February 2009

ActiveRain vs. Move: What it Means

REALonomics thinks lawsuits are good. Now that I have your attention, let’s talk. Lawsuits are good, if only because they are revelatory. They tell us something. Sometimes they tell us a lot. They give us reason to delve, analyze and ponder the intricate nature of corporate and personal motivations.

More importantly, for this blog, lawsuits within the real estate industry are to be analyzed to the end that we may extract the principals that motivate players and shape the models of tomorrow. Lawsuits, at least for REALonomics, are the judicial chess game battles between the existing controlling realms, complete with kings, queens, pawns, rooks and bishops and their emerging challengers. We look to lawsuits for new real estate model math, principals that spell change, good or bad.

It’s not the Suit, it’s the Resultant Outcome

When it comes to lawsuits we too often focus simply on outcomes, awards, winners and losers. It’s the knock out we look for. That’s not our intention here. Our objective is to wonder why and how things occur within the real estate industry, an industry where we have more than once predicted the soon to arrive fist fight for control. REALonomics predicted there would be a battle for supremacy. An industry fight without rules or referees. Our own in-house, knuckle busting, face bashing, fat lipped, bloody nose brawl to the death.

Round one has just ended…the fight has just begun. The feeling-out phase between the fighters will take a few rounds. Depositions, is what we call this phase of the fist-fight.

Industry Lawsuits are Always about us

ActiveRain (challenger) has filed suit against Move (champion). Who is ActiveRain and who is Move? The former is a company that created a blogging business model that has become the most single successful congregation of real estate industry bloggers, hands down.

The latter is, well, sort of us. Yes, you read correctly…us. We are suing ActiveRain, passively. Behind Move, defendant, is Realtor.com and thus the real estate industry’s member organization known as The National Association of Realtors (NAR). Move is paid by NAR. NAR is paid by, you got it…US!

It’s ActiveRain vs. Us if only from the dotted line perspective of our involvement with and membership in NAR to whom we pay dues. Move is no doubt free to conduct its business in ways it deems important. But remember, we are writing the check.

Our Own Speculation

Here’s what we “SPECULATE” happened, what predicated the suit and what the outcome might mean to the industry.

Phase One: ActiveRain’s membership of more than 70,000 real estate industry participants (agent, brokers, mortgage, title, etc.) finally showed up on the radar screen of Move. This created internal discussion, some distress and generated a plan on the part of Move to put the moves (pun intended) on ActiveRain by initiating a discussion to purchase them. Move is a publically traded company with a contract with NAR to operate Realtor.com, its official site. REALonomics “speculates” that Move would have been required to disclose their intent to acquire ActiveRain to NAR, since it represents potential ramifications to the operation of Realtor.com.

Phase Two: Documents known as non-disclosure agreements (NDAs) are passed between the parties and executed. NDA supposedly allow a free-flowing exchange of information the content of which is supposed to be protected from use by all parties with distribution of information to others prohibited.

Phase Three: A Letter of Intent (LOI) may have been executed at some point, allowing for the stipulation of price, terms, conditions and due diligence on the part of the buyer. It’s unlikely that the parties went straight to contract.

Phase Four: This is where things start getting sticky. ActiveRain made certain disclosures to Move pertaining to its business model, financials and other matters relevant to the buy out. Most likely, ActiveRain believed these disclosures to be protected by the NDA and indeed law.

Phase Five: Move has full possession of ActiveRain’s model, financials and collateral materials necessary for a contracted purchase. All that is missing is the code, the grail, the keys that will start the engine. At this point the parties have two differing opinions. Move’s opinion, as they will predictably claim, is that we didn’t have a binding contract…it was all due diligence. ActiveRain’s sense was that the deal was going to go down. We do not know if a formal written contract to purchase was executed.

Phase Six: ActiveRain makes its final disclosure. Giving Move full access to what it terms in the suit “highly sensitive material…in electronic format…in anticipation of the supposed impending close.” So, Active Rain claims that it believed the deal was ready to close and they delivered the goods within the timeframe for the closing date.

The Core

In short, this suit is about Move getting the goods and ActiveRain getting nothing. That’s the core of the suit.

REALonomics “speculates” that ActiveRain’s senior management may have been somewhat inexperienced in the fine art of NDAs as cleverly disguised instruments of corporate surveillance. We further predict that there will be what we term “weasel clauses” in the written documents used by Move.

Furthermore, REALonomics “speculates” that it is not entirely implausible that ActiveRain’s model posed a threat to the interests of Move and its operation of Realtor.com, including its future intentions to create social networking. After all, 70,000 ActiveRain members can’t all be wrong.

Our final “speculation” is that this fist fight represents the collision of new with old. ActiveRain’s model is successful, if for no other reason than the sheer numbers of participants. ActiveRain represents the neo-models that are emerging within the industry. ActiveRain represents the push toward freedom models, open markets, transparency, consumer-centric thinking, unfettered dialogue and what we have termed the “democratization of real estate.”

Could this be Corporate Shenanigans?

Did Move engage ActiveRain with a designed intention to surveil them? REALonomics doesn’t know. Did ActiveRain, like so many young, successful start-ups, recklessly release its “sensitive information” with a degree of naivety prior to locking-down the transaction? Again, REALonomics doesn’t know.

What we do know is that the forces of new and old are engaged in a fight to the finish. The financial stakes are enormous. Are those of us who are industry participants (members of NAR and our local ARs) in any way funding this judicial nonsense? REALonomics doesn’t know.

REALonomics thinks lawsuits are good because they are revelatory. They tell us something. Sometimes they tell us a lot. They give us reason to delve, analyze and ponder the intricate nature of corporate and personal motivations. They may well tell us where we are going in the future. Behind lawsuits there are things to be discovered that have nothing to do with the lawsuit itself and everything to do with the rest of us.

We encourage our readers to follow this suit, set for trial on December 2, 2008.

REALonomics Interviews Bug! Founder

Kevin Seney knows his way around the real estate and mortgage industries. He’s comfortable talking about both and equally comfortable addressing their dark sides. Our paths crossed recently and I began to explore his new franchise concept Bug! Realty.

Although REALonomics cannot address the validity of Bug’s economic model, its brand, marketing, emphasis on cyber agents and offices, lower overhead and a commitment to meeting the needs of the consumer in a transparent way caught our attention.

We tracked down Kevin and found him as open as his model. He was eager to share with us his vision for Bug! Realty and the the real estate industy itself. Kevin discusses his own franchise offering, comparing it to what he calls the “tired…instituional…not current” traditional brands. The following excerpts come from our exchange with Kevin Seney. For the full interview, click here.

REALonomics: Can you tell us who Kevin Seney is and about your real estate background?
Seney: I have been involved in real estate since I was a teenager. Growing up in Wyoming, I had a remodeling business in high school which led me to building spec homes when I graduated. We eventually lost our butts, when our construction loans went to 18%, but I learned some valuable lessons at 20.

I started my own Mortgage Company, The Home Loan Store, Inc. I opened the company in a small, highly visible downtown retail space, right next to Starbucks. I finally sold the company in 2000 and took some “much needed” time off.

Looking back at my experience working with Realtors® I walked away with a very unique perspective on the business of real estate. I was always amazed how much money Realtors® spent on “Image Advertising” and “putting on the show,” but as an insider, I knew how INEFFECTIVE it was for them. Meanwhile, I felt like consumers were all laughing at the industry. The economics of real estate were changing quickly. Real estate needed an “Image Makeover.” I HAD MY IDEA!

REALonomics: As you know, REALonomics is in a perpetual quest for what we call “Model Perfect” because we think the real estate industry and its relationship with the consumer is in dire need of a transfusion. What makes Bug Realty a unique model in the sea of options for brokers/owners and agents? What are your core value propositions and distinctives?
Seney: First, let’s talk about our brand. Existing real estate brands are tired and institutional. They are not current. They are from the 1970′s.

Our brand is NEW. It is COOL. It stands alone in the industry as being COMPLETELY DIFFERENT. People love to talk about Bug! Our brand has personality. Our brand is clearly distinctive!

REALonomics: What prompted you to create Bug Realty and what’s the message behind the bugs?
Seney: I saw a clear opportunity for this model. The market is wide open for change. The message behind the Bug goes clear back to my original objectives with brand development. I set out to create a brand that was simple, yet cool and consumer friendly. Something New! Something Fun! Something Remarkable! Something that signaled CHANGE.

Here is what all the experts said: Powerful brands are simple. Powerful brands are memorable. Powerful brands carry significant emotional meaning to the consumer. As a result, people talk about powerful brands. Consumers love us. They love Bug! simply because they already did.

REALonomics: What do you see as the major trends that are present in the real estate economy that can harm and/or help owners get a grip on their business and its profitability equation?
Seney: We could not have launched our franchise at a better time. I would like to say that I timed it that way, but our experience so far, has been that the entire industry is looking for something new.

Consumers are also licking their wounds, recalling the guy in the $100,000 car who sold them the house that is suddenly without equity. The consumer wants change too. People are becoming economy and ecology minded. Our message is being well received.

The more difficult the market, the more our model makes sense. Every day I hear of established brokers going out of business. Can’t pay the rent.

REALonomics: Does Bug Realty have any relationships with core service providers such as mortgage, title, escrow, home inspection, etc. and how do these work within the organization’s framework.
Seney: So far nothing. The industry is still floundering and not paying much attention to new opportunities. Coming from the mortgage industry, I also believe that the consumer wants freedom of choice for both mortgage and escrow.

Keep it Simple, is our motto. When the time is right we will tie up with a national lender for marketing reasons and a shared web experience but I still believe in local people making their own choices, in their own markets, with local service providers. This is still a “People Business” and we want to keep it that way.

REALonomics: Apart from the Internet, what are the components of your technology platform, that is, your internal technology tools that you bring to the table for owners and agents? Do you espouse transaction management; tablet PCs or any of the trendy technology solutions?
Seney: We require all agents and franchisee’s to have the basic “Bug! Virtual Office Package” which consists of a wireless laptop, cell phone, eFax and online forms, and business software.

We are exploring many options such as agent blog sites, internet marketing options, and an array of transaction management software.

Recently, I made the decision to standardize our Franchise on the Apple iPhone. All agents will have one. Why? They make us even more portable. Our agents always have internet access, even in line at Starbucks. And, most of all, they are just cool. We are a cool company. It works.

REALonomics: Are you seeing broker/owner profitability problems in the current market situation and do you think the industry is going to see the closing of doors with respect to real estate brokerage firms.
Seney: We already covered this, but again, it is clear that there is a lot of “fixin” to be done in the real estate industry. Doors are closing daily, across the nation. We believe we have the solution.

REALonomics: We have a readership of thousands of people from all aspects of the industry including franchises, title, mortgage, owners and agents. What’s the most important message you have for the industry as a whole?
Seney: Join us! We have an incredible future ahead. We are pioneers having the time of our lives. We are creating something really cool. We need leaders. We need visionaries. We need regular people.

In December of 2007, we closed out our first round stock offer of our Series A Preferred. We are already planning a second round offer later this year. We exceeded our plan for 2007 by 118%. Our costs were HALF what we expected!

2008 and 2009 will be explosive for this company. Our franchise is currently approved in all 50 states. We have a regionalization plan already in place. We have already sold our first Region: Welcome Region ONE in San Francisco, CA.

Every day I wake up and pinch myself…is this really happening?

REALonomics: What question would you most like asked of yourself that we have not asked and what’s your answer?

To see the Kevin’s answer to this question and other you may retrieve a complete copy of the interview by clicking here.

Bug! It’s a Real Estate Brand

Bug! It’s a new real estate franchise brand. No fooling! Although REALonomics cannot address the financial model behind Bug Realty, the brand image has been carefully orchestrated to convey simplicity, frugality and of course, fun for consumers. In this sense, we believe the wearied and worn consumer will easily recognize and identify with this brand. After all, who doesn’t know the Bug?

That isn’t all bad in today’s tired and shop worn real estate industry. The branding concept utilizes the Volkswagen Beetle Bug as an icon. Geek Squad gone realty! The power behind the brand is the natural, built-in consumer predisposition toward the Bug…I’m talking Beetle Bug.

REALonomics would like to recognize Bug! as Model Perfect from the standpoint of their keen attention to new brand creation. Watch for our REALonomics Interview with Bug Realty Founder and CEO, Kevin Seney.

What Bug Realty wants to convey to the consumer is their deliberate lack of pretense…simplicity is the idea behind the message as contracted with the big and brassy brand message of some other franchises.

Bug! touts a no-frills, no-hype real estate model. Bug! agents drive the Volkswagen Beetle in order to drive home (no pun intended) the idea of simplicity and no frills.

Bug! resists the idea of being labeled a “discount” brokerage company, opting instead to convey to consumer that they reduce costs by eliminating things like inefficient advertisement in favor of streamlined operating systems. Bug! agents conduct their business with wireless technology solutions with full access to MLS property information via the Company’s intranet, laptops and of course, cell phones.

Founder and CEO, Kevin Seney, said this about current brands, “Their brands are stale, they’re institutional. The communication they’re sending out to the marketplace is we’re big, we’re fancy, and we sell estate homes. But that image doesn’t work anymore.”

REALonomics congratulates Bug Realty for its marketing design that is truly innovative, fresh and recognizable in an industry that desperately needs fresh paint and new screen doors.

Watch for our REALonomics interview with Bug Realty Founder and CEO, Kevin Seney.

Business Principles from NASCAR

Today, I am watching the Daytona 500, for the first time ever! My brother-in-law Joel planted the NASCAR seed within my psyche. Since then, I have been developing a growing “need” to watch, to track and to learn about all things NASCAR.

Admittedly, the idea of watching cars drive in circles unnerved and confused me. Why would anyone want to watch this nonsense, I secretly thought? Like many things, transparency, understanding and knowledge changes one’s perspective and appreciation about a particular subject. This is true with respect to my infantile understanding of NASCAR.

Driving in Circles

NASCAR is not what I thought it was…driving in circles!

Here’s what I now know. NASCAR is a business endeavor predicated on extreme attention to branding, marketing, engineering and operational detail, hyper planning, teamwork and a passion for the experience of winning. The blueprint for victory involves a multiplicity of interrelated elements.

Now that I am “in to it” I can truthfully say there is a lot to be learned from the NASCAR business model specifically and the sport in general. It’s an industry not unlike real estate with market brand names like Jimmy Johnson, Dale Earnhardt, Jr., Kurt Busch and others. Sub-branding make the economic engine work with national capitalization from Budweiser, Chevrolet, Lowes, Mountain Dew and even Cheerios!

What makes the NASCAR business model work with the general paying public, numbering in the multi-millions each year? NASCAR is a culture…almost cult-like. Its fans are “die hard” loyalists whose lives, in many respects, revolve around the “season” of races and the driver personalities. But that is not all there is to this NASCAR thing.

watching the Daytona 500, for the first time ever! My brother-in-law Joel planted the NASCAR seed within my psyche. Since then, I have been developing a growing “need” to watch, to track and to learn about all things NASCAR.

Admittedly, the idea of watching cars drive in circles unnerved and confused me. Why would anyone want to watch this nonsense, I secretly thought? Like many things, transparency, understanding and knowledge changes one’s perspective and appreciation about a particular subject. This is true with respect to my infantile understanding of NASCAR.

Delivering Experiences

Most importantly, NASCAR, despite the mega millions invested, remains devoted to the common man. I don’t know exactly what the common man is but it’s decidedly not the elite folks that appear in glossy magazines and whose visages are the fodder for tabloid journalism.

NASCAR’s appeal spins on the delicate axis of its most important person in business…the fan…the spectator, the real people that make up life.

I am only now beginning to see that NASCAR’s true product is the “experience” it delivers to me, you, her, him and them! Almost everyone can find a place in the NASCAR experience, whether in observing the pit crew whip through a complete tire change in seconds, studying the psychological quirks of the drivers or appreciating the last lap heroism that takes the checkered flag.

My point is that NASCAR is an industry predicated on delivering quality experiences to everyone. Although I am not totally hooked, I sense an erosion of my resistance to NASCAR and the initial notion that NASCAR was about people driving in circles.

Thanks to Joel, I’m becoming a fan and I suspect it won’t be long before attend my first race. It’s the experience I want…get it?

Hmmm…I’m wondering if the real estate industry can learn anything from watching the Daytona 500. I’m wondering if the real estate industry is driving in circles in quest of a better way.

Gotta run, the experience starts in eight minutes!

Obsolescence, Demons & Neo Design

My real estate brokerage ownership and management experience involved two companies. I’m one of the fortunate ones, having got out of both with proceeds from the first and a cash sale of the second on April 22, 2005, at the peak of the market. In short, I came out somewhat sane and lived to talk about it.

My ownership experiences created the foundation for REALonomics, new real estate model math. I’m no longer a believer in the traditional brokerage business model. It cannot sustain owners and provide them with the return on the investment they need to justify their risk and certainly in most cases provide them with an exit strategy. More importantly, the model is increasingly being rejected by the consumer, who favors less control and much, much more transparency.

The fickle markets, all-wise consumer, transaction complexities, capital and legal risks and the arcane nature of the industry itself have rendered the notion of a broker-centric business model nearly obsolete. Want the unvarnished truth? Of the dozens of broker/owners I speak to each month, almost none of them believe in their model, not with the passion necessary to an ongoing and profitable business endeavor. My broker/owner friends are just stuck knee deep in the cement of a dead model.

Power brokering is becoming highly irrelevant. My broker/owner colleagues, nearly to the person, shake their heads and mumble, “…not worth it…I’m keeping the doors open so my agents can make money…and even they aren’t making money any more…”

Our Quickening March toward Obsolescence

Has the pace of change created an every quickening march toward functional and more importantly, economic obsolescence? Yes, it has! To a large degree the idea of opening a brokerage, complete with agent office space, desks, computers, copiers, coffee room and the assortment of industry trinkets that have little or nothing to do with providing consumers access to property information and homes, seems frightening and very risky.

Ours is an industry where owners just won’t let go of themselves, even after staring into the mirror of obsolescence, where we see ourselves, tired, lonely, frustrated, isolated and economically challenged.

The Broker-Centric era (the first economic wave) and Agent-Centric era (the second economic wave) business models are in a final march toward obsolescence. In effect, neither owners nor agents can afford to push the model much further into a future where liquid property information will abound, consumers will bask in the democratization of real estate and we will service transactions from wholly new vantage points.

This “march toward obsolescence” is a not an industry death knell. More accurately, it could be described as the introduction of a new “script” that charts the direction for highly innovative blueprints that finally redefine how we interface as an industry with people in the Consumer-Centric Era (the third wave of our economic development).

Exorcising the Resident Demons and Myths

Like Emily Rose, we are possessed by many demons. In order to build a neo design we will need to cast out the old counter-productive forces that have taken up residency within our business models and whose negative influence permeates the industry. We are possessed of many…most must go…some will be allowed to remain, temporarily, due to necessity…others can be tamed and trained, perhaps.

The long held notions, superstitions and fairy tales about real estate brokerage will need to be addressed, as these have long held sway over our creative capacity to reinvent, paralyzing us and placing us in an economic stupor.

We must cast-out the idea of property information control and open a transparent portal for the consumer to enter into new conversations with us about real estate investment, where we are truly qualified, trusted and knowledgeable about their investment strategies.

We must expunge the idea that bricks-and-mortar retail models in fixed and defined metro market service areas can continue to produce adequate ROI. We must drag the demon of overhead, kicking and screaming out into the open market where it can be exposed for what it truly is, the enemy of owners and franchisors.

Our demons are legion…they do not come out easily and when they finally do they leave a mark, a dent, a scar that says, “We once lived here.” Our resident guests impact our economies of scale, our market agility and most importantly, our long term survival.

Etch-a-Sketch®: a Neo Design

In 2008, REALonomics will etch concepts for the creation of a neo design. We will put it on paper (well, in the blog) and make the model ideas accessible to you. We will interview brokers, agents, industry leaders and of course, real people who buy and sell real estate. Novel, eh?

Changing our industry’s design is daunting. We need to take a look at our sprawling geographic markets, such as California, Florida, Phoenix, Las Vegas, Chicago, Atlanta and the rest and ask “what can work here, now and tomorrow?” Our industry should deliberately engage in designing the optimal consumer-centric, consumer-partnered, brokerage services model, replete with features necessary to the era in which we live.

Baseline business modeling begins with unfettered access to property information…sketch it in!

Baseline business modeling includes a renewed commitment to standards of practice that please the consumer and create a new, more comfortable reality…sketch it in!

Baseline business modeling marries cultural realities to the real estate transaction prototype…sketch it in!

Baseline business modeling has something to do with expunging the ego-centric expressions and components from the industry that continually project a self-serving, money-grabbing image…sketch it in!

Baseline business modeling is predicated upon a model for all participants, one with the highest possible qualifications for entry…sketch it in!

Baseline business modelling requires rigorous adherence to qualification standards for owner/operators, agents and core service providers…sketch it in!

Finally, baseline business modeling demands adequate ROI when measured against the risk of capital, creative and intellectual investments of the players and principals…sketch it in!

Our impending obsolescence is merely temporal. Our model is being replaced, part-by-part. Can we, those of us within the industry, shake the demons that possess us and sketch a new, highly productive model that will propel us into the future? REALonomics thinks so…sketch it in!

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