

* At the last Inman, Brian and I finally answered that great conundrum: Did his ancestors add on “o” or did mine drop an “o” at Ellis Island? The answer: neither. His ancestors are Italian, and mine Dutch. So no, we’re not related — except of course, through Lucy.

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Redfin is the company everybody in the traditional real estate industry loves to hate. “They’ll go bankrupt just like all discount firms do when the market turns bad.” “Can you believe how they force listing agents to do all the work?” “Their agents don’t have a clue about the market!”

Deride Redfin if you want, be skeptical of its business model, take potshots at Glenn Kelman all you want…but whatever you do, don’t dismiss Redfin out of hand, at least not before hearing what this man has to say.

Clayton Christensen is a professor at Harvard Business School who has become well-known for his research into how technology disrupts industries. His theory, put forth in his books The Innovator’s Dilemma and The Innovator’s Solution posits that new entrants into an industry often take advantage of a disruptive technology to enter the marketplace at the lower end, catering to the low-margin customers that the established players aren’t that interested in serving. He gives examples in many industries, including financial services (Charles Schwab came into the brokerage business catering for the budget stock investor), steel manufacturing (mini-mill technology), and hard drives.

While Redfin is by no means the first entrant in the discount brokerage space, it is arguably the one that has generated the most attention. Redfin’s technology — its slick real estate search site, its semi-automated offer-writing system — may not appear too disruptive, but its technology and associated business model have struck a chord with a growing market segment that is disenchanted with the traditional real estate industry, and, not coincidentally, the industry has returned the favor. That market segment — initially diehard do-it-yourself’ers who just don’t see the value of schlepping around town with a real estate agent — is one the traditional industry isn’t too fond of catering for, on the assumption that if we let clients out on their own, they might discover it’s not that difficult to plan an afternoon’s home-shopping around an open house schedule, and then they might question our overall value. For the most part, the traditionalists aren’t too sad to see this type of client defect to Redfin. “They think they know everything, they don’t see the value of a Realtor, and then they want part of my commission!”

What is common about the customers of these new lower-end entrants in any industry is that they’re not interested in a gold-plated product or service — they want something “good enough” and cheap.

If the new entrant succeeds, it starts to take market share from the incumbents, who finally wake up — often too late — and discover that the “cheap, undesirable” part of the market is both larger and more lucrative than they previously thought.

Even more interesting is that as the new entrant grows, its clients’ needs often change over time — to the point where the new entrant now also provides more of a “traditional” experience. Think back to Charles Schwab: its early customers were drawn in by the prospect of significantly less expensive stock brokerage services. The Charles Schwab of today still provides that, but also provides a higher-touch, higher-cost service, akin to that of the Merrill Lynches.

Might this happen to Redfin? Nobody knows…but if they are successful in what they’re doing, don’t be surprised if five years from now Redfin offers not only a discount real estate experience, but also a full-service one.

How can established companies lessen the risk of a low-cost competitor coming in at the lower end, then working its up the value chain? One of Christensen’s suggestions is as audacious as it is — for most companies — implausible: spin off a separate lower-cost business unit to learn about the lower end of the market.

So, how about a “Coldwell Banker Lite” offering? Want a full-service, full-fee experience? You can use the Coldwell Banker you’ve always known. Thinking of using a discount service, but unsure about Redfin’s brand? Then you can go to the Coldwell Banker Lite offering. Either way, Coldwell Banker can serve you. From the company’s point of view, they’ve retained a client; sure, it’s a low-margin client — for now. But five years down the road, the customer’s good experience may lead him back to the Coldwell Banker name, and perhaps this time using the full-service, high-margin option.

Skeptical of Redfin? That’s fine — but just don’t write them off until you look at the uncanny resemblances between our industry today and the industries Christensen describes in his books.

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With starter homes in some parts of the Bay Area over $1M, even well-educated high-earning, dual-income couples are having a hard time getting in, especially with interest rates creeping up.

Enter a long-existing but obscure concept called “equity sharing” and a new online service called — appropriately enough — HomeEquityShare.com.  The idea is simple:  match prospective priced-out and/or risk-adverse home buyers with real estate investors who don’t want the pain of landlordship.  The home buyer and the investor together come up with an appropriate down payment, sign an ownership agreement, and buy a suitable property.  The investor gets the best of all possible tenants:  one who treats the home as if it were his own — which of course it largely is.

At the end of a specified time period, the home owner buys out  the investor, or they sell the property and split the money.

The devil, as always, is in the details.  The site explains some of the basics of how these agreements are structured, who pays what, how the taxes work, and so forth.  The “Chief Real Estate Officer” of the company is Marilyn Sullivan, a Santa Barbara-based real estate attorney with two decades and 3000 transactions’ worth of equity sharing experience.

The site includes a calculator to estimate the co-ownership structure of the deal.

My thoughts?  I think it’s a brilliant idea — partly because it’s something a friend of mine and I toyed with already several years ago but simply never executed on.  Many local couples with $300K plus year combined salaries are simply being priced out of areas like Palo Alto, and this makes it possible for them to get in the market.  Many investors are wary of getting into consistently negative cash flow real estate investments.

The major red flag I see is one of branding:  this looks and feels very much like a tenancy-in-common arrangement.  (In fact, according to Marilyn Sullivan’s site, it is tenancy-in-common.)  When I hear that phrase, warning bells of real estate deals gone awry in the People’s Republics of San Francisco, Oakland, and Berkeley start ring.  Due to ownership laws in those cities, condo-type ownership is difficult for certain older buildings, and so people resort to tenancy-in-common arrangements, which are more difficult to structure, more difficult to get loans for, and greatly dependent on good cooperation amongst the co-tenants.

Still, I’ll reserve judgement about the efficacy of this kind of ownership.  If Marilyn has done several thousand of these deals, I’m sure the agreement itself is pretty solid and caters for all sorts of thing that could go wrong.

Time to go register to join their network and learn more.

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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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Industry maverick Redfin today launched an initiative aimed at defining and protecting real estate consumers’ rights. (See Inman’s coverage here, unfortunately behind a subscription wall.) CEO Glenn Kelman gave myself and some others a preview of it yesterday and asked if we would be willing to put our name down in support of it. Knowing full well it could draw the ire of my fellow agents and re.net writers, I decided to do so.

Why did I do so?

Not because I am uncritically accepting of everything Redfin foes; quite the contrary, I have called them out on blurring the distinction between correlation and causation (see my articles Redfin Numbers Food Fight and Agents Who Take More Pictures are Better Negotiators), I have criticized their advertising as needless stick-it-in-the-eye tactics, and I have criticized Glenn for making reckless statements to the media that do nothing to endear him to the real estate community.

Not because I think Redfin’s business model will revolutionize the industry and change the way things are done forever. Quite the contrary, I remain skeptical that reimbursing 2/3rds of the commission on the revenue side, while spending heaps of money on the technology side, is a long-term recipe for success.

Why then am I supporting this initiative? Simply because I like the idea of somebody shaking up this industry and standing up for the consumer, and if that “somebody” happens to be a competitor, so be it. I have never doubted Glenn’s commitment to being firmly on the consumer’s side, and I have no problem with his company making money from it. I don’t even have a problem with Redfin getting positive publicity from it because I know that’s not the primary reason they’re launching this initiative.

As this conversation continues — which will no doubt become quite contentious, as befits many Redfin initiatives — we’ll get into the meat and potatoes of the Bill of Rights itself. I’m not in unanimous consent on all the issues — for instance, I think there are situations in which dual agency is not only needed, but is best for both clients — but overall I like what I see and I’m happy putting my name behind it.

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The Seattle guys are on a roll…a post in today’s Redfin blog alerted me to today’s San Francisco Chronicle, which has a feature article on Redfin and Glenn Kelman.

While much of it is stuff we’ve all heard before — Glenn didn’t set out to become an industry maverick, the Redfin model isn’t new, blah blah blah — two specific items stood out for me.

First, it appears Redfin agents are paid “$60,000 or more [emphasis mine] based on their performance, which is tied to customer service rather than the number of sales completed.” For Rosemary Vo and the other agents, I can only hope that the “or more” bit is “a lot more.” I’m assuming this means a base salary of $60,000 a year, plus performance-based bonuses. If these bonuses equal a full 100%, that would mean a total compensation package of $120,000 — not enough to live a comfortable middle class life in the Bay Area, but certainly more than most agents net after paying their broker cut and other expenses.

[3/20 update:  Just received an anonymous email tip that my estimates for Redfin agent pay are waaaaay off.  My source says the base is $50K and the bonus is $20K.  Not knowing who this person is, or their affiliation -- if any -- with Redfin, I can't vouch for the accuracy of these numbers.  Anybody else have an idea?]

Secondly:

At the same time, his company also must play by the industry’s rules or risk losing access to the vital database of home listings that is the heart of Redfin’s service.

“It’s our third rail,” Kelman said. “We have no backup. If we lose access to the feed, game over.”

Many of us agree that the protectionist rules of most MLS’s are antiquated, but breaking these rules is indeed playing with fire. I personally crossed the line once while conducting a several-month-long experiment with Google Base, but when I got caught, I got caught good. Ouch.

Redfin was displaying information on sold content well before our local MLS changed the rules and made that legal, and it’s still against the MLS rules to display the days on market of a property — which is exactly what Redfin does. Well, not exactly…technically what Redfin displays is something like “Days on Site” — ie the number of days which a property has been displayed on the Redfin site. And hey, if that number by complete coincidence happens to be the same as the days on market number 99.9% of the time, who’s complaining?
Stupid rules lead to creative interpretation.

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Weighing in at an impressive 77 pages and 394 footnotes, Mark S. Nadel’s recent tome on real estate commissions is not for the faint of heart. Since I’m skeptical about anything written about real estate by the Freakonomics economists I decided to ignore their advice and read Nadel’s piece about alternative business models (ABM’s) in real estate (RE) anyway.

I often find it best to use a grain of salt when digesting content from any potentially biased source — be it the conservative American Enterprise Institute-Brookings Joint Center (which hosts, and presumably sponsors, Nadel’s research) or the liberal Center for American Progress.

While Nadel is quite critical of NAR itself, he has a refreshing absence of the extreme anti-Realtor vitriol so common in writings of this type. His proposed solution to the problems he sees with today’s real estate industry is not, as one might expect of a conservative commentator, simply “let the market take care of it.” On the other hand, he does not propose, say, nationalizing the industry.
In all, it’s a good read when you’ve got some time on your hands. Starting here, I’ll post some thoughts on what he has to say.

Nadel’s hypothesis is pretty straightforward:

The traditional, straight percentage-of-sale residential real estate brokerage commission does not serve the interests of either home buyers or sellers.

His solution leads me to suspect he’s been reading Greg Swann’s blog:

The foundation of a new fee structure should have buyer’s brokers setting their own fees or negotiating with buyers, not relying on standard, default commissions set by sellers’ brokers in the MLS.

More thoughts later…

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