Monthly Archives: February 2008

Absolutely Brilliant

Kudos to Trulia for this:

Trulia Voices is one of the most popular parts of our site. Our rapidly growing community has done a great job asking and answering real estate questions. Today, we’re excited to announce the release of our RSS feed widget for your Trulia Voices Answers. You’ll now have the ability to broadcast your Voices Answers directly on your website or blog. It’s a great way to expand the conversation.

The rest of the post is an illustrated, step-by-step instructions for anyone with even a modicum of Web savvy to put one of these widgets on his or her site.

This is frankly brilliant on Trulia’s part.  It’s agent users get a valuable tool/feature, and that in turn encourages them to participate more on Trulia’s website, which drives traffic and ad revenues.  (An aside: Why wouldn’t some of the top Trulia Answers agents be entitled to a share of the ad revenues Trulia is generating on their content?)

Oh yeah, if you’re a Big Brand or a Big Brokerage Company or a MLS… worry.  That’s one more thing your agents won’t need you for.


Value of Brokerage

Redfin has one of the best corporate blogs not just in real estate, but in…well, business.  Posts like this are the reason why.  Glenn Kelman takes the Freakonomics guys to task (gently, as is his wont) for relying on bad sample set to conclude that brokers have little to no value.

Stephen Dubner and Steven Levitt renew their argument that real estate brokers aren’t worth 6%, citing a study (PDF) conducted by Stanford economist B. Douglas Bernheim and one of his graduate students, Jonathan Meer, which shows that using a broker has no effect on a home’s average selling price.

We are an (online) broker ourselves, but have argued that consumers should be able to choose the real estate services for which they pay, so I’m not sure we have a dog in this fight. In the past, we have welcomed studies showing that buyers and sellers can get along without a broker, and argued that a client working with an online broker negotiates a better price. But in this case I was surprised that the Freakonomics team didn’t evaluate the Stanford economists’ methodology.

The Stanford study only evaluated 800 homes sold on the Stanford campus, “the ownership of which is limited to Stanford faculty and a limited number of senior staff.” In such an environment, marketing is much easier because of the small number of potential buyers, trust is high because of the buyers’ affiliations with one another, and supply is extremely limited: many academics would kill, or even teach an extra freshman survey course, to live on the Stanford campus.

It’s worth reading the whole thing for Glenn’s take on it.  He is, after all, the CEO of a fairly unique brokerage proposition.

As usual, Glenn is much nicer than I am. :)  One has to be willfully blind to the flaws of the Stanford study to make any conclusions about the value of real estate brokers based on that sample set.  That’s like drawing conclusions about commercial real estate based on a study of Class-A buildings in midtown Manhattan — the city that breaks the laws of physics.  (Did you know that Manhattan office buildings routinely have more rentable square footage than physical square footage?)  Neither place has much resemblance to other places, like say… planet Earth.

One of the biggest flaws of the Stanford study is the severe restriction not just on supply, but on demand.  These 800 houses are limited to Stanford faculty and limited staff (presumably, university brahmins).  Maybe I’m a wealthy VC in the area and would like to own a house right on Stanford campus — sorry, no can do.  And we’re going to make conclusions about pricing based on that?  It’s a neat trick to make statements about the free market once you’ve eliminated the free market from the analysis, no?

Glenn thinks college towns may be a signpost to the future:

In real estate and in life, college is a smaller, more perfect vision of how the rest of the world could be. We thought it was interesting that the previous academic study on brokers’ effectiveness focused on Madison, Wisconsin, because this is also a small college community where alternative approaches to real estate have reached critical mass. Maybe these communities point the way to a post-brokerage world waiting for all us, where both sides abandon their brokers, where we can access information for ourselves online, where we can come to terms more easily and economically.

I seriously, seriously doubt it.  For one thing, college housing may be immune to cyclical downturns.  For another, I’d imagine only military bases have higher turnover in population than college towns, even amongst the faculty.

This is not to say that real estate brokerage will survive in its current form.  There are enough broken things about how real estate works today that some change is inevitable.  It remains to be seen how things will evolve, and what the value of brokerage services will be in the future.

It may not be, as the Freakonomics team tells us, based on the idea that using a broker can get you higher prices on your home.  On the other hand, it may be that using a broker makes it easier to get you higher prices.  Huh?

I mean that presumably there’s a set of activities that one has to do in order to maximize price on a house.  Listing and marketing are a part of it, but so is something like staging a house.  The homeowner himself can stage the house, but maybe he’s a Professor of Economics and knows as much about proper staging as a real estate agent knows about the Black-Scholes theorem.  If there is some finite set of activities, then someone has to do them — otherwise, the price of the house will not be maximized.  A buyer will offer less simply because the homeowner forgot to clean his bathroom.

Real Estate agents may end up becoming something like a specialist in house staging, and extract value for that service.

Or it may be (as the Stanford authors admit) that using an agent results in faster sales, although not necessarily higher price.  There’s value in that.

Heck, there’s value in not having to be around to show my damn house to some damn couple.  It’s a convenience thing.

Now, none of those things may be worth 6%.  That’s a different kettle of fish.

For what it’s worth, I believe the future holds variable pricing for real estate brokerage services.  Rather than trying to enforce a one-price-fits-all model on consumers who don’t want all those services, brokers may end up offering a buffet-style set of choices.  Want me to show your house?  That’ll be 1%. Want flyers made up?  That’ll be 0.5%.  Want me to make a website for your house?  That’ll be $500.  That provides flexibility and choice to both consumers and professionals, allowing both to feel that they’re getting what was bargained for.

But even that model may not work on the Stanford campus with its restriction on supply and demand.


A Great Website — Can It Work Here?

I just ran across this fantastic website (h/t Instapundit).  Carlust is such a great name for it as well.

I really like Chris Hafner’s writing style as well — compact, personable, totally on-point.  Great blog writing, IMHO.

It works beautifully for cars.  I know it can’t possibly work as beautifully for houses, since cars are products: thousands of people can share their lust over a particular make/model.  At the same time, I know there is such a thing as Houselust as well.  Some of my former colleagues at Realogy were deeply in the throes of houselust — which might explain why they work at a place like Realogy. :)

Curbed does a fair job of houselust, actually, but it would be a really interesting experiment for someone to setup a blog and invite a bunch of people to post photos and commentary on a particularly beautiful house.  Like, say Falling Water:

For that matter, can you imagine doing a listing like a post on Carlust?  What would that look like….


Anyone a Betting Man?

Now, this is good news from NAR:

The integrity of data is a foundation to the orderly Real Estate market. The Real Estate Transaction Standards (RETS) provides a vendor neutral, secure approach to exchanging listing information between the broker and the MLS. In order to ensure that the goal of maintaining an orderly marketplace is maintained, and to further establish REALTOR® information as the trusted data source, MLS organizations owned and operated by associations of REALTOR® will comply with the RETS standards by June 2009, and keep current with the standard’s new versions by implementing new releases of RETS within one year from ratification.

So, by June of 2009, all MLS operated by Realtor associations will be RETS compliant.

Currently, only 63% of MLSes are RETS compliant.

If you’re a betting man, here’s an interesting wager.

Which standard will see 90% adoption by brokerage companies first?

(a) RETS

(b) Yahoo!/Trulia/Zillow standard

Now, do keep in mind that being “RETS-compliant” is still being worked out:

What it literally means, well that is still being defined. The RESO Certification Workgroup has been busy identifying what being a Compliant MLS means. Such as, the tests that the vendors need to pass to be a compliant product, and the tests/criteria that must be met to be a certified-compliant site (MLS). There will probably be much discussion regarding all this during the April 2008 RETS meeting in Philadelphia.

Not sure if Yahoo! et. al. have published what being “Yahoo! compliant” might mean.  Presumably, if you use their standard to publish and share listings data, that makes you Yahoo! compliant.  But who knows?

So… place yer bets!

And all you folks in commercial real estate… please accept my condolences for the state of data exchange in your industry.


A Development to Watch

From the invaluable Calculated Risks blog, Vallejo Close to Bankruptcy Filing:

Vallejo, a city of 135,000 outside of San Francisco, moved closer to bankruptcy after negotiations with its labor unions collapsed.

Bondholders will likely be asked to sacrifice some of their investment if the city seeks bankruptcy protection, an attorney for the municipality said last night. Vallejo faces ballooning labor costs and declining housing-related sales-tax revenue, leaving budget officials projecting that money will run out within weeks.

For people who have been hoping that the bottom may have been reached with real estate prices, I wonder what widespread municipal bankruptcy might mean.

Assuming that Vallejo’s municipal unions take the “devil take the hindmost” attitude that most unions do, the city will go bankrupt.  In bankruptcy, I assume the city’s finances will be administered by a magistrate or a bankruptcy judge.  (Although I have very limited experience with Chapter 9 bankruptcy, I did study bankruptcy law generally, so I’m assuming here.)

So.  Once bankrupt, will Vallejo (a) raise property taxes, or (b) lower property taxes?

If you guessed (b), bzzzt, go to the back of the line.

Maybe the court can set aside the union contract (as can be done in bankruptcy) and force the unions to negotiate all over with the now-bankrupt city, with court supervision.  But I don’t get the feeling that Vallejo is going to have a lot of services for the next few years, do you?  What would home prices in Vallejo look like a year from now, I wonder?

CR thinks that Vallejo is just the first in a long line of California municipalities that will be bellying up to the bankruptcy bar.

I think this is a development to watch.  Furthermore, it might not be a bad idea to take another look at your own town/city’s financials.  How’s their income — much of it tied to real estate via property taxes — compared to their pension liabilities and other generosities that cities flush with cash over the past few years have been showering on their public unions?