Monthly Archives: May 2010

Shiva Ranks! (A Way To Rate Innovations)

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Recently, I mused on the nature of innovation and how it goes hand-in-hand with destruction.  The key thought, as pointed out by a savvy commenter, in that post is:

Or thought of another way, when you look at the innovations in the industry today — whether mobile apps, CRM technologies, social media, RPR, or whatever — you might ask, “What part of the industry does this innovation destroy?”

If the answer is “none”, then that thing, whatever it is, is not innovation.  It is, rather, incremental improvement; a marginal gain in efficiency.  It isn’t the automobile, but faster horses.

It seems to me that the corollary of “if it doesn’t destroy, it isn’t innovative” is that the degree of innovation is related to the degree of destructive potential.

So where would some of the recent much-discussed innovations rank on the “Shiva Scale” — the degree to which said innovation would destroy one or more parts of the real estate industry?  Let’s say the Shiva Rank goes from 1 to 10 where 1 might be “as harmless as a baby bunny” and 10 might be “thermonuclear bombardment from orbit”.  Where would some of the recent innovations rank?

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Something Wicked, This Way Comes: Housing Market Signals

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Ah, Spring… a time when a young man’s fancy lightly turns to thoughts of love… and respected real estate market analysts voice cautious optimism…

For example, here’s Lawrence Yun of NAR voicing cautious optimism:

Yun expects a slightly stronger demand for housing and a fairly even level of foreclosures entering the inventory pipeline before easing in 2011. “We expect distressed home sales to account for 30 to 40 percent of transactions for the remainder of this year,” he said.

And here’s Mark Zandi, Chief Economist of Moody’s, doing the same:

Zandi also forecasts improving demand for housing, but with foreclosures rising later in 2010 before easing in 2011. He said home prices may weaken this year. “The housing crash is over—nearly. We are now near the bottom,” he said. “There will be no real price growth in 2010 or 2011. Whether home prices weaken is unclear, but it will take two more years to work off excess housing inventory at the current sales pace. Of course, if demand picks up, it would take less time for prices to rise,” he said.

Then there is David Crowe, Chief Economist for NAHB:

“Home buyer tax credits clearly did their job and got people back into the marketplace,” said NAHB Chief Economist David Crowe, who also served as moderator of the two-hour webinar.

With the expiration of the tax credits in April, Crowe said the housing momentum is being carried forward by low interest rates, pent up household formations, stabilizing prices and budding employment growth.

Freddie Mac is almost bubbly (PDF):

The reason to expect this relatively benign outcome is that, despite short-term swings in sales activity, the underlying fundamentals for housing markets are steadily improving. The job market report for April showed a rise in nonfarm payrolls of 290,000, the largest new hiring in four years. While temporary Census workers accounted for 66,000 jobs, private payrolls posted a respectable gain of 231,000. The other “headline” figure in the report—the unemployment rate—gave a head fake by rising two tenths, to 9.9 percent. Somewhat paradoxically, this was due to improved labor market conditions, which attracted over 800,000 job seekers back into the labor force. A broader measure of employment that is not affected by changes in labor force participation, the employment-to-population ratio, rose two tenths of a percent. Overall, labor market trends are looking much better than a few months ago. More robust job growth and the incomes this will bring should directly contribute to the housing market recovery, and will likely also have further indirect effects by boosting household confidence.

And we have very encouraging data from the Commerce Department, Fannie Mae, and others.

So why do I feel an unnamed dread going up my spine?  Is it just some sort of Eeyore-itis?  Perhaps, vampire-like, when the sun is shining and the birds are singing, I have to retreat to the chill of the grave.  Yeah, I probably need more Vitamin D….

Nonetheless, I have a bad feeling about the housing market, because of data that economists rarely look at.  That probably makes them right and me wrong (and boy, I’d love to be wrong on this), but hey, this is a blog, so… what the hell.

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Interesting Perspective on Professional Values

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From two eminence grises of the legal world comes this article those of us in the RE.net thinking about raising levels of professionalism in the real estate industry might want to think about.  The money graf:

There is, of course, no turning back: Law firms must be run in a businesslike manner. But they should not just be run for the greatest possible economic return. Law firm leaders must emphasize other values as they reorient their firms with respect to their clients, their partners and their associates. And they should redefine their own personal responsibilities and commitments. At the end of the day, they and their partners should restate, for the younger generation, the historic concept of what it means to be a legal professional, which has generally meant that private lawyers have public responsibilities beyond their immediate self-interest and beyond the needs of their immediate clients. (Emphasis added)

The two authors of this article are not pajama-wearing bloggers in the basement… like yours truly.  Ben Heineman is the former general counsel of GE, and teaches at Harvard Law School and at the Harvard Kennedy School.  Bill Lee is the co-managing partner of Wilmer, Hale — a multinational megafirm based in Boston — and also a professor at Harvard Law.  Like Todd Carpenter, they’re kind of a big deal.

It is interesting how the legal profession is trying to rediscover itself, at the same time the real estate community is trying to define itself.  Technology and the economic realities are driving both towards unprecedented self-examination.

The question for real estate, however, is an interesting one.

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Shiva, The Destroyer

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We worship creativity.  In describing a business, a leader, a product, or a service, I can think of no higher praise than to say it is creative, or visionary, or innovative.  Whether in marketing, or technology, or business process, or a blogpost, all of us admire creativity, strive for creativity, and think about creativity.

The real estate industry in particular has a love-love relationship with creativity.  NAR has its Game Changers, Inman has its Connect Create developer challenge, companies are lauded for their innovations, individuals praise for their creativity in using social media for real estate business (or whatever new creative thing they’re doing).

What I wonder about today is whether people truly worship creativity, or pay lip service to it.  Do you really want innovation?  Are you sure you’re prepared for what creativity means?  Are you certain that you want creativity in your life, in your business?

The Hindu deity Shiva is often said to embody destruction and regeneration, like the forest fire that clears out the dead leaves and old growth to enable new shoots to emerge.  To embrace creativity and innovation, then, is to embrace destruction.  Are you ready?

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Real Estate Fun With Visa Concierge

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A couple of days ago, I read this post on the Four Hour Workweek blog about a guy’s attempt to find out the limits of free credit card concierge services.  He had the free concierge do things like help him with a crossword puzzle and book space travel.

It’s a hilarious post and I learned that I do in fact have an extraordinary resource, seeing as how I have a Visa Signature card, which comes with a free Visa Signature Concierge service.

So I got curious.  And ran a couple of tests to see how much the Visa Concierge could help me in the world of real estate.

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LTE Will Change the World

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This might be the most exciting technology I’ve run across in a while… maybe since I came across this mysterious “internet” thing back in 1988 in a computer lab at school.  The post there goes into more of the technical details, which are completely over my head.  But this promotional video from Verizon hints at the possibilities:

The key part of the video is the statement by Praveen Atreya that LTE achieves download speeds between 5Mbps and 12Mbps on average, and upload speeds of 2Mbps and 5Mbps on average.  That’s over the air… not a wifi signal at a Starbucks or something, but from cell towers.

That is… just insane.  By way of comparison, my Verizon FIOS service that has fiber to the house, gets about 19Mbps on the downlink and 5Mbps on the uplink.

Combine with cloud computing and Cisco’s advertising tagline, “The Network Is the Computer” is closer to reality than ever.  We’ll be returning to the days of mainframe computing with huge computers and thin clients, but with the cloud replacing the supercomputer and wireless devices running LTE replacing thin clients.

The implications for real estate, I think, would be immense — since LTE would have enormous implications for society as a whole, and business in general.

Now… if someone could fix the battery problem…

-rsh

ThoughtSeed from Mid-Year: On Industrial vs. Artisanal Real Estate

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One of the best things about conferences is having great conversations with really smart innovative people.  Garron Seliken of M Realty is one such smart, innovative person, and he and I (along with a bunch of other folks like Marie Still, Jay Thompson, Chris Drayer, and Daniel Rothamel) had lunch today at NAR Mid Year.

Which then led to a thoughtseed — nothing fully fleshed out, but an idea I’ll be exploring more in the days ahead.

Basically, the idea is that we are experiencing the transition from the Industrial Age to a New Artisan Age.  The Industrial Age is marked by large organizations leveraging the efficiencies of things like the assembly line, division of labor, vertical and horizontal integration, etc. to create mass-market products.  Levi’s can go from a one-man tailor shop to a global corporation on the basis of the Industrial Age.

The New Artisan Age, however, is marked by at least an homage to craftsmanship, the idea of a more personal, more customized, more intimate product created by a single artisan for a particular customer.  Maybe some designer might offer a custom-made bespoke pair of jeans, at $500 for a particular customer to fit her body and her preferences.

It seems to me that the general consumer behavior is heading in that direction.  Think about the explosion of microbreweries, artisanal farming, and so on.  People are willing to pay a premium for products they believe are more than just the bare product and its functions.

In my conversation with Garron, it seems to me that his brokerage M Realty, is practicing a form of artisanal real estate brokerage.  He spent a lot of time talking about how he works with each and every agent on an individual basis, creating strategies, offering advice, and offering technology that are custom-tailored to that particular agent’s strengths and weaknesses.  The best example is an agent who wanted an IDX website; Garron found that this agent got most of his production from five people in his sphere of influence.  The advice, then, is to forget about the IDX website, and spend more time with those five people, and maybe make that eight people in the sphere.

Customizing activities to the particular idiosyncracies of the particular agent… isn’t that sort of artisanal real estate (brokerage)?

Krisstina Wise of GoodLife Team also does this, in a different way by building a brokerage around the principle of coaching.

If you will, Keller Williams — a company whose mission statement says that it is a training organization that happens to run a real estate brokerage — is a product of the Industrial Age.  M Realty — a company that turns out to be a coaching organization that happens to run a real estate brokerage — is a product of the New Artisan Age.

Something to think about.  When I have more time.

One question is whether this difference between Industrial and Artisanal extends to the relationship between the agent and the consumer.  (Or better yet, a question might be whether the real estate transaction was ever Industrial to begin with….)

-rsh

Does Size Matter? (Part 3)

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In Part 1, I explored how large law firms and big brokerages are similar, based on the forthcoming paper by Glenn Reynolds, a law professor and blogging pioneer.  Then in Part 2, we looked at how they’re different in some fundamental ways, particularly compensation models, that makes the size of Big Brokerage appear to be all of the disadvantages with none of the advantages.

In this Part 3, I would like to explore how size could be made relevant again.  There are still areas where size does matter, even in real estate.  And the future of the industry really depends on how big brokerages respond to the rapid changes in the social and economic marketplace.  Up to this point, most have been extremely slow to react, believing that a strategy of evolutionary adaptation makes more sense than a risky revolutionary act.  I no longer believe, if I ever did, that slow evolution will get the job done for the giants in our industry.  The window of opportunity is closing, and quickly at that.  Unless something fairly dramatic is done, and soon, I believe that by 2020, the large brokerage as we know it will be a thing of the past.

So, with that Cassandra moment out of the way, what are the areas where size still matters?  And how might big brokerage respond to make size matter once again?

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Incentives and #RTB (Raise the Bar)

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I’m working on Part 3 of the Does Size Matter series, but a conversation on Twitter turned fairly interesting and fairly intricate, so a quick little post.  This post is heavy on inside-baseball stuff about the real estate industry and the RE.net.

First, the setup of the debate:

@ProfessionalOne (Michael McClure) whose company has adopted strict standards for its agents says on Twitter that top producers are not necessarily the best agents who give the kind of client service that he expects from his people.

I ask what the average earning of a “RTB Agent” (however one defines that) is.  Michael says it’s between $80K – $100K a year.

I then ask: “don’t you think one issue is that if pursuing a non-RTB path leads to greater earnings for the agent, the incentive is…”

@benjaminbach (Ben Bach, I assume, heh) suggests that #RTB (a real estate industry thing where various people are calling for greater professionalism, higher standards, and the like) is a good thing.  I agree, but then we get into a whole discussion.  On Twitter, which isn’t great for that.

So here’s the point:

Take someone who is the #1 overall producer in a market.  A super-agent who brings in millions in GCI, and personally earns well over the $80-$100K a year that Michael McClure talks about.  Say that agent makes $500K a year selling real estate.

Either that superagent is a supreme practitioner of #RTB or he is not.  This is a binary logical thing.

If that superagent is a true professional, highly qualified, who provides awesome client service, resulting in many referrals and so on, then #RTB should focus on copying the business practices of such superagents.

If, on the other hand, that superagent is not those things (as Michael seems to suggest) then #RTB is in trouble.

Because the argument for #RTB to the individual agent goes something like this: You’ll make less money than you could, but you’ll be happier because you’re a moral person.  Some people might agree and go that route; others, however, will not.  People have different priorities, and different ideas about what “happiness” means.

Generally speaking, however, human beings are motivated more by greed than by altruism.  If joining Michael’s firm means that I’m sacrificing personal income potential… that’s a tough sell.

Ultimately, Ben agrees that it doesn’t much matter what we insiders think about a topic; the real test is in the marketplace.  Do buyers and sellers of real estate see value in what is being offered or not?  The ultimate test, then, is in financial metrics: revenues and profits.

Ergo, my argument is that #RTB has to show that it leads to higher revenues and higher profits for everyone involved, from the agent to the broker.  We can’t simply assume it; we can’t idealize it; we can’t just pay lip service to how wonderful it would be if realtors were professionals who went the extra mile for every client.  We have to see how it does in the marketplace.

But if the incentive structure is setup from the start as “less money, more self-esteem”… that strikes me as a loser in the marketplace.

For one thing, what is the incentive for brokers to “RTB” if that leads to less money?  Maybe the RTB agents all go flock to that shop, but if all of the top-producers are at my shop, and my profits are higher than the RTB shop… why change?

Incentives = everything.

I hope that clarifies what I’m talking about.  Your thoughts?  What am I missing here?  What other proof statements could be used?

-rsh