MY VALUE PROPOSITION FOR SELLERS

I recently wrote an article about the Pareto Principle, the universal theory that 80% of outcomes are governed by 20% of causes.  As it applies to business, I believe in this theory.  In fact, I spend much of my time focused on the 20% - of relationships, of actions, of initiatives - that generate 80% of my results.

In real estate, the migration to online data has commoditized agents.  The title “real estate broker” no longer means much to most people. Agents used to control information.  They used to control access.  They used to be the gatekeepers.  No more.

To continue on in this new environment, you must be able to show how you are the best choice among any and all options available to consumers.  You must fight to consciously demonstrate your uniqueness in an increasingly commoditized world.  You must get better at what you are doing.  Improvement is not optional.  You must become more efficient, more productive and more valuable, every day.

I have been in this business for 20 years.  That’s a long time. 

Along the way, I have worked every rung on the ladder.  I started in mortgage, moved into management, sold homes, became Chief Technology Officer for a 1,500 agent company, started blogging, moved to Denver, re-started my sales career, and have sold over 200 homes in Denver over the past eight years, including a mind-blowing 40 in 2013.

I have seen this business from all sides.  I have seen brilliant negotiators.  I have seen brutal incompetence.  I have seen skilled management.  I have seen reckless behavior.  I have closed incredibly complex deals.  And I have learned life lessons that affect every step I take and every move I make in the real estate world. 

So why hire me?  Why not just hire your cousin, who just got her real estate license?  Or call Trelora, or one of the other discount brokers in town who promise to “save you money” by letting $10 per hour employees handle your six-figure transaction?  Or do it yourself?  How hard can it be?

In an age of commoditization, being a real estate broker no longer means anything.  It means nothing, that is, unless you can convey how you are somehow different, how you can somehow bring value to a transaction that other people cannot.

Here’s my list:

EXPERIENCE:  Nothing replaces it.  Playing a video game is very different from flying a 747 with 200 passengers on board.  There are lessons in every single transaction.  Things that could be done differently.  Moves that could be made earlier.  Or later.  Or shouldn’t have been made at all.  Issues which arise that could have been headed off by checking the title work, reading the HOA docs, asking one more questions, knocking on a neighbor’s door… all learned through firsthand experience.  You don’t want to guess your way through a real estate transaction, you want seamless execution.  That comes from experience, nothing else.

NEGOTIATION:  When do you push hard?  When do you back off?  When do you horse-trade?  One strategy that I have learned through the years is that it’s better to do the thinking for both sides in a transaction, rather than fight unilaterally on every single point.  Negotiation is an art, not a science.  But it’s an art that is learned by backing away from the trees so you can see the whole forest.  And it’s done well when you can get what you want while making it as easy as possible for the other side to say ‘yes’.

REPUTATION:  It’s priceless.  And it matters with other agents.  One thing I do in every single transaction is that I pull sales history for the other agent.  I figure out how long they have been in the business, how many homes they have sold, how engaged they are with the profession.  I get deals done because people know I close deals and that I do so with integrity and ethics.  People know I solve problems.  The numbers don’t lie.

KNOWLEDGE:  For me, real estate isn’t a job.  It’s a lifestyle, a seven-day-a-week commitment, it’s who I am.  Read my blog if you don’t believe me.  I’ve published nearly 500 articles online since 2007, many written late at night, early in the morning or on the weekends.  I write because my clients deserve to be educated, and because writing helps me make sense of the rapid changes which are dominating this business.  Teaching leads to clarity in your own thoughts.  Few are more knowledgeable on both a macro- and micro-level than I am.

VISION:  I see where this business is going.  I don’t react.  I lead.  That’s why I built an online profile with over 70 “five star” client reviews on Zillow.  It’s why I launched a blog in 2007 that today features over 500 published articles specific to the Denver market.  It’s why I built a powerful vendor network with over 60 different services providers at www.ElevatedReferrals.com.  It’s why I associated with RE/MAX in 2007 when the rest of the industry was plunging into recession.  I make calculated moves that keep me – and my clients – one step ahead.

TEAM:  I have amazing support.  A great lender, excellent administrative support, a world-class stager, an amazing title company that will bend over backwards to get things done for me when others would wait in line.  You hire a broker to market, negotiate and solve problems, preferably before they arise.  It takes a great team to make that happen.

TRAINING:  Would you rather have a surgeon who is continually taking classes on the latest technology, practices and procedures?  Or one who loves to play golf and parties hard every weekend?  I carry the CRS (Certified Residential Specialist) credential, the PhD of Real Estate, which takes seven years to earn and requires re-certification every two years.  Less than 4% of agents nationally carry this credential, yet each year, like clockwork, CRS agents close more than 25% of all deals in the United States.  CRS = serious agent.

AVAILABILITY:  I answer my own phone.  Always have, always will.  At night, on the weekends, while traveling.  It doesn’t matter.  Because real estate is my life’s work, there is no "OFF" button.  I am paid well for what I do, but success is earned, not given.  Part of the job is answering my own phone.

Most people have it all wrong when it comes to hiring a real estate broker.  You should not judge the transaction based on what you pay the broker.  You should judge the transaction by what you walk away with when your transaction successfully closes.  You should judge the transaction based on whether or not you assembled the right team to walk you through one of the largest and most complex transactions of your life, and by whether or not you unnecessarily left money on the table by making sloppy or poor choices because your broker couldn't think at a higher level.

For my sellers, I have two jobs.  Minimize your liability, and maximize your "walkaway" net proceeds.  In a litigious world, I have never had a seller involved in post-closing litigation.  If the transaction never closes, either because you (unnecessarily) contracted with a crazy buyer, or because your property didn't appraise, or because your deal went up in flames at inspections... it doesn't matter what the commission was going to be.

Is it possible that one listing agent could, with clarity, strategy and execution, net $10,000 more for a home than another agent bumping off the guardrails and fumbling his way through the deal?

If experience, negotiation, reputation, knowledge, vision, team, training and availability matter, the answer is yes, I can.

MEET MR. PARETO

Hot market, right?

Well, I suppose it depend on whether you are a buyer, a seller or an agent.

For buyers and sellers, yes, it’s a hot market.  Frenetic.  Multiple offers, bidding wars, strong price appreciation.  Good times in Denver.

But what about for agents?

As always, the answer depends on whether you in the top 20% or the bottom 80%. 

Almost everything in life can be broken down into variations of the Pareto Principle, named after the Italian economist who in 1906 famously observed that 80% of the land in Italy was owned by just 20% of the population.

Since then, the Pareto Principle has become a mainstreamed fact of life.  We apply the 80/20 rule to everything, because it works.  In fact, according to the United Nations, 20% of the global population today controls 82.7% of the world’s wealth. 

Yes, the 80/20 rule works in real estate.  Twenty percent of the agents sell 80% of the houses.  (In fact, it’s really more of a 90/10 deal, but we don’t want to upset Mr. Pareto)

So what does that translate to in today’s “hot market”?

Well, last month, 5,895 homes went under contract in the Denver MLS.  Let’s divide that by 14,821, which happens to be the current active agent count in the Denver MLS.  That works out to 0.39 sales per agent, or one contract side for every 2.56 agents. 

That means for every ten agents, fewer than four got any side of any deal last month.  Six out of ten got nothing.

Of course, the distribution of deals in real life is neither uniform nor fair.  We know that certain agents sold much more than 0.39 homes last month (I have averaged nearly three sales per month for the first seven months of the year), so it’s not unreasonable to argue that 7 to 8 out of every ten sold nothing.

Hello Pareto!

This is a very inefficient model, supported by inefficient brokerage models and companies (would you like me name names?) that allow non-producing agents to hang around for cheap in hopes that they one day accidentally sell something, in which case the brokerage can snag 30% - 50% of the commission off the top. 

I used to work directly for the CEO of the largest CENTURY 21 franchise in the world, and very early on in our relationship, he taught me an eternal truth:  You’re either growing, or you are dying.

Most agents today are dying, and the deck is going to be cleared soon.  Market efficiencies are coming to real estate (like Zillow) that are going to blow out the bit player while consolidating power in the hands of mighty 20%. 

Consumers no longer begin their home search with a real estate agent.  Today, consumers go online long before they contact an agent.  And they check you out.  They view your profile.  They read your reviews (if you have any).  If you're not in the top 20%, they move on. 

The real estate business if full of dead men walking, and has been for a long time.  The difference is that the table scraps which have been keeping the bottom 80% alive are being swallowed up by the likes of Zillow, which plans to sell them to the 20% who have the money and have the know-how to handle the business.

The moral of the story?  Get good help.

THE WOLF IS AT THE DOOR

The real estate world is abuzz with talk of a Zillow-Trulia merger.  Wall Street is pretty fired up about it as well.  Zillow (which traded for $24 per share as recently as November of 2012) closed at $158.86 yesterday, up $13.10 for the day and up over $35 for the week.  Trulia closed at $56.35 yesterday, up $2.61 for the day but up over $17 for the week. 

I could write volumes about this, but it serves no purpose.  The bottom line is that Zillow and Trulia have won the “eyeball war”, and Realtor.com (operated by the National Association of Realtors) has lost, even though it had years of exclusive access to MLS data.

Why did this happen?

In short, it’s because Zillow (and to a lesser extent, Trulia) gave the consumer what they wanted.  Unfettered access to data.  Full property history.  Property valuations.  And yes, a platform for full disclosure about agent sales history and customer reviews. 

The story of Zillow and Trulia vs Realtor.com is really the story of New Guard vs Old Guard, a collision between cutting edge technology and browning MLS books, fresh off the Xerox machine. 

For years, MLS data was proprietary.  It was “owned” by the companies who listed properties for sale, and those companies could decide where it would be shared.  And for years, companies shared data only with the local MLS and with Realtor.com, because Realtor.com was the “house organ” for the National Association of Realtors and it pledged to “Keep agents at the center of the transaction.”

The Realtor.com model was not about consumers.  It was about agents.  For years, visitors were forced to register to get property information (thus generating a “lead” for some dues-paying NAR member).  Agent ratings and production history were closely guarded secrets that were kept from the public (wouldn’t want to upset the under-producing dues-paying members out there). 

The Realtor.com site was designed and built by clunky academics and industry insiders, and accented with heavy doses of nepotism and cronyism (NAR is, after all, based in Chicago).  The end product was junk.

Meantime, Zillow was founded by venture capitalists who actually looked at things from the consumers’ perspective.  What did people really want to see on a real estate website?  What information was important to making educated decisions?  How could that information be presented easily, clearly and with access to all?

If Zillow couldn’t get MLS information, what information could they get?  Tax records?  Check.  Sales history?  From public records.  School ratings?  Lots of sources for that information. 

Armed with this data, Zillow began compiling property valuation estimates, called “Zestimates”.  More eyeballs followed.  Consumers engaged.

Needless to say, over time Zillow grew larger and more prominent.  As its brand value grew, more brokers and MLS systems gave in and struck deals to share their data, mostly because sellers demanded the additional exposure and consumers came to expect it. 

Once the data genie was out of the bottle, it was all over. 

Today, Zillow is the undisputed king, even though its property data is no more than 70% accurate.  Countless listings still do not appear on Zillow (because some brokerages and MLS systems choose to delay or withhold their data feeds as a form of intentional sabotage).  Status changes go unreported for days.  It’s still a very spotty place to go for current data, but because the consumer trusts it as impartial and unbiased, that’s all that matters.

With a pending takeover of Trulia, which has passed the fading Realtor.com for second place in viewership among real estate websites, the shadow Zillow casts over the real estate landscape grows even larger.

So how does Zillow make its money, at the moment? 

Advertising. 

When you search for properties on Zillow, you’ll see three boxes appear in the upper right hand corner of the screen, adorned with faces of smiling agents.  Those individual spaces can cost as much as $1,800 per month, per agent, per ZIP code in the Denver metro area.  And those spaces are increasingly oversold, with rotations of “Premier Agents” cycling through and paying big money for occasional exposure. 

This is not intended to be a dissertation on Zillow’s business model.  The real question is what agents plan to do about it.

The real estate community is about to get crushed, and mediocrity is about to get shown the door.  Soon, as an agent, your only options will be to get big, get good, or get lost.  Sadly, the vast majority of agents don’t have a clue what’s going on.  This is not going to be pretty for the 80% that reside in that fiefdom know as "average".

Telemarketers from Zillow hound me constantly.  I mean daily.  I receive five to 10 calls a week from sales reps in Seattle, where Zillow is based, telling me how my profile (lots of sales, great past client reviews) makes me the ideal candidate to grow my business by spending $1,800… $3,600… $5,400 per month on Zillow advertising. 

They want me to feed the beast.  I’m not ready to do it.

I run a trust-based business that emphasizes high integrity and personal relationships.  Over 90% of my business comes by way of direct referral from past clients and those in my network.  I don’t need or want to spend thousands of dollars a month for massive numbers of random people I don’t know funneled to me through Zillow advertising.  That feels like a trap door.

So I am doubling down on my existing relationships and past clients.  I am fortifying my network.  I am going to commit to those who have committed to me.  I am going to lean into my reputation and my competence to thrive while those around me are starved out of the business. 

I will live or die based on service and reputation, not by my willingness to buy advertising and market to strangers.     

For large numbers of agents, however, the wheels of doom are in motion.  If your past clients aren’t loyal, for whatever reason, soon it will be Zillow or die. 

Your options are to be great at what you do, or break out your checkbook and buy leads from Zillow. 

AN EMOTIONAL MARKET

If you have been shopping for a home in 2014, chances are you’ve got it all wrong.  Shopping is such a 2011 concept.  Today, it’s more like cage fighting.

With inventory hovering around 8,000 homes (down from 18,000 three years ago), double digit appreciation in many areas of town, multiple offers on anything worth having and an overall absorption rate of less than 1.50 months, buying a home has lost its joyful luster.   It reminds me of the scenes you see on the news, with desperate shoppers fighting over the last can of soup in the grocery store hours before a hurricane hits town. 

One result of this inventory-starved market is that logic is out, and emotion is in.  If you’re a logical person (i.e., accountant, engineer, or anyone who has ever balanced their own checkbook), there is no guarantee of success here. 

Because in an emotional market, it’s not who has researched it the most… or who has analyzed it the most… or who has compared automated valuations on 12 different websites.  It is whoever WANTS it the most, and that’s a different deal altogether. 

Here in Denver, we have transitioned from a dead market (2009), to a fear-based market (2010), to a logical market (2011), to a healthy market (2012), to a hot market (2013), to an emotional market (2014).  Again, it’s tough to win with logic when emotion sets the bar.

There is only one thing that keeps me from getting panicky about the price appreciation and future prospects for our market, and that is the fact that virtually all buyers still have real down payments and excellent credit.  But the fact remains that most buyers today are pricing in a premium for projected future appreciation when making a present-day offer.  

The good news is that history shows that buyers with verifiable employment, real down payments and excellent credit are in it for the long haul.  Buyers with no money and no credit used to be called “subprime”.  Today, they are called “renters”.  And as long as the banks can resist their jittery urges to throw open the vaults to the masses as they did a decade ago, I think we're still okay going forward.

All to say, navigating this market has become infinitely more difficult for buyers, and the turbulence is affecting sellers as well.  The number of deals crashing and burning after going under contract is definitely on the rise, because emotional buyers also tend to be emotional at their inspections, and emotional about their appraisals, and emotional about the hard line many sellers are taking on repair requests and any other form of concession when there are a pile of other offers sitting on the table.   

And with the number of traditional “move up” sellers way down (due to higher rates and prices, and the fact that everyone who refi’d in 2012 and 2013 is eternally addicted to their new low payments), a much higher percentage of listings are coming from investors cashing out by dumping bargains they picked up during the downturn and estate sales, which often have years of deferred maintenance. 

Success in this market begins with a decision… am I in, or am I out?

If you are in, then suck it up and realize that this is going to be work.  It may take time.  It will involve frustration.  The deals are not what they were a year ago, and look nothing like what they were five years ago.  But if you can keep your eye on the prize and be decisive when the moment arrives, you’ll survive, and a year from now, chances are you’ll be glad you took action when you did. 

If you aren’t sure if you want to be in, then you are out. 

If you don’t know if you are in or out, you are out.

And if you are out, you will probably be out for a long, long time.  Because homes don't appear to be getting any cheaper and rates aren’t going any lower.   

ARE SELLERS OVERPLAYING THEIR HAND?

Here’s a truth I have learned over 20 years in real estate, and through 47 years of life. 

When everyone is selling, it’s normally a good time to buy.  And when everyone is buying, it’s normally a good time to sell.

I don’t know why this concept is so hard for people to understand… actually, yes I do.  It’s the bipolar cousins, fear and greed. 

Buyers were fearful of taking action in a dead market, and so they sat on the sidelines in 2008 and 2009 and 2010.  Today, the people who shook free of their fears and took action are sitting on sizable piles of equity.  All the new buyers I meet with these days universally lament not taking action in 2008 or 2009 or 2010, and can usually provide at least five or six good, thought-out reasons why the timing just wasn’t right for them back then.

Today, it’s sellers who don’t want to play ball.  And, in many cases, frankly, it’s greed that’s holding them back.  In a hot market, with the roller coaster still on the way up, nobody wants to cash out too soon. 

But here’s what I know, having lived through it in two other significant downturns.  If and when market conditions change, it will happen fast.  And suddenly everyone who has ever considered selling their home will have signs up in the yard within about a week. 

The overall price trend in Denver is up, and I expect it to stay that way, especially at the lower price points.  There is a supply-demand issue here that is totally out whack. 

But one reason for the supply-demand imbalance is that lots of kinda-sorta motivated sellers are sitting on the sidelines, counting their growing equity and waiting for “a better time to sell”, as in when their home is worth even more money than it is today.

The only problem with trying to ride the roller coaster all the way to the top is that you only know you’ve reached the top when you’re already on the way back down.

As I said, based on low rates, a strong and growing regional economy, rapidly rising rents, no shortage of transplanting out-of-staters and zero construction between 2007 and 2010, we’ve got a market with far more buyers than homes for sale. 

But builders are building.  Apartments are going up everywhere.  There are huge corporate forces trying to cash in on Denver’s booming economy while the supply-demand imbalance remains acute.  Increasingly, if you are selling or renting a home, these corporate bombers will be your competition, and they have deep, well-funded pockets. 

If conditions remain generally the same, if it’s sunny and 78 every day, if foreign governments behave with civility in our globally-connected world, if people continue to feel positive and optimistic about Denver’s economy, if Peyton Manning remains injury-free... then continued housing price growth is a safe bet. 

But the world is a dynamic place, and change happens.  Should some unforeseen event change that outlook, then watch out. 

Because at that point, a whole bunch of kinda-sorta sellers currently fiddling their thumbs will jump into the game, and fast. 

And it’s a lot easier to sell your home for top dollar and minimal hassle when there is one “For Sale” sign in the neighborhood, instead of 10. 

This may or may not be the best time ever to sell a home.  But it’s a good one, and an awful lot of people are sacrificing a good opportunity in hopes of perfectly timing a market that may not give much warning if conditions ever cause it to go the other way.