Friday, September 6, 2019

THE LUCKY SELLERS CLUB IS CLOSED

After a good run spanning several years, the Lucky Sellers Club is officially...closed.

We're sorry to break it to you, all those who loved tossing a home on the market at any price in any random condition.  Owners and agents alike, it's been a great seven years, and we hope you enjoyed it.

When most habitable listings would draw 30 - 40 showings and five to 15 offers in a weekend, putting your home on the market with shag carpet, wood paneling, popcorn ceilings and laminate counters wasn't an issue.  Sure, it might cost you a few bucks off the bottom line, but when the buyer pool was deep and listings were scarce, it only took one desperate first-time buyer tired of losing in multiple offer shootouts for you to cash in.

Agents, too, enjoyed being a part of this unique club, while it lasted.  Because if you could somehow persuade a seller to sign a listing agreement with you, regardless of how bad the inside might smell or how totally lacking your own skillset might be, you could be a part of the Lucky Agents Club.  

Listing agreement has been signed, let's book that vacation to Mazatlan!  

The problem now is that, if you list a home with obvious defects, the market is no longer interested in assuming someone else's liabilities.  In fact, with active inventory having nearly doubled since the start of this year, a lot of buyers are downright insulted that you wasted their time with a home that offers so little value.  

As I've been saying to my sellers for the past several months, going forward you have two choices... compete on condition, or compete on price, but to compete in neither category leaves you in no man's land, right alongside 11,000 other active listings that can't find buyers in today's transitioning market.

We've got a lot of bad habits to correct that have taken root over the past several years, and with the licensed agent population now north of 23,000 in the Denver metro area, the truth is a large number of our fellow agents have never said "no" to anything.  

You see, historically speaking, selling a home takes time, money and effort.  Sometimes, historically speaking, it's not a very enjoyable process, for the agent or the seller.

That's one reason so-called iBuyers have a model that may get traction over time.  If you're sitting on a $400,000 home you've owned for 31 years and you know that you have ripped and padless carpet, nicotine-stained walls and a collection of yellowing and stained sports pages from the Rocky Mountain News featuring John Elway headlines piled high in the basement, it may not appeal to today's more discriminating Millennial buyers.  If that's you, why not sell it directly to Open Door or Zillow for $350,000 and close on your terms?

Heck, five years ago it was worth $275,000, so $350,000 may feel like a gift!  

Agents face a real challenge right now.  Sadly, for the 12,000 new, so-called "real estate professionals'  who have taken out licenses since 2011, no one told you that one day you would actually have to create value.  That you would need to solve problems and compete in a shifting market.  That you might one day need to make hard decisions about working with certain types of personalities, because while anyone can deal with a headstrong seller for a few days in a market where homes would sell in a weekend... working with Mr. and Mrs. Difficult for months on end (while not being paid a penny, nor being assured of any compensation at all) might not be your cup of tea.  

(Sidebar:  HGTV, when you're ready to launch that new show called "Impossible Sellers", give me a call.  I know people!)

I have seen firsthand the magic of the Lucky Sellers Club, when it was a thing.  I've turned down listings when sellers have insisted on over-the-moon pricing, only to see them cash in (on occasion and against all logic) when partnered up with a member of the Lucky Agents Club.  

I've also seen a bunch of these listings sit for weeks or months, take multiple price cuts, change agents or brokerages, and eventually turn into rentals or VRBO's - grateful that I had the discipline to say no to the forehead-whacking hammer hits that other agents signed up for in pursuit of a buck when the market made everyone feel like a genius.  

Going forward, attrition is going to replace delusion as the primary driver of our market.  It's going to be a war of attrition for agents, and truthfully, for sellers, too.  Putting a home on the market guarantees little any more.  Agents must be prepared to compete, and sellers must also be prepared to compete, because for the first time in years not all inventory is good inventory.  

The Lucky Sellers Club is being replaced by the Logical Market.  It's a market that will have winners and losers, and it will take work and skill, not good fortune or a greater fool, to get your home sold in a price-flattening environment.  

Sunday, July 28, 2019

THE RISE OF iBUYERS

How does it feel to be living through the age of disruption in real estate?  For decades, the real estate template was mostly untouched.  In the past decade, change is taking place all over.  

Welcome to the beginning of the iBuyer era, which is simply a generic term for huge corporations stepping in and buying homes directly from individual sellers for cash.

For many years, “fixers” were the domain of HomeVestors, We Buy Ugly Houses and traditional mom and pop real estate investors who scoured the landscape looking for old people (usually) willing to sell their dated, dirty and smoky homes for cheap.

Throw some paint on the walls, recarpet, drop in some new countertops… and bam, an instant $60k - $100k of profit was just waiting to be had!

Over the past few years, Wall Street has become very fond of the housing market, and new startups like Offer Pad, Open Door and Knock have jumped directly into the space of making cash offers to longtime owners who don’t want the headaches of fixing up and marketing a home for sale and those willing to leave (lots of) cash on the table in exchange for convenience.  

With their success, others have come rushing in, with Zillow, Redfin, Keller Williams and (soon) even RE/MAX quickly putting platforms in place to play the iBuyer game.

It’s important to understand how these models work, however, as now that Zillow (in particular) is going mainstream with their iBuyer product (open their app to check the Zestimate for your home and the first thing you see is an invitation to sell your home to Zillow directly), consumers are suddenly being inundated with iBuyer awareness.

I recently showed a home in Boulder that was being offered for sale through Zillow directly.  It was listed for $745,000 and had new (unimpressive) apartment-grade carpet and fresh stock eggshell paint.  No staging, and a yard that was more dead than alive. 

Public records showed they had “purchased” the home for $725,000 just a few weeks earlier, which didn’t seem right.  So I did what the old reporter in me always does… I starting digging deeper.

In this case, the path to the truth was to reach out to Zillow directly and ask them about buying my own home.  I clicked on a button and within about two minutes the phone rang – it was a polite, courteous, well-trained Zillow sales associate who asked me a few questions and then asked me to upload pictures of the kitchen, baths, Master bedroom and front/back yard spaces of my home.  

Within 48 hours, she said, someone would reach out to me with a “preliminary” offer for my home. 

I took a little time to clean up, took about eight different photos, and emailed them to my concierge.  She called me to confirm receipt (excellent customer service, by the way) and told me I would have that preliminary offer within two days.

I noticed repeatedly that she kept saying the word “preliminary”, so I asked for an explanation.  In short, she said, Zillow will evaluate your home based on the pictures, consider the health of your market area and then factor in their “convenience fee”, which is the grenade sitting in your living room about to blow up.  

The convenience fee is the amount Zillow is going to charge for the "convenience" of selling your home directly to them, without Realtors, marketing, staging or showings.  In my case, that convenience fee was a markdown of about 8% below what my home is worth in today's market (which has little correlation with my Zestimate, by the way).

At this point, my concierge told me that the next step would be to send out their home inspection service.  If they found additional deficiencies (old furnace, leaky water heater, a bad roof or other major mechanical failures) she said my offer would be adjusted “accordingly”.  Realistically, there's probably another 2%-5% markdown coming after the inspection, depending on condition.  

By now, I pretty much had the information I needed to understand their product and so I opted out of additional follow up. “My job’s looking a little bit more secure,” I said.  “I think I’m going to stay put.”

The takeaway here is that working with Zillow, Offer Pad, Open Door or any of the other iBuyer options in our market today will likely result in a chop of somewhere between 12% - 15% of your home’s value. That’s pretty severe. 

But the severity of that markdown won’t be found in public records.  It will be found on the sellers’ settlement statement.  To the case of the home in Boulder, Zillow offered $725,000 for the home, which is not far removed at all from the $745,000 they re-listed it for in the MLS.

Looks pretty enticing, eh?

But in reality the seller paid a convenience fee that may have been $75,000, and that’s something that doesn’t show up in public records.

I would be very careful about getting too cozy with any home offered through an iBuyer program, because with the extraordinarily strong market we’ve had in Denver for the past seven years, why would anybody sell at that kind of discount?  Unless there were some very serious and negative issues going on, whether we’re talking structural problems, mold issues, or someone getting shot in the living room during a drug deal gone bad. 

All of these iBuyers have a few things in common.  They are well-funded, they train their sales and service reps at a high level, and they are going to raid your equity. 

Is there a market for this product?  Yes, absolutely.  If you’re 82 years old, widowed, a smoker and overwhelmed by the thought of renovating 50 years of neglect and enduring weeks of showings to get your home sold… then this might be your ticket.

But those instances are going to be rare and, more often than not, a last resort. 

I’ve always said that when you buy a home, you also buy history.  And if I’m paying a retail price for a home that’s been treated like garbage, there had better be a compelling reason (and commensurate discount) to do so.

Paying retail for a product that somebody didn't want - especially when that former owner knows more about that house than anyone else - is asking for trouble, in my opinion.  

And with 40% more homes on the market in Denver today than just one year ago, there certainly are plenty more choices.  

It's been said that, at a poker table, if you can't figure out who the sucker is within two hands, it's probably you.  Big corporations are not looking to sell these homes to shrewd, savvy buyers.  If you sit down at the table with an iBuyer company and can't quickly figure out who's being duped, you might want to think about excusing yourself and getting the heck out of there.   

Monday, June 10, 2019

ACTIVE INVENTORY IN DENVER MARKET HITS HIGHEST LEVEL IN MORE THAN SIX YEARS

If you were thinking about putting your home on the market in 2019, you may have missed your best chance for a quick and easy sale.  The spring market is officially done and over.  

As I've chronicled before, the Denver spring market hits early, and the absolute best time for anyone to get a home on the market is between mid-January and Memorial Day.  The market traditionally downshifts after Memorial Day, and the summer slowdown is already very much underway, even though summer doesn't "officially" arrive until June 21.

With 9,149 active listings on the market, the number of homes for sale is up 29.3% from one year ago, and up 45% from the beginning of the year.  Listing inventory figures to continue increasing right through until Labor Day, when the number of homes on the market traditionally peaks.  

It's a very different world than what we have experienced over the past six years, and both buyers and sellers need to adjust their expectations going forward.  

A total of 7,969 homes did go under contract in the past 30 days, which actually reflects a 2% increase from a year ago, so demand is holding up.  That's key, because if demand were to crater, prices would be at risk of falling. 

As it is working out right now, the increase in listing inventory simply means buyers have more choices, less urgency and are less likely to write "over the moon" offers.  That will dampen, but not extinguish appreciation.  

But the days of 10% appreciation and multiple offers on any moderately attractive listing are over.  The era of extreme market velocity is over, and what that means is that sellers must realistically expect to spend a much longer period on the market before receiving an offer.  

It also means we're going to have to correct a lot of bad habits that have been allowed to take hold during this epic market run.  

The number of real estate licensees in the Denver metro area has doubled since 2011, which means more than half of the agents in this market have never experienced anything other than "sold in a weekend with multiple offers".  

That means they didn't need to devise marketing plans, they didn't need to promote listings and they have never experienced the joy of meeting with disgruntled and disappointed sellers week after week to explain why there's little or no activity on their home.  

The exodus of so-called agents is underway, and will only intensify going forward.

For sellers, the reality is clear.  You have one shot at a first impression, and if think your home "may" need carpet, paint or new appliances, it probably does.  And maybe a new roof as well.

When prices were going up $30k per year, buyers would overlook things just to get a property under contract.  Now, with prices at all-time highs and mortgage payments for lower down payment buyers clearly higher than rents, the incentive to take a bad deal is gone.

Buyers' remorse is also now a real thing.  I've listed seven homes in the first five months of the year and four of them lost buyers after going under contract.  That's not fun.  

In the "old" days (pre-2019), having a pile of offers in one weekend allowed a good listing agent to sift through the buyer pool and screen candidates like an employer reviewing job applications.  It was easy to go through the offers and assess which buyers were best qualified and which agents had a track record of success.  It was a game of odds and percentages, and your odds of getting to closing in one piece and without drama were obviously greatly enhanced when you could put the best qualified people on the bus. 

Now, it's much more random.  When offers are scarce, you simply can't be as picky.

That means sometimes saying "yes" to buyers and agents you would not have agreed to contract with in the past.  And more often than not, marginal agents have questionable buyers.  Which leaves sellers in a precarious position.  Do you take the only offer in front of you, and hope you can hold it together?  Or do you stick it out and endure the continued inconvenience of sporadic showings and an uncertain future in hopes a better buyer comes along?  

The decisions are not so easy, and the headaches are much more frequent.  To survive this process, you need wise counsel, strong communication skills and a real strategy that goes beyond putting a sign in the yard and getting out of the way.  

For years, the hard conversations in this market have been with buyers.  Starting now, the hard conversations are happening with sellers, and that's one reason why the agent pool is going to continue thinning as the listing inventory keeps increasing.     

Friday, April 5, 2019

THE DANGERS OF BOOTSTRAPPING

As April arrives and we hit peak selling season, the overall state of the Denver housing market is still relatively healthy.  Our local economy is strong and robust and our demography remains positive... but after several years of booming prices, it's my contention that values are flattening and the market is reaching a point where many first-time buyers are simply priced out.

This has ramifications, because demand "from the bottom up" has been the driver that has created the equity boom that has created the wealth effect which has made Denver one of the most economically vibrant cities in all of America. 

For as long as I have been in real estate (which is now going on 25 years), I have described market demand as a pyramid, which simply means there are always more buyers and more demand at the bottom of the market... and because of this, there is almost always built-in price protection for entry-level buyers because demand exceeds supply.

That premise - that demand is always most strong at the entry level - is now being tested.  

I measure demand in terms of "absorption rate", which is defined as how many months it would take, at the current pace of sales, to sell every home on the market, assuming there was no new inventory coming online. 

The real estate industry has long posited the axiom that six months of inventory reflects a balanced market, favoring neither buyers nor sellers.  

I personally feel that the real number for equilibrium is more like four months, because the way real estate is transacted in the digital era is very different than they way homes sold 15 years ago.  It used to be that open houses, sign calls, newspaper ads and postcard mailers were how people found out about homes.  Selling a home was like marinating a steak - it took time and results often came slowly.

In the digital age, everything happens quickly.  A new listing hits the market, and within minutes smart phones are pinging all over Denver.  Listing activity is front-loaded to the first few weekends a home is on the market, and if you can't sell a home within a few weeks, you have a problem.

The thought that six months of inventory reflects a balanced market is totally dated convention, but then much of the legacy thinking in our industry is aged and flawed.

For context, here are current absorption rates for all prices brackets I track in Denver:

$0 to $250k:  1.82 months of inventory
$250k to $400k:  0.76 months of inventory
$400k to $600k:  1.42 months of inventory
$600k to $1M:  2.21 months of inventory
$1M and up:  3.82 months of inventory

But back to the original premise... from the time I began selling real estate in Denver in 2006 until the end of 2016, we without fail had the quickest absorption rates in the sub-$250k price category.

Predictably, as you worked your way up the pricing ladder... the $250k - $400k range was the next tightest market segment... followed by the $400k - $600k range... followed by the $600k - $1M range... followed by homes priced at a million dollars and up, which often sit on the market (even in good times) for many months before selling.

More buyers at the bottom, fewer buyers at the top, the demand pyramid made perfect sense.

Starting in November of 2016, however, we saw a change.

At this point, homes in the $250k - $400k range actually began selling faster than the sub-$250k range, and the reason for this is that while the move-up buyers were flush with equity, the incoming crop of entry-level buyers was finding it harder and harder to both qualify and come up with down payment money.

While demand for homes at all price levels has remained strong during our housing boom, the stress on first-time buyers hit another last milestone last February (2018), when for the first time in all the years I have been tracking numbers demand was actually stronger in the $400k - $600k range that the sub-$250k entry level.

Increasingly, it has become apparent that the housing party in Denver is mostly reserved now for those who already have significant equity, which is the kind of elitist market dynamic I left when I departed California at the end of 2005.

Put another way, if you've owned a home since 2011, you're flush with equity and living a much more secure financial life than the younger people coming into our market today.

And for that generation of owners who won the housing lottery simply by taking action at the right time... they have significantly more options and opportunities than those recent college graduates coming out of school with $100k in student loans looking at median home prices pushing $500k.

That's one of the reasons Colorado Springs (historically much more affordable than Denver) is now ranked as the #1 housing market in American for 2019 by Trulia, and why Denver no longer appears on that Top 20 list.  

So while the established owners are able to use their equity toward down payments on larger move up homes, emboldened by their own balance sheets and the feel-good headlines we've grown accustomed to... the first-time buyers in our market have been falling further and further behind, or giving up on the dream of home ownership altogether.

The issue here, as I see it, is that push in our market has always come from the bottom up.  And now that housing is out of reach for many would-be first timers, you simply don't have the farm system in place to keep driving prices higher as you work your way up the pricing scale.  

The word I have used to describe our market, repeatedly, over the past nine months or so is "fragile".  When interest rates suddenly spiked into the 5's last fall, it hit our market hard and fast.  The types of homes that had sold in the spring in one weekend with multiple offers suddenly began sitting 15, 30, 45 days before any offer would materialize.

And without the frenzied bidding wars that characterized the spring market... sellers started seeing offers that were less than full price.  And then buyers (the nerve!) started asking for repairs.  And you started running into more valuation issues with appraisers.  And by the end of the year, there was grounds for reasonable doubt about whether you would see any appreciation in 2019 at all.  

The good news, at least from our standpoint, is that all of our political dysfunction and drama in Washington has caused interest rates to drop back down in to the low to mid 4's - for now - which significantly helps affordability and breathes life back into our market.

But active inventory is still up 36% from a year ago.  More homes which go under contract are coming back on the market than I have seen in many years.  Buyers' remorse is a real thing, and the "get a home at all costs" mentality that drove the market from 2012 - 2017 is transitioning into a mindset that is much more cautious and deliberative in nature.  

If you pay attention to other markets which have boomed in recent years (Seattle, San Francisco, San Diego, Austin, etc)... you see a steady thread of headlines.  Inventory is up and prices are flattening, not because people don't desire houses in high-cost markets.  They simply can't afford them any more. 

And that means you should be adjusting your thinking accordingly. 

I have become much more conservative with my buyer clients in 2019, to the chagrin of my managing broker and to the detriment of my bottom line.  I'm not interested in people bootstrapping their way to minimum down payments with monthly mortgages $300 to $600 higher than rents.  Why does that make sense, especially if prices are flattening?

If your reputation is the currency of your business, you always think in the long term, even when it costs you money.  My commitment has always been to the "happily ever after", and not the quick buck so many others are chasing.  

Owning a home is an expensive proposition.  Roofs age, furnaces quit, sewer lines break and exteriors need painting.  For most people, it's still worth it.

But if you don't have reserves... if you are fully dependent on two incomes... if you're not prepared for the unpleasant financial surprises that sometimes come with home ownership... you need to be thinking long and hard in a grown-up way about whether or not it really makes sense to commit to this market right now.  

If you have cash, equity, plenty of reserves and a good, stable job... by all means, buying is almost always logical and a financially-sound decision.  

But I spend a lot of my time these days having lengthy conversations with young people who seem intent on bootstrapping it, and for those who are not receiving solid advice, I worry that an uncomfortable percentage of today's bootstrappers may be tomorrow's short sales.  

Tuesday, March 5, 2019

THE HARD TRUTH ABOUT ZILLOW REVIEWS

Confession time.

Over the past eight-plus years, when the platform was first invented, I’ve made a lot of money off Zillow Reviews. Hard-earned money.  

In the summer of 2010, I was among the first to learn that Zillow was planning to set up a platform for clients to post reviews about agents.  Up until this point, the real estate industry had a love-hate relationship with transparency.  In fact, there’s another post out there somewhere about all the blown opportunities Realtor.com had to assume the market leadership position Zillow has today simply by being transparent with data and taking down all the paywalls and registrations it used to take to get the most basic real estate questions answered online when it was the only game in town. 


I’ve always said transparency is your best friend, or your worst enemy, depending on how you roll.

And so from the word “go”, I jumped in and decided Zillow Reviews would be my friend.  I quickly reached out to past clients and rapidly built a profile… first 20 reviews, then 30, then 40, then 60, then 80.  By 2014, I had the third most “five star” reviews of any agent in Colorado.

To date, I have 120 reviews. 118 of them are positive.

Today, potentially against my better judgment, I want to talk about the two that are not five star reviews.  And all the damage those two negative reviews have done, not only to my precious “reputation”, but also to my psyche.

I’ll let you in a secret. 

This job is not easy.  It comes at a price.  Ask my family about the countless missed dinners, late arrivals to my kids' events and more than occasional no-shows at family functions.  

Selling real estate in and of itself, per se, isn’t all that hard.

It’s selling 30 – 35 homes a year, being in the top 1% of agents in Colorado, being the number one producing agent in your office, and doing it all ethically and with your client’s best interests 100% at heart… that’s hard.

When I started collecting reviews on Zillow eight years ago, I was actually kind of naïve about it. 

You see, my business is and has always been referral based.  As a “96% of the time rule”, I only work with people I know, like and trust… who also know, like and trust me. 

It’s that 4% that trips you up.

Because every now and then you start down the path with someone and realize that it's not a good match.  Whether it's differing ethics, differing word views, or differing beliefs about what makes a "good" real estate transaction... I've always preached that if it doesn't feel right, you shouldn't be doing it.  

But every now and then, you find yourself dancing with someone when your instincts are telling you to run away.

Sometimes I will gently suggest those people partner with another agent.  Sometimes I ride it out to the bitter end, where either things get better or things get worse.

But it’s a complete fantasy to think you can sell 300+ homes in a 12-year period and not have an occasional flameout.

And that’s where this post gets sticky.

The truth is, when I began collecting reviews, my intention was not to attract strangers.  Far from it.  It was simply to create a single site where reviews, sales history and production could be aggregated… because as we declared earlier, transparency is your best friend or your worst enemy, depending on how you roll.

My naïve intent in 2010 was to collect reviews, add a QR code to my business card and marketing materials (a trendy idea at the time) and let people read for themselves how I sold more homes than 99% of the agents in Colorado, worked with people I loved and delivered results at an elite level.  

What happened, in addition to that, is a whole bunch of strangers I had no connection to started finding me online based on those exceptional reviews, and that’s where the water got murky.  

Truth is, over the past eight years I have closed deals for about 40 clients who found me off of my Zillow reviews.  Conservatively, I’ve probably had 200 or more contact me. 

Eighty percent of the time, my response is the same:  “I’m sorry, my business model is to work only in my network with people I’m already connected to.  I'm honored that you reached out, but I need to stay focused on those with whom I've already built strong relationships. Best of luck to you.”

But sometimes… whether it’s a slow week or a large home or a compelling narrative or a gut feeling that I ought to say "yes" to this one… I’ve taken the bait. 

And when you stray from your core values, results may vary.

Of my 40 or so closed Zillow clients, I would say at least 25 - 30 had great working relationships with me.  Clients for life.  Raving fans.  All that good stuff that happens when you truly put your clients' needs and desires ahead of your own, work seven days a week, solve problems at a high level and know the market like nobody else. 

I’ve had another five to 10 I tolerated.  Didn’t dig their vibe, didn’t like their humor, didn’t appreciate their zero sum worldview.  But we got to the finish line and they were happy, as far as I know.

And then there are a handful of strangers I have truly regretted working with.

It’s hard, when you start from scratch with people and go through a process as emotionally demanding as buying or selling a home in this crazy Denver market. 

There’s stress, anxiety, pressure and self-doubt. 

And the clients sometimes have troubles too.

But, seriously speaking, if you think it’s possible to have a 100% approval rating at scale over eight years in any field, you’re delusional.

And so tonight, I’m waiting for bad review number three. 

I fired clients today who found me on Zillow a few weeks ago.  It doesn’t matter what the details are… we just aren’t a good match.  This couple has had bad real estate experiences in other markets and arrived into the Denver market with scars from previous wrecks. 

Their view of “winning” is different than mine.  They think winning is sticking it to the other side, testing the boundaries of the contract contingencies and perpetually negotiating until the ink is dry at closing.

They’re not interested in what anyone thinks of them after closing, as long as they got the best of the deal.

And that’s fine.  For them.

I’ve dealt with plenty of seek and destroy personalities in real estate.  You can’t imagine the drama that actually goes on behind the scenes when people operate from scarcity using a roadmap of threats, demands and ultimatums.  

We all have biases and we all create narratives.  While all biases and narratives have shades of gray, sometimes you swerve into people who are approaching things from an entirely different playbook.

You need to cut bait with those people.

Problem is, these people can also post reviews.  And then they are hung around your neck like a millstone, and it sucks.

As we move deeper in to 2019, I’m transitioning away from Zillow Reviews as a branding tool.  Being addicted to the approval of others is an unhealthy trap,  If the opinions of others becomes your oxygen, the words of a hater are like toxic gas.   

I’ve been trending away from aggregating reviews for the last year or so, just as I’ve trended away from social media and other bastions of fakeness in our culture today.

While 98%(+) of my reviewers love me, the 2% who don't have too much power.  

So I’m going to continue doubling down on relationships, going deeper instead of wider.  And I’m sure it’s going to work out just fine.

We live in a world where we are far too obsessed about what others think, often at the expense of what we should think about ourselves. 

I’m reconnecting with what I should think, and I think I’m done giving so much power and authority to people who mean me harm. 

Thursday, February 21, 2019

MILLENNIALS AND THE COMING GENERATIONAL CONFLICT OVER HOME OWNERSHIP

I've been giving a lot of thought lately to the future of home ownership.  

That sounds like a weighty philosophical statement, and it is, but when your business is based on transparency, honesty and thoughtful analysis of the numbers... you can't avoid looking at how societal and political trends will impact housing in the coming years.  

As you know if you've been following my narratives, either in this space or on Facebook or via the recent comprehensive 10 - 15 page market update reports I mailed out to past clients in September and again in January, our market is changing.

Here in Denver, we're on the tail end of multiple offer bidding wars, inventory shortages and what has essentially been one of the all-time great market runs for the Rocky Mountain region.  

The main reason our market is starting is to flatten out is that young people are simply tapped out.  

Years of rising prices, coupled more recently with rising interest rates, have made home ownership unattainable for a growing number of younger Coloradans.   

It's reflected in the home ownership rate, which has dropped from an all-time high of 71% in Denver 12 years ago to 62% today, and I believe it's headed for the mid 50's over the next few years as the American Dream of buying a home simply becomes a dream, period.  

It's too difficult for young people to get started now, with record amounts of college debt, a scarcity of good paying jobs and technology and globalization increasingly putting Millennials in direct competition with educated young people in India, China and a host of other countries where $5 an hour is a pretty attractive wage.

For decades in this country, tax policy and governance has been skewed in favor of the rich and the old.  And more recently, the Fed's interest rates policies allowed corporations access to unlimited capital at negligible rates, leveraging their returns and creating even more wealth at the top of the pyramid.

Change happens slowly, but change is gathering momentum.  And it's going to affect housing.  

For example, what happens if (when) the home ownership numbers dip below 50%, and we effectively become a nation of renters.  At what point do things like the mortgage interest deduction and tax-free capital gains for sellers of primary residences go away?  

Don't say that housing in this country isn't subsidized by tax policy, because it is.

For all the stupid and ineffective things NAR does with its ridiculous piles of dues-generated cash, the one thing they have done effectively is lobby.  Yes, NAR has 1.2 million members writing annual checks to fund a war chest that directed over $72 million to lobbyists and politicians in 2018.  And that fat cat system has been the first line of defense in holding the status quo.

But if the trendlines in our political culture mean anything these days, it's that the status quo is in the crosshairs.   

We have a housing affordability problem in this country, in part because a whole bunch of older people are sitting on trillions of dollars of equity that was created in large part through government subsidized housing perks and a very accommodating interest rate environment manufactured by the Federal Reserve that created an unbelievable post-Great Recession value surge.

It was great for incumbents, because it's the economy, stupid.  It was great for the Treasury, because soaring values for stocks and real estate mean higher tax revenues.  It was great for banks, because when the Fed gives you access to funds at 0% and you loan those dollars out at 4%, hey, that's a sweet deal.  And it was great for those who owned real estate because your home(s) just made your balance sheet look a whole lot happier.   

For Millennials, what did they get?  $20 trillion in debt, record student loan liabilities, rising rents, and a job market that is marked by diminishing opportunity and increased pressures caused by the twin hammers of technology and globalization.

It's not far-fetched at all that a younger, more mobilized political class would extract its revenge by taking aim at the home mortgage interest deduction.  And if a majority of the population ends up as renters, then it's a lot easier to start passing mill levy increases on those privileged snobs who own stuff to pay for public schools, roads and infrastructure.  

And affordable housing programs.

And rental subsidies.  

And maybe appliance tax credits, or transportation tax credits, or utility bill tax credits... or whatever other credits, gifts or incentives politicians can dream up to funnel toward the growing bloc of voters known as renter nation.  

If we become a nation of renters, then that bloc of voters who don't own homes might not have any problem raising taxes on and taking benefits away from that bloc of voters who do.   

While we have vulnerabilities here, it's far worse in my old home state of California, where Proposition 13 has been the untouchable third rail of politics since 1978.  This voter-passed initiative was intended to keep older Californians from being priced/taxed out of their homes by limiting annual property tax increases to 1%... which means a home that sold in 1980 for $50,000 may be worth $800,000 today, but if the owner has been there for 39 years he is taxed as if its actual value is less than $100,000.  

Guess who makes up for that funding shortfall?  

The younger guy who pays $800,000 for the home next door, who is taxed at eight times the rate of his elderly neighbor, that's who.  

If there's an affordability crisis and you want to blow up the system in a hurry, repeal Proposition 13, and overnight you'll have every senior citizen on a fixed income in the state putting their home up for sale and moving to (insert the name of any more affordable place here).  

Which means massive amounts of inventory flooding the market overnight, plunging prices due to the surging supply, and complete chaos in the housing market.  (That might work pretty well for young people, come to think of it)

That's the California example.  We have a senior property tax exemption here in Colorado, and although it's not nearly as punitive as the system in California, some revenue-hungry politicians might be inclined to look at it.  

My point is, over the next decade we are going to live through a politicized generational revolution both here in Colorado and in the United States in general, in my opinion.  As young voters mobilize and politicians pander to them, it will change the game.    

The fastest way to level the playing field between rich and poor, old and young, owners and renters... is to start taking the perks of ownership away from the have's and transferring them to the have not's.

Based on this framework of ideas, you would be naive not to at least consider the possibility that home ownership may soon become a politicized target, instead of a generational aspiration.  

We've got a broken system here.  Well, it's broken if you're young and not endowed with a trust fund or a pipeline to the Bank of Mom and Dad.  

The National Association of Realtors, the Colorado Association of Realtors and the real estate industry in general needs to stop doubling down on the status quo and needs to start having some real conversations about how housing policy can be done better.  Young people need affordable options.  And old people may have to forfeit some perks for it to happen.  

If we don't lead on this issue, politicians will.  We can lead, or we can be led.  But either way, don't expect the the world of tomorrow to look like the world of today.  

Tuesday, January 29, 2019

MULTIPLE OFFERS AND AGENT ETIQUITTE

The spring market is back.

Over the weekend, I listed two homes that drew a combined 58 showings and 13 offers.  I was, honestly, stunned to see how quickly this market came roaring back to life after things went silent during the 4th quarter of 2018.

Both contracts ended up beyond list price with other significant concessions.  Having just endured a weekend with 40-plus phone calls, frantic agents and desperate buyers (where were these people a month ago?), I’m still processing my thoughts about what just happened.

And I do have some deeper perspectives about the quality of the buyer pool, the future direction of our market and what went down over this crazy weekend… but I’m going to save them for another time.

Right now, I want to talk about professionalism. 

On one of my listings, I had seven offers more than $10,000 over list price… all great offers, at least as far as the numbers are concerned.  But when there is that much competition and that much frenzy, it comes down to details. 

Appraisal guarantees, lender phone calls, proof of funds, agent production history… all of that matters.  Because what you’re trying to do, as a listing agent shepherding that many offers, is find the buyer, agent and lender who give you the highest and best odds of closing on time, with minimal brain damage, under the best possible terms.

So yes, an agent with 10 years of experience and 200 deals is going to have a leg up on a newbie who is still trying to figure things out. 

After thoroughly evaluating our contracts and letting my sellers make their decision, I sent out an email to all of the other agents who had submitted offers.  I let them know how many showings we had, how many offers we received, and what a difficult decision it was.  I let them know (in this case) there were at least five offers that could have been chosen, but in the end, it came down to details.

Shortly after hitting the “send” button, my phone rang.  It was the agent who had submitted what probably was the second-best offer, well over list price with a free rentback and a small appraisal guarantee… but no proof of funds and no lender phone call to back it up.
 
We easily could have chosen this buyer, and I bet we could have made it to closing and everything would have been just fine.  But in the end, as I said, the goal is to take the most complete, airtight offer on the table. 

That wasn’t his, although it was close.

The point is, instead of saying congratulations and taking the high road, this so-called agent chose to berate me.  I could hear him huffing and puffing through the phone about how we never game them a second chance or called to ask for what was missing.

As I said to him, calmly, you get one shot to make a first impression.  Your offer was 90% buttoned down.  You got beat by someone whose offer was 95% buttoned down.  

The good news is, his outburst on the phone confirmed for me that we had made the right decision.  

In this type of market, who you work with matters, more than you can possibly imagine.

Reputation is the most important asset any agent owns, and I’m proud of where I stand and of how many agents want to work with me based on my track record of proven results.

Buyers often don’t understand this, and then wonder why when they chose to work with discount brokers and freshly licensed second cousins their offers end up in the trash. 

Reputation is the secret sauce of real estate.  And when you hire an agent, you are employing their reputation as much as their skillset and availability.

The screaming agent who called and chewed me out this morning blew any chance of being in second position if our first buyer bails out.  He took something that had a 20% chance of happening (moving into first position if our top contract falls) and effectively moved it to zero. 

Nice work, champ.

I understand that emotions are raw and it’s hard to work with buyers in a hot market.  Don’t you know I’ve been there myself, more times than I can count?  It’s maddening.

But the game is not over when the first contract is selected.  In fact, the game is not over until the deal closes and the process is complete.  Professionalism and basic intelligence dictate that you keep the door open, take the high road, say the right things and operate from a position of gratitude, even when you lose. 

But of course, I’ve been doing this for 25 years.. and maybe back in year two or year three or year four I was more like this guy, angry and embittered and huffing and puffing.  So I’m willing to extend some grace.

If you aren’t Captain Angry and you’re just a hard-working agent who happens to be reading this, I’m hoping you can see the wisdom in understanding how your own behavior plays a role in your ultimate success or failure. 

The best advice I can give you is, take the high road, every time.  Because I can’t tell you how many times I’ve been in a similar situation, when three days later, my phone rings and it’s the listing agent.

“The buyer got a little wobbly and the earnest money never showed up,” says the agent whom I treated with humility and respect after initially losing out in multiple offers.

“Is your buyer still interested in the property?” 

Tuesday, November 20, 2018

UBER PLUS

I have had the occasion of using Uber three times in the past week, mostly because of some work that was being done on my car.

Those experiences were awful, bad and then… very good. 

The first time, I was picked up in a 20-year old Honda Accord with torn cloth seats, filthy windows and French fries on the backseat floor. 

The next time, I was picked up by a 70-year old man driving a minivan, a sullen retiree who was clearly unhappy with his retirement situation and driving strangers around to make ends meet.

And then this morning, I was picked up by Valerie, a 4.9 rated driver from Boulder in a sparkling clean Toyota Prius who offered me bottled water, fresh fruit and a welcoming smile.

I was trained as a journalist in college, and I’m in sales… so it’s natural for me to want to ask questions.  And so, on our 25-minute ride together, I engaged Valerie in conversation.

She and her husband are both Uber drivers, as it turns out, and they actually have implemented a business model that works well for them. 

They purchased a Prius about three years ago and this is their primary “work” vehicle.  Valerie drives most days from 6 a.m. to 12 noon, she and her husband have lunch together, and then he drives from 1 p.m. to 7 p.m., or whenever demand tails off. 

Their small car gets about 50 miles to the gallon, maintenance costs are minimal, and while they are not getting rich as Uber drivers, they have created an efficient, low stress life where work is contained in a manageable box and there’s plenty of room on the side for life.

Compare that to the lives most of us lead.  Technology has created a 24/7 economy, where those of us in management or sales are expected to be available seven days a week and a call that’s not returned within four minutes is an invitation to go elsewhere. 

There’s more money to be made by working seven days a week, for sure, but at what cost?

Our conversation took an interesting twist when I put my management cap on.  Having had two marginal (at best) experiences and then a great one with Uber in the span of seven days, I asked what Uber could do to make their “top 10%” feel more appreciated. 

Surely, it would be in the company’s interest to retain and reward their top drivers, the ones who strengthen their brand by delivering quality service in clean cars. 

As it stands now, there’s no much Uber does to honor its best ambassadors. 

So as we drove along Highway 93, we brainstormed options about how we could make being a great driver a great incentive. 

After some dialog, we eventually coalesced into a concept I called “Uber Plus”.  In short, an “Uber Plus” driver (one with rankings and trips in the top 10% of all drivers) would get the following perks:

-        A one minute “head start” on other drivers for accepting fares on “premium rides” (fares of $30 or more, and not trips down the street to the grocery store)

-        One “power hour” for every eight hours worked, with a “power hour” being defined as a 60 minute window where Uber would add a 25% bonus on to the driver’s wages

-        “Directional preference”, which simply means an Uber Plus driver could put in a final destination he or she wants to work toward and a window for arriving at that place
- 
We also agreed that a significant percentage of riders (like me) would be happy to have an “Uber Plus” option on our phone, because I would gladly pay a premium for a clean car, cold water and a top-rated driver.

I’m sure you can come up with other ideas as well, but the name of the game is to make sure the best drivers have the most reason to stay, because good drivers make Uber look good, and bad drivers drag the brand down. 

It’s the same in real estate. 

There are premium brands (good drivers), and there are knockoffs (bad drivers).  RE/MAX has always been the “gold standard” in real estate because its business model is focused on attracting and retaining top agents, experienced producers who have succeeded in all markets. 

There are other brands with models based on recruiting new agents (instead of selling homes), stock options for each home you sell, or zero-dollar desk fees in exchange for sharing a larger percentage of your commission (if you ever earn one) with the brokerage.

These models don’t ask for commitment or results.  They aim to distract rather than discern.  RE/MAX is about working and selling.  RE/MAX agents sell real estate.  They pay a reasonable monthly desk fee and keep all of their commissions.  The more homes you sell, the better it gets. 

No sideshows, no gimmicks.  And if you don’t sell homes, the monthly desk fee will quickly take you out of the system. 

In the market that’s coming, one with more inventory and fewer buyers, skills are going to matter.  As Warren Buffet famously said years ago, “It’s only when the tide goes out that you can tell who has been swimming naked.”

There are a whole bunch of naked agents out there, most of whom jumped into a frenzied market and were carried by a high tide.  We’ll now see who’s who when it comes down to having real skills. 

Delivering more value than you are paid for is the secret to longevity and success in any business. 

Valerie is going to continue to crush it as an Uber driver because she has figured it out.  That is, unless another driving service that creates a model which better recognizes excellence doesn’t come along and steal her away (“Nordstrom Rides”, anyone?).

In a good economy, everything works.  But when a market transitions, the cream rises to the top.  Creating models around brand excellence and service that exceeds expectations will always have a following.

I do believe people will pay for quality, and I do believe that excellence is a white space in an increasingly-commoditized world.

You may not be able to control technology.  And you may not be able to control the market. But what you can control is effort, attitude and preparation.  Being the best version of yourself, whether as an Uber driver or a real estate broker, is the surest path to remaining relevant in a world where those on the margins are increasingly endangered.  

Thursday, October 25, 2018

DENVER METRO INVENTORY CONTINUES TO CLIMB AS MARKET CONTINUES TO COOL

There's a palpable chill that has fallen over the Denver market in recent weeks, and nowhere is it more apparent than in the surging number of active listings.

There are currently 8,882 active listings for sale in the Denver MLS, the highest number of listings for sale in October since 2013.  That total represents an increase of 17.80% from one year ago and an increase of 95% from January, when there were just 4,554 homes on the market.  

Rising interest rates are the clear culprit.  

Since last fall, interest rates have spiked from the high 3's to the low 5's, sending shockwaves through the market and pricing many buyers out entirely, especially at the entry level.

The surge in rates is likely a result of the tax bill passed last December, which created record corporate profits and drove expectations for the economy higher.  With the DJIA north of 25,000 and US unemployment at a generational low of 3.7%, making 30-year financing commitments in the 3's no longer makes sense in the financial markets... hence, a new era of significantly higher rates.     

Hardest hit by the increase in mortgage rates are high cost markets.  On a $400,000 loan, the 1.5% jump in rates over the past 12 months increases the initial monthly payment on a fixed-rate loan by more than $350.  That's significant, and it's taken the starch out of our market.

Here's a look at how active listing inventory has fared nationally on a year-over-year basis versus locally here in Denver since spring:

Month                    NAR (National)          Denver MLS
March 2018                - 7.20%                        - 10.00%
April 2018                   - 6.30%                        - 1.60%
May 2018                   - 5.10%                        + 0.40%
June 2018                  - 0.50%                        + 1.00%
July 2018                   + 0.00%                        + 6.80%
August 2018              + 2.10%                        + 7.90%
September 2018        + 1.10%                       + 17.80%

It's clear that higher cost markets are feeling the greatest impact.  In California, which has a median price nearing $600,000, active listing inventory in September was up 20.4% from one year earlier after starting the year down 12%, a trendline very similar to what we have seen here in Denver.  

The fact of the matter is that higher interest rates are deflating the market, and what has been manifesting as higher prices in the past is now being absorbed by significantly higher mortgage payments while more and more buyers are simply tapping out.

The only path back to growth like we've seen in the past is rates that look like what we've had in the past, and the odds of that kind of sudden rate reversal are remote.

In the span of a few short months, buyers have pulled back and the market has lost its punch.  Buyers who have spent the last several years frantically chasing after something, anything in order to get on the right side of an appreciating market have suddenly become a whole lot choosier, demanding good condition, reasonable pricing and value supported by relevant comps in exchange for having to make monthly payments that are now hundreds of dollars higher.

For sellers, we're at a crossroads.  Get in line with current realities, or cover your eyes and pretend it's still the low-rate market of six months ago.  Sellers who choose to live in the past will quickly find, however, that the market they are dreaming of no longer exists.