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“That’s too expensive.”  The words have the sound of an excuse to me.  I would respond better to, “That appears to be an inappropriate purchace considering current trends and the inability of the product to add real value to our enterprise within our time constraints.”  At least it would show me that they thought it through.

Expensive usually means that something costs a lot.  That is a really bad definition.

I remember trying to talk my parents into buying me a pair of Nike shoes way back when. All they saw was the cost.  I saw opportunity.  The Nike shoes would obviously make me run faster, jump higher and inevitably propel me into an improved social circle.  Certainly the $50 price tag might have seemed a little pricey to the untrained observer but as any ten year old could tell you, sometimes you need to “just do it.”

Most children can see the big picture.  They see the benefits the product brings to the table at least in terms of the instant gratification they’ll get.  They understand how the product will affect the complex social interactions of junior high and why they need to have it now before it is too late.  By the time they turn into full grown business managers though, they’ve lost their vision.  Adults slowly beat it into your mind that price is the most important thing.  “How much money will the purchase take out of your pocket?”

I try to think of it differently.  “How much money will the purchase put in my pocket.”

If I spend $200 on marketing that doesn’t bring me any business.   That’s expensive.

If I spend $20,000 on marketing that makes my phone ring off the hook, marketing that nets me $100,000 or more, that’s not expensive, that’s shrewd business.  A great deal.

Somewhere along the line you need to make assumptions and projections in order to determine if there is going to be a benefit that is worth your investment.  Return on investment (ROI) is only a certainty after the fact.  There is no certainty but if you can find that childlike vision you used to have, maybe you can get past the price and look for the benefits.

Greg over at Blueroof.com did,

Instead of creating well-designed websites that offer real value to the consumer, agents usually either get a cheap  template just to have a website or they pay a technology company (Trulia/Realtor.com/Zillow) for leads. I understand why- it’s a lot easier and much less expensive to build a custom site. Custom websites can cost a lot. I spent well over six figures on BlueRoof.com, and it’s tough to pay that kind of money, especially if you have no experience converting online leads and have no idea what sort of return (if any) on your investment you’ll get. But help is on the way.

… I closed over 100 homes in 2007 from buyers and sellers we met through my website (of course I have a team of buyer’s agent also). These consumers all felt as though they were given value on the website and they used the website and contacted us because of it. If you want a better brand of business and want to build your team and business in 2008, stay tuned in January- when I discuss a new system that I think will offer more value for agents, and more value for the consumer. - Greg at Blueroof.com

That sounds like a deal to me.  I look forward to seeing what’s in store.

It’s quite tempting to want to write about everything that’s going on. I mean, isn’t that where the majority of good blog fodder comes from? But to be fair, I realized that if the agents that were on the other side of the table were anything like me, I would want to watch what I say. I mean, I wouldn’t want to be tipping my ‘hand’.

I’ll admit it. I love to research. I don’t like surprises. I want to know everything I could possibly find out about the agent I’m dealing with and his or her client. How much business do they do? Is the agent busy or just faking it? What’s their style, what’s their office like? Do they need the money? How long have they been in the business? Do they have any listings? What have they sold? What’s their target market, if any? What does the buyer currently own? Are they selling anything? Where does the buyer work?…oh it goes on and on. Anything on Google?

I love to encourage conversation. Even aimless banter. I like the agents to like me and feel comfortable and confident dealing with me. They should; I wouldn’t do anything shady, illegal or even underhanded. But that doesn’t mean I’m not working for my client. If my client wants a certain goal to be achieved, that’s my aim and I work very hard to gain any ground I can.

Everyone gives up little clues about their motivations, but they don’t always know they’re doing it. That’s why I don’t want my sellers having any sort of contact with the other agents or their clients. It’s also why I don’t want my buyers being too interested in the site of the homeowners. Any sort of contact is compromising my power to negotiate. An agent should be insulation from these situations.

I think of real estate business like a high stakes game of poker. I can’t see the cards but I can read the signals. There are sharks out there while others are just minnows. I’m not a shark but I play one on TV. Which one are you?

I’ve always been interested in sustainable business models and have noticed that there are very few in the real estate industry. Except for that of the brokerage. The business model of the brokerage is not the same as that of the agent. Brokerages make money from agents, agents make their money from transacting real estate.

Before I made the decision to pursue real estate full time, I had considered getting into the mortgage business. What I found was just about anyone would ‘hire’ you on as a mortgage broker. Why? Because they would provide almost no support for you but take half of what was made on a loan. They knew that in most cases, a mortgage broker would come on, refinance their friend and family then wash out of the business. So they attempt to capture a larger share of the market with a networking through expansion method.

I can’t help but think many large real estate brokerages are doing the same. For example, I recently talked to an agent in a large brokerage who said that they shared an office with less than 20 desks with over 300 agents. This office represents a small area of Denver, so I would assume that there is alot of overlap between the agents. Most businesses in sales don’t have that many agents for a small area. It wouldn’t be fair to the salespeople. They would limit the number of agents so their agents would be as busy as they would like to be while still achieving saturation. But the truth about real estate is that brokerages make a lot of money off the agents themselves through various fees. They also know that the new agent will immediately go after their friends and family who might not otherwise use their company. So on top of the fees, there is perhaps another $10,000 to $20,000 to be made simply by bringing on another agent who may even be paying you to be there. Of course, most agents won’t be successful but the brokerage doesn’t really care. Most brokerages provide general training and services to make it appear that they want an agent to succeed but the truth is their business model is at odds with that premise.

To establish yourself in real estate requires time. If you’ve been in the business long enough, you have made the contacts and have the client base to pull from to sustain yourself. If you’re new to the business, you need to build your business in the face of a vast and entrenched competition. But the brokerages tell you you shouldn’t drop your commissions. They then proceed to charge you enough or split the commission in such a way that you agree, “There’s no way I could work for less.” There is no way that these agents that have no momentum will ever gain a foothold against the entrenched agents who are actively marketing in a neighborhood. So the new agents are left to help their friends and family (assuming there are not more agents in the family) then slowly fade away, back into the careers they came from.

Technorati Tags: Denver, Real, Estate, Brokerage, Business_Models

How about that. I actually got quoted in Money Magazine. Albeit my statement appears a bit truncated, it is not incorrect. I’m quoted as saying “People offer higher commissions because it works”. I’ll stand by that. Offering a higher commission to a buyer’s agent does help sell your home. It doesn’t necessarily help you get a better price but it will get you slightly more traffic. I’ll explain, but first, this is what I’m talking about. The February 2007 Article entitled “Is your Realtor on your Side?” by Stephen Gandel discusses the value of having a buyer’s agent. More than that, it actually gets into the morality of the strategies some homeowners and builders are using to sell their homes. 

Steve’s seems to be trying to get his fingers on the pulse of real estate but can’t seem to get past the waiting room. I spoke with Steve on the phone after he wrote an article in the December issue of Money Magazine, “Best Ideas for 2007″. I had disagreed with him on many of the assertions he had made regarding strategies buyers could use to get a better deal. To be fair, I agreed strongly with his suggestions for sellers. In our conversation, he admitted that he ‘doesn’t have access to the same information that agents have’. Thus he has to “rely on other people” in order to write these real estate articles. He’s essentially trying to analyze data from hundreds of markets and collate that into advice that could be applicable nationwide.  He’s not an expert in the sense of personal experience but rather is forced to rely on so-called experts from across the country to give him accurate information regarding the stories he researches in order to make the valuable conclusions. I’m honored that I can fall into that category. Unfortunately, I disagree with some of the advice in the latest article. It seems the article plays more to what buyers would want to believe rather than the truth about what will help get you a better deal.  But then again,  who knows what agents across the country tell him.  This is how it works in Denver and what I disagreed with…

(If your not sure what commissions are and how they work, check the end of this post)

 Why would offering more money to a buyers agent work? Because brokers want to make a living and will be more likely to show your place in among others of the same type. This is often true in the case in newer condos or builder-owned homes where there is often a lot of competition. If you have ten other condos in your building that are essentially the same home at the same price, and then there are lots of other condos in other buildings, most agents want to narrow down what building their client wants before showing them everything that is available in one building. There are literally hundreds of condos that are similar. Do you want to go view all of them or would you like someone to help narrow it down? Most people would like some help here. Well, if I have to pick which one to show first, and they appear all the same, why wouldn’t I pick the one that pays me better, especially if they’re are all priced the same? That’s just good business. 

Unfortunately for sellers, this doesn’t seem to bring them a higher price, it just gets you more showings and helps to sell your home faster. From all the home sales I analyzed to prepare my information for Steve, I noticed that of the homes that had higher commissions sold slightly faster than homes that didn’t.  It’s not obvious when looking at homes offering co-ops slightly higher than the average because often that money is being offered to get brokers to overlook the obvious problems with the home and bring someone by.  While it might not have been as clear in the ’slightly more’ group that higher commissions bring faster sales, it definately becomes clear in the ’slightly less’ group.  When you offer less than the average commission, there is a marked difference in time on market.

I took a look at this and noticed that time on market goes up immediately when offering even slightly less than the average co-op.  Days on market increased by 12% when agents offered less than the average co-op.  This can affect the sale price since a long time on the market is viewed poorly.   Read the rest of this entry �

Just for fun, I wanted to take the pricing data stats from my previous post about market timing and apply a slow stochastic to the prices.

Here’s essentially how they work with stocks.

On the lower part of the image is an example of a slow stochastic. A buy signal is interpreted when the %k (green line) crosses up over the %d (white line). This is most important when value is crossing up from 30. A sell signal is the opposite. When %k is crossing down over %d from 75 (numbers on left). Go ahead and ignore the right numbers and red line for now. Essentially stochastics are trailing indicators of price trends. Trading decisions should never be made entirely from an indicator. It’s just an illustration of a trend over a time period. Depending on the time period you’re looking at, long-term and short-term trends can be identified.

Now, that being said. Here’s a slow stochastic showing short term (seasonal) market trends for the Denver Real Estate Market.

The stochastic demonstrates the change in price trends

Read the rest of this entry �

BiggerPockets is hosting a real estate goal writing project to kick off 2007. Oh, I know, by telling everyone my goals I’ll be motivated by the fear of failing in the sight of my peers. It’s all so Anthony Robbins. I’m terrible with goals. I’ll probably just pick the goals I like off other people’s posts. After all, if someone else had a better goal than my own and we both succeeded, I would still be the loser. You follow? What if by failing last year’s goals, I’m actually reducing my self-esteem for the following year? It could be a never-ending spiral. Maybe I should start my goals with some easy things just to build some momentum.

1. ‘Take ten’ - minutes each morning to pet my wife’s cats, sip my coffee, watch the sun come up (I’m never up that early)…whatever I want before I start working.
2. Chew my food - My wife says I eat too fast. It comes from growing up in a large family. Seven people at the table, six servings of dessert. (And I love dessert.)
3. Don’t go to work - I know what you’re thinking, it’s the whole ‘if you’re doing what you love’ thing, but that’s not it at all. I sat in various offices with those flickering fluorescent lights for the last ten years. Be in at 8:30, half-hour lunch, “We need this done by Monday but we can’t afford the overtime right now.” NO MORE! ….oh and maybe just a touch of “if your love what you’re doing….”
4. Pollute the Blogmos - Read something good everyday and write at least one mediocre post every other day.
5. Fend off Alzheimer’s - They say learning a language helps. I recently purchased Pimsleur’s French course before a trip to St. Barths. I’ve only been through 3 of the 48 CDs. I figure a feeling of self achievement will help with lots of other areas of life, including real estate. Real estate isn’t that complicated; I feel like my brain is beginning to atrophy.
6. Update my image - Maybe it’s time to get some of those cheesy broker photos done. While I’m at it, I should improve my website and consolidate some of the tools I’m currently paying for into one place I could be proud of.
7. !Warning - Shameless self-promotion follows! No really, everything for me next year will be about self-promotion. I’d like to double my sphere of influence and my client base.
8. Make a Living - How about some Cash Flow - The one downfall with real estate is that to succeed, you’re going to have spend a lot of money. I spent more money on advertising this year than I made in half of 2005. You always know you’re two months away from being broke. I’m looking to find a way to create a more steady income this year with steady advertising and perhaps some ancillary businesses.

The theme for this year would be to find balance between the different facets of my life in order to operate at a peak level all year. We’ll see how it goes.

Technorati Tags: BiggerPockets, goals

Internet advertising is such a waste of money. Definitely overpriced compared to the returns I get from other types of advertising. Not so much my own websites- they have their use, it’s the Internet lead sources that will no longer be receiving checks from me. Lead sources like Justlisted.com, Realestate.com, HomeGain, and the myriad of other companies who are pawning off information that they collected at one of their many landing pages. According to the 2006 National Association of Realtors Profile of Home Buyers and Sellers (pdf), three quarters of home buyers use the Internet in their home search. With this premise in mind, you would think an agent should place a large portion of his/her marketing budget into the Internet. That’s where the buyers are, right? Yes and no. They are there, but they really don’t want to be bothered.

People love the anonymity of the Internet. They don’t want to be sold. They just want something that you’ve got. They hate to leave their information, so they will not, if they can avoid it.

‘They’re not that into you’

Unfortunately for agents, real estate is rarely an impulse purchase. Read the rest of this entry �

In an earilier post I had mentioned how I had emailed Stephen Gandel of Money magazine with some corrected information on the Denver market. In particular I had been displeased with some of the advice they handed out to buyers. The information for the article had partially been drawn from a local Realtor who suggested that all his clients were getting 15% lower than the asking price. As a concerned member of the public and having access to the correct information, I presented my poorly written but unpoint analysis of each item with which I disagreed. Well, what do you know, Steve read it. Read the rest of this entry �

In case you haven’t noticed, there’s a lot of negative feelings toward real estate agents these days.

Did you know that according to a nationwide survey by Harris Interactive, you are more likely to trust your mechanic than your real esate agent?  The study revealed that 20% of people wouldn’t trust a real estate agent at all.  Only 7% of people would trust a real estate agent to be truthful enough to give them the advice that is best for them.   The only profession more maligned were stockbrokers.

Wow right?  Well, actually, I’m sure you’re not that surprised.  

There are many successful agents out there who have built their business around trust and honesty with their clients. I know there are agents out there that provide a high level of service to their clients at reasonable prices.  So why do the majority of people feel real estate agents are not honest and don’t provide a high level of service considering the commissions they make. Are realtors just getting a bad rap? 

If I was to oversimplify my personal list of little things agents could do everyday to overcome that reputation, it would read as follows: Read the rest of this entry �

“I love Zillow.”  “I liked them before they were big.”   

Saying that I was a big fan of Zillow.com from the start is kind of like saying, “I liked Dave Matthews before he got big” (My wife, a Virginia native, loves to say that).  For one, nobody believes you, and second, nobody cares.  Regardless of what people would think of me, I’ll say it. I love Zillow, specifically, the Zestimate™.   If you haven’t been following along, Zillow has come of age. I personally like to go on the record with my likes and dislikes ahead of time. I keep a record whether I’m right or wrong. I feel that there are a couple of components missing that will have to be incorporated quickly if Zillow wants to become a fixture in real estate. One of them is probably the most important.   It’s built off an assumption.  

Assumption - People are inherently lazy. If someone doesn’t have to do something, they won’t.  If it doesn’t look easy, they will put it off for later (and probably never do it!). Bottom line - people will choose the path of least resistance. I know this doesn’t apply to Read the rest of this entry �