Notorious R.O.B.

I’m going to try to do a bit of a stream-of-consciousness “live-blog” here at Houston Association of REALTORS Real Estate Investment Symposium.  I put that in quotes because (a) I’m distracted often, and (b) the bandwidth isn’t the best off my little MiFi device.

I’ve already missed a couple of the early presentations from Zillow, Google, and Move, but a couple of interesting things from this morning.

Sam Sebastian from Google suggests that the future of real estate broker is as an ‘information broker’; I asked if he could elaborate on that, since the experience of the past ten or so years is the opposite: information that used to be held by realtors is now all over the public via the Internet.  Isn’t the trend more and more towards realtors becoming customer service people rather than information brokers?

The answer — and it’s a good one — basically seems to be (at least interpreting Sam) that by “information broker” he meant something more like an analyst.  That the future of the realtor is as an interpreter of all of the information and data that’s all over the place on the Internet.

Interestingly, Google’s search on real estate terms is up 20% year over year, despite the terrible market.  Incidentally, I think that’s contradictory to the experience of the other big real estate websites (or at least used to be a few years back), but I haven’t seen recent stats.

[EDIT: This is getting very long, so it continues after the fold.  And forgive me for the ugliness of the post; it's the nature of a "live-blog".]

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Hmmm... now, carry the two... square root of mouse...

From the lovely and talented Sara Bonert (@sbonert) over at Zillow blog, I learn that Zillow gets 55% of all California buyers:

Over half (55%) of those who reported using the Internet as a tool in the home buying process used Zillow. Realtor.com continued to be the most used site as 89% of buyers used it; with individual real estate company sites at 81%; individual real estate sites were used 66% of the time. Yahoo! Real Estate scored with 53% and Craigslist was at 49%.

I wonder (aloud) on the comments and on Twitter whether this is a good thing for Zillow, seeing as how they’re coming in fourth out of six options, behind Realtor.com (89%), individual brokerage sites (81%), and individual agent sites (66%).

The dashing and charismatic David Gibbons (@davidgibbons) responds:

@robhahn dude, you are not serious … try answer this … if you own a broker site do you get 81% of buyers? [hint: no, but Z does get 55%]

David does have a point.  But I fear 140 characters can’t do justice to my point.  So here goes.  CAVEAT: MASSIVE UNSUPPORTED SPECULATION FOLLOWS BELOW THE FOLD.

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I believe in zeitgeist.  Things seem to happen in groups, where one conversation is followed by another on a similar vein.

Last night, I have a great conversation with Stacey Harmon about a presentation she’s giving to realtors on the value of social media for real estate.  We explore the difference between branding and lead generation, based on this post of mine on branding and social media that Stacey found interesting.

Then today, I see this epic video blog by David Gibbons of Zillow — a response to this post by Courtney Cooper — on the topic of whether “Blogging is Dead”.  The video itself is below:

The gist of David’s video — which, sadly has no transcript and no bite-sized snippets I can post — is as follows:

• It isn’t enough to have a blog in 2009; you need to have a remarkable blog.
• Blogs require customers come to you in order for it to be useful as a marketing vehicle.
• Are home buyers and home sellers spending their online time on your blog?  If not, rethink.
• Most realtors aren’t great writers.
• The status-sphere, specifically twitter, is more important for conversation.  Photos, videos, and status updates on Facebook are becoming more effective.
• David’s noticed that starting around February of 2009, conversations on Twitter and Facebook started to exceed conversations via blog.
• Think way beyond blogs; look to other channels elsewhere on the Internet for people with real estate problems to solve.

There’s actually a lot more so I urge you to watch the whole thing.

David is a smart guy and he knows the Internet and social media marketing, so when he declares blogs to be 2008, and the “statussphere” to be more important to online marketing and conversation, it’s something to take seriously.  I happen to think he’s right in many respects, but due to a critical confusion, taking David’s advice at face value could be a bad thing.  The key is to understand the difference between branding and lead generation in your marketing efforts.

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From the web publication (seems rude to call it a “blog”) @Issue comes this provocative article about the business value of design, which ends with this astonishing statement:

[Design is] the accelerator for the company car, the power train for sustainable profits: design drives innovation; innovation powers brand; brand builds loyalty; and loyalty sustains profits. If you want long-term profits, don’t start with technology, start with design.

The statement struck me quite hard because I love both technology and design. I had not given much thought as to which one takes precedence in driving business value.

Synchronicity.  In this week’s RE:RnD Radio show, I ended up debating with Benn Rosales of AgentGenius about innovation in real estate.  One of the sub-themes was that we had not seen true innovation in the real estate industry in a couple of years, ever since Web 2.0 exploded onto the scene with Trulia.  (And I would argue before then with HousingMaps.com.)  We discussed Roost‘s redesign, and I had dismissed it as “cosmetic changes” with no real fundamental innovation.

Perhaps I need to rethink that position.

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Eric Blackwell of Bloodhound picks up on this story that Zillow has entered into a relationship with a number of newspapers and asks a series of pointed questions. The comments section has some hot and heavy action going on therein, and it makes for an entertaining read.

I saw this deal cross the news earlier as well, and thought it was interesting on many fronts. For one thing, unless I’m very mistaken about the nature of the deal, it simply means a co-marketing arrangement where the partners simply add ammunition to their sales teams:

The agreement expands the network to include display non-real estate related advertising. Greg Schwartz, vice president of advertising sales at Zillow, said the Web site will focus on “moving-specific” advertisers like home improvement and furniture companies in search of national coverage. Meanwhile, newspapers, such as the San Francisco Chronicle, for example, can offer a furniture retailer additional coverage through Zillow’s San Francisco channel.

So a ad sales guy sitting in the LA Times office can sell a million impressions on Zillow.com, and a Zillow sales person can sell Home Depot on a package deal of Zillow ads plus say 150 newspaper ads.

It isn’t clear whether this covers only online, or print also, but either way, all we’re talking about here is a “Hey, you can sell my stuff, and I can sell yours” deal. Makes a lot of sense to me without a tremendous amount of downside.

Now, David G. from Zillow goes on to say in the comments of the Bloodhound post above that:

Today’s announcement relates to a large advertising network advertising for reaching real estate consumers but there are also technology and content aspects to these partnerships. Later this year, Zillow will begin to power the online real estate sections of our newspaper partners’ websites. And listing content is already pushed to Zillow via newspapers that are selling featured listings on the site.

This tidbit is interesting as well. Because as it happens, there is an almost exact parallel on this play that might prove illuminating (or not).

Cityfeet.com did this exact play in commercial real estate a few years ago. They went out and signed up newspaper partners, powering the online real estate sections of these newspapers for commercial real estate search. I’m guessing that Cityfeet couldn’t get the online residential real estate sections, because those were too closely connected to major revenue centers for the newspapers. That Zillow was able to wrest those away from the newspapers is extraordinary. And extraordinarily interesting as commentary about the newspaper business.

It appears that newspapers are headed for some sort of a cliff.

That's a double black-diamond slope, son!

The news industry is panicking, to say the least:

The new bad news is the decline in online revenues.

In the best of times, online never contributed more than 10% of most publishers’ total revenues, but with double-digit growth, it was the sole bright spot in the middle years of the decade, holding the promise that interactive revenues might some day make up the losses on the print side.

Unfortunately, most of the growth in the online revenues was due to “up-sells” from print classified listings. As the volume of print listings declines at an ever-faster pace, that means there are fewer opportunities for online “up-sells.”

Considering that real estate advertising in newspapers fell by a whopping 36% in Q2, if online advertising also fell for newspapers, it isn’t clear that there is a sustainable business here for the dead-tree media companies.

So… Cityfeet couldn’t wrest away residential real estate sections from newspapers. Zillow did. In large part, this is because Zillow is many times larger and better funded than Cityfeet ever was.

However, let’s pause a moment and consider this.

• Newspapers lose 36% of real estate ad sales.

• Newspapers lose online ad sales for first time in years.

• Newspapers do a deal with Zillow that is essentially “We take 50% commission for selling your ad space, Zillow.”

• Zillow stands ready to “power newspaper real estate sections” — meaning all of that traffic probably goes to Zillow.

This looks like a total abdication of the real estate space by the newspaper industry, at least to me.

While that’s a big win for Zillow, I have to sound a cautionary note.

Cityfeet, you see, sputtered along for a couple of years before getting bought by Loopnet for $15m. (Since Cityfeet at the time boasted 100 newspaper relationships, including the big names like New York Times, Boston Globe, and the like, that means each relationship was worth about $150,000. Maybe. It isn’t yet clear that Loopnet has made back its $15m investment in Cityfeet.) The reason, quite simply, was that the brokers and agents who listed on Cityfeet were not seeing a lot of traction. Newspaper readers and newspaper website visitors tend not to be serious consumers for commercial real estate.

Now, given the differences between commercial and residential real estate, this may not be a problem for Zillow. 80% of commercial buyers/lessees do not start their search on the Web, for one example. But this should sound some warning gongs:

“This partnership allows advertisers with our papers to reach not only local real estate consumers who live in particular markets, but also consumers who may be moving to particular markets, via their searches on Zillow.com,” Lincoln Millstein, senior vice president of Hearst Newspapers, said in statement. “This is a significant opportunity for advertisers to target a very large number of consumers on the verge of major home-related commerce.”

Um, Lincoln… I don’t know how to break this to ya but… I doubt that visitors to Zillow.com can be described as being “on the verge of major home-related commerce.” Maybe Zillow has statistics that prove me wrong, which I would welcome, but going to a Zillow or Trulia or any of the major consumer real estate websites strikes me as merely the first step in a fairly long journey that may or may not end in “major home-related commerce”. If by “being on the verge”, Lincoln Millstein meant “within three to six months” then his expectations are properly set. If he means more like, “a matter of weeks”, I think he might be disappointed.

And his advertisers might be disappointed. Will consumers remember seeing some ad for a mortgage product on Zillow.com three months later as they’re finally sitting down with their realtor and going over mortgage paperwork? I really, really doubt that one.

As with all prognostications, I might be dead wrong on this one. But all in all, I’m not sure I see this major win here that the newspapers and Zillow would like us to see. Time will tell, but the trends are not encouraging for either party.

-rsh

Whatever do you suppose this is?

Zillow is a living, growing database of all homes — not just homes for sale (we currently have data on more than 80 million homes). More than 1.3 million owners have claimed their homes on Zillow and many have updated their home facts.

Kudos to Zillow for opening up their API’s.  One can quibble with Zillow (for example, their neighborhood data, which appears to be… let’s say odd…) but the decision as a whole is brilliant.

Just add Offers of Compensation and what do you get?

-rsh

Joe Ferrara asks whether listings are like airline tickets in his post about American Airlines pulling its ticket listings from Kayak:

Are home listings like airline tickets to be freely given by listing brokers and agents to any and all third party listing sites? Do listing brokers have any reason to complain so long as they get exposure of home listings to consumers and a link to their websites?

My take is that home listings are completely unlike airline ticket listings for one very important reason: the listing broker does not own the underlying property.

For American Airlines, who provides the actual service of transportation, to get pissy with Kayak is its decision.  If the decision to pull its ticket listings from Kayak results in fewer sales of American’s seats, that only affects American Airlines and its shareholders.

In contrast, a listing broker who pulls listings from TruZillia or some other online aggregator has to answer to the ultimate client: the home seller who has engaged the listing broker to represent his property.  If pulling listings results in fewer leads and fewer inquiries and therefore a lower sale price than might have been possible, I’m 99.99% certain that any court anywhere in the United States would be finding for the homeseller plaintiff against his “fiduciary” broker.

I note that there is a difference between failing to list on some website (which could theoretically be justified as there are a plethora of websites out there, and the broker might not have heard of XYZ listing aggregator) and pulling listings off of a site.  I would think that the broker would have to show that the listing aggregator was 100% ineffective at generating additional leads, so that pulling listings from it had no impact whatsoever on the exposure (and ultimately the offer) that his client received on his house.  And how in the world do you show that?

In short, pull listings off of aggregators at your own peril, brokers.

-rsh

Breaking news from Inman Blogger Connect: Trulia has announced that it is launching a blog platform. I don’t have a link, because this was on a piece of paper, but there will be an official announcement later.

I actually had a chance to speak with Vicky Gkiza, Sr. Product Manager for Community, at Trulia and… well… she’s a lovely, lovely person. In more than one way, actually — take a look:

She was really nice, very kind with her time, and extraordinarily smart — as is sort of par for the course for the boys and girls at Trulia.  But the point is not to talk about Vicky.

The point is this: Trulia may not intend to put ActiveRain (and others of its ilk) out of business, but the impact of this blog product is to do precisely that. As a matter of fact, I have a bet with Vicky now that I plan to collect at Inman in 2010.

Here’s the thing: Trulia has 5 million unique users each month, by their own count. If you’re a real estate agent doing a consumer-oriented blog, then what you’re after are consumer readers. ActiveRain, Agentgenius, and any of those guys may have a great platform, but until and unless they can provide consumer traffic to the tune of 5 million uniques per month… I’m afraid the value simply ceases the exist.

I have to take pains to point out again that Trulia probably doesn’t intend malice upon ActiveRain or other similar consumer-oriented agent blog networks.  As they see it, they just want to help their agent members connect with their consumer visitors.  Once you have listings, then have Trulia Voices, then Trulia Q&A, the agent blog is the obvious next step.

I’m just pointing out the obvious: if you’re an agent, and you want to have a blog somewhere, why would you do it anywhere other than at Trulia Blogs?  ActiveRain, as it is, has a tendency to be realtors talking to other realtors.  Which is fine, and might be great for an industry-focused blog like this one, or the Onboard Informatics corporate blog, but… for an agent who wants to blog to drive leads and grow business, I just don’t see the value anymore.

What this product does is divide the RE.net in half: those who are focused on consumers, and those who are focused on industry.  The agent blogs have to find a reason NOT to blog on Trulia.  (Presumably, a good one might be Zillow‘s answer, if they have one.)  The industry blogs may want to continue at places like ActiveRain or independently.

Perhaps after Inman is over, I’ll have to do some thinking about what this means in the even bigger picture: now that Trulia is creating a compelling platform for agent blogging, together with listings, together with Q&A, together with consumer traffic… what is the next evolution for the Big Brokerages like Century 21 and so on?

-rsh

In commercial real estate, there is a standard analysis that brokers conduct: the Lease-Buy analysis. It is meant to show the client the financial impact of leasing space vs. buying the building outright. For whatever reason, this is not a standard analysis that residential agents conduct on behalf of their clients. You can find online calculators like this one or this one, but they appear to be intended for consumer use and doesn’t get anywhere near the level of analysis that I expect from a professional.

Diane Tuman over at Zillow blog talks a bit about their Wiki article on Owning vs. Renting. It’s a clever way to get people over to Zillow’s wiki, but it has the benefit of offering what may be helpful advice. I went over and checked it out.

Diane’s take on the wiki article is that you can boil down a lot of the advice to the following:

Lifestyle — If you are happy-go-lucky, don’t like to mow the lawn or do maintenance, have an uncertain income and need flexibility, renting is probably for you.

Location — If you live in a vibrant real estate market where the home values have been consistently strong for decades, and you have the means and desire to own, then buying might be the right choice.

I think she’s being a bit generous. I find the ‘advice’ in the Wiki to be of the Oprah variety and not of the useful variety. Here are some of what the Zillow wiki (and the editors thereof) thinks are reasons to rent:

• Flexibility. Check out neighborhoods if you are new to town or are researching where you want to buy. By renting you can test an area without committing to it.
• Uncertainty in your career. If you think you might need to move in the near future, or are mulling job changes that span several areas of town or are located elsewhere in the country, you might want to rent, since buying ties you down to a greater extent.

You don’t say! How could anyone have figured this out on their own without the helpful expert advice of professionals.

• No maintenance. When the pipe leaks under the sink, you don’t head to Home Depot, you head for the telephone and call the landlord.

And the landlord tells you that he’ll have someone take a look. 8 hours later, the pipe is still leaking, and all you’re getting is the voicemail of the landlord’s phone. Now what? If you decide to let the place just flood, guess what, there goes your security deposit.

You do not get to trash the rental unit just because you don’t own it. You will be liable to the landlord in that case.

• Incidental expenses. The landlord pays for many utilities such as water, sewer, garbage, and in some cases heat and hot water as well.

Whoever wrote this understands not a thing about rentals. Does anyone really believe that the landlord pays for utilities out of his own pocket, instead of just passing the cost to you in the form of rent?

• Not subject to downward movements in home prices. If we are in a housing bubble, you don’t lose money. (On the other hand, if house prices keep going up, you lose money).
• May be less expensive than owning. If the cost of renting is less than the cost of buying, you can use the excess money for other purposes, such as investment or furniture.
• If you are in a market with declining real estate values. If home values in your area are dropping you may get a better deal on the home if you wait. Let someone else take the loss instead of you.

These three “reasons” are the worst of all, in a way, because they pretend expertise that is unproven. Rental prices are not subject to dropping home prices? Where’s the evidence of that? Landlords owning depreciating assets won’t try to recoup some of the loss via higher rent? Especially if they know that the housing market is unfriendly to buyers, leaving people no choice but the continue renting? What may be a true statement is simply unproven, and zero attempt to support such a sweeping generalization is made.

Renting “may be” less expensive than owning? Is that even advice? “If the cost of renting is less than the cost of buying, you can use the excess money for other purposes” — gee thanks. No way anyone could have figured that out on her own.

Isn’t this begging the question entirely? If a consumer actually wanted to know whether she should be buying or renting in XYZ market right now, is an agent supposed to tell her, “Well, renting might be less expensive… but then again, it might not be. But if the cost of renting is less than cost of buying, you can use the leftover money for other things!”

In my ever so humble opinion, residential brokerages might want to consider investing in some systems and tools to conduct residential sensitivity/lease-buy analysis. Simple things.

For example, not being an agent, I might start with the questions in one of the online calculators (E-Loan’s is a decent one) then ask further questions, such as:

• What is your current pre-tax and post-tax income?
• Any other tax shelters?
• What are your other investments?
• What is the current inflation rate? What is the benchmark money market interest rate? What is the 3 year average of returns from equities? From bonds?
• Local tax rates
• Local property rates
• Insurance costs, both homeowner and renter
• Maintenance costs
• How much have homes appreciated/depreciated in the specific area, with as specific a set of comparables as possible, in the past 1/3/5 years?
• Trends in rents for the past 1/3/5 years?

Then I might combine all of that and run some sort of analysis looking for the various breakpoints, then sit down with the client and go over the analysis, explaining the various assumptions made. Play with the variables some with the client, and show how the picture changes.

(Incidentally, I have to assume that some software company out there produces this kind of a tool for residential brokers. Right? Doesn’t someone offer this tool? If not… there’s an opportunity here for one of you tool makers to the industry.)

Even if that client ends up deciding to rent instead of purchase, you have proven your expertise without a doubt and your trustworthiness. They know, walking out of your office, that you just steered them away from making a bad financial choice. If an agent did that for me, I would absolutely look for him when it did come time to buy. That’s the guy I’d want to work with.

Furthermore, such an analysis forms a perfect basis for CRM efforts. Maybe the key variable that led the client to walk away from purchase was the mortgage interest rate compared to the stock market returns; you should then be able to contact them when those rates change materially.

Finally, it’s just the right thing to do as a real estate professional.

And before the client walked out of my office, I would have them sit down and watch this:

(ED: The original video was taken down on YouTube.  If you are wondering what it is, the song is “Life for Rent” by Dido.  Just a beautiful, lovely song.  The live acoustic version above isn’t bad at all.)

Homeownership is not just a dollars and cents issue. It’s a deeply emotional one. People are going to be willing to take a “loss” in order to have equity, to have a home that is theirs. The lease/buy analysis is simply going to make clear what they’re willing to spend for that emotional fulfillment of owning your own home.

Of course, this was also just a great reason to post a great song and video.

-rsh

Move, Inc. — the folks behind Realtor.com and Top Producer — held its Q4 2007 earnings conference call recently. The transcript is available on Seeking Alpha. I think it’s well worth your time to check it out in full.

Move did $286M in 2007, vs. $280M in 2006. Considering the shape that the real estate market was in during the second half of 2007, that’s quite an accomplishment. What’s more amazing is that Move grew Q4 revenues by 2.4% to $71.7M in 2007. Michael Long, Move’s CEO, boasted:

In 2007, the toughest real estate market in 50 years, we grew revenues in our core real estate businesses, Realtor.com, Top Producer, and New Homes, amid unprecedented disruption and volatility. Revenue from Realtor.com and Top Producer on a combined basis was 10% higher than 2006. For the year we also delivered the highest EBITDA margin in our history and generated positive cash flow for the third consecutive year.

They’re in great shape.

Beyond the fact that they’re making money during tough times, I found three really, really interesting things from that call.

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