Diana Olick of CNBC interviewed me on the reason behind the luxury market uptick as a companion piece to her story on the luxury report released by Redfin.
The luxury real estate story starts at 20:58 into the broadcast:
Tags: Diana Olick, CNBC, PBS, Redfin, Nightly Business Report, NBR
I had been looking forward to my conversation with Ardell for a while. She is an associate broker with Sound Realty in Seattle Washington and blogs at Rain City Guide and on her eponymous site ARDELL’s Seattle Real Estate Blog.
She and I have known each other for years, having attended and participated in various real estate forums and connected online. She is always a thoughtful, candid and deliberate speaker.
One of the masters of social media, Ardell has created brand awareness well outside the Seattle Housing market.
For this conversation we Skype, and thanks to the Internet (a series of tubes), the sound level varies a bit – but stick with it because she has great insight on buyer agency, calling a bottom, social media and Redfin.
Note: If you’d rather not, Ardell has created a transcript of the conversation.
The Housing Helix Podcast Interview List
You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.
Tags: Redfin
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Periodically, I like to round-up some of my favorite recent blog posts that are housing market/credit/economy related. And of course, a few extras…
Honesty may be the best policy, but it’s important to remember that apparently, by elimination, dishonesty is the second-best policy – George Carlin
Housing Poll: Prices will Go Up, Go Down, or Remain Flat! [Truck and Barter]
Fedspeak Highlights: Yellen on the Economic Chill [Real Time Economics]
Just How Much Your Credit Score Impacts Your Interest Rate [Rain City Guide]
So many ways to dislike the home price stories [Square Feet]
Couple sues Google over Street View pics of their house [Valleywag]
Exactly Why You Should Bore Blog Readers With Real Estate Statistics [RE Tomato]
Foreclosure Crisis: Now I know Why There Is One [Realty Check]
Redfin Select: School-Marmish Innovator’s Dilemma? Becoming What They Hate? [3 Oceans]
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Last week, the well-known discount real estate brokerage firm Foxtons, closed its operations in the US, which was concentrated in the tri-state (NJ, NY & CT) region. Their web site lists them as having 10,000 listings per year (which doesn’t seem like a lot?)
In their announcement, they seem to suggest that the weak housing market was to blame, however, I think its more related to the business model itself.
They were originally known as “Your Homes Direct”, morphing into YHD Foxtons, as the British firm bought into them and then eventually dropped the YHD label. Curiously, the firm markets itself as “Full Service Realtors® in NJ, NY & CT.” But they were known as discount real estate brokers.
Their commission structure was originally 2%. I remember seeing the ads on my commute saying something like:
I noticed that some of the houses that were languishing on the market in my town, despite strong market conditions, were switching over to YHD as evidenced by the yard signs, and yet they still languished. I guess that these houses weren’t selling because they didn’t have the right pricing advice.
Or to look at it another way (apply liberal doses of sarcasm here):
if I want to make even more money by not selling my house because its priced too high, then I might as well save even more money by paying a lower commission…er…or something along those lines.
The implication in the Foxtons marketing pitch was that full-service brokers don’t do much for home sellers so why not pocket the difference? It was interesting to me that Foxtons eventually raised their commission to 3%, to about half the going rate to encourage other brokers to show their listings, likely because their overhead was too high.
I want my MTV…
Foxtons was like watching MTV in the early days. Targeted consumers watched MTV for the music. Targeted consumers listed their house with Foxtons for the low commission.
But both companies found they couldn’t make money the way they had intended so MTV went with reality programming and little or no music while Foxton raised their commission rate and level of service. In the case of the latter, they didn’t adapt fast enough and went under.
During the housing boom, there was a dotcom explosion with innovation running amok looking for solid business plans to latch onto. Some survived and some didn’t. YHD found a suitor in Foxtons, but was not able to find a place in the minds of sellers.
Perhaps the reason for their downfall, is that it is not all about pure cost, but rather a combination of cost, value and service level associated with buying and selling your home. And in a market with lots of competition, full service brokerage firms had better show their mettle and get results with better marketing. Its their chance to recapture market share lost to the discounters. Otherwise, there will be a lot of late nights at real estate brokerage offices spent watching MTV.
Perhaps hybrid versions of these discount models, like Redfin, will survive.
We will have several lean years to find out. And I still don’t want my MTV.
Tags: Redfin, NAR, National Association of Realtors
Redfin, the alternative to full service real estate brokerage companies, got a great public relations plug yesterday in a 60 Minutes segment Chipping Away At Realtors’ Six Percent: Lesley Stahl Reports How Realtors’ Commission Fees Are Under Assault
Hi-tech innovator Redfin goes up against National Association of Realtors. I ask this question yet again: Who is really handling NAR’s PR? Good grief. Even Wal-Mart has done a better job digging itself out of its pr hole as of late.
Competition is good for the industry, and innovation is even better. Redfin seems to be having success in their market and have ambitious plans to roll out their concept nationwide.
Its getting tougher For NAR to argue for the 6 percent commission as an industry when home prices have risen a lot more than that and services haven’t changed that much. NAR continues to put itself in the hot seat with no end in sight.
Redfin may have the math right, but I wonder whether the basis for the commission calculation is really apples and apples. In other words, with a non-traditional house marketing plan and some of their agents doing 8 deals a week, will the ultimate home sale be as high as that achieved through traditional channels?
I sincerely doubt it. I doubt that the average sales price achieved by Redfin will be as high as the average achieved by the traditional way of marketing a home so the saving money argument seems moot…for now.
The tangible market exposure for the property with Redfin is less (I know Redfin is inferring less exposure via NAR, but I don’t agree), but over time, and with continuing acceptance of new methods to sell homes, it may evolve into value parity. This new marketing concept won’t go away so traditional brokers need to take note.
CBS 60 Minutes “Hi-Tech Real Estate Moves In”
Tags: Realtor.com, Redfin, NAR, National Association of Realtors
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Since this week is all about surges and escalation, here are a few treads from The Tank.
Tags: Realtor.com, Redfin, NAR, National Association of Realtors
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As I watched my turn get closer and closer to hosting the [Carnival of Real Estate](http://www.carnivalofrealestate.com), I thought it was amazing how much great content is being pushed into the public domain every week through the carnival. In fact, carnival participants simply ooze creativity and new ideas. Simply look at [last week’s carnival post at BlueRoof.com Blog](http://blueroof.wordpress.com/2006/09/18/the-carnival-of-real-estate-at-blueroof-blog/) to get an idea of what I mean.
I started getting post submissions early last week and by Sunday I had a lot of reading to do. Although the carnival hosts are expected to post only their favorites, I thought to myself, how can I do that? So I decided to provide a top ten list and then everyone else. I excluded a few get rich quick posts and those who seemed to be more interested in selling something or extra posts from those who submitted more than one.
I am finding that some of the most active and insightful posts this week have been provided by real estate brokers. Its interesting to me because its been my impression that real estate brokers were somewhat late to blogosphere party as a profession but now they really get it and are rising in numbers quickly.
So its no wonder there was a lot of discussion about Redfin this week. I think that a weaker housing market sort of forces the real estate brokerage community to rethink the status quo. Thats really refreshing and I found myself adding links to my blogroll.
The Matrix Top 10 List
Here are the rest of the posts submitted in no particular order but are all a good read:
Market discussion (surprisingly quiet this week)
Raising the bar on the real estate brokerage profession:
Broker ethics and “get rich quick” schemes
Mortgages and Refi Strategies
New brokerage business models
Buyer and seller advice
Defies categorization
Thanks to all of those who submitted posts. Great stuff. Don’t forget to check out [YoChicago](http://yochicago.com/), next week’s host for the Carnival of Real Estate.
Its now 10:30pm EST on Sunday. I’ve got to get some sleep – going to be on [CNBC’s Morning Call](http://moneycentral.msn.com/Content/CNBCTV/TV_Info/middaycall.asp) live at about 10:15am on Monday for 5 minutes with another guest. Should be fun.
Tags: Hurricane, CNBC, Zillow, David Duncan, local market knowledge, Redfin, NAR, National Association of Realtors
We are now in post-Labor School Is In Session Mode and Matrix readers are showing it. This week we had many well thought out points of view on a whole range if issues. There were a few readers that stayed after school to finish them:
Falling prices do not spur sales—stabilized and rising prices do. Most people did not buy stock when the market was falling? If they did it was only because their “perception” was that the fall was temporary. Slowing of housing sales tells me that the current “perception” is that prices will continue to fall.
There is a definite distortion in Shiller’s graphic, but I think the error is in the gov’t inflation numbers. Ever since Greenspan instituted the “substitution principle” in the inflation gauge we have had a false reading of true inflation. I think inflation since 2001 has been so under-reported, that by using the official numbers, we are seeing this skew in Shiller’s graphic. Looking at real world examples where I live (central Florida), housing is up 110% since 2001, milk has gone from $2.20 to $3.40/gallon, and we all know what gas prices have done in the last 5 years. Even Disneyworld tickets have gone from $40 to $67. About the only places I have not seen major price increases would be automobiles and consumer electronics/computers, but those are from production efficiencies. I imagine most of the HELOC growth has been because people are needing the extra income to keep the same lifestyle they had in the ’90s because incomes have been flat while inflation has been much higher than reported.
If you want to know what the long term average annual price change was over the last few years as a whole then the OFHEO data is good. If you want to know what the average price change was during the most recent 12 months only you will not find that in the OFHEO data. This is becuase OFHEO uses same house data for determining their index – using the recent transaction compared to its prior transaction years ago. Apples to apples but measuring long term averages – not recent movement. A home bought five years ago and sold recently will show a positive average annual gain – even though it has declined during the latest period. The OFHEO HPI is essentially a rolling average of many years of price movement.
Market timing is inextricably linked to the efficient market hypothesis. The EMH states, quite simply, that it is impossible to outperform the market. Why? Because the market is all-knowing, an asset is always perfectly priced based on all known information. All market participants share the same information and no single player has any advantage. Market timing is a perfectly valid concept in an imperfect market, especially in those markets where information isn’t equally shared among all players (an information asymmetry exists). A single participant who receives advanced notice of information will most certainly have an advantage over the other market participants. Information assymetry in the real estate market is just one of the reasons that it is an imperfect market. Keep in mind that real estate is a radically different asset than stock. While the stock market is far from being perfectly efficient, it is most certainly more efficient than the real estate market. Don’t forget that insider trading is a form of market timing. Does it work? Yes, albeit not legal. While I don’t believe it possible to “time the market” in a traditional sense, I do believe that the price of an asset will revert to it’s fundamental-driven mean when both overpriced and underpriced.
While I agree that many are on the sidelines, I disagree as to why. I don’t feel people are not purchasing because they fear prices MAY fall, people are not purchasing because prices have NOT fallen. I am one of those buyers on the “sideline” and I’m not trying to time for the bottom. But I am looking for price reductions as I feel prices are overly inflated. (That being said I do plan to stay in any home I purchase for a minimum of 10 years.) So I feel that this doesn’t mean I’m trying to time the market. I’m just waiting for the inevitable and I think others are as well.
I sell real estate now, but I was in the business of design and Web development for years. There is a old saying and a glib truth in selling and buying design services: “you can have it good, cheap and fast; but you can only get any two of those at a time.” I think that applies across many industries including real estate services. There is certainly evidence that technology can change things. The ability for it to dis-intermediate an industry, as the expedia/zillow guys did to travel agencies, is possible, but also quite rare. I’d ask you if the customer has actually benefited from it? Are air fares significantly cheaper because of it? I haven’t noticed; and it now costs my time to find the best fare and route. Discount on-line stock brokers did not put the full service ones out of business. The smart ones that offer real knowledge and guidance are still around. Amazon did not kill Wallmart, Ebay has not replaced Christies, and Yahoo did not see Google coming. There is room in the market place for multiple business models. The perception of value is what’s important. The big lie in all of this is that people are led to believe that they are getting the same services for less. What’s missing from the Redfin service proposition is any claim that they will work to get a seller the highest price possible. That’s what brokers actually do. Their model is based around doing it cheaper not better; and you generally get what you pay for. The caricature of the overpaid, lazy real estate broker is spin that serves Redfin and others who would like us to believe it. Like the title of your post implies Jonathan, as an industry, full service practitioners and the NAR could probably do a better job at communicating.
I might be able to market-time the cost of housing, but I can’t market-time things such as losing my job, getting a new job, having a baby, terrorist attacks, parents dying, getting divorced, having a mental breakdown, or inheriting wealth. It may not be impossible to market-time housing prices, but simply impractical.
Tags: Zillow, OFHEO, Alan Greenspan, Redfin
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Radio
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Damon Darlin’s [The Last Stand of the 6-Percenters? [NYT]](http://www.nytimes.com/2006/09/03/business/yourmoney/03real.html?ei=5070&en=afb381f38b8a869a&ex=1157428800&pagewanted=all) was a really great overview of new brokerage services that are being offered. The article was very informative. However, after reading it, the article made me wonder who on earth would ever use a traditional broker again? Its not what I think the intention of the piece was.
New technology and new business models were pitted against longstanding tradition and a proven track record. There was a great phrase in the article referring to the difficulty of innovation in the real estate brokerage industry:
It’s a thousand tiny shackles on innovation.
A valid point. Innovation can ruffle feathers.
Well, rather than the idea that full service brokers are obsolete, I think the takeaway should be that there is room for both the old and the new. Like [Dottie Herman, CEO of Prudential Douglas Elliman](http://www.prudentialelliman.com/MainSite/Company/DottieHerman.aspx) (the firm for whom I author their [market reports](https://www.millersamuel.com/reports/) for) said at Inman San Francisco: [Technology won’t replace agents, agents with technology will replace agents [RCG]](http://www.raincityguide.com/2006/09/02/i-am-tiger-woods/). Exactly.
The irony in all this is the fact that the housing boom coincided with new venture capital monies which provided the opportunity for so many real estate start-ups to in fact, start-up. In fact, I see this as more of a dotcom real estate boom, with so many legitimate business models, rather than most of the silliness we saw in the previous dotcom boom, where thoughts of actually turning a profit would be figured out later.
Some of these new real estate technology sites will fail as the housing markets cool or their idea doesn’t catch on, while others will survive and thrive. Change can be good but its kind of hard when the system in place has been around for a long time.
I find that one of the weaker arguments to the new real estate models has been the idea of cost savings. Despite the near monopoly of listings through traditional MLS systems, there is the assumption that its an even playing field. In other words, users of these discount brokers assume that the property gets exposed equally whether its a [Foxtons listing (remember Your Homes Direct?)](http://www.foxtons.com/), a [Redfin listing](http://www.redfin.com/stingray/do/home?rt=tn-hb) or a full service listing, when in fact, I would speculate that it does not.
More eyeballs on a property, especially broker eyeballs, yield a higher chance for a higher price or simply a sale. In other words, a seller may be saving costs, but they could be working off a lower base (sales price) number because of the lower exposure. The cost savings seems to be more of a potential future benefit than at present and its not really comparing apples with apples (in theory it is, but not in practice). The MLS system is proprietary.
And what is it with [NAR and public relations](http://narblog1.realtors.org/mvtype/narinthenews/)? How can the NAR stir such ill will on a consistent basis? I continue to be amazed by their complacency and their disconnect with the public as an organization. Its tough to accept their word as gospel anymore. Even their current radio and TV ads about code of ethics seems to be too little too late. Its simply not fair to most realtors who are nice normal people and not the stereotype the profession has gained a rep for in recent years.
As a result, if you want to create a new real estate brokerage business model, now seems to be as good a time as ever.
Tags: Dottie Herman, Redfin, Radio, NAR, National Association of Realtors
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Jonathan Miller is President and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm he co-founded in 1986. He is a state-certified real estate appraiser in New York and Connecticut, performing court testimony as an expert witness in various local, state and federal courts. He holds the Counselors of Real Estate (CRE) and Certified Relocation Professional (CRP) designations. He is an Appraiser “A” Member of the Real Estate Board of New York and a member of Relocation Appraisers and Consultants, Inc.
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