The FSBO Blog

On this blog, we’ve refrained from discussing the economy or “housing bubble” - partially because many other sources are covering that topic adequately, but more significantly…..because it’s rather boring to read. For once, however, I ask you to indulge me as I jump into economy talk. I’m not going to write (much) in the typical, ethereal sense though; my purpose is to bring home some of the news of the past few days, explaining how it applies specifically to you and what you can do with it.

Yesterday the General Accounting Office (GAO; a research branch of Congress) publicly released a report entitled “Real Estate Brokerage: Factors The May Affect Price Competition.”

The report is very interesting, not due to its content (it doesn’t reveal much that hasn’t been revealed before), but rather because of the fact that it was even requested and created. Based on the specific questions asked and answered in the report, we can tell that many members of Congress view the current cost to sell real estate paid by many as enough of an abnormality and risk to look into ways to address it. Specifically, what they see is that, as the report notes, the total dollars in real estate commissions are estimated to have risen nearly 50% in just 4 years — from $43 billion in 2000 to $61 billion in 2004. The cost of a house has risen approximately 35% in the same period, while inflation was only 10%. That means agents as a whole have received a 25% pay raise for doing no more than they did before. (Let it be known that I have no problem with a profit growth like that in and of itself, as a matter of principal)

Real estate is directly tied to the economy, being one of the most significant factors. This is why Alan Greenspan is pleased that there’s an “equity cushion with which to absorb a potential decline in house prices.” In real terms: If there IS a housing bubble, and it DOES burst, and the value of your home is no longer rising as you anticipated, MANY can sell without it causing much of a problem — such as having to come up with an extra few thousand dollars of cash to pay off the mortgage.

With an “equity cushion” of 10-15% profit on a house, and the common cost to sell of 5% (which pulls directly from that equity cushion), our economy would appear to be in a far more secure position if the average cost of selling real estate were to dramatically drop….say from 5% to 0.5%. This is accomplished by promoting price competition in the real estate industry. (Rob Steiner addressed some of this in his earlier posts - though we can’t know for sure that DOJ/FTC and Greenspan are coordinating)

As discussed in the GAO report, realty agents have been getting this windfall profit for years. Prudent minds would conclude that now that technology, information and laws have simplified the means, that windfall should be shifted to the people who actually invested — homeowners. The best way you can help your “personal economy,” as well as the “national economy,” is to sell your home By Owner.

And with stories like “Crazy Loans: Is this how the boom ends?” from CNN Money, and “Overdue Credit Card Bills Hit Record High” from the AP, don’t we know that both need help!

Selling By Owner is easy these days, especially if you work with a good FSBO service & advertising company. You can find all kinds of information about the process here on this blog. And feel free to ask questions!

~Robert Creek
The FSBO Blog

I want to address Greenspan’s recent discussion with the American Bankers Association. I touched on it a little bit in my previous ‘Middlemen’ post.

Different outlets have provided different perspectives on his comments. The AP’s Jeannine Aversa summarized his comments with this article . As you can see from the headline, Greenspan’s reassurance that most homeowners have accrued enough equity to survive a housing recession was highlighted in her summary.

It worries me a little bit because this rosy colored headline is what most Americans read. Every newspaper I read displayed this headline.

Of course Greenspan is going to shed some optimism on the situation. He never makes discouraging comments without also bringing some optimism to the conversation. I interpret this comment as little more than ‘fluff’… certainly unworthy of the headline.

Of course, there is merit behind his optimism. The portion of consumers who do not have a sufficient equity base are generally in markets where the recession will be minimal. In markets where prices may recede, homeowners do have more of a cushion.

This address to the ABA was made in the wake of the release of his comprehensive report on housing market as it relates to consumer debt. (Download Report-7.6MB)

Remember, the plan to create an economic surge by lowering rates to allow for increased consumer spending through home equity extraction is Greenspan’s brainchild. He believes in the maneuver. There is a faction of economist who do not support this method. His optimistic statements could be in defense of his strategy.

Of course, I must make a reference to the DOJ/NAR investigation…
There is probably no one who would rather see the 6% standard commission decreased more than Greenspan. It would buy his strategy more time and/or help homeowners dig themselves out of the hole that Greenspan has endorsed digging.

Rob Steiner
LISTFREE

Alan Murray wrote an article in the WSJ this week that attributes some of the ‘frothy’ market conditions to realtor commissions. A 5-6% commission requires at least the equivalent to be added on to each sale of the property. With people flipping and moving with such frequency, it’s hard to calculate the exact effect these commissions have had on the overall appreciation rates through out the nation.
We do know this: Americans are over leveraging their home equity to support their spending. I believe that the Fed realizes that many homeowners will not be able to afford to move if prices drop even marginally…. unless the price to move is reduced. That’s where the DOJ investigation comes in to play.
Alan also makes some great points about the value that realtors have lost over the years. I’m sure that they were worth their 6% before the advent of free-flowing data. He also echos our oft used comparisons of realtors to Wall St., travel agencies, and insurance companies.
It’s always nice to see what we’ve been screaming printed where the mainstream can see it.

Rob Steiner
LISTFREE

What Makes an Idea Viral-Seth Godin (bio)

Seth shares an excellent foundation for spreading the ideology behind the FSBO revolution.

Rob Steiner
LISTFREE

The NAR lawsuit “fits into the broader effort that we and the FTC are undertaking,” -J. Bruce McDonald, deputy assistant attorney general for antitrust.

I believe that the U.S. D.O.J. intends to soften the blow to consumers that the pending housing recession will inflict. If more people keep more equity in their pockets by not paying 6% to a realtor, they will be able to spend more money on their next home, more money at the gas pump, more money at Wal-Mart, etc. If the bubble starts to pop this ‘broader effort’ will become known soon thereafter.

As for the currently documented investigation….
When the MLS is finally put completely into the hands of the consumer, listing agents will lose their value completely. When every listing, exclusive or non, is made available to the public, sellers will have no reason not to use a flat fee MLS service.

It will then be all about a REA’s ability to generate buyers. They will be the ones who provide value, thus earning the money.
The question must be asked, “How do you create value for a buyer?” Why would a buyer choose to use you or your company to buy their home?
Convenience? Larger selection?
Being able to truly provide EVERY listing, including FSBO’s would provide value.
RE/MAX realized this 3-4 weeks ago when they announced that they will putting the entire MLS on their site. Good effort… but I don’t see them providing FSBO services any time soon.

The only way for a company to provide every listing to the public is to engulf itself in a given market. Don’t try to conquer the world with your big, elaborate web site. Conquer a small market first. Dominate that market. Make the realtors in that market realize that their ‘cheese’ is now gone. When you’ve done it one market, do it in another.
OR, better yet, we unite. Working simultaneously on FOCUSED geographic locations to bring the consumers every listing. Perhaps a medium such as thehomenet.com could suffice.

I have the blueprint. I am more than happy to share it with those who are like minded. You are more than welcome to use our model… which is more complex than it appears on the consumer end of our website. The real power of our model lies in what you don’t see… our integrated Customer Relationship Manager (CRM) and our additional revenue streams.

The shift will happen.
It may come down to who can best integrate ‘technology and touch’… a founding cornerstone of my company. Proper integration of this cornerstone into both the back end of the business (CRM) and front end (user facing web site) could put us where we need to be. Certainly a great deal of touch is accomplished, too, through the afore mentioned focus on a contained nexus of operation.

Keep in mind, too much Touch and not enough Tech will slow you down. Vice versa, will keep you from ever moving.

_________________
WHEN YOU AIN’T GOT NOTHING, YOU AIN’T GOT NOTHING TO LOSE. - Jimi Hendrix

The NAR has everything to lose. They will fight tooth and nail to hang on to their archaic methods. While they spend time, money and energy fighting, others can prepare.

While they are chasing the puck, we can skate to where the puck is going.

Rob Steiner
LISTFREE

This blog has been quite astir the past week or so, with some very interesting posts and comments. One comment stands out over the others, as demanding some action. Bruce Hahn, President of the American Homeowners Grassroots Alliance, commented here that many of the innovations being called for won’t happen until buyers, sellers, and innovative companies “come together to overcome the political might” of the entrenched full-commission broker industry.

In many ways, Bruce is right. So, I want to be the one to officially sound the call:
     1) Buyers and sellers: if you want to have any choice in the type of company or method you use to buy or sell real estate, you have got to stop standing by idly while state governments take away those options through regulating a monopoly into existence!
     2) FSBO Companies: you are all fighting over a grand total of 3% of the annual real estate market who use a company like you! Come together, as an industry - cooperate and join forces.
     3) Discount brokerage companies: you’ve got to ally with FSBO companies for a while. You need the momentum and weight just as badly. The National Association of Realtors does not represent your interests, or the interests of consumers.

Everyone, UNITE!
Work together. Most new, innovative real estate companies are trying to be the lone cowboy, riding in to change the world by themselves. I’m sorry, but that’s just not going to happen. Others are content to just sit still, not rock the boat too much, and collect money for their established niche business. That won’t work either, for much longer. Realtors have long since figured out the necessity of grouping together to accomplish something, and that’s where the National Association of Realtors came from - with its 1.2 million members.

BUSINESSES: If you proceed like you don’t need anyone, you just may be legislated right out of business. You’ve all got your own independent lists of properties…again, I’m sorry, but that has got to stop too. Agents have the MLS going for them. Embrace some of these new consolidated (”MLS-like”) services that let you share a database. Make it easy for consumers to find and use you. Don’t make them hunt you down.

I suggest Bruce Hahn’s American Homeowners Grassroots Alliance (AHGA), as a uniting organization. They have existed for longer than most companies this message is addressed to, and have no competitive interest in this cause, so they can objectively fight for the consumers without being partial to certain businesses. The AHGA already has the resources, expertise and connections to represent the interests of consumers in government, so those things won’t have to be rebuilt from scratch. All the AHGA lacks is input from consumers and companies, and they would love to have it.

Give Bruce a call in D.C. at 571-214-1013, and talk to him about what AHGA is doing, the kinds of things they could do with more input and support from consumers and the industry, and about how you can help.

If you want to propose a different method of uniting, let’s all hear it. Otherwise, tell me how your conversations go with Bruce!

– katherine ellie

This New York Times article over the weekend brings some more high-profile attention, and legitimacy, to selling “By Owner.” The writer knows what he’s dealing with, too. I love the opening: “Stan and Gloria Wakefield are no fools.” Some agents, unfortunately, think “By Owner” sellers are.

~Robert Creek
The FSBO Blog

Just a few days ago, I wrote this:

“Regardless, so long as the laws remain friendly to free enterprise, consumers will win this. They always do. And consumers must be able to easily search every available property, just like they search every website with Google. When consumers can do that, it will mean they are being better served - because agents and FSBO companies will then be competing based on the service they provide to the public, rather than on the information they have access to.

It has happened with stock trading, travel, and insurance. The time has come for it to happen with real estate.”

It’s starting to happen. Comments and news started rolling in almost immediately, from different people saying “we agree - we’re already working on it!” or “we agree - we’ve done it!”

USCONDEX - The U.S. Condo Exchange
They have a well-done site. It appears to combine data straight from the MLS with listings they accept directly from the USCONDEX website. I’m not sure how they got around the MLS policies that prevent doing that, but regardless, they have. They should be commented for an excellent start at serving a niche market. But it is still just that: niche…they need to expand their horizons to cover all properties.

Sellsius
The semi-anonymous poster of this comment certainly intrigued me. “RDB” wrote: “i am proud to announce, for the first time anywhere, that our organization has been developing this venue for many months now. our consumer friendly real estate community is called sellsius. our goal is to debut sellsius @ the 2005 TRIPLE PLAY Realtor convention & trade expo. this event will take place in atlantic city, new jersey on December 6.7.8. more information will be available soon…”

There is nothing at their website yet, and they won’t give out any more information. So we’ll wait and see on that one… But a word of thanks, RDB, for choosing us to make your inaugural announcement! We’re flattered.

The HomeNet
This last one (so far) is by far the most exciting, first of all because it’s actually operating NOW, but also because of the innovative approach. They publicly announced their availability this week (look here if Inman story doesn’t show), and apparently have built a platform that takes my conclusion that “consumers need to be able to search all properties at once” one step further: their technology allows consumers to search all properties from ANY website. That is, the platform can do it - they don’t have all the properties included, yet. Their model of voluntary contributions makes widespread adoption critical for this concept, but assuming the real estate industry embraces it, I LOVE it! I’ll review this more, as I get a chance to play around with it.

This is really exciting….it’s innovation time at the O.K. Corral!

~Robert Creek
The FSBO Blog

In a word: Yes.

Even real estate agents rely in closing attorneys to close a real estate transaction. In many states, it’s required.

In some areas, there are no “closing attorneys” per se, and title companies are the ones who handle the transactions. Even in these cases, the title company generally uses a staff attorney. You can talk to any decent, local loan officer and they’ll tell you who handles closings in your area.

You can do a lot of things yourself and save a lot of money, selling your home by owner. But the closing should not be one of them.

Fortunately, closing is inexpensive - most attorneys or title companies charge just $300 - 700 for a closing. And you would have to pay that even if you used an agent (on top of the agent’s commission). It’s worth it.

~Robert Creek
The FSBO Blog

The National Association of Realtors (NAR), many agents, and even many FSBO companies think THEY do.

I can’t answer the question with any authority; the debate has been going on for years. But I can say that consumers will win when property information is treated like the “public record” that it really is.

The NAR / DOJ (Department of Justice) legal battle that just started up again is now concerning an NAR policy that allows agents to restrict who gets their property listing data, and where it goes. The DOJ contends (and rightly so) that this limits innovation, harms consumers, and all manner of other bad things.

The biggest obstacle in real estate is connecting buyers with sellers. That obstacle exists because it’s fairly difficult to find all the properties for sale (if you’re a buyer), or find all the buyers (if you’re a seller). Why is it difficult? Because there are so many different sources of information. Some buyers prefer sources A, B and C, while some sellers prefer sources D, E, and F. You see the conflict here…..

A total breakdown of barriers between sources needs to occur. It is time to have one massive database that EVERYONE can tap into — buyers and sellers — without having to fork over an arm, leg, first born child or other comparably valued commodity. Consolidating all this information into one source is called “aggregating,” and is visible with tools like KatrinaHousing.net and Relief.WelcomeWagon.com, where multiple sources are searched at once.

But one step further than that, this aggregated database needs to be accessible not only at one central location, like Realtor.com or KatrinaHousing.net, but at the website of any real estate agent or real estate advertising company. This way, no matter where a buyer wants to go, s/he can find all the properties available at once.

That database can’t act like the failed IDX, VOW or ILD policies of the National Association of Realtors; to be useful, all properties must be included, and all must be available to everyone for search/display.

Theoretically, that could be accomplished right now with the same methodology behind KatrinaHousing and Relief.WelcomeWagon: an automated spider that collects basic information along with the source. That, however, is why it matters “who owns ‘for sale’ property information.” Doing this would step on some big toes, and just beg for lawsuits from MLS boards around the country. A spider technology would most likely win in a legal battle, however…there is precedent for it, especially if the purpose was to link back to the original source. But it’s just not worth the risk and cost of a legal battle.

Another option would be to get the cooperation of every MLS board in the country. That sounds good, but the problem is most boards have a policy against intermixing the MLS properties with any other type of properties - such as those For Sale By Owner. So there is a structural barrier that would take a while to overcome, with all the power brokers in charge of MLS’s.

The last option, and the most promising one especially in light of this clash between NAR and DOJ, is one that has been discussed more and more recently: scrap the existing MLS system, and rebuild a better system from scratch. Recreate the network the way it should be in the 21st century and beyond.

Regardless, so long as the laws remain friendly to free enterprise, consumers will win this. They always do. And consumers must be able to easily search every available property, just like they search every website with Google. When consumers can do that, it will mean they are being better served - because agents and FSBO companies will then be competing based on the service they provide to the public, rather than on the information they have access to.

It has happened with stock trading, travel, and insurance. The time has come for it to happen with real estate.

~Robert Creek
The FSBO Blog