Tuesday, October 22, 2013

More DIY Real Estate Brokerage

The most popular posts in this blog deal in some way with real estate brokerage commissions (HOA issues are a close second). Now, news comes of a startup out of Kansas whose technology allows lay people to perform work traditionally done by real estate brokers.

With Keyzio, home buyers and sellers can connect without, well, actually connecting. Keyzio wants to create a home marketplace where owners who are thinking about selling and buyers who are tossing around ideas can come together. Inman News ran a full article on Keyzio a couple of weeks ago.

Zillow has long had a "Make Me Move" feature, where homeowners who don't want to sell would consider doing so at a set price. Keyzio takes this idea and runs with it. How? Buyers can choose a neighborhood they want, select a house they like, and let the owners know that when the time comes to sell, they're interested in buying. Owners may also place their homes on the platform, even if they're not ready to sell.

In other words, the platform lets home buyers and home sellers to contact one another. Buyers can search homes that aren't actually listed for sale just yet, and sellers can gauge interest in their home's marketability without engaging a real estate broker. True, people have always been able to contact whomever they want. I once owned a home in a popular neighborhood where homes seldom came up for sale and would receive postcards from lay people expressing interest. I also received cards (and phone calls) from brokers who claimed to have a client wanting to buy my house. It never turned out to be true.

But Keyzio institutionalizes this kind of interest and keeps the parties at arm's length. I pretty much lost the postcards and when I thought about them, I assumed the sender had lost interest anyway. Keyzio keeps interest alive.

What's kind of interesting is that the Keyzio founders, just as with Suitey and others, found motivation in their personal experience with home buying and selling. The traditional way of doing business--namely, contacting a broker for access to the gateway into homes for sale--just didn't work for them.

Real estate agents may not prospect for clients on the site. That said, Keyzio says it is working on ways to include brokers, especially at the point of transaction where broker services can be so valuable.

What does this all mean? The Captain believes it's just more evidence of a sea change in the way homes are bought and sold and in how brokers are compensated, all brought on by the preferences of the Millennial generation. The business needs to be consumer-centric, not brokerage- or broker-centric. And brokers need to think small by concentrating on neighborhood specialization, advanced education and transactional skill expertise.

Monday, October 21, 2013

Who Pays Your Real Estate Broker?

If you sign a listing agreement with a broker, you'll know who pays--you. It says so in the listing contract. Use of the Multiple Listing Service (MLS) requires listing agents to split the commission with the buyer's agent.

If you use a real estate agent to help you buy a home, who pays your broker? It's not always clear to first-time buyers, but make no mistake--you do.

As a subdivision developer and a licensed broker, I've heard numerous real estate brokers tell their buyer-clients that the client didn't pay. Compensation came from the listing agent when the transaction closed, meaning, in effect, the seller paid the brokers. Could that be true? Are broker services free to buyer-clients?

Let's break it down.

The home sells when buyer and seller agree to a price and the buyer obtains a mortgage. If the appraisal pans out, the lender agrees and issues the loan. At closing, the seller gets the money for the house and disburses the proceeds where they're supposed to go--the seller's trust deed holder, the county tax authority and so on--including the buyer's and seller's real estate broker commissions.

If you're the buyer, who pays your real estate broker?

Is it the seller, who receives and disburses  the proceeds?

Is it the listing broker, whose sales commission arrangement with the seller and agreement with the MLS compels him or her to split the gross commission with the buyer's broker when the transaction closes?

Is it the buyer, who came up with the down payment and borrowed the money to fund the transaction whose proceeds pay everyone?

Is it the lender who funds the loan, part of whose proceeds pay brokers?

The answer is that it's you, the buyer. Your money pays your broker. Just because the funds filter through the seller and everyone else doesn't mean the money didn't come from you.

Thus, if a broker tells you his or her services don't cost you, the buyer, anything, smile politely, leave and find someone else.

Wednesday, October 16, 2013

Hey. I Knew That.

Comes now economics (and housing) guru Robert Shiller, he of the Case-Shiller Housing Index, who says what The Captain has been saying for years, even as a licensed broker representing clients buying homes. Check this story out.

And anytime anyone tells you a home is a good investment, run like hell.

Monday, October 7, 2013

Disruption Eruption

Yes, the federal government shutdown is affecting mortgage approvals. This Washington Post article is one of many trickling out on the problem.

What they don't say, nor do the morons in the House of Representatives seem to realize, is the huge disruption in the housing market that mortgage approval delays will cause--check that, is already causing.

The first victims are the buyers themselves. Many of them made offers that sellers accepted, and in good faith, cancelled their leases or otherwise terminated their present living quarters, based on the closing dates of their offers. With a delay in mortgage approval, those closing dates have to be extended. With a lease cancelled and the new home not available, where are these people supposed to live? A hotel? With family? Tell their landlords they might need the place for an indeterminate number of days after all in the hottest rental market in years?

Likewise, many sellers have made offers on homes using the proceeds of an accepted offer on their present homes. A holdup in the closing the sale of their present home delays, and in some cases even terminates, the transaction on the new home.

In other words, a delay in mortgage approval for just one buyer can seriously disrupt the lives of three different families, and for no reason other than a small band of Rumpelstiltskins in Congress can't get their way.
Speaker John Boehner leaves a press conference

Sunday, October 6, 2013

Why Consumers Like Zillow

Real estate websites Zillow and Trulia were just beginning to hit stride when I received my Oregon broker's license in 2006. I liked them instantly, even though the sites were far less robust than they are today, because I'd always felt empowered consumers were easier to serve than uninformed people. Most of my colleagues hated the sites--especially Zillow--for its "zestimate" of home values.

The biggest reason brokers for their contempt usually cited was Zillow's inaccuracy. Pricing was the worst offender, but listing data was also an issue. And older brokers especially didn't like yielding access to home listings and sales, long the guarded property of local MLS's, to the general public.

Today, though, nearly all home buyers and sellers begin their research online, and Zillow and Trulia lead all other sites in unique visits. Enter a property search into Google, and those two sites are where you'll likely go first, and even end up.

Are they accurate? Kind of, but they're not perfect, as they openly disclose to site visitors upfront. And not a week goes by that I don't hear a Zillow-client anecdote from a real estate broker about how inaccurate the site is, and why do people use it? Snarl!

When we moved to Colorado and began shopping for homes, my wife often began her sentences with "Zillow says..." I'd stop her mid-sentence, carefully explain Zillow's price valuation deficiencies and ask her not to rely on it. She listened very earnestly and went right on ahead and did it anyway.

She liked it because the information she wanted most was there--location, room count, square footage, amenities, lots of photos, and so on. Flaws in the accuracy of "zestimates" was acceptable at this point in the search, because (a) no one was ready to make an offer, and (b) few people pay the asking price anyway. For sellers, the same dynamic is at work. People see price inquiries as lead generators for real estate brokers, and most don't want to enter into a broker relationship early on.

Trulia and Zillow have both become public companies and are working to make their sites more useful and robust with enhanced user-generated content and agent reviews. And did you know that 14 million people submitted mortgage loan requests to the Zillow Mortgage Marketplace, according to realtynex.us? Zillow Digs--a foray into home improvement--just launched a few months ago. I'm betting Trulia will follow.

The Captain's one gripe with Zillow is its "neighborhood expert" labeling. Find a listing, and you'll see thumbnails or larger photos of real estate brokers who are supposed to be "neighborhood experts." In fact, those are paid slots, sold to brokers by zip code. While these persons may indeed be local experts, there's no objective correlating data for consumers. These folks are neighborhood experts, and if you don't believe them, just ask them.

Zillow and Trulia are here to stay, and from a consumer's point of view, the older they get the more they become better. How they will change the way business is done is fodder for another post.

Wednesday, October 2, 2013

How the Federal Government Shutdown Could Derail the Housing Market

The Captain has never quite believed that the housing recovery was a strong as most seemed to believe. Yes, sales and pricing have been up in most areas. Lenders have loosened up a bit. It's still a sellers' market, but not as much as a few months ago.

First, the statistics have never been even enough to give a real comfort level. Sales were on the rise, but took a dip in August. September isn't in, yet, but it looks as though it will be an okay month. Interest rates are up, but settling back.

Second--and this is a personal thing--there are too many cash sales. Nothing wrong with cash, but home buyers don't use cash. Investors do. Also, the number of buyers in 2013 seemed to result from pent-up demand more than household creation, the traditional engine of the housing market.

All of which means...what? The Captain doesn't know, and I don't think anyone else does, either. Let's agree that the market is up, sort of. Maybe not, but we hope it is.

Comes now the federal government shutdown. Of the noncash sales, VA, FHA and USDA provide a huge number of the mortgages, because few buyers have 20% of the purchase price for down payments. It's true that Fannie and Freddie offer low-downpayment loans, but borrowers better have a FICO score of 725 or higher to get one, which means F and F aren't doing many of these loans.

Which throws us back to the federal agencies. All are reporting slowdowns. Reports on FHA and VA range from "slight" to "getting serious." USDA, which funds rural area loans, is not taking new applications.

A standard guideline for all loans is IRS and Social Security Administration verifications and tax transcripts, and guess what? They aren't producing them. This fact alone is serious, because it could virtually shut down lending, unless underwriting guidelines get relaxed--which isn't likely.

With a fragile recovery at best, shutting down these mortgage sources could knock the whole thing into a tailspin.

There oughtta be a law, right?