realonomics

REALonomics Editorial

There is an old saying, “After all is said and done, more will be said than is done.” The long battle between the Department of Justice (DOJ) and the National Association of Realtors (NAR) was declared “settled” today.

Not so fast! After a reading of the Final Judgment document, REALonomics offers the following cursory observations:

• THE GOOD: NAR cannot prohibit the distribution of full MLS listing information;
• THE BAD: Local Associations cannot engage in unique policies about local listing distribution;
• THE UGLY: NAR must report to the DOJ quarterly…this ain’t over, folks;

After all has been said and done, more has been said…and spent…than done with respect to how the real estate industry under the leadership of NAR has moved from its control model to a transparent model that will unleash the kind of innovation and consumer-centric services we need.

Furthermore, the DOJ has now completed one of its central objectives, to position itselfself as the sole arbiter of real estate property information access, all local associations and members of NAR and more importantly, as we have said before, to eventually control services and commissions.

Mark this down and highlight it: When the DOJ does anything under the banner of “public interest” there is a north and south point of reference, depending on one’s facing. Decide for yourself what this important section of the settlement might mean to the industry, long term and short term (highlights ours):

The big loser here is actually the industry itself, the thousands of broker/owners and yes, temporarily, even the consumer. NAR will remain under the DOJ microscope for some time to come. This entire debacle, we predict, is the precursor to mandated services and commission control. In this case, we hope to be wrong. The solution, we have long contended, is a reinvention of our models, how we use and distribute property information and finally, how we best serve the consumer, our ultimate client.

The settlement serves no real purpose yet! It’s just more of the same old square dancing between NAR and the DOJ. But watch out when people say it means nothing fail to see the overall DOJ strategy fuel by anti real estate indutry sentiment from consumer watch dog groups.

PRINCIPLE: It’s about the MONEY, stupid…commissions. This is just the beginning of a long death march toward more national scrutiny. We are going to tango with the DOJ again. This is not really about VOWs and property information. It truly is about US, the industry and our practices that smell of control and dominance and to quote the DOJ, anti-trust inclinations.

BIG WINNERS: The non-brokers, non-industry innovators and the neo-brokers are the big winners here. The “judgement” is a precursor, nothing more, nothing less. It’s the swinging open of a previously locked door so that we can see what’s on the other side. It’s what lawyers call “precident” and “legal trending.”

BIG WINNERS: Transparent advocates. It will be impossible to thwart the Democratization of Real Estate in an ultimate sense. This decision is like a strand of DNA but not the entire structure.

True, NAR may now face restrictions on its traditional control tactics but there’s more to the story when we recognize that competitors are waiting in the wings to bring open-sourced property information models to the forefront by empowering property owners to do whatever they please.

Our issue as an industry remains completely unchanged. Why haven’t we been able or willing or both to reinvent this industry into a vibrant, consumer-centric model that both empowers users and delivers adequate and sustained profit to broker/owners. The short answer is we don’t know how to do it!

For now we will simply continue the NAR/DOJ dance until one of them collapses. Does anyone think the DOJ will collapse?

READ THE Final Judgment.

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The real estate industry has always tried to be a closed environment. The real estate industry has traditionally been a control environment. With few exceptions, our models have typically created an “us” and a “them” or, those who are insiders looking out and those who are outsiders looking in.

We are now facing the prospect that we are them and they are us! The once safe environment of our cozy aquarium is being invaded by “them” in droves. They are asking for all the rights to the environment heretofore granted to the “fish”…us. Or, they are proposing that we leave the tank and join them in a new form of existence.

In traditional business models, secrets are often deemed necessary and access to “insider” (the fish) knowledge is viewed as a threat. Free, open and unrestrained information is usually viewed as a corporate debacle and dangerous to the survival of insiders.

Our Real Estate Environments

The unraveling of any business environment starts at the fringes of the model and moves inward toward the epicenter. That is what is occurring in the real estate industry. The hairline cracks in our closed tank system are becoming open gorges where all that we have held sacred (secret) is spilling into the streets where the distinctions between “us” and “them” are being blurred by the Democratization of Real Estate.

Stefan Swanepoel recently posted the thought provoking question “Is the Future of Real Estate in Google’s Algorithm?” The mere addressing of this interrogative forces the industry to reexamine its operating models in the midst of a consumer-centric era.

REALonomics remains uncertain with respect to the ability of the real estate industry to retool itself for life in a new environment.

Learning to Live Life outside the Tank

My daughter once had a goldfish she affectionately named Nori. Nori lived in a small aquarium on the nightstand next to her bed. Twice each day Nori was fed from an entity outside the aquarium. Nori peered at us, we at Nori. Nori, without fully appreciating her situation, was living a life of total dependency on my daughter.

The analogy hardly needs explanation. We are Nori. Nori is us. My daughter is the consumer. She is one of “them” to Nori.

When it came time to clean Nori’s aquarium, we would all gather around and gently scoop her out with a small net, place her in a temporary environment, clean the aquarium and then return her to the environment to which she had become accustomed. Nori could not live outside the tank…her existence depended upon a certain environment.

Can the real estate industry learn to live outside the tank of traditionalism in a world where the operating rules are decidedly different? Can we live without the aquarium? Can we evolve from dependency on controlled isolation to the open world of life without gills?

Can we learn to live and operate the real estate industry and our local business models outside the tank where we have created and experienced a deceptive pseudo security?

Can we shed self-imposed gills and fins and dependency and control in favor of the freedom of an open sourced environment where tanks are the stuff of folklore and where our lungs can breathe the air of innovation and partnership with “them?”

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REALonomics Editorial

President George Bush wants to overhaul the regulation and control of America’s financial markets. Under the Bush plan, the Federal Reserve (Chairman Bernanke) will become the designated controller of our economic markets and be fully responsible to regulate their stability.

In addition, Bush wants the central bank to poke its regulatory nose inside the tent of every part of the financial services industry in the United States. All financial services, not just commercial services, will be under the scrutiny and powers of the central bank.

The Crowning of Mr. Bernanke

Under the Bush scenario, Bernanke will be coronated as the royal controller of all currency, money management, commerial banks and every type of financial institution in the United States. The Fed, under Bernanke, will become the market stability regulator, something like a throttle control on an engine, empowering it to tinker with every aspect of lending in the country.

Included in the plan is a knee-jerk reaction to the sub-prime lending debacle that designates another bureucratic office to oversee consumer lending issues to insure standardized compliance.

This plan evokes a number of questions the real estate industry must ask itself. Are we federalizing the economy, such as many second and third world countries have done? Is this the socialization of lending in the United States? MORE IMPORTANTLY, what does this action, if implemented mean to the real estate, mortgage and title industrys? Will such action actually benefit the economy and the consumer or, will it serve to further stagnate growth, delay recovery, stiffle free market innovation and release us all from entreprenuerial solutions?

Let’s Remember not to Forget

Let’s not forget that the former Federal Reserve Chairman, endorsed and encouraged sub-prime lending before his convenient departure from office.

Let’s not forget that one of Bernanke’s financial aces has alwasy been to print more money, thus further weakening the value of the dollar in the international markets.

Let’s not forget that in the past the markets corrected and self-regulated themselves, weeding out corruption and bad practices.

Let’s not forget that history clearly demonstrates that intrusive federal tampering with the free market system inevitably leads to a weaker stock market.

Let’s not forget this is an election year and the heat has been turned up in the political kitchen forcing politicians to create solutions to the mortgage mess for the American consumer.

All of us should take a close look at what is occuring and ask ourselves if the solution Bush proposes is the right one and whether long term financial and market stability should be put into the hands of Washington.

REALonomics believes that too much federal control and regulation of the monetary supply and the financial markets is like giving it the power to regulate and ration water.

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This report states that our national equity value has flipped to the negative. For the first time in history we owe more on a national basis than our homes are collectively worth.

Copyright © 2008, MSNBC Nightly News.

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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.

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