Saturday, May 30, 2015


For most consumers, real estate is about houses.  For the real estate industry, it’s about data. 

Specifically, who controls that data, where it is displayed and who has the rights to use it.

Although it may sound very “dry” and technical, the fight over who owns and controls listing data is huge.  Let me start by giving you a brief history.

Up until about a decade ago, the evolution of real estate data was slow and gradual.  Back in the 1980s, properties that were submitted to the local multiple listing service were displayed in actual books that were distributed to real estate offices on a weekly basis.  MLS 1.0.

In the 1990s, MLS systems moved online, thanks to this little breakthrough called the Internet.  Agents became subscribers of their local MLS systems, viewed listings online, and the MLS 2.0 was born. 

About this time, the National Association of Realtors (NAR) made a colossal and stupid mistake… the organization signed an “evergreen” (perpetual) agreement with a company called Homestore to share all listing data from all MLS systems with a site called  Short of criminal fraud or selling the company, Homestore (now known as Move, Inc) had indefinite, open-ended data rights to all MLS information. 

Homestore then went to work on slapping together, a clunky, stupid, confusing site that was littered with advertising, technical glitches and careless inaccuracies.  Consumers (and most Realtors) hated it.

So in 2005, along came Zillow.  Privately financed, with clarity about what the consumer (not NAR or Homestore) wanted.  The only problem Zillow had… no access to MLS data.

So Zillow built a site that initially worked off of nothing but public records.  County assessor sites, tax rolls, public trustee’s offices… anywhere it could go to find basic real estate data, it went. 

From that string of patched-together data, the dreaded “Zestimate” was born.

And over time, Zillow built a pretty powerful consumer-centric site with lots and lots of data… but not the ONE THING it needed to become complete, which was MLS listing data.

From 2008 to 2011, based on the strength of its platform and significant infusions of private capital, Zillow got traction and the site grew rapidly even without real-time MLS listings.  During this stretch it surpassed as the number one most heavily trafficked real estate website in the world, a stunning (but predictable) blow to the arrogant leadership at NAR and, who continued to focus on advertising and its data monopoly over the consumer experience.

Finally, as more and more sellers and agents began clamoring to have their listed homes displayed on the most popular real estate website in the world, one-by-one local MLS systems began cutting deals to share their data with Zillow, which quickly leveraged that data into even more eyeballs, more traffic and more growth. 

Zillow’s ability to sell “premier agent” and “featured agent” packages boomed, scores of telemarketing sales agents were hired, and real estate agents like myself began getting calls (which continue to this day) two to five times a week by Zillow’s tenacious agent-harassment specialists, offering “incredible opportunities” to buy sponsorship of local ZIP codes with online display ads that cost $1,800 to $5,400 per month.

Zillow’s revenue boomed ($323 million in reported income last year), tanked even worse, and agents were left to wonder who in the online world they could trust. 

All to say, it’s gotten nasty and chaotic in the arena of online real estate.  Agents and brokers are upset that listing data is being sold by local MLS systems (which are created and supported through agent subscription fees) to outsiders, mostly because of the ongoing failure of to deliver a consumer-centric product.   

From all of this disorder… a significant opportunity for change has materialized, almost out of nowhere.

Enter “Upstream”, a new initiative from NAR that would create a single MLS portal for agents to use when uploading property data online.  As it is being described, it will allow individual agents – not brokerages, not MLS systems, not Zillow – to decide which sites can display those listings online.  That is a huge potential game changer, and a serious blow to Zillow, which continues to have to fight for access to MLS data that the public now demands and expects.

If agents control where the data is displayed, Zillow (the great disruptor) is suddenly disrupted.  It’s an intriguing and ironic possibility, and one that could seriously and quickly damage Zillow’s $6 billion market cap on Wall Street.   

The stakes are high and the consequences are real. 

Now the question… how long will it take to create NAR to create the Upstream platform?  Will it work the way it is intended?  Or will the whole initiative crash, like so many other things NAR touches? 

I get it.  Consumers just want to buy and sell houses, and have access to data online.  But in the world of agents, brokers, tech firms and yes, even Wall Street, real estate data is a gold mine, and battles will be fought for control of it. 

The winners will get rich, the losers will go broke and agents will continue to question NAR’s relevance, wondering how the data genie got out of the bottle so easily in the first place.

Friday, May 15, 2015


For all the great news we keep hearing about the Denver real estate market – and the news IS great, if you already own something – there is obviously another side to things. 

For those on the outside looking in, affordability is getting further and further away, like a train pulling away from the station and slowly disappearing off into the distance. 

I ran some numbers this morning for a couple of my clients who remain on the outside looking in, buyers who haven’t yet been able to punch through and get something under contract in Denver's crazy-hot real estate market.

For them, affordability becomes more of an issue every day, as value becomes harder and harder to find.

While this not an exhaustive research piece, there are some similarities between the areas where they are looking, which are 80214 (Edgewater) and 80228 (Littleton).  Earlier today, I pulled all closed sales from the past 30 days in each of these ZIP codes, and then made a simple slashmark tally of homes which sold under list price, at list price, and over list price (with an extra “bonus category” for homes that sold $10k or more beyond their listed number).

Here's what I found:

80214 – Edgewater
31 Closed Sales
7 Below List Price (22%)
8 At List Price (26%)
16 Over List Price (52%)
10 More Than $10k Over List Price (32%)

80228 – Littleton
56 Closed Sales
16 Below List Price (28%)
9 At List Price (16%)
31 Over List Price (56%)
20 More Than $10k Over List Price (36%)

What you see in both of these ZIPs is about one-third of the listings are selling for $10k or more beyond list price.  Truth is, in this sampling there were many properties $20k over list, some $30k over list and one that was $47k over list price!

Of the 87 closed sales in this sampling, zero were bank owned or short sales.  That means all 87 were “retail” sales at retail prices.  And because sellers clearly see blood in the water, nobody is discounting anything. 

What can’t be known from this sampling is how many of these properties had appraisal issues.  Certainly, you could argue every offer that’s $10k or more beyond list price is at high risk for appraisal drama.  And with list prices pumped up to begin with, any property selling over its listed price has legitimate appraisal concerns.  

What buyers need to know is that one-third of all listings in this sample are selling $10k or more over listed price, and because we are now at all-time highs for values in the metro area, the people buying these homes are going to the top of the totem pole in terms of price.  And bringing extra cash to closing if the home doesn't appraise.

If you are scouring Zillow, Trulia and and basing your offers on past sales, you are likely to keep losing.  Right or wrong, many buyers today are factoring future appreciation into the equation, and betting that our market will remain strong.  

These are uncomfortable times for buyers, and even more so for those who are accountants, engineers and analyticals.  Sellers want the cash, and successful buyers are willing to give it to them.

Friday, May 8, 2015


We are living in an age of disruption.  I think about it every day, because recalibration, adjustment and course corrections are the fundamentals of survival. 

Huge changes are underway in the real estate world, but many of them are occurring below the surface, like a tide beneath the waves.  From the shore the water may look calm, but just below, the shifting currents are creating violent turbulence.

Technology is a primary disruptor, and it is touching every area of our lives.

We now live in an app-driven, on-demand world.  Millennials, in particular, have been raised in an era where technology equates to instant gratification.  Want a pizza?  Tap a button.  Need a ride?  Tap a button.

Want a house?  Soon, tap a button.

In the old days, like about 36 months ago, agents still had control over data.  If a property hit the MLS at 2:30 on a Thursday afternoon, the only ones who knew about it were the brokers.  We could make a mental note to call our client the next morning, suggest seeing it at 4:30 (or some other convenient time that fit our schedule), and still look like a great provider of service to the consumer.

Today, it doesn’t work like that.

Zillow’s $5.5 billion (current market cap) march into the real estate world has changed the game.  While Zillow’s data often remains inaccurate, inconsistent, and sometime downright wrong, the one thing you can say is that Zillow has applied crunching and disruptive pressure to traditional real estate models.

By adding data constantly, by increasing the value of their brand by relentlessly pursuing new ways to provide more information about housing, schools, crime data, assessments, zoning, rents, agents, and most recently “comparable homes”, Zillow has effectively forced the real estate world to change.

The response?  MLS systems have shifted by becoming more consumer-centric, more transparent, and less agent-focused. 

Zillow created alerts for site users, letting them know when new listings showed up on Zillow (even if those “alerts” were initially happening five, seven or ten days after a home was listed, based on Zillow’s spotty data feed).  As Zillow’s growing influence allowed it to strike (or buy) deals for real-time access for data with more MLS systems across the country, the value and accuracy of this service improved.

Eventually, MLS’s decided they needed to “go direct” to give consumers the same choices they were finding on Zillow.

That flipped the model, and put consumers (instead of agents) in charge of information.  And that’s okayin fact that is progress.  But it is also disruption, and if your value proposition as an agent consisted solely of unique access to data, you value proposition has just been wiped from the face of the earth.  (And sadly, for a large number of agents, there is no value proposition beyond data!)

As I have written about before, the real estate pond is overstocked with agents.  We live in an 80/20 world where 20 percent of the agents dominate (those with real value propositions, not just access to data) and 80 percent fight for table scraps. 

If you aren’t in the top 20% (soon to be the top 10%), you will not survive the coming years.  

What can a buyer’s agent do to create value?  Ultimately, I think the buyer’s agent is going to go the way of the Dodo bird.  But to stave off extinction, there are some key survival traits that will allow some to outlast others.

For one, you need to be an educator, not just a door-opener.  You need to understand economics, not just aesthetics.  You need to be a negotiator, not just a contract writer. 

You need a strong network of professional service providers who will take great care of your clients at reasonable prices.  You need resources like insurance agents and mortgage lenders and accountants who can provide fast, accurate and money-saving information to your clients.

You need to be a marketer, not just a licensee.  You need to be an adapter, not a reactor.  You need to stick to your past clients like glue, providing value in unique and creative ways and always letting them know how much they are appreciated and how committed you remain to serving them, even after the sale. 

But even if you do all this, the current is still going against you. 

There’s a saying among experienced real estate agents:  Listers Last

Listers last because they are in control.  Listings are the equity of your real estate business.  And soon, I believe we are moving into a world where listers will increasingly control both sides of a real estate deal.

Within five years, I believe that many listings will be sold (or at least placed under contract) through an iPhone app.  A new listing appears, a pre-approved buyer sees it, and taps a button that says “submit contract now”. 

The listing agent offers a 1% commission rebate to the seller and a 1% commission rebate to the buyer (thereby cutting out negotiations), functions as a transaction broker for a 4% commission, and the buyer’s agents are left wondering what just happened.

Is this happening today?  Not yet.  Well, it is actually, sort of. 

The preponderance of “Coming Soon” signs (which I have written about previously) are the precursor of this type of system.  A significant number of deals are happening in Denver right now without ever seeing the MLS, and agents (ethically or not) are double-ending deals off the strength of the market and a little 1 x 3 sign rider hanging in the front yard.

Do buyers get the same level of representation working with the seller’s agent that they would get from their own dedicated buyer’s agent?  Absolutely not. 

In fact, I think there are huge ethical conflicts about trying to double-end deals that affect both buyers and sellers and I won’t do it unless I am specifically instructed by my seller to do so.

But my opinion is in the minority.

As more and more real estate data migrates online in the coming years, the perceived value of a buyer’s agent is going to erode.  Consumers, especially Millennials, will no longer value the buyer’s agent, even though they “don’t know what they don’t know” about the value of experience, negotiations and the overall complexity of a real estate transaction. 

Marginal agents will not survive, and even the good ones will have a very hard time competing with the currents of technology and consumer-empowerment.

Adapt or die.  That’s the way the world works, and it’s time for real estate agents to get a lot more strategic about what they are doing and why they are doing it. 

Otherwise, the fate of the Dodo bird awaits.

Friday, May 1, 2015


Here's a snapshot of a conversation I am having about three times a week, courtesy of the red hot Denver housing market:

Client:  "Is this house really worth (pick your favorite number) $350,000?"
Me:  "I don't know, but someone is going to pay it." 

This is obviously a less comfortable position than in previous years, when the value of homes was easily measured by past comps instead of present demand

But right now, present demand is determining value, and with demand overwhelming supply, prices are going to continue going up.  Many buyers are even factoring in projected future appreciation when determining what to offer for a home.

When will it end?  The question of when it will end is a good one, and an important one.  Obviously, interest rates are a huge motivating factor right now, as rates in the low 4's remain highly attractive to buyers scrambling to lock in a 30-year mortgage payment before higher rates make homes less affordable.

So when and how will our market turn?  Of course, there's no way to know for sure, but I believe any slowdown will start with new construction, which is far more likely to freeze up when rates rise due to the chilling effect of payment shock.

Right now, virtually all new single family construction in the metro area starts at $350,000 and goes up.  Truth is, there are only a handful of new communities where buyers can purchase anything in the $300s. 

Let me show you why I think higher end new construction will be the first domino to fall when rates finally surge.  It's simple math, really.

-  $400,000 purchase with 20% down payment = $320,000 loan; At 4.25%, the P& I payment on a 30 year loan is $1,575.

Assuming 10% appreciation (which is not unrealistic for 2015), let's project forward 12 months.

-  $440,000 purchase price with 20% downpayment = $352,000 loan; At 5%, the P& I payment on a 30 year loan is $1,890.

That means 12 months from now, under this very realistic scenario, the payment for the same home is nearly 21% higher than it is today.

New construction is selling like crazy right now, and this is why. 

But a year or two from now, if payments really are 21% (or more) higher for the same home, it's going to have a chilling effect.  In fact, you could easily argue that builders are racing the clock to build and sell as many homes as possible based on low payments.  When payments go up as interest rates rise, and they will at some point, demand for new construction will slow appreciably. 

The most bulletproof sector of the market, in my opinion, remains the sub-$400k market.  That's because supply is finite, builders won't build them (because they can't do so profitably), and it's what the vast majority of buyers are looking for.  

When rates rise, I see continuing activity, but with buyers getting squeezed into smaller and smaller resale homes and condos as they literally are priced out of the new construction market. 

Risk in real estate is directly proportional to market positioning.  The entry-level and sub-$400k markets are darn near bulletproof in my opinion, based on an overwhelming demand-supply imbalance.  But when you start tapping into new construction, where supply is not fixed, rates will matter more. 

For builders, the race is on.  Sell 'em now, while rates are low.  Because when rates rise and the market slows, the first place to clear out will be the sales office of your favorite local new construction builder.