Agent Trends

Real Rescue or Only Bandage?

Can the 2008 Housing Act Stabilize and Turn the Real Estate Cycle Around?

Who would have only 5 years ago expected that we would be staring down such complex and turbulent times in real estate?

Last week, President George Bush signed The American Housing Rescue and Foreclosure Prevention Act of 2008 (the Housing Act) into law. It is the most sweeping housing legislation since the Great Depression. The new Act authorizes the Department of the Treasury to stem the tide of home foreclosures and provide a lifeline to mortgage lenders. With inventory in many large cities sitting at almost a one year level, and foreclosures expected to surpass 6 million by 2012, they have a huge task ahead.

Real Estate Recovery Quo Vadis?

When the stock market took a nose dive, real estate brought growth.

When the economy did poorly, real estate introduced wealth.

When 911 all but destroyed our faith, real estate restored the American Dream.

In many occasions, and in many years, real estate has been the rock to depend, or in some cases even the rocket to ride to riches. But times have changed and the bright years of 2000-2005 have become a dull memory.

It’s not really that real estate itself crashed and burned, but that with new construction out of control, speculation spiraling and lending becoming irresponsible, the burden real estate had to carry became to heavy and the first nail in the coffin ground what was a good thing, to a halt.

Collapsing financial institutions led to immense write offs, allegations and actions of improper conduct led to finger pointing and investigations that in turn led to layoffs and disaster.

With unemployment steadily rising and home prices in a constant month by month decline, the real estate market is brittle and cautiously teetering on which way to go.

With the unprecedented rally of crude oil tethering at $150, and now two government-sponsored entities, Fannie Mae and Freddie Mac possibly requiring government bailout. The pair guarantee around $5 trillion worth of mortgages – that’s almost half of the $9.5 trillion debt of the United States. I think we have just witnessed the second nail being hammered into the heart of real estate. Not good at all.

Let’s pray and hope that we don’t have a third nail – a major terrorist attack on local soil in the foreseeable future. Barring the above, the road to real estate recovery is going to be a slow and bumpy one. Most likely it may only pick up momentum during or after 2010 – especially for areas such as Florida, California and Las Vegas.

So for those of us that earn our daily bread from real estate my message is a simple one: Batten down the hatches, expand your horizons, re-engineer your company, automate your business, market more online – yes, maximize every opportunity. Survive the years 2006-2010 and come out the other side with an automated, more efficient, new paradigm, consumer focused real estate model and you may very well find yourself in the front row to become the Amazon, EBay or Google of real estate.

This post is also posted in Inman Community under the title: Three Gold Stars and Two Rusty Nails.

REALONOPOLY – Does Anyone Still Wanna Play this Old Game?

In a previous post (Nori’s Leaky World) we spoke about the real estate industry being built, in part, on a control model.

Throughout our history we have deployed control-based business models. Like the real game of Monopoly® our industry has created its own market game board governed by a set of rules we wrote and occasionally edited to extend our control.

During previous eras an owner’s business model was based largely on mechanisms designed to control information, markets, brands and for a long time we even tried to control the real estate agents who were part of companies.

It is equally important important to note and to admit that the real estate industry has historically attempted to control the consumer with respect to our business models utilizing our clever control over access to property information as the primary mechanism for doing so.

Control and Dominance

Large segments of the real estate industry and its core service providers still engage in Realonopoly, a game about market control and dominance. In the game of Realonopoly we carve out spots within defined markets…we then seek to control our position, until, as we have all experienced in the game of Monopoly®, we can no longer pay the rent; a position in which too many owners find themselves today.

Within real estate, mortgage and title companies, creating one’s board is the first initial step; everything flows from there. Position on the board can mean power and power typically equates to a kind of control measured by muscle flexing. Control has historically been everything in the real estate industry.

The ultimate control was consumer control.

Losing control creates a depression and a void…a crack where others can slip in. Yet, it is the contention of REALonomics that each era in the historical timeline of the real estate industry unravels when control is challenged and the challenge typically stems from a change in informational technology…the means by which people gain access to real property data.

Collaboration and Community Forcing Change

Business models typically change when the old models are confronted by new technologies and people empowered by concepts of innovation. Most of the change in business modeling is induced by innovation driven primarily by advances in technology. These advances in real estate technology create a “democratizing” of information, which then empowers others to innovate and challenge the control status of the prevailing models.

This is precisely what has taken place in the real estate industry. REALonomics has presented this as the Democratization of Real Estate, a time where the industry loses its grip on the game of Realonopoly and finally is forced to abandon its position in favor of a new board game. Think of this concept as three distinct eras as follows and notice how transitions occur when new technology is introduced…then, notice how control is relinquished as information is decentralized and ultimately democratized.

Examine the following illustration, extracted from our archives. It demonstrates the evolution of the real estate industry’s business models.

Control works well in business model climates where informational access and free exchange are blunted, where collaboration is limited to the controllers and where the rules only change when the controllers are finally confronted by free thinking people who are initially labeled as rebellious fringe lunatics.

We have now entered an economic era with a new personality being formed by collaboration and communities, rather than control and corporate bureaucracies. Each consumer who is empowered with Internet access is empowered to shape our business models and help us write the rules that will govern The New Real Estate Economy.

There is a new board game emerging that will redefine how we will play the real estate game tomorrow, next month, next year and for quite some time in the future. It’s now a game without many rules, one of collaboration and community, of open, free-flowing dialogue where one person is just as powerful as a group. How do our current models stack up to his new reality.

The question we ask is “Does anyone still want to play the old game, Realonopoly, a game in which we predict there will be no winners?”

Remember Marty Ummel?

Do you remember this woman? She is the one who filed a lawsuit against a RE/Max agent named Michael Little who she and her husband accused of selling them a $1.2 million home they say was worth substantially less.

See our previous posts entitled Ummel’s Talk, You Decide and Ummels VS Re/Max.

Marty Ummel appeared on national television news programs such as the Today show claiming that she and her husband, Vernon, were deceived by Little in the process of making their purchase.

A jury of twelve (10 women, 2 men) were not convinced and delivered a unanimous decision after a quick two hour deliberation declaring that Little did not breach his duties and was not negligent in his actions on behalf of the Ummels.

Wendi Brick, jury forewoman, explained the verdict by saying, “We felt that yes, he had acted on their behalf, and we felt he met his fiduciary duties as defined…In any kind of purchase, especially one that big – and most of us have had our own situations we’d been through – the bottom line really stops with you. Whose final responsibility is it to sign a contract? It’s yours…”

Little described his feelings by saying, “I feel incredibly relieved and vindicated…it has been more than two years of quite problematic times for me, and I’m happy to get it behind me.”

Is the Future of Real Estate in Google’s Algorithm?

As firmly as IBM ruled mainframe computing and Microsoft the personal computer age for many years, so currently Google today rules the Internet. Originally nicknamed “BackRub” in 1998 by Stanford University buddies, Serge Brin and Larry Page, Google has not only become one of the most admired companies of the modern day but has found itself into our every day language, with the verb “google” being added to the Oxford dictionary in 2006. 

The stock price rocketed after its initial public offering price of $85 dollars in August of 2004 to over $720 in November 2007. At that time only Exxon Mobil Corp., General Electric Co., Microsoft Corp. and AT&T Inc. had a higher market capitalization among U.S. companies. Today at around $470, nearly 40% from its high, Google still commands a market capitalization of over $110 billion and continues to battle with giants such as News Corp. and Microsoft. 

Google, with its network composed of hundreds of thousands of servers, Google’s system never ages. When its individual pieces die, engineers just pluck them out and replace them with new, faster boxes. This means the “Google cloud” regenerates as it grows, almost like a living organism. 

At the same time Google at some accounts has become the gatekeeper of all information. Google also advises us that “real estate” is the most searched category on the Web – with the 2000-05 housing boom and the subsequent sub-prime and foreclosure catastrophe, this is maybe not that all surprising. But let’s look beyond that for a second.  

With some 141 million individually identified pieces of property in the U.S., real estate is at the very center of the American way of life – whether living, working, sport or entertainment. As Google conducts more real estate searches it aggregates more real estate information. Potentially with each new property search, each new listing added to its “deep search” database, each virtual street tour completed, each foreclosure filed, and so on Google gains more knowledge of the real estate industry. 

It actually is becoming increasingly harder to wrap your mind around just what exactly Google is – and more importantly what it may become.   

Could Google become the best advertising vehicle of all time to find and to market a house for sale?  

And if it does, could that reduce the need for various traditional real estate brokerage services?  

And if yes, to what extent and in what way, could Google influence the fundamental re-engineering of one of the oldest sales professions? 

What are your thoughts?

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