Tough sledding for agents? Smooth ride for sellers!

Let’s take a quick look back at 2010, a year most real estate agents can’t wait to forget.

• The third round of buyers’ tax incentives helped some, but not enough.

•  Low mortgage rates were canceled out by high unemployment rates.

• Just to pile it on, the third-quarter foreclosure processing debacle threw thousands of pending deals into chaos and froze thousands more.

Is it safe to come out now?

Not if you’re an agent. 2011 is going to be even worse.

In Illinois, agent income was down nearly by half in 2010.

http://www.chicagotribune.com/classified/realestate/ct-mre-1003-umberger-20101001,0,366736.column

In California, the number of agents has plummeted  – also nearly by  half.

http://firsttuesdayjournal.com/the-rises-and-declines-of-real-estate-licensees/

It’s hard to imagine that these results aren’t typical of the entire country.
And that’s bad news for agents and brokers. Because their business model is broke, brokest, broken.  Clearly, it doesn’t work for them. They’re getting out as fast as they can. And the agents who remain aren’t making much of a living.

We’re not happy that things are bad for brokers, but we are happy that they might be motivated to change – finally.

The simple math will push them towards the ForSaleByOwner model of unbundled selling and buying services.

Here’s how simple the math is:

0 full-commission deals = $00.00 income

5 discount-commission deals – at, say,  $500 per transaction = $2,500 income

They won’t like it. They’ll complain. But 2011 will be the year that they realize that if they stick with their old model, they’re in for endless rough sledding. But if they change their perspective, they might be in for a fun romp in the snow.

Image courtesy of Morguefile contributor phaewilk.
http://www.morguefile.com/archive/display/105623

Homeownership Needs No Defense -- At Least, Not This One

Irrational exuberance emanated from the National Association of Realtors’ just-concluded NARdigras conference in New Orleans. (We don’t want to know what the agents did to win beads.)

Everybody in sales is hardwired to be glass-half-full types. But the agents’ business model is broken. Their glass is cracked and leaking. They are not helping themselves by releasing chipper reports documenting the supposed investment value of homeownership….over this decade.

Here’s an excerpt from the just-released NAR Survey of Buyers and Sellers:

“Even with several years of price declines, the typical seller who purchased a home eight years ago experienced a median equity gain of $33,000, a 24 percent increase, while sellers who were in their homes for 11 to 15 years saw a median gain of 40 percent.”

In this one paragraph, the NAR glosses over eight years of losses. Nationally, home values have slid back to the 2002 level. And the slide is accelerating, according to this week’s Zillow report.

The American model of homeownership is crumbling. Nobody can afford to let an agent carry off their paltry equity. Homeowners cannot count on recouping the money they put into remodeling. Just yesterday, a prominent appraiser told us in an interview that no homeowner ever recaptures maintenance expenses. You bought the house with a roof. You sell the house with a roof. How much it costs you in between to keep a roof on the house is not an investment. It’s an expense.

We believe in homeownership. We believe that owning a home is a financial and social cornerstone appropriate for the majority of American families. Home equity anchors a secure retirement, can be tapped to start a business, and can serve as a source of emergency savings.

Buy a house for economic and family stability and self-determination. But don’t buy it counting on a juicy return.

The NAR should listen to its own customers, who agree with us. Its own survey found that the single biggest reason cited by homeowners for wanting to own a home is to ..own a home that is their own. Isn’t that enough? It is for us. Why isn’t it for the NAR?

Soon on the Menu: Real Estate a la Carte

The lurching drop in real estate sales – 25.5% down in July from 2009, according to the National Association of Realtors-- makes us wonder when the agents’ business model will break. Their clients aren’t the only ones under water. The 6% commission business model just can’t hold up.

In yesterday’s page one story about the freefall, the New York Times cited industry insiders making the by owner business case:

Those on the front lines of real estate describe an unusual standoff between buyers, who can afford to be fickle as rarely before, and sellers, who feel they cannot go lower. For many sellers, agents say, another 5 percent would mean taking a loss.

Let’s pause for a moment on that thought. Five percent makes the difference. Gee, that’s awfully close to the 6% commission that is the entitlement embedded in the agents’ current business model.

The raw truth is that a sinking market doesn’t provide enough business to justify the current brokerage infrastructure. We’re already seeing big agencies collapse.

They’ll have to evolve – fast – to survive.

Here’s what they need to do:

• Unbundle their services. Does a seller want help only with negotiation and closing? Offer those and other services in an ‘ a la carte’ menu.
• Lose the attitude about ‘by owner’ sellers. Even now, with buyers scarce, foolish agents shun ‘by owner’ listings – even when the by-owner seller offers a 1% or 2% commission. Get over yourselves!
• Advocate for the long-term value of housing, not just for the transaction. Nobody is fooled by your high-dollar lobbying. Masquerading as champions of homeownership when it’s all about the commission is totally transparent to the American public. Hit ‘restart’ on your advocacy and realign your message so Americans feel you’re about more than your check at closing.
  

Think they’ll listen?

Morguefile image by npclark2k.

It's the Agents' Fault, Sez J. D. Power

J.D. Power & Associates has made a name for itself by ranking everything in the business world that emits carbon dioxide. Thus, its 2010 Home Buyer/Seller study.

Hope you’re sitting down. Buyers – who, as you’ll recall, are getting recordbreaking bargains – are oh-so-happy with their agents.

Sellers – who are very reluctantly supplying those bargains – are not at all happy with their agents. Their satisfaction ranking slid 40 points (on a 1,000 point scale) in the past year. Sellers are especially peeved about ineffective marketing, and related transaction services.

Incredibly, J.D. Power tries to soften the blow by dumping blame back on sellers. Though his assertions are not supported by the released data, a Power spokesman asserts that though “selling agents appear to be doing a good job of negotiating and marketing on behalf of home sellers, the tough economic conditions are negatively impacting their overall satisfaction with real estate companies.”

Mr. Power, here’s my point: if agents really were doing a good job, wouldn’t seller satisfaction hold steady or increase? Incredibly, his statement undermines his own company’s business model- measuring customer satisfaction.

Given a choice of believing the spokesman, or the J.D. Power numbers, I choose the numbers. Sellers are angry and upset. Dancing around the truth doesn’t change it.