Indeed we are engaged in our own industry Cirque du Soleil, a kind of three-ringed act that pushes us to the limits of our economic envelope.

How long can we strike the pose? What series of events will begin the process of reversing the downturn and return some degree of stabilization to the economy. Our collective muscles quiver under the stress of our rigid contortions.

Not too long ago we mistakenly thought, although few will now admit to their acquiescence, that TARP, auto industry bailouts, AIG cash infusions, cash for clunkers, first time home buyer credits, bank loans and the like would magically restore the economy.

Even the National Association of Realtors (NAR), our beloved national union and lobby force, with enthusiastic recklessness, endorsed just about every form of redistribution of wealth forced down our throats by President Barack Obama’s misguided group of tax and spend advocates.

Yes, ours is an industry not too unlike a three ringed circus. There are jugglers, tight rope walkers, clowns, acrobats, lion trainers and bare-back horse riders, all entertaining us while we sit in the grand stands eating our Cracker Jack and cotton candy.

We love a good circus. A good circus takes our minds off the trouble we face. The acts bring momentary relief from the pain we must inevitably face when the show is over and the big tent comes down.

The reality we must face is the choice we made, repeatedly from 2000 through 2007 to made a series of choices that led us to depart from the traditional, sound economic principles that guided our industry in favor of massive personal, corporate and national debt. The circus is over and even the clowns no longer smile.

REALonomics has taken tough positions and we have always attempted to lend our voice to a call for temperance as the circus acts rolled into the big tent, one after another while our industry, clapped, laughed, cheered, jeered and refused to admit the depth of economic adjustment that was about to engulf us.

There is another message we have pushed into the industry for serious discussion and that is the need for top-to-bottom reform, beginning with an examination of the function of NAR, local Associations and indeed our very bloated labor force.

Not many will deny the circus is over. Fewer still will acknowledge the need for comprehensive analysis of the business structure of our industry and how it delivers economic value to entrepreneurs.

A remnant of hard-liners still delivers a false message of a restored economy that will support our 1,000,000± participants, an unbelievable membership count that has no relevance to sound economic and business reality.

Our economy is irrevocably tied to global networks. The real estate industry now has its best shot at reformation. Who will lead the transformation and what forms will it take? What transcendent person, group or entity will emerge with solutions to the complex problems we face as an industry?

How will technology, economics, localism, property data and global realities be bent and shaped to create new vibrant business models that can produce and sustain profitability required for the risks inherent in the real estate business.

After all, the show must go on!

Related posts:

1. Warning: RE Industry will be Harmed if Bailout is Backed by Us

Escapism (I don’t even know if that is a word but if it isn’t it should be) ought to be a subset of study for those seeking a degree in Economics. Escapism should be a part of the syllabus with collateral reading required. It should be taught as a business discipline and be a demonstrated skill prior to graduation.

The real estate industry knows a lot about the subject of escapism without knowing much about sound economic business models. After all, the economy has always pulled Broker/Owners out of the tight corners of economic calamity into which they have been painted. Ours is a long history riddled with escapes from one economic threat to another.

Today’s shackles may be worse than the past as we find ourselves fettered with the chains and locks of slivered and temporal profitability, almost non-existent R&D, a disjointed, minimally trained, bloated and uncontrollable labor force, no product, service or brand differentiation and finally, last but not least, a less than stellar reputation with consumers, our primary source of survival.

As we enter a new decade on January 1, 2010, we find ourselves headed back into the water tank from which we have always, like Houdini himself, found a way out. We have escaped primarily because economic fundamentals were behind the real estate industry. These fundamentals are no longer the backbone of the industry.

Something is different this time around…many things are different this time around. We now face three situations never before seen or experienced.

The New Chains that Bind Us

The real estate industry encountered a fundamental operational shift when Congress mandated that lending institutions find a way to create loans for those who lacked the personal buying power for home ownership.

The Community Reinvestment Act was enacted in 1977 as Federal Law. Essentially, the law was a social experiment mandated and aimed at eliminating what many believed to be unfair lending practices by banks who that were refusing to execute mortgages with under qualified buyers for purchases in neighborhoods that were fundamentally poorer than those neighborhoods where banks preferred to lend.

Regulated financial institutions were suddenly required to meet the lending requests of traditionally unqualified parties as a part of their federal charter. Non-compliance with the edict and the eventual quotas of regulators could mean the loss of accreditation and various other penalties.

The survivability of Banks became subject to the guidelines set forth in the Community Reinvestment Act and therefore, lending requirements were modified as a pre-requisite to compliance.

Banks found themselves forced to approve mortgages that were less than prudent, at least from a sound economic standpoint.

Nonetheless, politicians reveled in the glory of the Community Reinvestment Act, heralding it as a giant leap forward in economic equality and something that could translate into new votes at reelection time.

This was the “New Chains” which created a false housing boom and investment debacle from which we still have not recovered. The primary guarantors were FANNIE MAE and FREDDIE MAC, now nearly bankrupt and in need of more capital infusion from tax payers.

We have not escaped these new chains that bind us. Our ability to break free is now out of our control as the appetite for government bailouts at tax payer expense increases unabated and now, surprisingly, supported by the National Association of Realtors.

In short, we have relinquished the powerful economic principle of self-reliance and home ownership principles that have guided the industry and home ownership for more than 100 years and this may prove to only paint us into a tight corner from which we cannot escape for many, many years.

Strange and Clever Padlocks

Our Houdini-like escapes are now fewer and more difficult as we abandon the sound “model-math” that created our prior and historical profitability. The sad truth is, we have not created “new model-math” congruent with the troubling times in which we find ourselves.

We continue to find ourselves locked-up with strange and clever padlocks the combinations and keys to which we have no apparent access.

On the one hand we are padlocked to our former selves and do not seem to have the will power to admit our addiction to transactions predicated upon easy money.

On the other hand, we are now plunging headlong into a plethora of new operating models, lending models and technology models, the rules of which are being written by those outside our industry.

Are we being written out of the New Real Estate Economy? Why is it that we cannot become the rule-makers and engage in assertively drafting our own charter for the future? Why do we seem reactionary rather than revolutionary with respect to our future? Why have we become so dependent on the creations and rules of those who know so little about our industry and how it must operate?

The keys to the padlocks of government intervention, property information management, technology and Internet tools, consumer-centric relationship models, mortgage lending rules and the direction of NAR have seemingly been placed in the hands of caretakers motivated by political power and personal greed.

Old Keys that are Now Missing or Ineffectual

The old line bricks-and-mortar retail keys that used to unlock markets for us and deliver economic escape from our heavy laden expenses no longer work as they once did.

Our ineffectual revenue management models in the form of commission and operating structures that once drove the cost-per-transaction formulas that guaranteed ROI will no longer unlock profitability.

The bloated labor force we call “agents” are simply too many and will continue to drain capital from Broker-Owners while only serving the interests of NAR’s bureaucratic control over the industry. The large labor force only favors those who collect the dues.

There are too many of us and unlike other industries that balance profit against labor force, our industry works exactly the opposite. The real estate industry is perhaps the only industry that increases its labor force while in economic decline. NAR’s membership still stands at over 1 million; a near complete contradiction of true economic sanity.

Instead of seeing our costs per transaction decline, it is actually increasing when we take into account the entire national organization operating costs.

While we should be moving north, we continue our trek southward almost blinded by our allegiance to who knows what. Broker-Owners no longer control the MLS and that lack of control will eventually render them irrelevant servants to an agent-centric culture.

Agents are no better off as they see their earning capacity at historic lows per capita and their cost of operating increasing with the delusion of technology and its pseudo advances.

There seems to be no easy Houdini-like escape for the industry unless it (we) are willing to recreate our industry by elevating its entry requirements, diminishing its fattened workforce, increasing its educational requirements and finally, bringing NAR into check as the servant of the industry.

There is no escape from the economic realities of the New Real Estate Economy and what it demands of us. However, for those who have a true sense of where we have been historically, where we are today and where we can ultimately take the real estate industry in the future, this is an exciting time.

Yes, in 2010 and beyond we will continue to face the peril of tight corners into which we have largely painted ourselves. The chains, padlocks and keys that have heretofore allowed us to escape no longer exist in forms we recognize.

For those of us who embrace the sound economic principles that guide any business endeavor and for those who choose to become the authors of the new economic rules rather than the readers of same, to these alone belong the keys that will yet provide an escape that will lead the real estate industry to self-reliance in the consumer-centric era.

Happy New Year to all.

Related posts:

1. REALonomical: an Economic Mentality

Our hallucinations are mostly self-induced; the voices we hear are actually our own mumblings and business babblings disguised as forces we do not control.

I’m now convinced the real estate industry is delusional but not in the classic clinical sense of schizophrenia. Rather, we are deluded by the notion that what we are experiencing is beyond our control.

Since we don’t have an alternative point of reference for our dilapidated and dysfunctional (not to mention unprofitable) business models, we willingly succumb to the voices that keep telling us all will be well and in time the market will return to normalcy (whatever that is).

We have come to actually believe there is a quick cure for our collective malady. We have long ago stopped taking the medications of self-reliance that can eliminate the voices and have instead turned to a political pill that only fuels the illness and delays the inevitable.

The Great Delusional Grip

Franchisors continue to pimp and prescribe increasing their delusional grip on Broker-Owners, convincing them, mistakenly, that their brands are necessary as a market value proposition and to their survival.

To control the delusions and squelch the voices we pretend our economic survival can be optimized by merely changing the colors of the pills we ingest. We hallucinate about technology solutions that magically produce profitability through Internet lead generation. The voices continue.

For a long time we have believed the pseudo voices and their message as they tell us to hold on, wait and believe that change is coming in the form of a market rebound that will resurrect the old models and their former but temporary profitability. In reality we are trading our collective ability to transform our industry for a hope in the return of things past, of things long dead and gone. Have we surrendered our business sanity to the collective stupor of a beautiful mind syndrome?

It wasn’t long ago that I also experienced the paranoia that comes from thinking others can and ought to control the business outcomes of my company and that there were forces out to get me if I didn’t comply with the verbal orders of quiet, shadowy personalities hiding under stairways and standing in dark corners, speaking to me and intimidating me as a Broker-Owner.

Dumping Market Meds into the Drinking Water

As we prepare to enter 2011, our illness is becoming more pronounced. Others see the progressive changes but we do not. We do not know whether to take the generic market meds being dispensed by the National Association of Realtors or to reject them while hoping for an alternative magic that can somehow stop the insanity.

NAR is dumping its generic market meds into the drinking water in a giant shift from its fundamental and historic premise that home ownership ought to be based upon the self-reliance of individuals to a new socialist real estate state where wealth is shifted from tax payers to fund the down payments for otherwise under-qualified first time home buyers. It’s the same old repackaged sub-prime pill I will no longer swallow.

Schizophrenia is my metaphor for disordered thinking that is not aligned with sound economic reality in the midst of a market platform that has shifted under the feet of Broker-Owners.

On one hand, we know we are living in a time of great delusion and we desperately want to stop the voices.

On the other hand, we continue to pander to the hallucinations because we want a simple solution to a complex industry illness. We know the voices are not real but we cannot quiet them. We drink the purple water and we pop the multi-colored but phony economic pills that will temporarily muffle the sounds but never permanently stop them.

We are becoming more and more desperate because we are on the edge and are finding it more and more difficult to distinguish reality from fiction. The market meds do not help because they create an additional layer of fog that further weakens our discipline and stifles our resolve to take charge of our individual and collective illness.

Stopping the Voices

There is coming a time when we will have to make a deliberate choice between believing what the voices are telling us and the reality that we are operating our industry from a position of economic dependency that will eventually render us incapable of recovery.

Like many Americans who are waiting for the government to produce solutions, many in our industry are waiting upon the bureaucratic solutions of NAR to deliver a cure that will stop the voices. We have yet to recognize that NAR is but one of the many voices that create the madness that engulfs us.

Some of us are now realizing we have fallen prey to a placebo that can never deliver true economic healing. A few of us are now realizing we have fallen prey to a placebo that can never deliver true economic healing and that in the end we must once again, deliver our own cure.

No related posts.

Here we go again!

NAR should be seen here in its true light, a purveyor of control, monopolization and the promotion of the punishment of creative models that do not meet the local real estate dominance model put in force and sustained by its vast network of local Associations.

Although we are not supporters of discount brokerage as a viable business model, we feel the need to speak out on this issue and the freedom of Broker-Owners to create business models without the fear of retaliation and punishment by NAR and local Associations.

We are forced to ask the question, “Is anyone paying attention to how our dues, financial assets and human capital are being used by NAR?” Furthermore, are we paying attention to how NAR and local Associations are dealing with Broker-Owners who are not lining up in lock-step with centralized policy?

NAR’s support of Realcomp’s position, backed by a commitment of $500,000 in member funds, comes on the heals of its unprecedented announcement of its support for the extension of the federal home buying credit.

FACT ANALYSIS: This is a credit that is funded by tax-paying consumers and given to under qualified home buyers who lack their own financial capacity to purchase a home without a subsidy. Is this NAR’s new version of the now regretable community lending laws forced upon banks by Congress?

It appears that while NAR attempts to convey to its members that it is on the cutting edge of creative solutions for the industry (yes, some of these solutions are excellent), behind the scenes it continues to accellerate the wielding its financial and market control to further sustain its self-serving monopoly and potentially lethal grip on the industry.

While we are not opposed to supporting sound MLS policies or lobbying in favor of industry issues, we do wonder why NAR continues to fight independent Broker-Owner creativity at the local level and why it supports home purchases funded by the extraction and transfer of wealth from tax paying consumers to under-qualified home buyers.

HISTORICAL REVIEW. NAR has locked horns with the DOJ over many of its policies and historically come out on the losing end of these battles, squandering millions of our dollars on old-line, control models that contribute further to the decline of our industry and the capability of Broker-Owners to sustain their businesses.

Isn’t it time for the industry to start asking NAR leaders some hard questions about what they support and why? More importantly, why isn’t NAR using its lobbying and financial clout (again, our money) to assist Broker-Owners with financial support, in the form of business loans and grants for the reinvention of our failing models?

We have three dangerous forms of consumer, financial and business model control happening within the industry, each harming Broker-Owners and their ability to create and sustain profitability. The first of these is NAR itself, the second is franchising and the third is local MLS property information policies.

Each of these three factors can and sometimes do work against the ability of Broker-Owners to create models that produce sustain ROI and profitability.

After all, NAR, franchisors and local Associations have their own self-serving agendas for financial survival, even it it means the further erosion of Broker-Owner viability.

NAR, like all large organization and bureaucratic structures, is beginning to miss the mark with respect to whos money fuels the financial coffers. Bureacracies often forget for whom they toil.

Tails should not wag dogs.

No related posts.

This Post Syndicated from e-Partner

Ours is an industry with legacy. The brokerage business has seen many booms and endured many busts.

Many have come and most have gone.

Road kill has always been a part of the mix; the strong eat the weak and the weak find refuge in other endeavors.

The real estate industry has always been a town occupied by heralded gun slingers whose reputations have become the stuff of legends. Sometimes these are brands, other times they are movements, fads or personalities that come and go with the wind.

We have always been a tad reckless; that’s why we are a business model willing to predicate its economic viability on the unpredictable and unenforceable productivity of independent contractors. Let’s admit it, the business cultures we have created have typically been less than IBMish.

Nonetheless, we have moved from era-to-era, cycle-to-cycle and shifted from mode-to-mode, surviving the financial droughts of summer and living through the long, frigid economic nights of our many winters. We are an industry that could legitimately lay claim to squeezing blood from turnips.

We have historically endured and outlasted our most caustic critics who have mocked us at every turn and likened us to dishonest snake-oil salesmen.

Yes, we’ve been brought back from the dead a number of times. We are a cat with nine lives and most of them have been used up.
Are we now reaching the termination point? Are we, Tenus Terminatio Cuspis?

An Industry on Life Support

e-Partner believes we are an industry on life support. Our traditional business models are being depleted of their potency because they only work effectively within controlled economic environments backed by cycles where predictability is a guarantee.

Broker/Owners are reaching a desperation point as they face the decision to remain on life support or, turn off the apparatus that sustains them. In essence, they are losing the will to sustain the battle.

We have built our business models on the sands of predictable turnarounds that always came if we just waited long enough. Our economic foundation was never “rock solid” (a phrase once used by my former franchisor) but rather, a roll-of-the-dice at a table where we knew the odds would eventually turn against us.

The money is running out and the sand in the hour glass is reaching its last few grains. The water line that once flowed with abundance has slowed from its gush of 2002-2006 to droplets we must now try to ration.

Our rank and file is wearied and worried about sustainability. We are nervous and fearful about what might be waiting for us around the next corner. With few exceptions, there doesn’t seem to be a coherent national call-to-arms to address our crisis.

This is no way to run a business or an industry.

While We have Faint Pulse

During a recent two-hour protracted conversation with a Broker/Owner, I realized the deep hunger that exists within our industry for one-on-one support. In fact, I was told in no uncertain terms that the personal conversation itself had more meaning than the business concepts being exchanged. I’m feeling more like a therapist than a business consultant.

This and many other conversations like it indicate that we have a faint pulse but that we may be losing some patients very soon if we do not shore up the ranks by means of a national support network for Broker/Owners.

Our productivity numbers indicate that we are on the cusp, facing what could become a pandemic situation. Many Broker/Owners are reaching the termination point.

The 64,000 dollar question begging to be asked is, “Is our industry as a whole reaching a collective termination point?” How much more trauma can we endure?

e-Partner has not seen nor have we heard of any national industry initiative dedicated to addressing the survivability of ourselves.

While we may have a pulse today, tomorrow is coming. While many are hunkered down waiting hoping for some sort of market rebound, the demands and characteristics of a new real estate economy are passing us by.

I am ready to predict that there will be no return to what we once knew and that new operating and economic rules are being devised and implemented that will forever change our relationship with the consumer and thus, our viability.

There will always be time as long as we have a pulse. Like any weakened or wounded entity, the longer we wait to implement decisive corrective action the more difficult becomes the chance of survival. And if we squander our resources on internal battles that do not equip us for the next generation of our industry we will surely succumb.

We can survive but not without a herculean effort to save ourselves. Then, after survival comes the art of rehabilitation and full sustainability. The industry as we know it today is in need not of a stint but of a radical transplant in order to produce the type of organization that is in possession and control of the requisite tools and willful capacity to perform in a new global real estate economy with new rules and new regimens.

There is a set of irreducible minimums that e-Partner sees as industry priorities and this set of principled changes must be considered before we can arrive at protracted sustainability.

• Redirect key NAR Resources to industry redevelopment and Broker/Owner support.
• Redefine the meaning of real estate “market” in contemporary terms.
• Redistribute property information via transparent MLS economic packages.
• Retool local Realtor Association models and services for tomorrow’s reality.

These four principled changes serve as the nucleus for rehabilitation and sustainability of our industry. Let’s address each of these briefly.

Redirection of Key NAR Resources. NAR holds sway over much of the industry. Our money flows from the grassroots members upward to NAR and is used to promote the priorities of our industry.

Promotion is an integral component of the function of NAR. But more must be done to create the conversations that will lead to transformation of the industry. This requires a consideration of the redistribution of our capital assets. The motivations behind how NAR prioritizes the allocation of our resources is just as important as where these economic resources are directed.

NAR does a great job defending and promoting the industry. But it does a less than stellar job tending to the needs of Broker/Owners and the demands placed upon them by the massive economic and technology changes taking place within the rank and file. We are not collectively managing the economic and operating changes at a pace commensurate with the consumer nor the profit margins required for survival.

In order to insure survival and sustainability, the industry needs to take a serious and candid look at the economic priorities implemented by NAR and ask the question, “Is this what we should be doing with our money?”

Redirecting key economic resources toward targeted initiatives designed to re-define the economic model, our relationship with the consumer and how we transact business for profitability should be emergency priorities.

Redefining our Market. Second on the list of priority principles is the notion of market definition. All businesses must be predicated upon an accurate definition of their market in order to produce sustained economic success.

I believe that our previous definition of market as a zip code, city name or a set of buildings positioned therein, is now defunct because the customer has changed the definition for us.

Until we understand what the real estate market is we cannot expect to move to a new platform where profitability exists and where the industry can flourish.

Although transactions take place in a fixed geographic location, I do not believe location is the market and furthermore, I believe the market is much more distant, unpredictable and illusive than in previous economic eras.

The market is Jell-O, not dirt. It is water, without concrete. Yet our institutional structures and operating models are still captive to bricks, mortar and steel.

The chemical and behavioral composition of the “new real estate market” is a highly refined set of consumer characteristics finding their origin in the freedom and power granted by technology and the Internet to self-access information and it is therefore in a constant state of uncontrollable flux. Indeed, the new real estate market never gels. Our industry must then be as liquid as possible in order to play effectively.

Learning the components of market definition will lead us to new models. Until we reach an understanding of what constitutes our market and how we fit into this new paradigm, profit will continue to erode and sustainability will continue to place us in peril.

What is a real estate market? Is it my city? Is it my customers in my database? Is it my hot list of prospects? Is it consumers pledging loyalty to my brand?

No, it is none of these anymore. It is a complex set of consumer bents, biases and behaviors that are shifting the center of control away from lead generation, massive corporate models and universal branding to stealth and fluid exchanges that result in trust and conclude with transaction. The Trust = Transaction formula, although not new, is, however, comprised of new dynamics that create it and it is precisely these dynamics that we need to capture and shape into models that create what I have been referring to as “new real estate model math.”

Brand loyalty, process control, property information containment, website contact forms, registration requirements and the host of Web 1.0 schemes are dead or dying, being replaced by freedom platforms that move the consumer to the center position and us into orbit around a unique set of moving and ever changing requirements.

This is the new market.

Redistribution of Packaged Property Information. Once the new real estate market has been defined we can then create new property information models that can become economic products and marketable services to the consumer.

It’s not the house, it’s the information. It’s not the brand anymore, it’s the information. It’s not the broker, agent or NAR, it’s the information. Any semblance of control techniques, tactics and models will be loathed.

Grouped informational products designed by the consumer, then defined and deployed by us can provide the new profit stream for the industry.

As a whole, we as an industry have spent inordinate time, money and effort sweating over the loss of our precious MLS data while, at the same time, failing to understand the economic power that exists in packaging this information as a product for consumer distribution.

It is not just property information the consumer wants packaged up, made accessible and delivered via the portals of cyberspace. In the real estate and relocation process, there exist a myriad of ancillary information data sets that are marketable, including health care, community lifestyles and much more.

Old MLS control models are largely defunct, too expensive and more importantly, they are inoperable as economic tools. They are increasingly failing to perform for Broker/Owners.

Retooling Realtor Association Models. This leads me to my final dribble.

Heretofore, our local Associations (formerly “Boards”) served a valuable function in supporting local real estate businesses in a non-technical, disconnected world where real estate transactions were virtually all initiated on site and in a building owned and/or operated by a Broker/Owner. (See the post “The Four Bs” at Realonomics.net).

The localized value proposition for Associations has changed. The importance of the traditional functions of Associations is diminished from its pre-Internet apex in the early 1990s where Associations were controlled by local Brokers, printed MLS books and hosted MLS meetings where agents shared wants and needs. A total control model.

Yet, despite the transition away from the centralized control wielded by the Brokers, Boards, Books and Buildings (the “The Four Bs”) geographic model, we have been largely unwilling to break our addiction the now false and unsustainable notion of property information control through Associations.

Can and do Associations have value? Yes, no and maybe. Yes they can and many do, if they are functioning and providing the types of services necessary to the new real estate economy.

No, Associations are not valuable if they are simply self-serving paternalistic job banks at the expense of Broker/Owners and local agents.

Maybe Associations can bring new value to the industry if they equip themselves to provide the types of cutting-edge business services related to the creation and sustainability of Broker/Owner profit.

Translation: If an Association can justify its existence (and they should be required to do so at regular intervals) and its functional costs to Members when measured against productivity standards and market conditions, then maybe they can deliver value.

Retooling Realtor Association models is a tall order because of historic entrenchment and a perception of need that is probably misplaced.

Almost all functions currently executed by Associations could be centralized and even made more effective through consolidation of services, marketing and training. Small is good, agility it the first of the Ten Commandments of the New Real Estate Economy. Generally, the refinement and redirection of general and administrative costs is good for business and profit.

In my own geographic area in northern Arizona there are Associations in Flagstaff, Sedona and Prescott, just to name one small geographic area. Remarkably, the distance between these locations is less than an hour.

Each of these Associations has its own Executive Officer, staff, facilities, operating costs and Board of Directors. What are we protecting?

The reality of the situation is that agents in central and northern Arizona are now servicing all three markets because that is what the consumer wants them to do AND that is what they must do in the prevailing market to produce income.

However, despite the needs and wants of the consumer and the dictates of market realities these Associations are an impediment to change and Broker/Owner profit because their membership structures are prohibitive rather than inclusive. Some legal minds even view these structural impediments as economic and therefore potentially subject to anti-trust law.

Associations were largely constructed upon the old definition of the real estate market being purely a localized function driven by sign calls, newspaper ads and up-desk lead generation.

Why have we not adapted our administrative model so that it matches consumer reality and Broker/Owner needs in a market defined by bits and bytes? The layers of bureaucracy inherent in the Association structures and their relationship to NAR would make a career bureaucrat blush.

Simply said, our administrative models are labor intensive, bloated and we are spending too much money on infrastructure and organizational maintenance at the expense of profitability.

We are spending approximately the same amount of money per transaction per Association as we were in 2002-07, money that could be used to redevelop the industry. Why?

In conclusion I can only ask, “Tenus terminatio cuspis?”

No related posts.

——

Dear Fellow REALTOR®,

Here’s our take on the Stimulus Bill and Treasury announcements made this week. We look at the Stimulus package AND the Treasury’s package holistically, in compliment with each other – mostly because that’s how the Obama team is looking at it. Your representatives, the NAR Board of Directors, asked us in November to do 4 things (with an unspoken but clearly understood mandate to PRESERVE what we already have). Here they are: 1) get loan limits raised for high cost areas, 2) make the $7,500 tax credit NOT a loan, 3) try to find ways to push interest rates down (which are higher than they should be due to systemic risk right now) by 200 basis points, and 4) help provide solutions to the foreclosure/short sale problem.

So here’s what we have achieved: (1) the loan limits will be raised to $727,000 in high cost areas, (2) the tax credit will be raised to $8,000 with NO payback [a true credit], (3) interest rates have come down 125-150 basis points, and (4) the bill has over $50 billion in it for foreclosure mitigation, with Geitners Treasury plan signaling that the second half of TARP and TALF will be used to mitigate foreclosures through a government guarantee, drive down interest rates by buying another $200-300 billion of mortgage paper from the GSES’s thereby freeing them up to do the same with new mortgages, and Fannie has just agreed to lift the cap of 4 investment properties eligible for loans and raise it to 10.

In addition, we preserved what we have – which some tend to forget is always on the table when these negotiations start up again – mortgage interest deductibility, real estate tax deductibility, and the $250,000/$500,000 cap gains exclusion (an overall package worth more than $100 billion and for some a very attractive funding source for their pet projects).

We did make a run at the $15,000 credit — and we would have loved to have gotten that or the Homebuilders $22,000 credit idea as well as their 5 year loss carry back deal, but they were considered too rich for this program. What it did do though is totally take the debate off of whether a tax credit should be reinstated at all (it expired last year) and whether it was a true credit or a repayable loan, and kept the conversation on how much it should be. It also kept the debate off of ‘what we are willing to give up to get a $15,000 tax credit’ and kept the debate again, on how much it should be. It’s pretty hard to complain when they give you what you ask for and you lose something you never had.

While we study the Treasury specifics on their major role in providing the rest of the housing solution — there is much more to come and we are working diligently with the Administration to help ‘unclog the pipeline’ and get capital flowing into housing again.

Sincerely,





Charles McMillan, CIPS, GRI
2009 NAR President

Related posts:

1. Supporting the NAR Stimulus Agenda

This time around, however, NAR is getting it right and deserves the support of the industry…yes, I have already sent my letter to my elected officials supporting “The Four Point Plan” put forth by by NAR. REALonomics is endorsing this plan with comments inserted into NAR’s message that was emailed to members.

NAR has urged Congress to include the following provisions in any future legislation:

NAR POINT ONE: Make the $7500 tax credit available to all purchasers and eliminate the repayment requirement. The credit’s limited availability and required repayment terms have severely limited the credit’s appeal to potential homebuyers. As a result, the credit has not been widely used or proven effective at stimulating sales.

REALonomics: We concur. The tax credit should be a true credit against taxes, however, and at the descretioin of the buyer, be taken in one year or extended to up to three years of equal credit deduction. This would allow each consumer some flexibility in the application of the credit based upon income and other factors. In addition, we would like to see the deduction made available to investors who purchase in calendar year 2009.

NAR POINT TWO: Make the 2008 FHA, Fannie Mae and Freddie Mac loan limits permanent. New rules for 2009 would significantly reduce the FHA, Fannie Mae and Freddie Mac loan limit from their 2008 levels. Now is not the time to limit the availability of affordable mortgages.

REALonomics: This part of NAR’s plan needs further clarification for members. In general, we concur, but the devil could be lingering in the details on this one.

NAR POINT THREE: Get the Emergency Treasury bank relief program back on track by targeting more funds to mortgage relief efforts and increasing efforts to mitigate foreclosures. Don’t just give the banks unrestricted cash. Make the program work to improve mortgage and housing markets as it was originally intended.

REALonomics: Yes, NAR, this position is the correct one! We were all burned by the ambiguity of the emergency relief program and we, in fact, got hood-winked into believing that toxic mortgages were going to be purchased and sold to investors at discounts. In fact, the banks just banked (pun obvious) the bucks or, in some cases used the funds to purchase other banks. But the problem is also an empowered Treasury Secretary who could simply redirect the funds in just about any way he so desired. To date not a single mortgage has been purchased and resold. The mitigation of foreclosure loses is a tricky one and REALonomics takes a very conservative approach to how this should work. Consumers who are in default should not be rewarded without some additional tax incentives to those who are not in default. We cannot reward bad behavior. Leveling the playing field is going to require caution and discipline.

NAR POINT FOUR: Permanently bar banks and banking conglomerates from engaging in real estate brokerage and management. The banks have proven they have enough to do to simply properly manage their current lines of business. Do we really want them to manage the home buying process? Imagine what could have been the situation now if they already had the added ability to engage in real estate sales.

REALonomics: On this point REALonomics disagrees with NAR. Point four should not be on the table at this time. Although we are not yet convinced that we should advocate bank brokerage models, there remains a lot of room for discussion on how banks can collaborate in economic partnerships with real estate brokerage firms in order to shore-up the profitability of each to the benefit of the consumer. It’s understandable why NAR, as a preservation move, would call for this issue to be addressed and finalized. REALonomics still advocates streamlined and consumer-centric home buying/home financing models. Such models might be created out of financial partnerships that are carefully blueprinted so that banks and brokerage can maintain levels of expertise.

CLICK HERE to take action on the NAR Four Point Plan (NAR members only).

Related posts:

1. NAR Reports it’s Stimulus Progress

EDITORIAL

REALonomics urged the real estate industry to reject the $700,000,000,000 government bailout program.

The National Association of Realtors (NAR) took the opposite position and even launched a national public relations campaign designed to convince us, the members, to support something that historically we have never supported, government interference in the private sector free market.

Well, here we are, a few days hence, witnessing the most massive loss of personal and real estate wealth in the history of the world.

Now let’s talk about the real estate industry specifically. The central wealth producing asset of most Americans is their investment(s) in real estate. Our industry has been dedicated to the creation of wealth through home ownership supported by one’s ability to qualify for mortgage financing and to service the debt based upon qualifying ratios.

It appears we have adopted a position that runs counter to our industry’s historical roots. But worse than that, through industry support of the bailout we have actually made a fundamental mistake in economic judgment and we may have harmed the ability of brokerage firms and agents to be effective ambassadors and cousellors to consumers.

Are we ready to exchange a long-held traditional and fundamental economic model for a new system where the notion of “bail-out” through subsidized real estate welfare is a valid competing model?

Should NAR have supported the $700 billion bail out? We don’t think so and we said so in our post entitled “Warning: RE Industry will be Harmed if Bailout is Backed by Us” on September 30th, 2008.

REALonomics calls on NAR to reverse its position and return to our historical position where we only believe in the American dream of home ownership where individuals and families, under the guidance of sound advice from Brokers and agents, purchase homes they can afford.

NAR’s support of the bail out was wrong and we should make that admission to the American people so that we can regain the trust of consumers.

Related posts:

1. The Great American Real Estate Alchemy
2. Obama, McCain and Real Estate
3. Warning: RE Industry will be Harmed if Bailout is Backed by Us

REALonomics continues to take a position that the natural market cycles should dictate the recovery and that government sponsored bail out attempts will create additional long term issues and actually stall a real recovery.

Although many in the industry favor federal intervention we are hard pressed to find anyone setting forth specific rationale for doing so. We hear a lot of emotion but not much sound economic reasoning based upon our industry’s historical commitment to traditional capitalism as the driving force behind real estate home ownership.

Wachovia was snatched up by CitiGroup just days ago. According to the FDIC’s website, there have been 40 bank failures since 2000 and NONE of them…yes, that’s right…none of them was bailed out by taxpayers. At iVoteAmerica.com there are predictions of more bank mergers over the next several business days.

Failing banks will continue to be absorbed just as ALL of them have been absorbed to date. After all, the best investment good banks can make today is to purchase assets of failing banks for pennies on the dollar and delivering huge internal rates of return to themselves. Therefore, patience is called for and we ought not to allow ourselves to be influenced by knee-jerk politicians from either party. Forget the election for a moment! Forget your favorite party preference for a moment!

Yesterday, September 29, 2008, the stock market lost more than $1 trillion in value. REALonomics predicts that investors will surface, shifting their investment strategies to more conservative, traditional positions.

NAR is Wrong on Rescue Package

Furthermore, REALonomics believes that the endorsement of the bailout by the National Association of Realtors (NAR) is a dead wrong endorsement and a clear indicator of NAR’s desperation with the housing market and its departure from the traditional approach to real property investment where true equity was a necessity to home ownership.

Our core value has always been home ownership as the primary investment for individuals and families. Behind this core value we have heretofore (prior to subprime lending) advised our clients to utilize conservative strategies when purchasing a home, including establishing and NEVER compromising their equity position. Have we decided as an industry that this is bad advice and adopted a dangerous borrow-to-the-hilt value system?

Some of you will remember the days when we encouraged homeowners to build “true” lasting equity that they could rely on when it came time to retire. The home was a person’s primary savings and investment account. I have a question for the RE industry; “Have we decided to depart from this core value position?”

Danger, Danger and More Danger to Owners

What about real estate company owners, our favorite topic? If the bailout occurs with a massive amount of taxpayer dollars used to rescue the so called “toxic mortgages” most real estate company owners will be effectively out of business within a short time as home values will likely plummet to pre 2001 levels. The toxic loans will be discounted to unprecedented levels, impacting literally every property value in metro markets.

If a rescue occurs, all property values in the United States will immediately decline. In fact, the financial institutions are already cutting HELOCs and credit card amounts in a desperate attempt to ratchet the market downward.

If the rescue occurs as currently outline by the Senate and voted down by the House, the ability for the average American buyer to access available real estate investment capital will diminish the market by perhaps another 50%. Although REALonomics is not attempting to inject hysteria into an already highly charged situation, we believe it is important that Realtors® have a clear understanding of the potential long term risks of a bailout by taxpayers.

Just Plain Old Bad Business and Bad Policy

The rescue of bad loans is simply bad real estate business and bad real estate business is bad for the real estate industry and bad for real estate company owners.

Let the market fix itself. The market will repair itself and the results will be less painful than allowing the bailout to prevail. The fact is…actually, the truth is, we are going to be harmed. The only question is how much pain are we going to allow to be inflicted upon the industry?

If we do not allow the market to heal itself and we adopt a taxpayer bailout mentality we will be adopting a fundamental shift in the historical values espoused by the real estate industry and to a large degree we will have socialized real estate, diminishing the value of all Realtors® and the industry itself. Such a shift in policy will create a huge potential for government oversight of the real estate industry and create transaction liabilities for broker/owners, franchisors and let’s not forget appraisers and mortgage lenders.

We encourage you to think deeply upon these things.

Related posts:

1. Government Interference has Harmed American Real Estate Wealth
2. An all Carrot and no Stick Industry
3. Home Price Declines Hit New Records: What Can the Industry Do?

Editorial by Stefan Swanepoel

I would like to share with you the fantastic afternoon I had this last Saturday. My wife and I had the privilege of being invited to the two hour Saddleback Civil Forum with Senator Barack Obama and Senator John McCain. This was the first time these two presidential hopefuls, and expected nominees for the Democratic and Republican Parties, shared a public stage.

Rick Warren, author of “A Purpose Driven Life,” and pastor of our Church, Saddleback in Lake Forest, had organized for Obama and McCain to come and present their views on important issues.

The Atypical Conversation. This was not your usual political debate with read-the-teleprompter canned speeches on pre-approved political questions. No sir. This was about the real stuff – the big subjects – topics we usually do not hear about in a presidential face-off.

On Sundays, Rick is usually dressed up in a Hawaiian shirt, but this Saturday was different – he was in a dress shirt, no tie and suit. Rick himself is an excellent and inspiring speaker but the afternoon wasn’t about him.

During the forum Rick first posted questions to Obama before asking McCain the same set of questions. Topics covered aspects such as personal values, religion, abortion, marriage, education, evil, stem cell research, energy and their respective vision for the United States.

Obama was enthusiastic, but gave answers that left one often confused with his commentary falling on “both-sides-of-the-fence.” His weakest answer was probably when he replied that’s “above my pay grade.”

McCain’s appeared more comfortable and his replies were short and concise. His weakest answer was when he jokingly replied that $5 million annual income would qualify as “rich.” 

As Rick noted, it was clear that both care deeply about America.

The Forum Got Me Thinking.  It was the best and most honest political debate I have heard in decades.  Overall it was a very interesting and eye-opening experience – this got me thinking. What if we could have a Real Estate Forum like this one but where someone like Dale Stinton of NAR would ask the candidates’ questions directly related to real estate, housing and the mortgage crisis? Items that are of direct importance to our industry.

Wouldn’t that be great! How about it Dale, think NAR could pull an event like this off?

Watch the Saddleback Civil Forum.

Related posts:

1. Obama & a New Real Estate Industry
2. Government Interference has Harmed American Real Estate Wealth
3. Real Estate Recovery Quo Vadis?