March 2008 Archives

Real estate agent commissions up, down or flat?

Jeff Ostrowski:

When home sales fall, real estate commissions rise - or at least that's the popular theory.

But the conventional wisdom hasn't proven true during this downturn, according to little-noticed numbers released this month by Realogy Corp.

Realogy - the largest broker in Palm Beach County, in Florida and in the nation - said its average commission remained just under 5 percent in 2007, essentially unchanged from 2006.

Parsippany, N.J.-based Realogy owns Coldwell Banker Residential Real Estate and Corcoran Group, and it runs the Coldwell Banker, Century 21, ERA and Sotheby's International Realty franchise systems.

Realogy says the average "commission side" - that's half of the commission - was 2.49 percent for Realogy franchisees (up from last year's 2.47 percent) and 2.47 percent for Realogy's corporate-owned offices (down from last year's 2.48 percent). That's in spite of higher marketing costs for listing agents and the disappearance of some of the discount brokers who were applying pressure to commissions.

Realogy doesn't comment about commissions, and during a conference call last week, CEO Richard Smith mentioned the numbers but gave no details.

Realogy's report left Realtors scratching their heads. South Florida brokers insist that commissions have soared to 6 percent or more in the past two years. After all, they say, when sellers grow desperate for a deal, they're willing to pony up.

Fidelity National Sees New Regulatory Risks

Corey Dade:

Fidelity National Information Services Inc., which is seeking federal approval to spin off a unit that processes data for major mortgage providers, warned that its business could be harmed by heightened government inquiry into the U.S. lending crisis and new regulations that may result.

In a filing with the Securities and Exchange Commission, Fidelity National said that lawsuits or tighter regulations that may ensue from state and federal probes of mortgage-lending practices in response to the housing-market collapse "could have adverse consequences that could affect our business."

Home sellers dream up ways to hook buyers

J.W. Elphinstone:

Frustrated as her house languished on the market for three straight summers, J.J. Rodgers is trying a new sales tactic: giving the two-story home away in an essay contest.

Already, she's received more than 500 entries - each essay requires a $100 entry fee - for her four-bedroom home in Red Feather Lakes, Colo. She's hoping for a minimum of 2,000 entries, or $200,000 in fees, by the May 25 deadline to pay off the mortgage, cover closing costs and have a little left over. Rodgers last listed the property at $169,000 after cutting the price three times.

"We don't have anything to lose," said Rodgers, 45. "If we're unsuccessful, at least we did something different from what we've already tried."

Rodgers isn't alone in turning to unconventional sales incentives to unload her house. Aside from cash, home sellers across the country are giving away luxury cars, homeowner warranty plans and furniture to entice buyers.

Top 5 reasons why “The Customer Is Always Right” is wrong

Alexander Kjerulf:

When the customer isn’t right - for your business

One woman who frequently flew on Southwest, was constantly disappointed with every aspect of the company’s operation. In fact, she became known as the “Pen Pal” because after every flight she wrote in with a complaint.

She didn’t like the fact that the company didn’t assign seats; she didn’t like the absence of a first-class section; she didn’t like not having a meal in flight; she didn’t like Southwest’s boarding procedure; she didn’t like the flight attendants’ sporty uniforms and the casual atmosphere.

Her last letter, reciting a litany of complaints, momentarily stumped Southwest’s customer relations people. They bumped it up to Herb’s [Kelleher, CEO of Southwest] desk, with a note: ‘This one’s yours.’

In sixty seconds, Kelleher wrote back and said, ‘Dear Mrs. Crabapple, We will miss you. Love, Herb.’”


Chris Anderson:

You know how the compound eyes of a fly are designed to spot motion and not stationary objects? Well, to a lesser degree ours are as well (which is why we don't see our nose). We're evolutionarily trained to focus on change, even at the cost of sometimes missing what's right in front of us.

The chart below (from Gawker) brings this to mind. It shows US newspaper advertising revenue from 1982 to last year, with the dark brown print revenues and the light brown online. It was headlined "Over the precipice", and the same news (of a 9.4% fall in print ad revenue and a 7.9% fall overall, including online) elsewhere got similarly apocalyptic coverage about the largest fall in fifty years.

But when you see this chart, what's the first thing that you notice? Surprisingly, the industry is just ten percent off its historic highs (much like the stock market) and is still twice as big as it was twenty years ago.

That 6% Is Getting Harder to Earn

Hope Reeves:

IN any real estate market, the question is asked, in voices both low and loud: What exactly do those brokers do for their 6 percent commission?

The wondering seems especially relevant now, when both buyers and sellers are tense, not knowing if prices will continue their upward move or if they are headed down.

On a typical sale, the broker gets 6 percent of the sales price, with 50 to 75 percent of this amount going to the broker or being shared with the broker and the company representing the buyer. The remaining 25 to 50 percent goes to the company representing the seller.

The broker’s part of the commission isn’t just gravy; it is used to cover some of the selling expenses. “Our agents pay for things a lot,” said Pamela Liebman, president of the Corcoran Group. “Being an agent is really running your own business, and if you’re not willing to invest money yourself, you’re probably in the wrong business.”

Brokers say that the current market is requiring them to be more creative, to spend not only more money but also more time and effort to make a sale.

Chase Mortgage Memo Pushes "Cheats & Tricks"

Jeff Manning:

A newly surfaced memo from banking giant JPMorgan Chase provides a rare glimpse into the mentality that fueled the mortgage crisis.

The memo's title says it all: "Zippy Cheats & Tricks."

It is a primer on how to get risky mortgage loans approved by Zippy, Chase's in-house automated loan underwriting system. The secret to approval? Inflate the borrowers' income or otherwise falsify their loan application.

The document, a copy of which was obtained by The Oregonian, bears a Chase corporate logo. But it's unclear how widely it was circulated or used within Chase.

Bank spokesman Tom Kelly confirmed that the "Cheats & Tricks" memo was e-mailed from Chase but added that it does not reflect Chase corporate policy.

"This is not how we do things," he said. "We continue to investigate" the memo, Kelly said. "That kind of document would neither be condoned or tolerated."

The March e-mail was sent by Tammy Lish, a former Chase account representative in Portland. Chase fired her days after discovering she had sent it.

"I did not write it," Lish said. "It was sent to me by another (Chase) rep in another office along with some other documents that were more step-by-step customer training documents."

Debt Junkies: Realogy Pays Off Debt With Yet More Debt

Heidi Moore:

Today is a day many have dreaded. It’s the first day that a company has actually used a much-maligned financing structure that allows them to pay debt with debt.

The company is Realogy, which runs real estate franchises. Interest was coming due on its bonds. So Realogy, which doesn’t have a lot of cash to throw around right now, decided to take advantage of a payment-in-kind toggle to pay down the interest with more debt, according to Dow Jones Newswires.

So what’s the problem? Wouldn’t anyone like the chance to push off a heavy payment a little longer?

That’s precisely the problem. Once upon a time — even as recently as 2006 — a company like Realogy would have tripped its covenants with its lenders. In turn, the lenders would pull the company back to the negotiating table to talk about new terms, and a signal would go up to start examining why the company couldn’t pay its interest bills.

Realogy SEC filings, including words regarding leverage:
We are significantly leveraged. As of December 31, 2007, our total long-term debt (including current portion) was approximately $6,239 million (which does not include $525 million of letters of credit issued under our synthetic letter of credit facility and $37 million of outstanding letters of credit). In addition, as of December 31, 2007, our current liabilities included $1,014 million of securitization obligations which were collateralized by $1,300 million of securitization assets that are not available to pay our general obligations. Moreover, under the senior toggle notes, we have the option to elect to pay interest in the form of PIK interest through October 15, 2011. In addition, a substantial portion of our indebtedness bears interest at rates that fluctuate with changes in certain short-term prevailing interest rates. In the event we make a PIK interest election or short-term prevailing interest rates increase, our debt will increase.
S & P Cuts Outlook, Affirms Rating.

Facebook Toast? Hot Today, Dead Tomorrow--Like AOL?

Henry Blodget:

For now, Facebook continues to take over the world. Its global traffic is about to blow past MySpace's, its image (and Mark Zuckerberg's) has recovered from the Beacon fiasco, and it has raised a big enough cash pile that it should be able to power through any downturn.

There are some flies in the ointment, however:

  • For some early users, the thrill is gone. Our campus correspondent described how Facebook lost its appeal as soon as it tried to become everything to everyone, and we've seen evidence of declining usage in Comscore stats. The result has been less usage from the once-core user base.
  • For some geriatric users (a.k.a., us), the thrill has never really been there. Having been raised on email and IM, it's had to get in the habit of visiting a specific site to figure out what everyone's up to, especially when email accompanies us wherever we go.
  • The company has yet to figure out the right business model. Despite often being referred to as the "next Google," Facebook's financial performance actually doesn't look that much like the early Google's. Its growth is still very impressive, of course, but it has yet to develop its own version of AdWords
    Most importantly, the "walled garden" social networking model--a single site that retains all your information and relationships and forces you to do most of your business inside it--could be analogous to the 1990s AOL: Amazing industry leader for the first few years, ossified, flawed model for the rest of time.

A Video Ballad of Bubble and Foreclosure

Peter Viles:

On YouTube, former Ventura County appraiser finds humor in the housing bubble collapse.

It starts off happy and bouncy -- smiley faces, granite countertops, instant equity, a cash-out refi, a vacation in Hawaii, and a brand-new Hummer. But you know how the song ends: in foreclosure.

"I got my mortgage and I made my payments
But my rate reset in my latest statement
It was 12-hundred, now it's twenty-four.
I'm three months late,So I'm out the door."

So goes the ballad of the housing bubble, a rapidly spreading YouTube music video written and performed by Dave Girtsman, a former appraiser in Ventura County. From 2000 to 2004, Girtsman witnessed -- and arguably participated in -- the run-up in prices now known as the housing bubble.

Gauging Value in Real Estate as Home Prices Slide

Jeff Opdyke:

In this battered housing market, choosing the right neighborhood is more important than ever.

Some six million Americans are expected to buy a house this year. Whether first-time home buyers scouting the Chicago suburbs or a midcareer worker relocating to Denver, they are all contemplating what may be the most significant purchase of their lives at a time when no one is certain how much lower prices might go.

If you are relocating for your job, you likely can't pick which region you move to. But you can pick where you live within that region, and that could have a big effect on whether or not your home turns out to be a winning investment.

Home-price declines can last for years. The Greater Boston Association of Realtors says that prices there began falling in 1988 and didn't return to those levels until 1992. Houston's oil-bust downturn of the 1980s lasted a similar amount of time.

There are signs the current decline could be worse. National Association of Realtors statistics indicate that housing prices in 2007 experienced their first year-over-year decline in at least 40 years. Prices are expected to fall further this year -- and possibly next year, as well -- as the housing crisis broadens.

Girls and young woman are now the most prolific web users

Kate Spicer & Abul Taherreport:

The internet began as an almost exclusively male preserve. Now young women, from primary school age upwards, are now making it their own

When 12-year-old Clover Reshad gets home from school, she will have something to eat and say hello to her dog Hector. She might shout at her annoying brother and watch some television, then she will head upstairs to her bedroom to do her homework. This is when the computer goes on.

“I use the computer a lot. At least a couple of days a week to help with my homework and I keep an eye on [the social networking sites] Bebo and Facebook every day to see who’s on it,” she said. “I’ll check shops to see if I can buy things I want cheaper online or to make sure they have something in my size.

“I MSN [instant message] my friends. The computer also makes it easy to stay in touch with my dad because he lives in Los Angeles.”

Do Young, Tech-Savvy Buyers Need a Real Estate Agent's Help?

Lauren Baier Kim:

The generation gap in real estate

In real estate, there is a growing dichotomy: buyers are getting younger, while real estate agents are growing older, according to articles in the Seattle Post Intelligencer and the Boston Globe.

Using data from the National Association of Realtors, these articles note that while the median age of home buyers was 39 in 2007, the median age among Realtors is 51. And, among first-time home buyers, 49% were between 25 and 34 years old.

This could present a real problem for the real-estate industry, which despite the current overload of real-estate professionals, is actively trying to recruit younger real-estate agents, reports Aubrey Cohen of the Post-Intelligencer. Younger agents will be needed to replace an aging workforce and to create inroads with a uniquely high-tech set of house hunters, the articles say. Youthful home buyers are more independent and rely more on the Internet in the home-buying process than their predecessors did, these articles note.

Century 21 Renews the Gold Jacket

Business Wire:

Century 21 Real Estate LLC today announced its partnership with the legendary fashion house Geoffrey Beene, Inc. to reintroduce its signature Gold Jacket. With more than 35 years of history, the Gold Jacket has long served to provide consumers with a promise of top notch service and reliability in the complex world of real estate.

"The Gold Jacket has been redesigned and is a fresh take on an iconic real estate identifier," said Bev Thorne, senior vice president, marketing for Century 21 Real Estate LLC. "We are excited to work closely with Geoffrey Beene as they weave their focus on simple originality, innovative use of fabrics and luxurious comfort into our CENTURY 21 Gold Jackets."

For agents, the Gold Jacket is better than a business card and demonstrates a source of pride not only in the United States, but around the world. The new Gold Jacket mirrors the contemporary spirit and up-to-date knowledge that gives CENTURY 21(R) agents the ability to help people realize their dream of home ownership.

Home Appraisal Standards Stiffened

Vikas Bajaj:

Fannie Mae and Freddie Mac, the home mortgage giants, said Monday that they would stop buying loans from lenders that do not use independent home appraisers, as part of an agreement with the attorney general of New York.

The shift, which will go into effect at the start of 2009, is expected to force large lenders like Countrywide Financial to sell or spin off their appraisal businesses. It will also create a new group to monitor the appraisal business.

The deal is significant victory for the attorney general, Andrew M. Cuomo, who has been investigating the mortgage industry for a year, and last year sued an appraisal company owned by the First American Corporation. Because Fannie Mae and Freddie Mac are buying most home loans being made today, the terms they dictate to banks and mortgage companies become de facto industry standards.

Why Don’t Real-Estate Agents Use Better Photos?

Lauren Baier Kim:

Considering the bleak state of the housing market, one would think that agents and sellers would be working overtime to market what’s out there. Yet when Developments visits real-estate sites, we see many listings featuring poorly taken, grainy photos that do little to show what a home looks like, let alone what might be special about it. Worse, some listings include no photos at all.

The other day we came across a Jupiter, Fla., listing (at right) for a $665,000 home featuring just one shot of a home half-obscured by some sort of shrubbery.

We called the listing agent, and you can imagine our surprise when we learned that the brokers, a husband-and-wife team, actually own the home. Carla and John Morris of Prima Properties of Jupiter have placed their house on and off the market multiple times, according to Ms. Morris. She wouldn’t say how long the home has been for sale. They haven’t been able to add extra photos yet, but they plan to, she says, “It’s good to have the photos.”

The Online Open House: Pro still and VR photography for real estate.

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