LA real estate

Laying the Groundwork for a New Real Esate Company -- Part 2

In my last post on the evolution of homsho, I tried to explain how I looked at real estate commissions.  Ultimately, I determined that there just wasn't a logical correlation between the efforts made by most agents to market and sell a home and the 5-6% commissions that are traditionally charged in the Los Angeles market.  I could not come to terms with the rationale (if there is one) behind charging a home seller $30,000 to $36,0000 to sell their $600,000 home. 

Once I made the decision to offer an alternative to full-price commissions, I had to consider how that would impact the agents that I would be recruiting.  And that's when the idea of paying agents a commission went out the window.  Having been part of the management team at a traditional real estate brokerage, I know that the recruiting hook that is used by many brokers is, "Become a Real Estate Agent...Earn $____,000!"  You can fill in the blank with the biggest number you can think of -- a quick perusal of agent recruiting ads on craigslist illustrates that anything goes here.  But I also understood the reality of what most agents actually end up earning.   

According to the NAR's 2007 Membership Survey, the median income for a realtor was $42,600 last year.  An agent with between 6-15 years of experience earned $52,000 in 2007, and agents with 16 years of experience or more earned an average of $69,500 in 2007.  I decided that by paying agents a salary that was higher than the commissions earned by the average agent with 16 years of experience, along with benefits like medical insurance and a paid vacation, I could attract great agents who shared the vision of their changing role in the real estate transaction.

I also wanted to create some sort of an annual bonus plan for each agent.  I looked at the way that I had worked when I was an agent, and one of the things that I personally placed a lot of value in was the post-transaction survey that I sent after each of my transaction closings.  This was not only a terrific instructional tool for me, but, if I did my job right, it was a great collector of testimonials.  And so I thought that I should base a homsho agent's bonus on the cumulative total of their post-transaction surveys.   In other words, their bonus would be based upon customer satisfaction.  But then I recalled that Redfin's agent bonus plan was predicated on the exact same thing.  I wondered if I should come up with an alternative bonus plan just to avoid the appearance that this was somehow borrowed from Redfin.  In the end, I couldn't think of anything that made quite the same amount of sense.  And so I decided to stick with the bonus plan being predicated on customer service.  It made sense to me while I was an agent and it made sense to me now that I was creating a new company. 

With agent compensation resolved, it came time to pencil out the projected costs and revenues to determine if this ship would float.  Stay tuned for Part 3.  For me, this was when things got really interestin

Has Tragic News Become Everyday News?

Image by Getty Images via Daylife

It feels as though the housing market has hit bottom and is trying to move itself forward.   The agents that I talk to tell me that.  The NAR...well, let's stick to more credible sources.  The point is, even in the media's coverage of the housing crisis it seems as if those gray skies are gonna clear up.  But what if it's not really over?  Maybe it's just old news.  Maybe we've gotten used to it.  Maybe, when it comes to housing market news, the tragic has become the everyday.

At this point, it's likely some of you are labeling me a "gloom-and-doom" kinda guy.  But those who know me are most likely to describe me as an optimist.  So what gives?  Well, let's glance at some of the facts that I've collected today:

• There are now 500,000 foreclosed homes across America.
• There are now 3 million Americans behind on their mortgages.
• Foreclosure rates are growing higher and faster, not sliding back.
• There were 74,000 actual repossessions throughout the U.S. in May.
• A Credit Suisse report issued this past spring projects 6.5 million loans will fall into foreclosure over the next 5 years.

These are frighteningly large numbers.  They do not point to good times.  They seem to indicate we aren't even halfway through the housing mess.  It seems as though things are far from over.  It seems as though millions more families stand to lose their homes.

Where's the concern from our industry?  How do we dare tell our customers and clients how much they matter to us and then stand by and watch the greatest meltdown since the Great Depression from the sidelines?

Where is the heart, soul and conscience of the real estate industry?

A Free Business Card for Every Agent Who Plans on Having a Future in Real Estate

Before getting back to the genesis of homsho, the new real estate company that I'm launching, I need to take a timeout so that I may sing the praises of Retaggr.  This new company allows you to create a virtual business card that features all of your social media activities, and then embed that business card anywhere your name might appear throughout the Web 2.0 world.

Now, instead of just commenting on a blog with your name, you can use Retaggr to let people see your photo, twitter status, a link to your blog, and links to other social sites like Facebook. You can add any web widget to your Profile Card including Skype, Gtalk, StumbleUpon, Flickr, Youtube, Tumblr and more.

And why do I consider this mandatory for every agent who plans on having a future in real estate?  Because we're working with a new generation of consumers.  And these consumers don't really care how many Top Producer awards you've won.  Nor do they care about how many arcane designations follow your name.  They do care about who you are on the web.  They want to know about your blog, they want to check out your social media creds.   Your LinkedIn profile and Facebook page are more valuable in this new world than your GRI, CRS  and e-Pro designations combined.

Today's generation of real estate consumers don't believe that personal branding involves plastering your face on a bus bench or refrigerator magnet.  Your personal brand is what you do -- or don't do -- on the web.  Retaggr will be your business card of tomorrow.   And the good news is that you can get started today!

The Manifesto...laying the groundwork for a new real estate company

In February, 2006, I posted a Realtors' Manifesto for the Future to this blog.  In it, I talked about how real estate consumers' access to information would force the role of the real estate agent to change.   The post created quite a bit of comment in the still-developing real estate blogosphere.  Most of it, venom-dripping posts from folks who were not a part of the real estate industry (you know, the people we refer to as 'prospective clients') absolutely blasting away at real estate agents and our industry as a whole.  They had no use for any of us.  Then, now or in the future.

Well, a lot's changed since February, 2006.  But I think the Manifesto still reflects the coming reality of the real estate industry.  Perhaps it didn't go far enough.  But hindsight is always 20-20.  And the reason I bring all of this up is that posting my Manifesto was probably the first bit of empirical evidence that I was considering what my industry, and my role (an agent at the time), might be morphing into.

I've kept thinking about all of that.  I've watched some alternative business models launch and fall short.  I've watched others gain a tenuous toe-hold in their markets.  And I've watched and listened as large numbers of real estate consumers continued to object to the way traditional real estate brokerages did business.  I've watched one Harris Poll after another proclaim that real estate agents were given less respect by the public than used car salesmen.  And I've continually challenged myself to define a better way to buy and sell a home.

Price.  Let's start with the 'big rocks' first -- commission rates.  In my market (Los Angeles), it's hard to justify what 5% or  6% actually translates to in dollars.  Just a modest (by local market standards) $800,000 home should not require a payment of $48,000 in commissions to list for sale.  Please keep in mind, that I know what most agents really do (even those proactive agents, as they are taught to parrot) to get a home sold.  It simply doesn't equate to what the seller is asked to pay.  (And yes, I understand the famous folding dollar bill that illustrates how many different ways that commission is split.  Here's another news flash -- the home seller doesn't care.  Do you care how much of your tip your waiter keeps before they "tip out" the bus-person, bartender, etc.?)  The bottom line -- commissions need to re-adjust.  I don't call this "discounting".  I call this "charging a realistic commission rate."  And, by the way, these ideas began to germinate while the real estate market was going great.  Given the realities of today's real estate market, multiply everything I've just written by 10...or 1000. 

But I also know that competing on price alone does not make for a winning business model in any industry.  In my next post, I'll look at how I evaluated the concept of "service" and some of the other considerations that needed to be made in creating the homsho business model.

Good News, You Say?

It's amazing what  some of us take as "good news" these days.  Newsweek reported this week that investment bank analysts are predicting two more years of a painful consumer credit crunch.  Today, it's been widely reported that the foreclosure rate for the first quarter set a national record...with almost the same number of homes already in "pre-foreclosure."  And let's make the Ed McMahon foreclosure drama the cherry on this cake.  All the while, the NAR tells us that things are really looking up.  As Carly Simon once said, "These are the good old days..."

So what does a realtor do in the face of gloom-and-doom?  Why, launch a new brokerage, of course!  And that's exactly what I've been up to.  In the coming days, I'm going to share all of the whys and wherefores...the issues that I considered and re-considered...and how I came to the conclusion that now is the perfect time to launch homsho!  Stay tuned.

Doing Something Isn't The Same As Doing The Right Thing

Dire situations require that we do...something.  Our leaders need to show us that they can solve problems so they try their best to do...something.  But sometimes, something isn't enough.  And sometimes, if it's not the right thing, the problem actually grows.  And since this is a real estate blog, the something in question has to do with today's housing meltdown.

Right now there are competing bills in Congress that are designed to do something about the mortgage fiasco.  Two popular bills offer a bailout to homeowners by re-writing their current home loans at 85% of their homes' current appraised value.  That's certainly something.  Is it the right thing? 

Personally, I think the problem is more complex than either side makes it out to be.  And the first question we need to be asking about these questionable loans is, 'Can the homeowner even handle the reduced and re-written mortgage?'  Because the mortgage community was encouraged to give a loan to virtually anyone who chose to apply, we have lots of folks living in homes who should NEVER have been approved as home buyers.  Their credit scores tell the story -- they don't honor debts, don't pay on time and don't have the financial resources to recommend them as a good credit risk. 

We won't resolve much if we continue to try and create some sort of program for a large group of homeowners for whom any program will be the wrong program.  And that's where doing something could make everyone's problem worse.  Can you imagine coming through the other end of a $300 billion dollar bailout and still not seeing greater stability in the housing arena?   I guess I'm not convinced that changing the payment will turn someone who isn't a qualified homeowner into someone who is.  And we can ill afford to experiment here.  For the good of all the innocent bystanders, whatever is announced as "a solution" had better be one!

So what's the right thing?  Can you even imagine the government trying to go household by household, determining if the homeowners who are in trouble are otherwise well-positioned to be great homeowners?  That's not the answer...in fact, I'm not sure that there is an answer here, but it doesn't seem to me that it's going to be an easy answer.  Probably not reducable to a 15-second sound byte.  And so we'll probably end up doing something.  Here's hoping that none of it gets splashed on you.