Notorious R.O.B.

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

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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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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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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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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Over on Agent Genius, there’s a post about some study done as a marketing tool by Moby (the “let people know where you are” app) with REALTORS in mind. Apparently, September is “REALTOR Safety Month” at NAR, and the good folks there have put together a bunch of materials for y’all.

Now, the study apparently showed (I say apparently because I’m not putting my name/email in to download the said study, thereby ending up in their CRM software) that 1 in 4 men REALTORS carried a knife or a gun with them while “on the job”, while only 7% or so of women REALTORS did so. Lani Rosales, the Editor-in-Chief of AgentGenius, writes:

The above chart outlines Canadian and American answers and although we knew a small portion of real estate professionals would indicate carrying a gun, especially those practicing in the foreclosure or short sale markets, but despite a massive disparity between men and women regarding carrying a gun or knife on the job, it is extremely intriguing that one in four male Realtors indicate they carry a knife or gun while on the job. One in four women carry some form of pepper spray while only five percent of male Realtors do.

The major differences between the behaviors between male Realtors and female Realtors is highly intriguing, but it is most interesting that such a high number of men carry either a knife or gun while they are on the job.

I’m not sure what Lani finds interesting about the difference, but what I find interesting — nay, disturbing and of great concern — is the fact that only 5% of women REALTORS carry a gun while working. If anyone should go about with a concealed firearm while working, it is the female REALTOR.

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Is here:

http://prezi.com/1_mwtyk4vqcd/welcome-to-dystopia/

By the way, I’m really, really liking Prezi. I expect to use it from now on for all presentations. Amazing that a web app is better than even Keynote….

-rsh

A 1982 Osborne Executive next to a 2007 iPhone

I’m giving a presentation tomorrow at the Nextgen Realtor Group of the Houston Association of REALTORS. I do believe the actual title of my presentation, as in the program itself, is called Welcome to Dystopia. Somehow, it seems, I’ve become the Cassandra of the real estate industry. But in researching for the presentation, I ran across something that I wanted to think about more. And since writing blogposts is one of my primary ways to think about things… here it goes.

Moore’s Law states that the number of transistors one can fit on an integrated circuit board doubles every two years. (Originally, it was doubling every year, then every 18 months, and these days, the accepted ratio seems to be double every two years.) This principle is taken more or less as gospel within the computer hardware industry, and of course, the computer software industry designs its programs with Moore’s Law in mind. You write code that can barely function on today’s machines, and by the time you finish all the QA testing and roll it out, computers have gotten faster and more powerful.

So a ‘shorthand’ expression of Moore’s Law is that computing power doubles every two years.

Okay, you’re thinking… so what? We knew that. Duh!

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How's that hopey-changey stuff working out for ya?

One of my pet hobby topics is to fret about the Millenials (the twentysomethings of today). I’ve written about this “largest demographic group like evah” here, here, and here – as well as peppered throughout this blog for a while now. A lot of people — especially in real estate — like to point to the older reaches of the Millenials (the young 30somethings) and think that they are the future of the industry.

Well, to be sure, from pure demographics standpoint, the Millenials do point to the future of the industry. But you should worry about that. A lot. My opinion about the Millenials is that they are the most Screwed Generation in American history who have had their initiative beaten out of them by overprotective parents, teachers and “safety” bureaucrats; their future mortgaged by irresponsible politicians of both parties with full-throated support by the Boomer Generation; their expectations of what is a good life totally unmoored from reality by Hollywood; their options foreclosed by a college-industrial complex that burdened them with absolutely unsustainable student debt (that is not dischargeable in bankruptcy); and of course, they screwed themselves with their attitude of entitlement and superiority complex based on nothing more than the fact that they know how to text message real fast and post pictures to Facebook.

It appears that even the dinosaurs over at the LA Times have noticed that the Hopeychange Generation is actually the Totally-Screwed Generation:

Call it Generation Vexed — young Americans who are downsizing expectations in the face of an economic future that is anything but certain. Career plans are being altered, marriages put off and dreams shelved.

Welcome to the real world, LA Times. Jump right in, the water is freezing.

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“No servant can serve two masters.”

- Jesus Christ, Luke 16:13

Judith Lindenau, a consultant to MLS and Associations with decades of experience, recently wrote a post in which she took up my modest suggestion of making brokers pay for the MLS. It’s worth reading the whole thing, as she presents some countering views both to things I have suggested, as well as to things I have not suggested.

I thought it worth musing on some of her points — as well as the points raised in the comments by luminaries such as Gregg Larson of Clareity and Victor Lund of WAV Group, men who have been in this industry far longer than I have, whose opinions I always take seriously.

In her post, she lays out two main counter-arguments:

1. Making brokers pay doesn’t solve anything, and it’s been tried before and is being tried today by various MLS’s.
2. The problems facing the MLS requires dynamic solutions, tackling complex issues such as governance, vendors, NAR policies, and the like.

As Gregg Larson puts it succinctly in the comments, “This is a lame discussion.”

Well, as much as I’d hate to extend a lame discussion, there is something worth exploring here, so I’m gonna indulge myself and do just that.

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