Monthly Archives: September 2011

Why Don’t We See More Auctions in Real Estate?

Any excuse to post this pic is a good one...

A curious phenomenon of human nature is the tendency to overvalue what we own. Case in point: fantasy football.

I’m in multiple leagues this year as well, and for whatever reason, I really enjoy the trading aspect of fantasy football. And over the years, I’ve definitely noticed a tendency among people to overvalue their own players (for the record, I’m not immune from this tendency either). You make an offer for a backup quarterback, and I could sit there are claim that he’s the best thing since sliced bread, despite the fact that he threw as many interceptions and touchdowns so far this year. It’s a funny thing, this overvaluing of what we own.

Of course, this phenomenon is extremely well-known in the real estate world. Listing agents tell story after story of trying to break the bad news to the homeowner that as it turns out, the market just doesn’t think his house is worth $600,000 anymore. Yes, yes, your gorgeous Zen backyard is the pride and joy of your life… but the buyers don’t care that much. Yes, I know how much time and money you’ve put into that mural in the dining room; unfortunately, the market just doesn’t share your taste for Elvis paintings.

Seems to me that when you have unique objects for sale, the preferred method of dealing with that is an auction. Things like artwork, antique cars, sports memorabilia, and other things are extremely difficult to price. If you’re talking about a brand new Mercedes Benz, the manufacturer spent a certain amount of money to design, produce, and market the thing, so they set the price and let the dealers figure it out. But there is a price, since there are thousands of the same identical vehicle in the market. When you’re talking about a 1955 Mercedes Benz 300 SL… it’s impossible to stick a price tag on something like that.

So… when someone wants to part with a 300 SL, he puts it up for auction. And the results are sometimes surprising, and yet, if that’s what the market will pay for a unique item, then that’s what that unique item is worth, period, end of story. You and all of the experts might think the 300 SL is worth $600K – $700K, but apparently at least one buyer thought it was worth $1.375 million.

Given that real estate is dealing with unique items (for the most part… yes, exceptions exist), why do we see so few auctions of properties? The seller and the agent can set a reserve price below which there is no sale, and then all of the buyer agents simply attend the auction on behalf of their clients. Whichever client walks away with the winning bid gets the house.

The complications I see have mostly to do with financing. Contingent offers wouldn’t work in an auction setting for obvious reasons. But maybe this isn’t a bad thing?

If banks were lending strictly on the basis of the borrower’s ability to repay, instead of relying so much on the underlying property as security, maybe we wouldn’t have a repeat of the foreclosure crisis we’re having now? Thinking further about it, we’d likely need a new kind of debt instrument that blends the unsecured nature of personal loans to the borrower with the security element of a mortgage; perhaps the rates are set as they are now, depending on the underlying asset (the house), while the credit risk is evaluated on the borrower’s personal profile? With banks realizing that they really don’t want to be stuck foreclosing on a house, that may be the reality of the lending environment today anyhow.

So if every buyer is walking in with a pre-approval that is rock solid, prohibited from contingent offers, would this work or not in real estate?

What am I missing about auctions and why we see so few of them in the sale of homes?

-rsh

 

From the Annals of Wired Straits: More on Relationships

Don't Tase Me, Bro!

Ah, the horse ain’t quite dead yet, Matt Dollinger. Nor is the discussion a moot point.

I testify, cuz at the September dinner of the Wired Straits Social Club (kinda like a Houston-based Lucky Strikes, which I started in NYC), we discussed this issue at some length. And got something out of it.

I figured I’d share at least one insight from that with you.

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If Real Estate Is Not a Relationship Business, What Business Is It?

 

I know you're working at marketing my 3BR/2BA colonial... but I just don't want to be in a relationship with you...

Over at Inman Next, Chris Smith stirs the cauldron up with a post entitled, “It Is No Longer A Relationship Business – Here’s Why“:

Where I disagree is in the stance that I want to have a relationship with my Realtor.

I don’t.

In fact, I can’t even imagine it.

My argument is that I am not alone.

Unlike a lot of the general public, I have a high level of respect for your profession.

I know how hard you work.

I know how unappreciated many of the things you do are.

I know the stress and challenges that come along with earning a paycheck and paying your bills ONLY if you sell things.

I have met countless Realtors both in person and online that have blown me away with their sales ability, marketing savvy, brand building skills and digital media efforts.

While many would never put the career Realtor along side other careers like Doctor and Lawyer which require significantly more education, I would.

It still doesn’t make me want to have a relationship with you. (Emphasis in original)

Read the whole thing. And people say I stir the pot….

In any event, not being a real estate agent, I don’t have a whole lot to add. I don’t know if RE is or is not a relationship business. But I am a strat guy, a general commentariat talking head guy, and so on. And I did have some questions for Chris (and others) which I asked over on his blog. It seems to me that what I’m asking needs a bit more elaboration, so here we go.

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A Couple of Notes on the REALTrends 250 Top Sales Professionals List

 

RealTrends does some great work. I love playing with their numbers, when they become available. The most recent one is a project they did with the Wall Street Journal ranking the top 1000 real estate agents and teams in the United States. (And, no, I have no idea how they got the data, what their methodology was, etc.)

Click through to the RealTrends site to see the top 250 real estate agents and agent teams. Congratulations to all Notorious readers who made the list, in case such a person exists.

I had a few minutes so just played around with the numbers a bit. Some interesting, or not so interesting, findings there.

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Should Real Estate Be More Sheepskin-Based?

 

Future REALTORS of America!

My good friend Michael McClure (@ProfessionalOne on Twitter) has been banging the “Raise The Bar” drum for quite some time now. Recently, he wrote a post accompanying a survey in which he wants to establish “the baseline for professionalism” in the real estate brokerage industry:

All that being said, let’s get to the point of THIS post: to begin to formulate some kind of consensus on what it means to be a “professional” in the real estate industry.

Should it be based on experience? Number of transactions? Number of satisfied past clients? Perceptions of the agent’s peer group? Or some combination of these or other factors?

When the public – in the form of the Harris Polls – and Realtors themselves – in the form of the aforementioned Realtor Magazine survey – agree that there is such significant room for improvement, we think practical steps should be taken to begin to move the industry in a more professional, and more uniformly professional, direction.

Of course, I heartily agree with Michael’s goals. I did have a small quibble with him about the survey itself, as many of the questions were frankly leading questions, but I suspect we’d have seen mostly the same results anyhow.

There is one result, however, from the survey that’s frankly interesting given what’s going on outside the industry. Question #5 of the Survey asks, “How important is it that a Realtor provide evidence of some level of “minimum educational experience”? 57% of respondents say “Mandatory” and another 25% say “Very Important”; 84% of those responding have said that educational experience is at least very important to be a realtor.

Why?

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