realonomics

We have entered a New Real Estate Economy. Our business models will be order by a new set of rules and realities which we have referred to as The Ten Commandments of the New Real Estate Economy.

The new economic rules and realities form the New Model Math for an industry that is morphing from its broker-centric and agent-centric roots to a decidedly consumer-centric model. Whoever writes the new rules and effectively addresses the new realities will, to a large degree, control the game and much of its economic outcome.

Mugging for the Camera

A new mug shot is emerging and we are finally able to sketch the features of the front face and profile of an industry whose economic and operating models are undergoing massive revision. What emerges will become the new real estate professional and business operating profile for the coming decade.

Images of the old mug of total brand separation, rugged individualism and attempts to have it all will become economically unfeasible. The consumer demand for services has raised the price of admission in an arena where there will not be many front seats. We will simply have to do more for the all powerful consumer than we can afford to do, this will be a huge economic reality that will lead to new operating rules.

Defining the New Broker/Owner Realities

New Reality 1: We’re moving at light speed and managing change will become a fundamental and deliberate action for business success. Broker/Owners will no longer need to throw themselves under the bus; the bus will simply run us down! Business will largely become the management of change in red hot crucible.

Our new Model Math reality must include what REALonomics calls “change management.” Manage change or watch your business erode. The changes will include brand new, never before seen models, that trim fat and speed up efficiencies…more specificity on this later in this post.

New Reality 2: Broker/Owners will see further challenges to profitability unless they adopt consumer-centric, transparent real estate business models that truly partner with the consumer. Things like true conversations in the market place that allow the consumer , peer-to-peer (seller to buyer and relocation transferee with resident) opportunities and a blogosphere the likes of which we can’t even begin to fathom.

It’s time for the industry to embrace the inevitable democratization of all things RE. And we will need to start with unfettered access to property information on at lease a statewide and perhaps eventually a national basis. This is our new reality. Grab it and go with it or see your business die.

New Reality 3: Coalition real estate. I can hear some of you asking, “what the…?” Coalition real estate is a REALonomics term representing a new type of merger/acquisition model that involves the creation of hybrid relationship between the strangest of bedfellows. The old M&A model will become scant, with new technology-driven relationship becoming a “norm” without anyone necessarily owning it “ALL.” We can’t afford to own it all, can we?

Coalition Real Estate is an economic “Club-Med” that enables us to have all things without having all things…arghh, this one is tough! In the New Real Estate Economy, coalitions will be a fact necessary to the management of change and the demands of the consumer. It will involve new agent sharing models, technology pyramids that collate the tools for groups of Broker/Owners to utilize with optimal price points. Transaction complexity within the lending and brokerage industries together with consumer demands will force us toward coalition strategies as a normal part of business.

New Operating Rules for the New Realities

The new realities push new rules into the market place and these new rules are the dots Broker/Owners begin to connect for optimal business model strategies. However, let’s not think that we have no control over the rule-making and design of the real estate industry for the next decade. Although many Broker/Owner have abdicated some critical authorities in the industry, it’s not too late to exercise strong influence on content of the new rule book.

Although REALonomics will not have time or space to qualify each of these new operating rules, the economic primer for them includes, but is certainly not limited to, the following ten industry considerations:

1. Deliberate reduction, as a matter of policy, in the number of real estate agents allowed to practice and thus a reduction in mediocrity.
2. Business entities that are set up to study, manage and influence industry change on behalf of Broker/Owners and the industry itself.
3. Refined definitions of the models and economic blueprints for core services utilized by Broker/Owners.
4. Partnerships and consolidation of services between competing franchisors - ouch! Indeed, franchisors face the same famine of profitability we all face.
5. Implementation of Paperless Tools for front and back end transaction management favorable to agents, owners and consumers.
6. Removal of the structural impediments inherent in the old MLS property models so that transparency and utility can become the norm.
7. Demolition of the local Association of Realtors model in favor of at least regionalization and ultimately, nationalization in favor of the consumer.
8. A new mandate for NAR that redirects and allocates our resources in favor of models and programs benefiting Broker/Owner profitability.
9. Adoption of high-speed, data-rich property evaluation tools, including rapid price evaluation technologies at affordable costs.
10. Replacement of old Internet lead generation models with transparent partnerships with the consumer.

These new business rules will evolve from the realities we now face as an industry. Together, these rules, with others yet to be articulated, will form our new Front Face and Profile.

It’s going to be a very cool decade ahead of us. Enjoy the ride, embrace the pace…enjoy the thrill. After all, you’re already on the roller coaster. Buckle up…grease the bearings…here we go!

Popularity: 41% [?]

Federal Reserve Chairman Ben Bernanke’s recent moves cannot thwart the forward movement of the foreclosure train. The wreck is inevitable, the extent of the damage is yet undetermined. No amount of bargaining, even by someone the likes of Ben Bernanke, will change the predestination of this market cycle. Even he is caught in the storm without a simple way out…after all, he’s only human. Bernacke is one man, the “Main Man” I grant you, but one man in a global economy he cannot control.

It’s true, Ben Bernanke is no Alan Greenspan, but then Greenspan actually endorsed subprime lending as “beneficial to consumers” calling the concept “constructive innovation.”

The Fed, in all of its myriad forms, from the White House to Congress to the Reserve itself, can not, will not and should not step into this market mess. Before it gets better, it’s going to have to get worse and barring Divine intervention (I would welcome such), all of us are going to suffer; even the policy makers are caught.

THE ROAD TO MARKET RECOVERY

REALonomics occasionally ventures calculated guesses disguised as editorial comment. Barring additional surprises and detours, here’s our analysis guestimate of what it will take to get this real estate market down the road toward recovery.

1. Metro market price reductions will need to reach 20-25%
2. The real estate agent count will drop below the 1 million mark
3. Lenders must make mortgage payment adjustments to certain homeowners
4. A number of Sellers (30%+) must remove their properties from the market
5. New home construction will dwindle by 60% or more by late 2008
6. Lending rules will be tightened to a level never before seen
7. Rental markets will boom for the next 24-36 months
8. In 2009 a new crop of investors will emerge and markets will flourish

What can real estate professionals do? Brokers should work to convince sellers who are not optimally motivated to sell, to remove their properties from the market. This is smart fiduciary and good economic counseling. There seems to be some sort of selling hysteria creeping into the markets. If the today’s market penalizes a seller by 20% and if two years gives that same amount back to the seller, we would be doing many sellers a favor by encouraging them to park their real estate investment.

SHALL WE PRAY?

Of course we should, about a lot of things, most having nothing to do with the real estate market. But since we are having such an industry “crisis of conscience” we might want to seize the moment and engage in professional introspection as we travel the road to recovery.

We wrote the contracts, we opened the escrows, we closed the transactions and we certainly accepted the big-bucks. We are all caught, just like Ben. There will be fundamental changes in the real estate and mortgage industries over the next 24 months and beyond. We need fewer of us. We need become better at what we do in a market that is better defined…that’s where we are going.

For those of you praying for a federal bail out…forget it…say “amen” now! Bailout talk will only be a fickle part of the language used by the current crop of Presidential candidates and then it will only be used to garner the votes of a hopeful handful of the electorate.

Like Ben, let us pray…after all, we’re only human!

Popularity: 30% [?]

REALonomics applauds Countrywide’s recent bold moves to reposition itself. The business strategies of Countrywide are right on target and exactly what is needed in today’s doomsday market. Countrywide’s clever market expansion strategies are in full swing with the hiring of loan officers from competitors and strategic acquisitions.

Despite the irrational and irresponsible statements by Merrill Lynch & Co. that Countrywide Financial was facing potential bankruptcy and the equally foolish downgrade of its stock to “SELL” status, Countrywide came out swinging, moving its stock position to neutral and gaining back some of its losses.

On August 18, 2007, in an attempt to further fan the flames, the Los Angeles Times said,

Anxious depositors clutching withdrawal slips filled Countrywide offices for the second straight day. In Beverly Hills, the company placed extra chairs in a waiting area and asked customers to write their names on a sign-in sheet. By 10:45 a.m., 30 names filled nearly 2 1/2 pages.

Countrywide funded approximately 1 of 6 loans in the first half of 2007, its fundamentals on the management, liquidity and banking side are extremely sound. In short, Countrywide is well run and its recent adjustments once again demonstrate its market savvy. In addition, and for now, we can breathe a small sigh of relief that the Federal Reserve adjusted rates, a move called for 30-60 days ago.

Will Countrywide survive? Yes, it may be forced to morph into a more streamlined machine, as REALonomics has been saying the real estate industry must also do.

There is no “long term” view of the industry at the moment. The rules governing how we execute are being rewritten, almost daily. Over the short-term, we should not engage in panic-mongering, as did Merrill Lynch.

When the market opens Monday morning, let’s see where we go. The mortgage tree is being shaken…let the bad fruit fall to the ground. In the meantime, REALonomics applauds the brisk, decisive management positions being exhibited by Countrywide Financial Corporation.

Popularity: 10% [?]

Merrill Lynch downgraded their opinion of the financial strength of Countrywide Mortgage Corporation and in the process dropped the “B” word on the market…Bankruptcy. Second “B” word; Bummer!

Not so fast! The market bummer is going to set the stage for another cycle of broker/owner opportunities in the real estate industry ranging from new buying cycles, business consolidations, expansions and new brokerage development strategies.

REALonomics has said real estate company owners should re-tool their thinking and their models, engage in aggressive development of cost-effective market management models that utilize consumer-centric, transparent technology and finally, penetrate more new markets by recruiting Liquid Agents who are fluidly operating in multiple markets while tethered to broker/owners via Internet management.

What not to do, in six easy steps:

• Don’t diminish Internet investment, expand it;
• Don’t depend on your vertical market alone, go horizontal;
• Don’t stop recruiting, change agent profile to fee-based and experienced;
• Don’t ignore overhead, cut physical labor fast in favor of technology;
• Don’t retreat to yourself, absorb smaller firms in new markets;
• Don’t rely on transation revenue alone, develop ancillary revenue streams;

Do you believe the current market bummer is an owner opportunity? Comment here.

Popularity: 32% [?]

When preparing to present challenging academic material, one of my college professors used to say, “get this in your head and you’ll have it in a nutshell.”

Moe, Larry and Curly are the economic stooges within our industry. In effect, they inhibit development of an owner’s opportunity to reshape his/her company into the competitive force it can become.

During this market down cycle owners have an opportunity to rethink and retool for the 2009 upturn and to once and for all expunge the Stooges from our business models. Each Stooge represents an old line component of our industry and an opportunity for us to seize the moment…this forms three acid tests for owners.

1. Acid Test Number One: Revise our Retail Models (bye-bye bricks-n-mortar).
2. Acid Test Number Two: Redefine our Markets (leaving micro for macro).
3. Acid Test Number Three: Redirect our Methods (consumer obsession).

Acid Test One. We are being challenged to revising our penchant and our historical bias for developing our real estate business models as if they were retail outlets. Bottom line…this is really about the management of fixed-base overhead in favor of new streamlined schema for ROI. Bye, bye bricks-n-mortar! Read the post.

Acid Test Two. Our definition of “market” can change everything for the better. REALonomics firmly believes that real estate markets are being refined before our very eyes. New rules are being written that challenge much of the old assumptions about real estate markets. Are we building more vertical models or, can we move our businesses into the horizontal, fluid markets all around us? This is the focus of assets on the macro market not just the micro market. Read the post.

Acid Test Three. Finally, we must recognize the position and power of the consumer in our business equations. Our methods for interfacing and relating to the consumer are in need of redress. The consumer has his/her/their hand on the joystick of profitability. The methods are being changed from “hard sell” to “soft communication” where the consumer is invited to explore a relationship with markets, agents and brokerage firms in a quest for real estate. Our business models should be completely overwhelmed with consumer obsession. Read the post.

Popularity: 12% [?]