Housing Legacy Distortion: The Coke vs. Diet Coke Explainer
I want to dig deep this week and show it’s what’s on the inside that counts (floats) in reference to the challenges facing the traditional residential brokerage community:
But if you really want to see how the sausage is made, here’s the Chitty Chitty Bang Bang version:
But I digress…
What is a Traditional Real Estate Brokerage Model?
Town’s Legacy Distortion
I’ve known Andrew Heiberger, founder of New York brokerage Citi-Habitats (acquired by NRT/Realogy), for years and always admired his chutzpah, (despite his Alumni status as a Wolverine versus mine as a Spartan). His second brokerage effort with Town Residential  just ended badly but no one can fault him for trying to be a player in the space. However, I’m a little disappointed in his public comments since Town’s closing . He seems to be blaming the market for the downfall rather than a vulnerable business strategy of reportedly offering higher fee splits than the market standard. Town was acting like Compass before there was a Compass but they didn’t have hundreds of millions in the bank like Compass to go on a recruiting tear.
Here’s some unsolicited LinkedIn advice to Gary Malin of Citi-Habitats from Andrew.
Compass’ Similar Model
Remember that Softbank , a Japanese multinational conglomerate holding company headquartered in Tokyo, has been investing in tech at a large scale in an asset-starved world. And Softbank invested $300 million in a dog-walking app . This makes me wonder about their due diligence, but then again, I am not fully informed about the economies of dog-walking apps. It makes you wonder that without the capital to offset what is assumed to be a significant burn rate, the Compass model is susceptible to the same fate as Town, but only after the money runs out, or they succeed in an eventual IPO and then the money runs out, which could be years from now. The Compass war chest is what makes them a disrupter, not their technology or business model – at least based on what has been shared by former agents or from Compass itself. It is important to note that traditional brokers are independent contractors and go where they are paid more if they feel the fit is right. As with any move to any firm, they risk losing their momentum.
What Is A Traditional Brokerage Model?
Andrew contends that Town represented a typical traditional model  yet it was their high split version that was not sustainable. This was apparent in the recent feedback by the local industry when they were recruiting former Town agents. I’m not saying the traditional brokerage model isn’t vulnerable – it’s been called vulnerable for decades – but this narrative seems more orientated to protect his legacy. I hope he reconsiders this approach since he is one of the few leaders in the business that has created a large firm, let alone more than one so I’m sure he’ll build something else.
Here’s a conversation between Andrew and Fred Peters of Warburg.
Amir Korangy, the publisher of the Real Deal Magazine, interviews Andrew about what happened at Town. Being reflective of the downfall in a very public way takes chutzpah, no matter how it was framed.
This Week in Aspirational Pricing, California Style
Since 2014, I’ve been collecting the U.S. closed sales at $50,000,000 or higher and try to include as much worldwide as I can. There have been 8 sales in the LA vicinity – Malibu and LA’s Bel Air were the most active with 3 sales each in the past 18 months, outpacing high-end sales in other markets such as New York. I’ve collected 90 closed US sales since 1999.
Here are a few  of the most  recent biggies in California.
I just whipped up a couple of charts to show the U.S. super luxury phenomenon:
What Happens to Housing When Interest Rates Rise?
Gotta love Planet Money’s “The Indicator” Podcast:
As interest rates climb, so will mortgage rates, making houses relatively less affordable. Refinancing also becomes less attractive. But there are also surprising ways in which interest rates affect – and in one case, don’t affect – the housing market.
More Avocados = Less Homebuyers
Curbed unlocks how innocent avocado toast  became a synonym for millennial excess.
LOL. Watch the Instagram video.
Monthly expenses— Murtaza Mohammad Hussain (@MazMHussain) May 15, 2017 
Avocado toast: $35,000
Someone good at the economy please help me budget this
Rationalizing accepting $50 to $100 hybrids ’cause you’ll get volume
Here’s the sales pitch being sent to appraisers:
MCSV is currently offering a distinct hybrid product to our clients that involve a restricted report. We would like to extend our hand – beyond the product types that you already cover, to determine if this is something that you would be interested in.
I have provided useful information and attachments below regarding the RESIDENTIAL EVALUATION REPORT (RER).
An RER is a restricted appraisal report that involves a Broker Price-Opinion completed by one of our BPO vendor/Brokers for the purpose of providing an inspection – as interagency guidelines require evidence of an inspection. If the BPO completing agent happens to provide some credible data that an appraiser finds useful in their appraisal development that is fine. Appraiser is expected to develop an opinion of value in accordance to USPAP standard 1. We provide AVM’s and sales data when available and this data could potentially be adequate to provide a credible report. That is up to the appraiser to make the determination. Again, this is a desktop appraisal product with an inspection. When the client places an RER order, we engage a real estate agent or broker that works in the immediate area of the subject property. They will visit the subject property, take photos, and describe their observations about the subject property’s condition and features. They then complete a Broker Price Opinion or Competitive Market Analysis. The BPO or CMA report, including the inspection information is provided to the appraiser along with AVM’s and alternative sales in the area. The appraiser reviews this information and any other information that the appraiser needs and has available to develop the appraisal.
The BPO report and other data that has been provided to the appraiser would not be considered as appraiser assistance. The scope of the appraisal assignment is for the appraiser to complete the appraisal report as a desktop. Inspecting the subject property is not within the scope of work for these assignments. The scope of work determines what is and what is not appraiser assistance. Any information used in the report is data, not appraiser assistance. To illustrate, let’s take a more familiar example, the scope of a 2055 exterior appraisal report is to inspect the subject property and the comparable sales from the street. Other information such as size, year built, room count, etc. will be used from other resources deemed credible by the appraiser to use in the analysis with an extraordinary assumption that the information is correct. If someone who is not the appraiser does the exterior inspection for the 2055 exterior assignment, they are providing appraiser assistance, because an exterior inspection is in the scope of work for the appraisal assignment. The county assessor providing the property sketch, square footage, room count and the listing agent that described the subjects interior condition on a recent MLS listing are providing information that the appraiser may be using, but they are not providing appraisal assistance because measuring the property and inspecting the interior of the property are activities that are outside of the scope of work. Again, if it is a task the appraiser must perform because it is in the scope of work and it is performed by someone other than the appraiser, the appraiser must disclose it as appraiser assistance. Any task that is outside of the scope of work would not be performed by the appraiser therefore would not be appraiser assistance. I hope this answers any additional questions you may have.
There is some room to negotiate the fee based on the market rate other appraisers charge for the product, the scope of work, complexities, and time involved.
We have access to 94% of the MLS systems nationwide and our access to public records is even higher. We provide any relevant data in the subjects’ area that we have available including AVM’s and sales. We also organize and present the data using 5 different perspectives. When there is a lot of credible data, appraisers are able to quickly develop their appraisal opinion using these tools. When the data is more limited and more efforts need to be made to research, it could take much longer. The fee that will be quoted to you is the base fee. If you are assigned an order that will take a lot more research than typical, you are welcome to come back to us with a fee quote.
Another advantage to including a BPO report is that it gives you access to someone that buys and sells properties in the subjects’ specific market area. If you are assigned an order in an area that you are less familiar with you can contact the broker/agent directly and associate with him or her to help gain competency.
The Data entry for the RER is only a free form text box and a place for you to put your value opinion. As far as filling out the form it is not labor intensive at all.
We are experiencing an increase in volume in your state and would greatly appreciate your participation. We also strive to keep our RER panel smaller to help increase individually assigned volume. If this at all makes sense in your business model, we could certainly use a good appraiser in your area. I would encourage you to sign up. If at some point you decided it is not working for you, you can withdraw without any effect on your regular work for MCS Valuations.
No wonder the Appraisal Institute is pushing evaluations at every public forum out there: You’re future is based on $50-$100 assignments, not the $25 assignments you thought were coming. Boom times?!?!?
Some appraisers might think you can bang out dozens of these products per day. I contend that you’ll end up doing 1 or 2 if you are actually doing credible work versus form-filling. Am I way off here?
Take a look at the information and forms you’ll deal with – good grief.
RER-Appraiser Signature 
RER Appraiser Facing Presentation 
RER Sample 
Someone familiar with this told me that $50-$100 is now the value of your certified signature and wondered how E&O Insurance providers will view these assignments? Are they even covered in the current insurance binder?
Seems like a legitimate concern.
Don’t Ask, Don’t Tell About “The Weed”
My son is a police officer and when they smell weed on a traffic stop it enables them to search the car. Appraisers are being placed in the awkward position of not reporting something that they see during the inspection. This Corelogic work around seems very awkward to me. The again, I’m not appraising in Colorado. Thoughts?
Brilliant Idea #1
If you need something rock solid in your life (particularly on Friday afternoons) and someone forwarded this to you, or you think you already subscribed, sign up here for these weekly Housing Notes . And be sure to share with a friend or colleague if you enjoy them because:
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- And I’ll double down on avocado toast.
Brilliant Idea #2
You’re obviously full of insights and ideas as a reader of Housing Notes. I appreciate every email I receive and it helps me craft the next week’s Housing Note.
See you next week.
Jonathan Miller, CRP, CRE
Miller Samuel Inc. 
Real Estate Appraisers & Consultants
Matrix Blog  @jonathanmiller
Reads, Listens and Visuals I Enjoyed
- Investor Bruce Karsh Buys Grey Estate in L.A. for $68.82M [Mansion Global] 
- Moderation [Northern Trust] 
- Brokerage heads talk Premier Agent, Town's demise and commissions at TRD forum [The Real Deal NY] 
- Last year was the Bronx's biggest for development since the Great Recession [Crains NY] 
- Short-Term Supply Glut Not Lowering Long-Term Expectations For Queens Builders [Bis Now] 
- New York surpasses London on luxury housing market index [Financial Times] 
- Canada’s housing market flirts with disaster [Financial Times] 
- 'Vacancies are rampant' and other myths of city retail [Crains NY] 
- Is real estate ripe for disruption? [Crains NY] 
- These 95 Apartments Promised Affordable Rent in San Francisco. Then 6,580 People Applied. [New York Times] 
- China’s April New-Home Prices Rise at Faster Pace, Defying Curbs [Bloomberg] 
- Dave Perry-Miller Real Estate Agents Sell The White House of Dallas – [CandysDirt] 
- Podcast: Rising Rates Vs. The Housing Market [The Indicator from Planet Money/NPR] 
- The avocado toast homeownership meme, explained [Curbed] 
- Fannie Mae and Freddie Mac Refinance Volume Down in First Quarter 2018 as Mortgage Rates Rise [Federal Housing Finance Agency] 
- “It was definitely the last option": Heiberger breaks down Town's downfall at TRD forum [The Real Deal] 
- KKR bets on house flipping, invests in Toorak – [Biz Journals] 
- Le Belvedere, a Lavish Los Angeles Mansion, Sells for $56 Million [Wall Street Journal] 
My New Content, Research and Mentions
- The Ever Evolving North Fork [New York Times] 
- Home buying today: Fewer homes, higher prices, and faster deals [Curbed] 
- Rent prices are dropping across NYC—for real this time [Timeout] 
- Radio: Tax Overhaul Dents New York Home Sales [WNYC] 
- Wanted: Apartments with park views—without Central Park prices [Brick Undergound] 
- NW Queens Apartment Rents Take a Hit as Concessions Hit New High – [Connect Media] 
Real Estate Blockchain Reads
- Five Future Uses for Blockchain [The Street] 
- Crypto Enthusiasts Mob New York Conference [Wall Street Journal] 
Appraisal Related Reads
- Fix What is Broken before Replacing the Product [AppraisersBlogs] 
- What Is The FHA Septic Tank Rule? [Birmingham Appraisal Blog] 
- It’ll never sell that high (but then it did) [Sacramento Appraisal Blog] 
- Voice for Real Estate 85: GDPR, AMCs, Midyear Mtgs, Infrastructure [NAR.Realtor] 
- Rethinking Real Estate Valuations and Alternatives to Traditional Appraisals [NAR] 
- It Has To Be Most Probable! [Aspen Appraisal Services] 
- Market Value in Use is Not an Oxymoron [Counselors of Real Estate] 
- ACE: A Free Appraisal Alternative for a Faster Close [Freddie Mac]