February 2009

Roll out the Guillotine

Today, Senator Christopher Dodd became the first in a series of prominent political figures to call for an examination of the sub-rime lending fiasco now surfacing in the mortgage industry. Dodd said,

REALonomics believes heads will (actually “must”)roll and the only remain question will be, whose heads, how many heads, when the heads will begin to roll and how far the rolling will of the heads will be. Following the bowling exercises, the real pile of regulations and new lending laws will be unveiled.

I am eager to hear the regulators’ responses before my Committee on Thursday, and hope they are equipped with effective policy proposals to help Americans who are at risk of losing their homes due to abusive practices in the market.

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Canaries in the Labyrinth

The real estate, title and mortgage industries have a woven a complex catacomb of subterranian mine shafts. The shafts, although invisible from the surface, run deep and the relationships are complex. As the evidence begins to mount regarding alleged impropriety surrounding some of the real estate transaction practices of 2000-2005, REALonomics believes the problems will escalate.

For centuries, the coal mining industry has used a “low-tech” method for detecting deadly gas…canaries. Yes, it’s true. As mine shafts became deeper and more complex in their design, problems with ventilation resulted. The solution was to use canaries; birds highly sensitive to methane and carbon monoxide gas, to signal the miners that the danger in the labyrinth had reached terminal levels. The canaries are signaling danger and the miners are bailing out by the dozens, hundreds and even thousands.

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Welcome to our Radically Transparent World

Here’s my favorite quote from an article about how the bond trader has disappeared because the whole system of trading became transparent:

“You have a market that was completely dark for 200 years and instead of letting a little bit of transparency in there, they just opened the windows completely and all the shades and everything, and it was complete sunshine,” said Jeff Stambovski, a senior high-yield bond salesman.

Yes, real estate is finally beginning to see the light… in the ideal world, the consumer will finally see the process of their real estate transaction clearly without the machinations among the processors – the broker, the agent, the settlement services, etc. That’s just one part of my message – transparency is not limited to transactional transparency…

At Transparent Real Estate, I don’t expressly write only about real estate because finding transparency is a creative process that transcends industry. For example, there is a social sea change taking place in the form of personal transparency and “radical transparency“. Personal transparency is nothing more than the fact that the public now perceives it is acceptable to “expose” themselves, their personal data and their lives on MySpace and YouTube. Going further, “radical transparency” implies that personal transparency is inevitable and will in the future compel your children to upload their life details, academic work and resume in order to go to college or get a job. Radical transparency is evident in the new fad of Twitter, a mobile application that tracks people’s whereabouts and what they are doing, each minute if necessary.

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Transparent Real Estate

transparent

Merriam Webster defines it as (1) having the property of transmitting light without appreciable scattering so that bodies lying beyond are seen clearly; (2) free from pretense or deceit : frank; (3) easily detected or seen through : obvious; (4) readily understood; (5) characterized by visibility or accessibility of information especially concerning business practices.

REALonomics advocates transparency in all things Real Estate. Transparency is more than ethical, it’s paramount in the Consumer-Centric ERA.

What are the primary points of transparency that will help the industry improve its business models so that it is more “readily understood, easily detected and free of pretense…?” How does transparency impact our operating models? Can a transparent industry sustain meaningful ROI? Can we identify and accept the impediments to transparency and eliminate them?

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Owner Lock-Down, Cell Block “D”

Lately, REALonomics has been devouring a steady diet of negative real estate and mortgage lending press…”why?”, you ask. Because that’s what’s being served up, that’s why.

Actually, there’s more to it than forced feedings. The negative goes with the turf; you can’t have yin without some yang. It seems like the industry is in a “locked down” state with owners feeling powerless against the contemporary forces of change coming at them from all sides.

But are owners really powerless to initiate their long awaited prison break? Now that the official word is out that the market is going south (check your compass needle), we finally catch a sense of what it is like to be surrounded by the iron bars of overhead that imprison us?

One of my favorite films is Birdman of Alcatraz, staring Burt Lancaster as Rober Stroud (the real bird man) and Karl Malden as the Warden. The Birdman, although imprisoned and segregated, is portrayed as finding freedom, meaning and solace through the raising and selling of birds.

The Birdman found three injured sparrows in the prison yard, captured them and spent time keeping them alive for personal enjoyment and satisfaction. In the movie, Burt Lancaster (the Birdman) switched from caring for sparrows to raising canaries, belieiving the canaries were a better economic model.

Who are we kidding in the real estate industry. Our traditional economic models (the real estate company) entrap us as if we Birdmen in a lock-down. Despite our toying new breeds of birds (agents), nothing seem powerful enough to release us from our sentence.

We have entered the real estate industry’s Third Economic Wave, the Consumer Centric Era and this era, unlike others, will challenge our model like no other.

There are three economic changes that must be made by owners in order for us to find true freedom, meaning and solace, not to mention profitability.

1. Reinvent and View our Companies as Market Management Engines
2. Implement Technology and Internet Models that Diminish Overhead Dependency
3. Create Consumer Centric Services that Simplify the Real Estate Transaction for them

The heat is on. Trading sparrows for canaries, while bringing a sense of personal peace will not release us from the bars that hold us. However, models like e-Partner may.

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