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“Disguised” FSBO Market Share July 16, 2006

Some big news happened last week in Texas which I discuss on my blog. In a nutshell, the FTC obtained a Consent Order from the Austin Board of Realtors to eliminate a rule that treated Exclusive Agency Listings different from Exclusive Right to Sell Listings, at least with respect to the publishing of those listings on public web sites. Rules like these have been adopted to deal with flat fee listing brokers who did nothing more than insert the listing into the MLS database. In other words, these are “disguised” FSBOs where the owner has agreed to pay some selling office commission but usually receives little or no additional help from the listing broker.

In its investigation, the FTC found that, prior to the adoption of the rule, 18% of the listings in the Austin MLS were Exclusive Agency Listings. Once the rule was adopted, the number of Exclusive Agency Listings dropped to 2.5% of the total.

I have always heard that the FSBO rate was somewhere around 10-15% nationally. Since the 18% figure does not include what I might call “pure” FSBOs where the seller basically hammers up a sign and calls it good, the actual FSBO rate in Austin (before the rule adoption) was probably greater than 20%. Is this surprising? Do you think it reflects historical numbers or is some kind of trend? Any thoughts on where the 15.5% went after the rule was adopted?

“2010 or Bust” June 22, 2006

This may be the new mantra of the DOJ when it comes to its current anti-trust case against the National Association of REALTORS.  The boys at Freakonomics are at it again with an interesting post about some inside scoop on settlement discussions.

In a recent presentation to some MLS folks, I concluded that the DOJ has absolutely no incentive to settle this case unless NAR comes to its knees on the issue of who is a “broker” for purposes of access to MLS listing data.  I also believe that this case is very analogous to the Visa/Mastercard case brought by the DOJ in 1998.  That case took 5 years to reach its conclusion.  Based on that same time line, the NAR case could easily stick around until 2010.

Every day that goes by without resolution of this case helps the new real estate players gain necessary traction in their quest to legitimacy.  If NAR settles the case and gives the DOJ what it wants (open access to all “brokers”), Katy bar the door.  If NAR holds out and we don’t have resolution until 2010, then (regardless of the end ruling in the case), the practical effect may likely be the same with these “new” models then being accepted as part of the real estate brokerage industry. 

This case, like the Visa/Mastercard case, is about innovation or maybe the lack thereof.  Query the impact if the human and monetary resources that are being used to defend this case were instead re-directed to innovate on behalf of traditional brokers to leverage the riches of data that lies within its control.   

-Russ   

Day Two - Realtor Mid-Year May 18, 2006

Yes, I am tardy with my report for Day 2. There was not much going on from an interesting meeting standpoint so I visited the tradeshow floor. For anyone that has not been to a Realtor tradeshow, it is certainly an experience. Flashing buttons, contests, people throwing free things at you. Having been to many of these, it always amazes me the types of companies that have booths. For example, there were several jewelry and makeup booths. While I am not a woman, it seems odd that they would come to a real estate tradeshow. It would be like having Titleist as a vendor. Lots of real estate guys like to play golf but they don’t really fit at a Realtor tradeshow. Then again, I am pretty dense about this stuff and they seemed to have a bunch of women buying stuff so I guess they are the smart ones.

I visited a bunch of booths but a couple stood out for different reasons:

Realtor.com - They intro’d a Zillow/HouseValues-like feature on their home page called “What’s Your Home Worth.” It is a lead generation system for agents that provides basic home value data and then let’s the consumer elect to get more refined info if they want from a “featured” agent. Agents can buy territories and they apparently will rotate as consumers access the feature. Once a consumer asks for more info, the “featured” agent will get an email and that consumer will see the particular “featured” agent for a period of time each time they return. With the large amount of traffic that R.com gets, it will be interesting to see how well the lead gen system works. I tried my zip code and there was already an agent signed up! I think this will be a winner for R.com and the agents that jump on it but I also think that agents will squak when their choice area is sold out.

HomePoint - This is a Trulia-like company (although the get data via the MLS directly) that is trying to become a portal of sorts. Agents sign up for territories and get “featured” when a consumer clicks on a listing. Again, this is a lead-gen system for agents that even extends to listing agents and FSBOs. The thing that I did not get was how they were going to generate traffic. No eyeballs, no leads.

More later….

Russ

Day One - Realtor Mid-Year May 16, 2006

I just attended my first meeting at the NAR Mid-Year. It was the MLS Association Executives Committee Meeting. There were three presenters to the group and I will provide some highlights of their presentations.

Laurie Janik, NAR General Counsel

Laurie indicated that claims against MLS under the NAR EO Insurance Policy have for the first time surpassed the number of general association claims. Out of 32 claims made this year, 18 involve MLS issues. Of the 18, 8 involve the FTC, 7 the DOJ and one involves a state attorney general. Most of the claims revolve around whether an MLS can exclude Exclusive Agency listings from data feeds to third party websites (e.g. Realtor.com). Since Exclusive Agency listing allow the seller to sell the house themselves, MLSs argue that allowing these listings to be displayed on the Internet basically enables the seller to have free advertising to attract a buyer without paying the listing side of the commission.

Laurie also discussed the DOJ lawsuit. NAR filed a motion to dismiss which raised three arguments:

First, that the DOJ is seeking injunctive relief for the VOW policy that has been rescinded and never implemented and as a result, there is no relief that can be granted under this claim.

Second, that the VOW Opt Out provision is neutral on its face, there is a presumption of cooperation and that decisions to Opt-Out are based on independent action of each broker.

Third, that the DOJ’s claim against the current Internet Listings Display Policy does not allege any anti-competitive effect.

Laurie cautioned that Motions to Dismiss are rarely granted in the 7th Circuit (where the suit is pending). She also said that 14 MLSs have been involved in DOJ subpoenas and that the NAR insurance coverage for this claim is gone so the MLSs that are involved are now spending their own money to respond to the subpoenas.

Lastly, she indicated that there was a productive settlement conference. She believes a key issue in the case will revolve around the MLS definition of “Participant” Historically, this referred to any person or company that was a licensed broker. Under the new policy, a “Participant” is required to be a broker AND be involved in either making or accepting offers of compensation. In other words, actively listing and selling property. By modifying the definition as such, companies that just put listings in the MLS on behalf of sellers or the likes of Zillow would not be allowed into the MLS as a Participant.

The second speaker was Gregg Larson of Clareity Consulting. Gregg is a consultant to the MLS industry.

He indicated that there was a second wave of regionalization going on. This has been caused by many factors, the least of which is that big brokers are demanding it. He told a story about a brokerage company in CA that has been in business about three years and has had to join 21 different MLSs.

Gregg indicated the drivers in the coming year for regionalization will be:

Biggest challenges include:

The last speaker was Ann Bailey who is also an industry consultant

She said that big brokers are starting to take a lead in innovation and they need more information from MLS in order to do that.

She referenced a California Assn of Realtors survey that indicated ranked certain factors that were important to Internet buyers when selecting an agent: These included (in order of importance):

She said that brokers have to understand the cost metrics of monetizing internet leads and that some brokers are now offering to take leads off the agent web sites for free in order to capture them for the agent. She said the brokerage of the future had to develop a culture of agents trusting the broker and the broker delivering value.

She finished with a brief discussion on “off market” data. She cited NWMLS’s recent decision to allow brokers access to this info for public display. She said there was another MLS in northern CA and several people in the audience indicated that their MLS had either made the decision or were contemplating it.

That’s all for now. More later….

-Russ

Russ at Realtor World May 15, 2006

Sounds like a Chevy Chase movie. Actually, I am in Washington DC this week attending the NAR Mid-Year Meetings and Tradeshow. I will post a blog each day with (hopefully) some interesting things to report.

Cheers

-Russ

Unintended Consequences May 3, 2006

According to an article in Advertising Age, a NY-based Ad Agency is suing a blogger for copyright infringement, defamation and trade libel and injurious falsehood. Appears that the blogger, Lance Dutson, made negative remarks about the agency on his blog that revolved around the agency’s work for the Maine Office of Toursim. The agency apparently tried to get Mr. Dutson to remove the remarks and apologize. He said no. They sued. Repeat after me, “Never, never, underestimate the power of the blog for unintended consequences.”

Unforunately for the agency, the blogosphere flew to Mr. Dutson’s plight like bees to honey. According to Mr. Dutson’s latest post on his site, more than 200 blogs are now referencing him compared to just 2 before the suit. Seems that the negative PR to the agency from the cumulative effects of bloggers may have surpassed the harm they suffered from Mr. Dutson’s original comments. At the very least, there are a lot of eyes reading this story that would never have seen the original comments on Mr. Dutson’s blog.

This is another example of how blogging can alter the historical power dynamics of business. I don’t know anything about the financial strength of either Mr. Dutson nor the ad agency but if I was a wagering man (which I am), I would guess that the agency has the resources to use the legal system to make Mr. Dutson spend a lot of money on his defense. This is a common practice in the legal profession and explains why many small firms back away from challenging the entrenched larger firms even when the small fish have good cases. Bottom line is that it takes a LOT of money to litigate a dispute and power goes to those that can afford it. Justice is blind but it ain’t cheap.

While Mr. Dutson will certainly spend some money on attorney fees, it cost him NOTHING to have positive PR spread across the Web. In the old days (like a couple years ago), litigating a case in the press would require the press to actually want you to win. In the blogosphere, Mr. Dutson does not need to worry about the political will or economics of the traditional press to get “web time.” And there is NOTHING that the agency can do about this. The cannot enjoin the collective blogosphere from commenting on this case and opining on its merits or what they think about the agency themselves.

In the end, this is just one example of how blogging can play a part in leveling the business playing field.

How does this impact the real estate industry? Many of us who are (as we like to think) “in the know” debate about the future of real estate, about the new oohs and ahhs in real estate technology and the tidal wave of change that is looming. But the average joe or jane knows nothing about this stuff - yet. They buy and sell homes each and every day just like they did for the last 20 years. As blogs proliferate, so too will communication about the new and the old, and the good and the bad, in real estate. Average joes and janes will spread their opinions about new companies and new offerings and just like the ad agency, there will be an impact on how business is done.

Visionary brokers will figure this out and harness the immense power of social networking. Others, like the ad agency, will operate at its mercy.

Russ

Full Service for 1% March 22, 2006

I came home today and as usual, looked through the mail.  There was the ordinary bills (yuck!), magazines, no fan mail (rats!) and the assorted direct mail pieces (which I normally drop in the round file).  One piece stood out because it was a picture of a house with the words “How much is your home worth?  Interested, I turned the postcard over and it went on to say “Full Service and Marketing for 1% commission fee”  So what, there are all sorts of discounters out there looking for business.  Not so fast.  The discounter on this direct mail piece was a ReMax agent.  Don’t know about you but this is the first outright solicitation that I have seen from one of the ”big brands” brazenly advertising a discount commission.  Anyone else seeing stuff like this? 

Clooneygate and Real Estate Blogs March 20, 2006

I just read a fascinating story in the the NY Times (subscription required) about a “post” by George Clooney on a liberal Blog, The Huffington Post.  Seems that the Blogger, Ms. Huffington, cobbled together some responses that Clooney had made in news interviews and created the post.  She then ran the content by Mr. Clooney’s PR folks for approval and was given the right to publish the post (as written by her) but attributed to George.  When it was discovered that George did not really pen the message, all hell broke loose in the Blogosphere.   According to the story, even confirmed loyalists to The Huffington Post were upset.   Seems that the medium carries a significant representation of authenticity to it and despite the content of the message, the authenticity that the thoughts were the writer’s thoughts carries more weight. 

So, you ask, what do we learn from Clooneygate as it relates to real estate bloggers?  Be real.  People reading your Blog are interested in the context of your thoughts as they relate to information.  It is not the information so much as what you think about the information.  Your spin.  Your opinion.  

All too much, real estate brokers and agents all want to look and act the same.  Differentiation has, many times, been frowned upon.  Just look at most agent web sites.  Take the name and picture off and most of them look the same.   Blogging is different because of the medium.  Resist the urge to do things like everyone else, especially if it means copying information written by others.  That is not interesting.  You are! 

Russ     

New Construction Warranties March 10, 2006

I recently had a conference call with an agent and his buyer who was purchasing new construction from a small builder. In the course of the conversation, we started talking about the builder’s warranty (which there was none) and the agent chimed in with the following: “Well, even without a written warranty, the buyer will still get the one year warranty that is required under state law.” Unfortunately, I had to correct Mr. Agent in front of his buyer by letting him know that the only warranty that a builder provides by law is the Implied Warranty of Habitability.

Good news was this warranty is an implied warranty in the contract and the statute of limitations on bringing a claim under the contract is 6 years, not one (subject to a bunch of other issues too complex for this post). Bad news was that the Implied Warranty of Habitability is very limited and basically means that the home can be lived in. In recent years, it has been extended to things like conformance with building codes. It does NOT, however, cover things that a new construction buyer usually deals with post-closing. Things like paint chipping, floors warping, siding going bad, window cracks, carpet coming up, etc., etc., etc. These defects are usually smaller items but can add up in total to a lot of money and even more frustration. The only warranty that would cover something like this is a written warranty from builder to buyer. If one does not exist, then no warranty and no recourse to Buyer. Buyers should also read the fine print as many builder warranties contain more holes than swiss cheese. Don’t rely on the fact is says “Warranty” on top of the page. In my experience, the good builders usually provide pretty decent warranties. The smaller builders are across the board. In this case the old adage applies — Get it in writing!

The Impact of Cooperation March 8, 2006

Most of you have (or should have) read the recent article by STEPHEN J. DUBNER and STEVEN D. LEVITT (Freakonomics) in the NY Times. As may be expected, there were plenty comments on the Freakonomics Blog. As I was reading the comments, one struck me. It was from a very sincere sounding broker who, in defending the broker’s role in the transaction, said:

“As an agent on the buyer side or the seller side, I have a fiduciary responsibility to prosecute the interests and goals of my clients……If you want to succeed in this business, become a fierce advocate for your clients, give them all the data they can handle, use your sales, negotiating, and analysis skills to their advantage.”

I pondered this a bit as it sounded like a legitimate strategy for success. I then recalled an article on Inman the other day about a company called RealtyLegacy. The company promotes a program where it will connect buyers and sellers with agents from other companies and those agents will agree to rebate a portion of their commission to their client after closing. The story was interesting from several angles but it surprised me that one such agent did not want to disclose her name because of fear of reprisal to her and to her clients (i.e. other agents would not show her listings if they knew she was discounting).

I then thought back to the NY Times story and the analogy of the real estate brokerage world to stock brokers and travel agents and the author’s forecast of the impending doom to the industry. The real estate brokerage industry has a major advantage that the stock traders and travel agents did not have. To buy a stock for a client or to purchase an airline ticket, there is no need to cooperate with another stock broker or travel agent. Those brokers deal with the principal to put the deal together. In real estate, cooperation is at the heart of the industry (some (the DOJ?) would say that this cooperation has artificially upheld commission rates and traditional business models).

I then remembered the above quote from the broker. He believes that diligent representation of his buyer will preserve his relevance. What happens, however, when he comes to a home that he knows his buyer client will love and he looks at the SOC (selling office commission) in the MLS and sees 1%. If I understand the theory, do what is best for your client and you will have value. It is without argument that this buyer client will value this “perfect” home over and above the amount of commission that the broker will receive? However, it is commonly understood in the industry that if a seller wants their home shown, they will pay the “going rate.” They are told that if they don’t, other agents will not show it. If this was not an issue, why did the RealtyLegacy agent have to hide her identity? Why was she so scared to let people know that she was discounting? If buyer agents in fact act this way, what does this have to do with “prosecuting the interests and goals of the client.” Why should a buyer get short-changed on seeing available inventory when the seller has refused to pay the standard SOC?

It then hit me like a brick upside the head: A major strength of the real estate brokerage industry is at its core a major weakness.

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