March 2007 Archives

Don't think the Second Life land rush is over. Now a huge real estate firm is entering the 3D virtual world, as the service's headlong growth continues, reports Fortune's David Kirkpatrick.

David Kirkpatrick:

NEW YORK (Fortune) -- Real estate deals may be slowing in the real world, but in the three-dimensional online one of Second Life the market remains hot. Now Coldwell Banker, one of the nation's largest real estate brokerage firms, is entering Second Life, aiming to help bring order to the chaotic world of virtual real estate.

Coldwell Banker will open a virtual sales office and start selling virtual land at 9 a.m. on Friday. The company released the information exclusively to Fortune.

The Economist:

CASEY SERIN knows all about the excesses of America's housing bubble. In 2006 the 24-year old web designer from Sacramento bought seven houses in five months. He lied about his income on “no document” loans and was not asked for anything so old-fashioned as a deposit. Today Mr Serin has debts of $2.2m. Three of his houses have been repossessed; others could share that fate. His website, Iamfacingforeclosure.com, has become a magnet for those whose mortgages are in trouble.

Mr Serin and people like him are Wall Street's biggest uncertainty just now. How many Americans are saddled with mortgages they cannot afford on houses that are losing value? The answer matters to anyone who bought high-yielding mortgage-backed securities when a booming property market made mortgages look safe. It also matters to investment banks, which packaged the securities and often own subsidiaries that originate mortgages. It may determine whether America's economy falls into recession. It could even affect the outcome of next year's elections.

Arthur Segel:

No one knows the answer, but this is the most exciting time in real estate during my almost thirty years in the business. The world is awash with liquidity, and real estate is capturing much of it for three reasons.

First, because of the stock market crash of 2001, real estate has become a legitimate asset class and a good diversifier from stocks and bonds. Second, with graying populations in the West and Japan, real estate is particularly appreciated because it is a strong generator of current cash flow needed to pay pensioners. And third, the returns relative to all asset classes have been enormous.

Robert Scoble:

I sit down with Glenn Kelman, CEO, and Michael Young, CTO of RedFin, as we talk about this real estate industry disruptor. RedFin lets people buy and sell real estate online without paying real estate agent commission fees (or, at minimum, greatly reduced fees). But that's not the only way that they are shaking up real estate markets. They are trying to change how the industry is compensated, which will, Kelman says, increase customer satisfaction with the process.

Carol Lloyd:

With the Bay Area real estate boom splitting into so many divergent microtrends -- some neighborhoods careening southward, others chugging along, with still others gaining speed despite all odds -- the necessity of an accurate appraisal has become more crucial than ever.

Hired by lenders or mortgage brokers or sometimes attorneys, appraisers determine the value of a property by looking at recent sales of comparable properties, doing inspections and analyzing the larger market. Unlike agents, brokers and lenders, all of whom get paid on commission, appraisers are just about the only ones who have no vested interest in the deal going through. Instead, they get paid for their work by the job: usually between $100 and $500, but sometimes as much as $2,000 for a sprawling rural estate.

G. Scott Thomas:

Bizjournals compared housing costs and income levels in the 95 U.S. metros with populations above 500,000. The study used statistics from the 2005 American Community Survey, conducted by the U.S. Census Bureau. From our study, bizjournals identifies the 10 most affordable markets to own a home and the 10 costliest markets to own a home.

Barry Ritholtz:

We sold our house last year -- priced it reasonably, and at our first open house (Thanksgiving weekend!), got a reasonable bid. We ended up selling the house to that couple.

Whenever you hear talk fo a Real Estate bubble, remember that it matters much less if you own (versus rent). In effect, we rolled out of one over-priced property and into the next over-priced property. When you are a homeowner, actual prices matter less than the spread between properties.

We closed yesterday.

GM Vice Chairman Bob Lutz spoke with bloggers at the Chicago Auto show. He mentioned that they are doing "more in the way of unconventional media, unconventional consumer influence than most corporations our size".

Brian Louis & Sharon Crenson:

Toll Brothers Inc., the biggest U.S. luxury-home builder, said customer cancellations are falling and it's offering fewer sales incentives. D.R. Horton Inc., the second-largest builder by revenue, said it will miss its projections for closings this year.

D.R. Horton said closings will likely drop below last year's 53,000 and it will probably continue writing down land through 2008.

``I don't want to be too sophisticated here, but 2007 is going to suck, all 12 months of the calendar year,'' D.R. Horton Chief Executive Officer Donald Tomnitz said at a Citigroup Inc. conference in New York. ``Our future is not as bright as what we would like it to be.''

Kenneth Harney:

A class-action lawsuit is focusing fresh attention on a long-festering issue in real estate: the alleged steering of home buyers to affiliated title, settlement and mortgage companies by large realty brokers, sometimes costing consumers hundreds of dollars compared with fees and services offered by nonaffiliated competitors.

Two buyers in Minnesota filed suit Feb. 21 against Coldwell Banker Burnet Realty Inc., one of the largest realty firms in the state, charging that it breached its fiduciary duties under state law when it steered the buyers to its own title and settlement affiliate, Burnet Title, despite knowing that the affiliate's fees are significantly higher than those of nonaffiliated firms.

A spokeswoman for Coldwell Banker Burnet said the company had no comment on the allegations and does not discuss pending litigation.

The class action, filed by Kenneth and Dylet Grady in state district court, potentially has national significance because many large real estate brokerage firms have financial relationships with one or more affiliates in the title, settlement and mortgage businesses. Properly structured, these affiliate relationships comply with federal anti-steering and anti-kickback rules, and have withstood numerous legal challenges.

Warren Buffett's 2006 Letter [PDF]:

Somewhat incongruously, MidAmerican owns the second largest real estate brokerage firm in the U.S., HomeServices of America. This company operates through 20 locally-branded firms with 20,300 agents. Despite HomeServices’ purchase of two operations last year, the company’s overall volume fell 9% to $58 billion, and profits fell 50%.

The slowdown in residential real estate activity stems in part from the weakened lending practices of recent years. The “optional” contracts and “teaser” rates that have been popular have allowed borrowers to make payments in the early years of their mortgages that fall far short of covering normal interest costs. Naturally, there are few defaults when virtually nothing is required of a borrower. As a cynic has said, “A rolling loan gathers no loss.” But payments not made add to principal, and borrowers who can’t afford normal monthly payments early on are hit later with above-normal monthly obligations. This is the Scarlett O’Hara scenario: “I’ll think about that tomorrow.” For many home owners, “tomorrow” has now arrived. Consequently there is a huge overhang of offerings in several of HomeServices’ markets.

Nevertheless, we will be seeking to purchase additional brokerage operations. decade from now, HomeServices will almost certainly be much larger.