Notorious R.O.B.

[Because Teri Lussier hath commanded me to do this post, and her wish is my command.]

RE Bar Camps are one of the fastest growing events in the real estate industry.  What the hell is a RE Bar Camp?

Well, start here.  The first one was put together by Andy Kaufman, Brad Coy, Mike Price, and Todd Carpenter in July of 2008, prior to Inman San Francisco.

It is, basically, an “un-Conference”.  Any number of people get together with no preset agenda, no preset speakers, no preset topics.  Then, anyone can basically post a panel or a presentation or a discussion topic, and whoever wants to go participate just goes there and does just that.

It’s very fluid, very dynamic, and the format lends itself extremely well to a give-and-take, open-discussion that is so sorely missing in other event types.

I’ve now been to a couple of these RE Bar Camps (hereafter, “REBC”) and they’re really quite fun and educational.  It helps that all the REBC’s so far have been free to attend.

As a result, there are REBC’s popping up all over the country.  Next week, I’m going to Virginia for REBCVA.  I missed going to Seattle, but looking at Phoenix, Los Angeles, maybe Houston, and there are REBC’s coming up in Portland and Denver as well.  I suspect we’ll see more.  (Although I’m still waiting on REBC Virgin Islands and REBC Oahu.)

My employer, Onboard Informatics, has sponsored a few and will sponsor a few more this year as well.  We support the REBC movement itself, and frankly, the sponsorships aren’t very expensive.

They are, however, from an events standpoint a bit of a pain.  Because each REBC is organized by an ad-hoc committee of volunteers, each and every sponsorship is a separate thing we have to work out.

At the same time, it would be a bad thing to deprive each local organizing committee of their passion and their commitment.

So I’m thinking, what would be great is some sort of a single, national (global?) clearinghouse for things like sponsorships.  Such a clearinghouse makes it easier for national players to sponsor REBC’s — I could see someone like BHG willing to step up with a national sponsorship.  So could someone like, say, Trulia.

Such a clearinghouse could also help the local organizers get bulk discounts on things like tags, T-shirts, posters, and other supplies.

I don’t think it should become the organizer, or start putting rules and such into place (except the obvious unavoidable ones, like “don’t run off with the money”).  But it would be helpful for those of us interested in sponsoring REBC’s.

-rsh

First, go read this series please.  It is a 20-part series by a practicing attorney on “What It Takes to Be a Great Trial Lawyer”.  An explanation of the series and its goals:

As I said in my first post on this subject, a great trial lawyer need not have all of the attributes set forth in this series of posts.  Admittedly, the “great trial lawyer” hurdle has been set  high.  Very high.  Indeed, if complete fulfillment of all of these attributes is required, the great trial lawyer may not exist at all.

These words and  high standards are not meant to discourage lawyers from embarking upon the path to becoming a great trial lawyer.  Every time a lawyer meets one of these super-standards clients will be better served,  professional reputation will be enhanced, and profession satisfaction will increase.    Thus, I believe that virtually every trial lawyer, even those who choose not to make the commitment to be a great trial lawyer, can benefit from the thoughts expressed in this series of posts.

These writings capture and applaud what I have observed  in lawyers whom I truly admire.  It includes observations I made while following my father around courtrooms in Central Wisconsin four decades ago,  insights I gained in  law school during an unforgettable speech by Ramsey Clark and discussions with a number of extremely competent professors, and my experiences during my  almost 27 years at the Bar.    As I mentioned at the beginning of this series of posts, the work of my mentor, John T. Conners, Jr., put me in the position to learn much of what I now know.

Second, I may write a lot of stuffzorz on industry and marketing and so on, but really, there’s no way I can offer anything on what it takes to be a great real estate agent.  But some of you can.

So I challenge you — all of you who are qualified — to put pen to paper (virtual paper even) and write “What It Takes to Be a Great Realtor”.  If you send me links, I’ll link to them.  Hell, I’ll put up a permanent page and put all the links up.  But don’t do it for me — do it for yourself, and for the others who could learn from your collected wisdom.

I would love to see smart, experienced, with-it Realtors really get down and dirty with something like this.  As a former lawyer, reading the Trial Lawyer series really resonated with me — mostly reminding me why I would never have been a good trial lawyer.  The industry needs something like this.

-rsh

“Forward, the Light Brigade!”
Was there a man dismay’d?
Not tho’ the soldier knew
Someone had blunder’d:
Theirs not to make reply,
Theirs not to reason why,
Theirs but to do and die:
Into the valley of Death
Rode the six hundred.

- Alfred Lord Tennyson, Charge of the Light Brigade

Todd Carpenter (@tcar on Twitter) has been named as the first ever Social Media Manager for the National Association of Realtors.

After an extensive search, we hired Todd Carpenter, a founder of RE Blogworld and of mariah.com, a network of real estate and mortgage web sites including lenderama, REMBEX, and Denver Modern Homes. Many qualified candidates, both inside and outside of the real estate industry, applied for the position, and I asked a small set of finalists to prepare assignments detailing what they would do during their first 90 days in the role and how they would handle a challenging issue leveraging the power of the RE.net and the blogosphere.

We loved Todd’s ideas, his easygoing manner, his reputation and how knowledgeable he is about social media. We also really valued his relationships with so many REALTORS® who are using blogs, Twitter, Facebook, LinkedIn, and other social media channels to connect effectively with one another and with potential clients and customers.

As I have recommended Todd for this job way back when — albeit layered with concerns — I am of course thrilled for Todd, and wish him the best of luck.  I have also been privileged to be invited to converse with NAR leadership about their social media strategy, with an emphasis on what the NAR Social Media Manager’s role ought to be, and have given them further thoughts on that.

Here, I want to expand with three further thoughts.

1.  Yours Not to Do and Die / Yours But to Reason Why

With due apologies to Alfred Lord Tennyson, I’d like to stress what this role cannot become: the voice of NAR for “social media”.

Becoming the “voice of NAR for social media” does two disservices: one to NAR, and one to you.

For NAR, it ghettoizes social media as “just another marketing channel” just like print, TV, radio, or email.  What is needed is not another “marketing channel” but a wholesale change in approach to how NAR connects with its members, with the public, and with policymakers.

For you, the disservice is that rather than becoming a change agent able to drive cultural change from within NAR, you become yet another communication channel — of which NAR has plenty.  I likened the proper role of the Social Media Manager to be something like a “cluetrain conductor“.  And I think that remains the case.

Yours is to reason why NAR does or does not speak to its constituents and the public on a particular topic, in a particular way.  And to force the organization itself to ask “Why?” or “Why not?”

2.  It is the Valley of Death

Well, perhaps “Valley of Death” is a bit dramatic — but it fit with the whole poetry theme!  Let’s rather call it the “Valley of Slowly Getting Co-Opted”.

What you know already is that the people at NAR are delightful.  They’re smart, dedicated, professional, and truly cares about the industry, about their members, about consumers.  Contrary to some of the portrayals of NAR in the media and RE.net, I have found that everyone I’ve met at NAR is just wonderful.  There isn’t a person who works at NAR that I’ve met personally who I wouldn’t want to go have a beer with, or talk policy with, or even just talk about our favorite movies with.

This is a danger to you.

Because it is far too easy to become “one of them”.  JeffX’s twitter joke is actually profound:

@JeffX: Hey TNar, i mean @tcar will the NAR allow you to maintain your Ninja rights?

It isn’t simply NAR allowing you to be the person they hired; it is also you staying the person they hired, instead of slowly transforming into “one of them”.  You can’t stop the blipstreams, now that you have this “important position” in the real estate world.  You can’t stop blogging, can’t stop Twittering as @tcar, and can’t suddenly become “respectable”.

Of course, NAR can’t try to stop you — that plainly defeats the purpose of bringing you inside the fold.

3.  Be the Virus

The remedy, then, is to internalize that one of the biggest values you are bringing to NAR is to be the “virus from without”.  Your task is to make NAR more like you: open, authentic, honest, and constantly in touch.

Just as you have been transparent to the RE community over the years, so you must “infect” the rest of NAR to become transparent.  Just as you have always been one of the most authentic human beings on RE.net over the years, so you must infect the rest of NAR, the state associations, the member organizations, and indeed the NAR members themselves to be more authentic, be more human, and be more connected.

Through those efforts, I know you can bring in the fresh voices, the new perspectives from the RE.net and realestistas everywhere to the mainstream of the industry.  And you know that you have friends and allies who support you in those efforts.

So once again, congratulations to both you and to NAR.  You have my best wishes, and my pledge to support your efforts to become the Cluetrain conductor we so desperately need.

-rsh

(PS: I posted this publicly because many of the thoughts here are applicable to any large organization that is starting up social media initiatives, and to anyone working at those organizations.  And because some of these things are worth discussing.)

In part 1 of this series, we discussed Information Operations and the importance of integrity in counterinsurgency strategy.  I took lessons from the U.S. Military, and the author of those doctrines Gen. David Petraeus, and applied them to the real estate industry.  In this installment, I’d like to take a look at another key principle of counterinsurgency and how those lessons apply to Big Real Estate: Importance of Local.

Petraeus On Local

Counterinsurgency is intensely local, and reflects lessons of Fourth Generation Warfare. Digression follows!

First generation warfare is all about formations, line and column, and massed infantry.  It is what Napoleon was a master of, and conquered half of Europe with, until he ran into better-trained British infantrymen.  [Making this digression even more of one, for a really entertaining look into first generation warfare and what that looked like, check out the Richard Sharpe series from the British historical novelist Bernard Cornwell.]

Second generation warfare emphasized massed firepower (aka, “massed artillery” and machine guns ) instead of massed manpower.  The idea was that artillery would bombard the enemy into submission, while the rifleman simply mops up the mess.  World War I was mostly a second-gen affair.

Third generation warfare emphasized speed and maneuverability (“blitzkrieg”) to neutralize the advantage of massed artillery.

All of these approaches concerned themselves with taking on an established, uniformed opposing army.  When the enemy disperses and become guerrilla forces or insurgents, then these strategies are of limited utility.

Fourth generation warfare is precisely this sort of war — insurgents, terrorism, propaganda, information operations, where the line between combatants and civilians is intentionally blurred, etc.

With all that said… here’s Gen. Petraeus:

Securing and serving the people requires that our forces be good neighbors. While it may be less culturally acceptable to live among the people in certain parts of Afghanistan than it was in Iraq, it is necessary to locate Afghan and ISAF forces where they can establish a persistent security presence. You can’t commute to work in the conduct of counterinsurgency operations. Positioning outposts and patrol bases, then, requires careful thought, consultation with local leaders, and the establishment of good local relationships to be effective.

Positioning near those we and our Afghan partners are helping to secure also enables us to understand the neighborhood. A nuanced appreciation of the local situation is essential. (Emphasis added)

Conducting counterinsurgency means getting close to the local situation, having boots on the ground in the local community, providing security to the local area, and truly understanding the local neighborhood.

He may as well have been talking about real estate. Read the rest of this entry »

It may be completely inappropriate to compare the life-and-death work of our military in Afghanistan to the buying and selling of real estate ensconced in our safety… but I could not help but read this with interest:

We also must strive to be first with the truth. We need to beat the insurgents and extremists to the headlines and to pre-empt rumors. We can do that by getting accurate information to the chain of command, to our Afghan partners, and to the press as soon as is possible.Integrity is critical to this fight. Thus, when situations are bad, we should freely acknowledge that fact and avoid temptations to spin. Rather, we should describe the setbacks and failures we suffer and then state what we’ve learned from them and how we’ll adjust to reduce the chances of similar events in the future. (Emphasis added)

That is from a recent speech that General David Petraeus gave at the Munich Security Conference talking about the very real, very serious problems of fighting Al Qaeda and Taliban in Afghanistan.

But if he were speaking at just about any real estate industry conference, I don’t know that those words would be any different.

How often have we heard condemnations of NAR, and specifically of David Lereah, former Chief Economist for NAR?  There are even whole websites set up to rant at Mr. Lereah.

And according to at least one real estate professional, David Lereah and the whole ‘head-in-sand’ approach to the RE market hurt her directly by undermining the credibility of the profession, forcing her to un-educate then re-educate consumers, and establish her own credibility as a realtor.

What’s more, not one big brokerage or big brand in real estate was sounding the alarm back in 2005 or so, while individual realtors were starting to get real skeptical of home values, and blogs like Patrick.net were in full bubble-warning mode in 2005.

What has that done to the brand image of all Realtors?  What has the failure to freely acknowledge that situations are bad, the failure of so-called ‘real estate experts’ to warn about the housing bubble, the failure of so-called ‘mortgage experts’ to warn about the credit bubble, and the failure of so-called ‘ethical professionals with fiduciary duty to clients’ to properly advise buyers during what was obviously a bubble done to the industry?

Post-bubble, has there been any major statement by NAR or by a major brokerage acknowledging the “setbacks and failures” and stating “what they’ve learned from them and how they’ll adjust to reduce the chances of similar events in the future”?  If so, I missed it. Read the rest of this entry »

In the comments section of my post on Alex Perriello’s confidence in denying a bankruptcy for Realogy, a commenter by name of “Still Don’t Agree” raises several very interesting points.  And because SDA wasn’t a raving lunatic, but apparently a very smart, very logical, and a calm & measured commentator, I thought it worth using his comment as the springboard to challenge some of the conventional wisdom circulating out there.

[And just in case some non-regulars don't realize, I used to work at Realogy, but never in the corporate executive suites, and haven't since November of 2007.  I have no special access to anyone, no inside info (although I would love to get some *hint, hint*), blah blah blah.  These are just my opinions as an industry observer.]

So SDA raises three points worth countering: Unprofitability, Cut in Services –> Loss of Revenues, and the Apollo Factor.

Unprofitability

First, the whole unprofitability issue.  SDA writes:

But bottom line, Realogy has little to no cash reserves, is running out of credit and their revenue isn’t covering interest payments AFTER making $350 million in operational cuts.

Sure it’s a profitable company without that debt hanging over their heads, and kudos to their managers for that, but that debt IS there and it isn’t going to just go away- so looking at revenue before the interest is quite frankly irrelevant. Spin it anyway you or Realogy wants, THEY ARE OPERATING IN THE RED.

To survive, they either have to make more cuts that don’t hurt revenue, increase revenue, find a lender to extend them more credit until the market gets better or get their lenders to restructure debt and/or wave interest payments.

Now, to be fair, SDA makes a great point here.

It is an indisputable fact that Realogy is losing money; it is in fact operating $50M in the red.  In SDA’s view, the reason why they’re in the red is irrelevant, since Realogy doesn’t have cash reserves, and lenders don’t care.

In my view, it’s highly relevant why a company is in the red if I’m a lender.  If a company is in the red because their core operations suck ass, then my likelihood of seeing my money back decreases, and I’m going to freak out.  But if their core operations are profitable, and they’re throwing off cash in desperate economic times, and they are making interest payments… and because of said interest payments to me, they’re in the red, well, then I’ll be cautious and watchful but happy to cash their checks.

Why would I want to mess with someone making payments and bring lawyers and bankruptcy judges and special masters and such into the picture?  Because I like the idea of going a couple of years before a distribution is made in which I’ll get a few pennies on the dollar on my unsecured debt?  And that only after I’ve spent a couple of million bucks paying my own creditor counsel?  Yeah, okay.

Now, let’s examine this “Realogy has no cash reserves” statement.  During to the Q3, 2008 Earnings Call, which is the latest available, Tony Hull the CFO said this:

Turning to the balance sheet on page 7 of the 10-Q, we ended the third quarter
with a $280 million balance on our revolving credit facility along with a reported cash balance of $269 million. This total includes $226 million of available cash from a draw-down on our revolver. We elected to hold cash because of current market uncertainty.

So they’re holding $269M in cash, and $280M on the revolver of which $226M is available?

Since Realogy’s net loss after interest and depreciation was $50M in Q3, this would imply that Realogy can limp along under Q3 circumstances (the latest quarter for which we have data) for some ten quarters, or two-and-a-half years?  Geez — call the lawyers and get to the courthouse!  They’re going down!

So in brief, to survive, Realogy doesn’t have to make any cuts, doesn’t have to get any more loans (assuming that the revolver is appropriately papered by sophisticated lawyers and relatively ironclad), until Q3 of 2011.

Could business get worse and shorten that timeline?  Sure.  It could also get better.  But the “Realogy ain’t got no cash” argument rings hollow to me.  Then again, what do I know?  I’m not a Wall Street analyst….

Cut in Services –> Loss of Affiliates

The second point that SDA brings up — and others have brought this up as well — is that the $350M in cuts at Realogy, and the expectation of further cuts down the line, will lead to affiliates and agents leaving Realogy family:

After $350 million in operational cuts I question how they could make further cuts that wouldn’t impact revenue. The company’s customers aren’t people buying homes, rather it’s the agents and franchise brokers they service. At some point in time if services are cut too drastically, franchises will leave and agents, who are independent contractors, will find other brokers to work for.

With the market and economy as they are and all the negative media starting to swell around their company I doubt they can drastically increase revenue. That would mean recruiting successful agents away from other companies at a time when ever competitor is waving that US News report in front of the agents they already do have.

Okay, let’s take this at face value for now and agree, for the sake of discussion, that SDA is absolutely correct that the budget cuts lead to service cuts.

For those service cuts to lead to mass exodus of productive affiliates, Realogy has to be providing some set of franchisee/agent services that these cuts is impacting.

For the vast majority (and I mean well over 90%+) of franchisees, the reason they became franchisees in the first place was not because of some ill-defined service Realogy provides but simply because of the (perceived) power of the brands like Coldwell Banker and Century 21.

I’ve sat in on some of the “VIP meetings” where corporate staff try to sell a franchise to an affiliate.  I’ve even made presentations at those.  And you know what?  Despite all the goodies we dangle in front of them (“10% off at Staples!” and “Discounts on your cellphone plan!” and so on), at the end of the day, the decision to sign up is based on the principal broker’s feeling that the brand will bring them business they wouldn’t otherwise get.

The argument that service cuts will inevitably lead to loss of affiliates is somewhat like saying that folks aren’t going to buy Gulfstream G650′s because of the price of fuel.  It’s completely ancillary to the core decision.  Keep in mind that affiliates sign a ten-year agreement during which they fork over 6% of all commission income in exchange for use of the brand.  They’re going to jet because the Realogy field rep only comes once a quarter instead of once a month?  Come on now.

Further, to claim that even if the affiliate broker won’t leave, the agents will is to not understand agents very well.  And it is to be ignorant of the real revolution going on at the heart of real estate today.  If even a single agent really leaves his Coldwell Banker branded brokerage to go to some other franchise brand over the “cut in services”, I’ll print this blogpost out and eat it.  In fact, that the agent cares not at all about the services provided by the Realogy brand is the real problem here.

You can verify for yourself if you’d like — go grab your local Century 21 agent and ask her what services she’s afraid of losing when Realogy cuts another $20m in costs.  If her answer is anything other than “Nothing”, please come back and tell us.

Now, let’s actually examine that assertion for a moment.  Again, from that same earnings call transcript, here’s Richard Smith, Chairman of Realogy:

As to NRT management’s ability to attract and retain top-producing agents, as in prior periods, NRT retained approximately 92% of GCI from its top two quartiles of sales associates in the third quarter. The top two quartiles generate approximately 88% of NRT’s revenue.

Consider that the NRT is Realogy’s company owned stores (if you will).  If the budget cuts have a service impact, the NRT agents are the ones who will be most directly impacted.  Affiliates have their own budget, their own issues, but the NRT is directly tied to Realogy’s financial problems.

If cuts in services lead to mass defections, then the NRT should have been losing droves of these top producing agents.  They have not.  I have no idea whether 92% retention is good or bad for brokerages, but it certainly doesn’t smell like panic to me.

And one final piece of counter-evidence from the wider agent world.  This is from a Keller Williams agent in Boise ID speculating on the coming bankruptcy for Coldwell Banker and ERA (this is the “competitor waving that US News article” thing):

It seems a high debt load and low cash reserves may be signaling a likely default in a troubled market. Why am I surprised? Well mostly because the of number brokerages Coldwell Banker has been buying up in the Boise area. I’ll be watching this one closely in the weeks and months to come.

Here’s a hint: when someone is buying up competing brokerages, that someone ain’t hurting that bad.

The Apollo Factor

The final point that SDA raises is that lenders might want to push things to force Apollo to cough up some dough:

That means Realogy’s survival basically hangs on the charity of lenders who, at some point in time in the near future, will more than likely have to wave interest payments in order to allow the company to make payroll. Problem is, Carl Icahn, their largest lender, isn’t exactly known for his charity and other lenders have their back so far against the wall right now that you can’t be sure they will always do the logical thing.

More important, if you’re a lender in this situation, it’s pretty hard to forfeit the interest you are owed when equity holder Apollo has mighty deep pockets.

Okay.  Maybe this makes sense to someone on Wall Street, but as a former bankruptcy guy, I just don’t get it.

Unless Apollo signed a guarantee of some sort on Realogy’s debt that puts them on the hook in the event of a default or bankruptcy, that Apollo has deep pockets is completely irrelevant to bankruptcy.  Because Apollo presumably is the equity interest here.  With such a high debt load, in the event of even a Chapter 11, Apollo’s interest is likely to be extinguished completely.  That sucks for Apollo, but it isn’t as if Apollo is going to then be liable to the creditors.

An equity holder’s liability is limited to the amount of equity in the company.  That’s the whole premise of limited liability.

So all that a lender would achieve here is taking over Realogy’s equity from Apollo in some sort of satisfaction for the debt.  Think of it as a giant foreclosure.  But to do that, we’re talking about years — and I mean years — of litigation in bankruptcy court with Realogy, with Apollo, with other creditors, with the Trustee possibly, with vendors, with unions, with landlords and so on and so forth.  And during these years of litigation, no one gets paid a damn thing.

If you’re a lender — even a nasty one like Icahn — and you’re actually making a vulture play to take over Realogy via the credit path, you’d be far far better off just offering Apollo a private deal to swap equity for debt.  Everyone keeps getting paid, Icahn takes over Realogy, and Apollo goes away, and no one is much affected.

Anyhow, I have no earthly idea why I keep writing on this topic, but I do confess a weird sort of fun in it.   But then, I’m not a Wall Street guy, and those guys are financial experts who wouldn’t ever make a mistake on debt valuation or things like that now… would they?

-rsh

PS: Final parting thought.  Why is this robust defense of Realogy happening on my widdle WordPress blog and not on the Realogy corporate blog?  By people who know what the hell they’re talking about?  Mark (Panus) — call me, I can help you with a social media strategy.

Ash nazg durbatulûk, ash nazg gimbatul, ash nazg thrakatulûk, agh burzum-ishi krimpatul.

One ring to rule them all, one ring to find them, one ring to bring them all, and in the darkness bind them.

Twitter, some say, is a useless waste of time.  That’s often true.  But then, sometimes, it’s really kinda fun and useful to boot.

Case in point:  Earlier today, I had  brief Twitter exchange with a few people starting with a question I asked.

“Why do you have a ‘website’ and a ‘blog’?  Why not one site that does it all?”

A number of people responded that they were struggling with that very question.  Still others provided even more in-depth thoughts.  Kelley Kohler (@housechick) had some very interesting insights on the blogpost linked to above:

It’s an interesting line to walk, and it’s taken a bit of doing to stop thinking about the blog like it’s a blog, because it isn’t a blog, it’s a framework (can I get that printed on a t-shirt?).  Having started originally with AR and Blogger, it was a difficult mindset to break – two blog services where blogs really ARE just blogs.  But for WordPress and Drupal, they aren’t blogs, they’re just platforms, a framework.

In the end, it’s not about what is website and what is blog, it’s about where in the framework some piece of information should live.  And that’s a liberating place to be, conceptually, while in the midst of designing a new web presence. (emphasis added)

While I agree with Kelley wholeheartedly from a certain perspective, I do think she discounts a bit the psychological and marketing imperatives that may be driving realestistas to divide their web operations between a “website” and a “blog”.

Crass Commercialism vs. Authentic Engagement

I think the hint of the underlying issue came from Fran Bailey (@franbailey) who wrote:

My site is my blog which focuses on helpful info 4 buyers. They can search listings on my broker’s site which promotes listings.

The mantra of Web 2.0 — borrowed from the good people of Cluetrain — is authentic engagement.  People don’t want to be sold.  They don’t want to be marketed to.  They don’t want to be a lead.  And so on.  Hence, the listings — which is the basis of the commercial engagement — are over there on the broker’s site.  My site here is where I’m simply helpful.  I understand the instinctive pull.

There’s something to this perspective that says that anything which smacks of crass commercialism is bad in social media/blogging/whatever-you-call-it and that blogs have to do more to educate, to engage, to brand the writer as a local expert, and so on.  To surround a post on the local neighborhood with listings, or to have a “Ten things to consider about mortgages” with a “Featured Listing” does seem somewhat… in bad taste in the world of bloggery.

Even Kelley Kohler’s own website (which, I guess is under revision) shows that the blog lives in a top nav link and lives in its own url (www.mytucsonblog.com).  In addition, her blog has no listings search, even though her “website” features a listing search prominently in the top left position:

So I do think there’s something to the division between the “storefront” and the “fireside chats” in the real estate world.

False Dichotomy

And yet, is there a notion that such a dichotomy is just a bunch of hooey?  Mike Simonsen of Altos Research (@mikesimonsen) pointed out to me via Twitter:

@robhahn riiight. as if there’s a hard line between the personal and professional. The functional difference is one of tone

As a matter of fact, a blog is — in a way — a gigantic extended ad.  [Granted, I thought (and said to Mike) that Notorious ROB was my personal blog written primarily to entertain myself, while the corporate blog of Onboard Informatics, my employer, is where I write to promote Onboard and its products and services.  But Mike may be right.  Perhaps with social media, we are entering an age where the Personal is the Political Commercial.]

For a realtor blog — one written to help drive business, as opposed to satisfy the blogger’s need to put words on virtual paper — the distinction disappears completely.  The Personal is the Commercial.

All the advice-giving, all the helpful hints, all the videos of mojito-making, and so on continually brand the realtor as an expert, as a good person, as a fun-lovin’ master of the mystic liquors.  Since real estate appears to be an intensely personal business, it simply pays to be personable and personal.

And if the advice-giving, helpful hints, and videos and twitstreams and such are actually not bringing you any business… then don’t you have to ask yourself why you even bother with the blog?

Just sayin’.

One Site to Rule Them All

But having established the business importance of being personable… why leave a “website” hanging out there ruining all of that goodwill?  What’s the point of a brochureware site that has a bunch of boilerplate about how great an agent you are, or how much you care about your clients and all that when you have a whole other website dedicated to showing, rather than saying, precisely those things?

The ideal realestista site to me is one where you have the fusion of content: listings, statistics, and dynamic content.  For larger organizations, listings and statistics will take precedence, but they too need dynamic content that showcases their brand promises and lets consumers form authentic relationships with their people.  For individual realestistas, I think the dynamic content drives the site, but listings and statistics must also be present.  Again, see Kelley Kohler’s site for a great example.  She already has her latest blogpost there; why not just merge the thing together and create the ash gwî (One Web…site)?

The consumer knows — or should know — that he is on a realtor’s website, reading a realtor’s opinions and professional advice, and learning more about that particular realtor.  Either the site visitor is in the market or is not; if he is not, then he may turn into one at some point or refer you someone who is.  If he is in the market, then he’s not only looking for a fun person who knows a lot about real estate and the local communities — he’s looking for someone who can help him.

Authenticity does not mean pretending to be a disinterested commentator — hell, I’m as close as such things come, and even I’m not 100% disinterested in everything.  So in that, Mike Simonsen may be right.  Authenticity simply means trying not to bullshit someone, spin bad news, get into marketingspeak (“this house is doubleplusgood” is a bad sign), or such.  It means letting your personality come through while at the same time maintaining the commercial nature of the desired relationship.

The dichotomy is false.  Ash gwî durbatulûk!

-rsh

Now this is not the end. It is not even the beginning of the end.  But it is, perhaps, the end of the beginning.

- Sir Winston Churchill

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One of the true pioneers of the new generation of real estate companies, Redfin, has launched a new partner program:

Redfin released a sprawling, glorious update to our website last night that changes Redfin in two fundamental ways:

1. We built data-driven agent profiles, showing every deal our own agents have done and every customer review, even on deals that failed.
2. We opened up our business to partner agents and we published all their deals too, surveying old customers for reviews.

How does this change Redfin as a company? Well, when we upgraded our own service last November to offer unlimited home tours and a choice of agents, everyone said we were becoming less virtual. And now that we’re connecting consumers with partner agents, folks will say we’ve become more virtual.

Actually, I think the change to Redfin as a company is far deeper and far more subtle than what folks will say.

The Peanut Gallery

A hint of what’s changed comes from Gregg Swann of the Bloodhound Blog:

If Redfin can make five figures a day on what may not even amount to a single full-time staff line, that’s a killer business.

Maybe even such a killer business that it will replace client-representation altogether. Implausible? One of Redfin’s planned expansion cities is Phoenix — where our numbers are worse than Kitsap’s. Of the RE 2.0 players, only Estately.com does anything like this, but Redfin could go into the referral business virtually anywhere, virtually overnight.

And Louis Cammarosano of HomeGain said with maximum succinctness, over Twitter: “It means they are becoming like Homegain.”

John Cook at TechFlash took Redfin to task:

The concept is not new. In fact, Seattle area companies such as Estately and HouseValues.com also earn money through agent referrals. But the program is a big switch for Redfin, which has always touted the customer service focus of its agents. Kelman said he was “terrified” that the partner program “could screw up the brand.” That’s why the company interviewed all of the partner agents and implemented an agent review system on the Redfin Web site. It also reserves the right to remove partner agents that are not living up to customer service requirements.

Kelman downplayed the possibility that Redfin would move entirely to a partner model. “There is something in Redfin’s blood that we like having direct relationships with the customer,” he said.

This change is a fundamental one.  This is not a mere extension of the Redfin model and philosophy.  It’s something else.

What Was Actually Done

TechFlash post above actually has a pretty good brief description of what Redfin actually launched:

Starting today, the company has aligned itself with 35 real estate agents from 13 different brokerage firms in nine counties. The agents, which receive a profle page on Redfin and must have completed 15 transactions, pay Redfin a 30 percent referral fee on any completed deals. Redfin then refunds 15 percent of that fee to home buyers, keeping the other 15 percent.

But Redfin has more info on this front:

Every single one of these partners committed to our consumer-friendly values as a prerequisite to joining the program:

1. Technology: the partner refunds part of his commission to the client because the client asks for service online using our tools.
2. Service: the partner is not allowed to do any of the funny-business around forcing someone to use him when buying a house; the partner earns more when the client is satisfied.
3. Transparency: the partner publishes information about all his deals, and all his reviews; the partner provides the service requested by the consumer and nothing more unless asked.

Furthermore, rather than sending the “leads” to the agent (or multiple agents), the Redfin model places that power in the consumer’s hands.  The consumer sees the deals, failed deals, activities, etc. of the partner agent, then actively chooses to contact that particular agent.

So, the major differences between Redfin and other models are:

• Power to choose in the hands of consumer
• Transparency on agent quality metrics
• Refund back to the consumer

But all of that, still, fails to address the central, subtle, and fundamental change.

The Change

Basically, by going to a ‘partner’ model, Redfin is no longer responsible for the consumer service experience.

Now, Glenn Kelman and others at Redfin vigorously dispute this:

The story said that we had been “terrified” about potential problems in our partners’ customer service without explaining that we said that to introduce the steps we took to avoid those problems. (emphasis added)

And

We planned for Redfin’s partner program in a financial model built in 2007. We experimented with it earlier than that, canceling the program in 2006 after it became clear that we had no way of being accountable for good service to the client.

…

We could have offered a year ago the referral programs typical in the industry, selling the client out to multiple unnamed agents for a fee. There was ample financial pressure to do so. We stuck to our guns to create something much better, building an entire accountability system and a set of tools for a client to ask a particular agent to perform a particular service, interviewing every partner agent in person, and checking each agent’s references over a year back, so we could offer a partner program consistent with our values. These values are why we radically cut the profitability of the program by offering half our fee back to the consumer. (Emphasis added)

For what it’s worth, I completely believe Redfin.  And furthermore, Redfin might very well be successful.

However, there is a large gap between “building an entire accountability system” and actually being accountable.

Redfin is a brokerage in the markets in which it is active.  The agents who work for Redfin are employees of Redfin, and Redfin as an entity is accountable to the actual consumer for the service experience.  In fact, while I don’t know for sure, I’m going to guess that Redfin has a certain “Redfin Way” of “Redfin Service Standards” or whatever that it enforces on its agents.

If I’m a Redfin agent, and I don’t live up to Redfin’s performance standards, then Redfin has a variety of tools and methods at its disposal to enforce standards.  With these partner agents, no matter how well Redfin screens ‘em, Redfin only has one way to enforce standards: remove them from the program.

If I pick a partner agent, and have a terrible experience, who do I get to blame?

The Liability Question

A way to crystallize the issue is to consider legal liability.

Suppose that some unhappy consumer sues the partner agent after a deal goes south.  (Not saying this would happen, but thinking about lawsuits help clarify some issues.)

The agent’s actual broker would be named in the lawsuit, since legally, the agent is just representing the broker.  The broker’s E&O insurance would come into play, and the lawsuit would then focus on whether the agent’s acts/omissions rose to the level of professional malpractice.  The broker’s processes, standards, training, screening, etc. would all become relevant as to establishing liability under respondeat superior theory.

Where does Redfin fit into this?

On the one hand, the consumer would absolutely sue Redfin.  After all, Redfin supposedly screened all of its partners, and built an “entire accountability system”.  That a crappy agent slipped through resulting in a big loss for the consumer means that the consumer has a reason to sue Redfin.  After all, he went to Redfin to find an agent, and relied upon Redfin’s representation as to quality, professionalism, and ethics.

On the other hand, Redfin’s defense would presumably be along the lines of, “We ain’t the boss”.  They would presumably assert that respondeat superior does not apply in their case, because the agent doesn’t work for them.  They don’t control the agent’s actions.  All they’ve done is made an introduction between the consumer and the partner agent, and the consumer chose to work with that particular agent.

(I suppose, in theory, Redfin could choose NOT to fight liability and embrace it wholeheartedly in order to preserve their ideal of customer service… but I doubt that very much.  Lawsuits focus the mind in interesting ways.  Plus, does Redfin’s E&O insurance even cover these ‘partner agents’?  Would Redfin’s insurer really agree to that without a substantial hike in premiums?)

If the agent’s broker — the actual “boss” in theory — is held liable, would they not consider bringing Redfin in as a third party defendant?  Or bring an indemnity claim that goes something like, “Your program caused our otherwise ethical agent to do bad things, so now you owe us money”?  I know I would advise the broker to bring such a suit, were I representing them.

With the other lead-gen sites, like Homegain or HouseValues, these issues never arise.  All that those sites promise to consumers is that someone will be in touch, and they pass the lead on.  They’re merely a marketing conduit.

Redfin’s program goes far, far beyond that… but they’re not ultimately accountable to the consumer client from what I can tell.

The Brand and Ideals Question

That Redfin would disavow responsibility for a poor consumer experience through Redfin is, to say the least, a sea change.  As Glenn says quite passionately:

We will always, always fight for the consumer: exposing information about agent performance the world has never seen, offering the best value we can, paying our agents based on customer satisfaction, negotiating with Realtor associations to publish more data.

This is an emotional issue for us. We are less interested in proving TechFlash wrong, or even in convincing you that Redfin will succeed or fail — which is still an open question — than we are in establishing what this company stands for: making the real estate industry better for the consumer. Maybe nobody else cares that this company actually stands for something. But we do. We always will.

Does that include accepting legal liablity for the actions of your ‘partner agents’?  If it does, then in what way are those ‘partner agents’ different from your own employees — except that they’re not really subject to discipline/training/enforcement by you?

If it does not, if Redfin’s program stops short of accepting legal liability for the misconduct or negligence by partner agents, then that is a fundamental change in the Redfin brand.  And I daresay it represents a change of the Redfin ideals in a subtle, yet profound, way.  Sure, Redfin can still work to make the real estate industry better for the consumer.  But it won’t do it directly, by training its agents, by implementing its policies and procedures, and by serving the consumer.

That might be fine; might even be great.  Maybe Redfin overcomes some of the acrimony built up over the years this way.

But it is a fundamental change.  He who pays you is your customer.

The End of the Beginning

For the industry, I think Redfin’s move represents the end of the first wave of Real Estate 2.0.  The implication appears to be that new companies cannot implement new business models for real estate.  Trulia and Zillow are not real estate companies; they are media companies in the real estate space.  They make money from advertising.

Homegain, HouseValues, Estately and so on are also pseudo-media companies, but with a pay-for-performance type of ad model.

Redfin was the pioneer of a new model, centered around a fantastic website, direct consumer engagement, and a novel refund concept.  Their obsession with transparency, truly excellent user experience online, and “freakish depth” was the precursor to what the brokerage of the future might look like.

That chapter, I think, now comes to a close.  The new real estate companies have found that they cannot make money directly from consumers.  Okay, fine.  What does the next chapter look like?

No one knows of course.  But it does seem to me that the battle lines are getting drawn as follows:

On the one hand, the new entrants must find ways to derive revenues from real estate agents; on the other hand, the existing brokerages must find ways to make consumers happier and provide more value to its agents.  The midgame, then, represents a struggle on the one hand over consumer service/experience coupled to value delivery to agents, and a struggle on the other hand over getting money out of agents.

We are living through interesting times in real estate.

-rsh

We interrupt the regularly scheduled program of heavy-duty, two-thousand word discussions about the real estate industry to bring you this light-hearted fun segment on music!

A couple of weeks ago, I asked realestistas about their choice for the “Best American Band of the Past 20 Years”.  I got four submissions, and since I also wanted to test polling on WP.com… here are your choices.

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[polldaddy poll=1363775]

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You’ll want to check out this thread and the replies to see the arguments for one band over another.  Then just vote!

Thanks for participating, and helping me test the polling software while having some fun!

-rsh

I guess because of the recent story on US News.com, there’s been quite a lot of speculation about Realogy going bankrupt. My original post back in November of last year on why I thought Realogy made for a particularly poor bankruptcy candidate is getting rather large amount of traffic, and the comments have been illuminating as well.

Well, I have some followup.  Again, keep in mind that I no longer work at Realogy, and while they are a client of my employer, Onboard Informatics, I have no special access to any inside information.

I do, however, have friends in the RE.net and realestistas who send me interesting information, and the latest salvo is something Realogy sent out to various franchisees and agents who work for Realogy franchisees. I debated whether I should post it or not, but looking at the information in the email, I see nothing confidential, and a whole lot of information that is missing in the commentariat.

The email, from Alex Perriello, CEO of the Realogy Franchise Group, is full of confidence:

Earlier today we saw a business writer’s blog post get picked up as a “news” report pertaining to the financial condition of a number of companies, including our parent company, Realogy. This coverage generally focused on the long-term debt and viability of these companies.

Although Realogy is currently in a quiet period and we cannot release certain financial information in advance of our fourth quarter 2008 earnings call in March, we certainly could have addressed the fundamentals had this reporter taken the time to attempt to carry out his due diligence by contacting Realogy for the facts.

I want to point out a number of “silver linings” for Realogy that clearly have not been taken into consideration by either the media or the financial ratings agencies:

• During the past several years Realogy has moved aggressively to mitigate the impact of the economy on our company. We have successfully reduced our overhead by more than $350 million and continue to focus on maximizing the effectiveness of our cost structure.
• As we have focused on costs we have been equally focused on growth. In spite of the woes of the housing market we have made great progress in advancing our company. From new franchise sales to the retention of franchisees and their sales associates to signing new clients at Cartus and Title Resource Group, we continue to be forward thinking, highly focused on the future of our company and the industry.
• In 2009, we expect to benefit from considerably lower interest rates since a significant portion of our bank debt is tied to LIBOR;
• None of our corporate debt is due until at least 2013; and
• Unlike many companies in today’s economy, we have the support and commitment of one of the best financed private equity firms in the country, Apollo Management.

Please also remember that private equity funds managed by Apollo Management and co-investors originally invested $2 billion in our company. Apollo has a substantial ongoing interest in the success of Realogy. Our senior management team is highly confident of Apollo’s commitment to Realogy. If there is any question as to Apollo’s overall financial strength, one need only look to Apollo’s success in raising approximately $15 billion in capital last month for its newest investment fund.

That does not sound like a company that is preparing a bankruptcy filing, nor one that really needs to.

I can personally attest to the cost-saving measures that Realogy has undertaken being a multi-year effort that goes back long before the actual “bursting” of the housing bubble.  I was working on cost-cutting back in middle of 2007.  We saw the storm coming long before it actually hit.  Could more have been done?  Perhaps.  Does more need to be done?  Undoubtedly.  But it isn’t as if Realogy got caught with its pants down when the market downturn hit, wholly unprepared for what was to come.

The fact that Realogy’s debt is tied to LIBOR is significant — and Alex is absolutely right to point out that they’ll have an easier time making debt service in 2009.  How much easier?  Who can say — but certainly, low interest rates help Realogy on two fronts.

First, low interest rates helps buyers enter the market (assuming they can get credit), which helps Realogy’s core business of buying and selling real estate.  Second, it lowers their debt service burden.

The fact that Realogy’s corporate debt is not due until 2013 is significant — it really makes me wonder just how much pressure there could be given that Realogy has four years to turn things around before they really have to worry.

Unless I missed some major story, Realogy has yet to miss an interest payment on its debt.  It has renegotiated a bunch of loans, but in this economy, who wouldn’t at least try to do the same?

Seems to me that the confidence is not entirely misplaced here.

Why Realogy did not release this to the wide public, to the entire RE.net, is puzzling to me.  There’s nothing in here that is confidential, and the letter went to a large group of individuals: brokers, agents, and staff of Realogy franchisees.  I think Alex is right to excoriate the original “reporter” Rick Newman.  He simply didn’t do his homework.  But he should have also gotten his communications people to start engaging the RE.net on getting the word out.

(Plus, a bit of an aside but… seeing as how Mr. Newman’s books are about 9/11 at the Pentagon, and Vietnam-era bomber pilots, why is he writing a column on business and economics?  Shouldn’t he be writing about the War on Terror, and Iranian nukes, and leave business reporting to, y’know, people who write about businesses?)

So, I guess I’m back to reiterating points from the first post, but with new info:

• Realogy makes for a very unattractive candidate for bankruptcy;
• Realogy keeps making debt service payments, and hasn’t missed one yet;
• Chapter 11 Reorganization is possible as a corporate takeover play by bondholders seeking to extinguish Apollo’s equity in Realogy; but
• It doesn’t look like Realogy really needs to file bankruptcy; they seem awfully confident.

And I can’t say their confidence is entirely misplaced.  Seems pretty spot-on actually.

-rsh