THE SIX MONTH RULE

I showed a home on Monday that was listed three days earlier for $219,000.  Good neighborhood, clean property, updated with a newer roof, newer windows, and a new furnace in the basement. 

The sellers weren’t looking at offers until noon on Tuesday, so we were still okay on timeframes. 

The problem with this house, at least from my perspective, is that it was simply too obvious.  These days, if there is nothing blatantly wrong with a house and the price is anywhere close to reasonable, especially at the lower price points, a bidding war is simply a foregone conclusion. 

And so as we turned the corner and walked into the kitchen, there they were… 31 business cards from 31 different agents.  I called the seller’s agent to get the scoop – 14 offers in hand, and counting.  Multiple all-cash buyers. 

“If your buyer can’t waive the appraisal clause,” she said, “don’t bother.”

And there you have it.  The story of the Denver housing market in 2014 for buyers under $250k. 

It’s demoralizing, really, whether you are a buyer or an agent.  The fact is that 31 agents (at least) showed this home before I got there, 14 of them wrote offers, and in the end… one gets a paycheck (but only if his buyer is all-cash or willing to waive the appraisal clause).

For all the good news you hear about the Denver housing market, there’s another side to it.  And that is the high number of agents (especially buyers’ agents) who are literally being starved out of the business by the amount of competition in pursuit of limited inventory.

When markets get crazy and emotional (like this one), bad behaviors become more common.  While most agents have integrity and strive to do the right thing, not everyone plays by the rules.  

This leads to some agents lying about cash offers, some agents lying about their buyers’ (supposedly) strong motivation, some agents making up stories about why this house or that house is “the one” for this buyer.  Some agents will say their buyers plan to take the home “AS IS” (if it’s not written in the contract, don’t assume it is so), some agents will say their buyers have mom and dad on speed dial if the property doesn’t appraise, and so on, and so on, and so on. 

It is a good listing agent’s job to verify all of it.  Verify the down payment funds, verify who the lender is, verify the buyers’ story, verify the agent’s production history, verify where the money is coming from if it’s a cash deal. 

Here’s what I know, based on 20 years of doing this:  when the agent wants the deal more than the client, you are in trouble. 

If you are planning to buy or sell a home, I think you need to pay attention to this. 

Does my agent have the integrity and resources to look out for my interests, or is my agent simply desperate for a deal – any deal - so he can make his next car payment.

I’ve thought about this a lot, and I really believe if your agent doesn’t have six months of cash reserves in the bank, you may want to consider walking.  Seriously.

Now I don’t know how easily you are going to be able to verify this, or if your agent is going to be willing to drive over to Wells Fargo with you this afternoon and have the teller print out a balance receipt in your presence, but I am not kidding around.  Agents/people with no money do desperate things.  Agents who don’t sell houses do desperate things.  People living beyond their means do desperate things.

A license doesn’t guarantee ethics.  A lack of ethics increases that odds you eventually won’t have a license, but a license itself simply means you are clear of felony convictions and you passed a test.  That’s not the same thing as ethics. 

“Does this agent want the deal more than I do?”

That’s the question you need to ask yourself.  If you can’t answer it or aren’t sure, you need to back away, fast. 

Buying or selling a house is a big deal with serious financial consequences.  If your agent can’t afford to think about your needs first, you are in a bad spot. 

If asking for a bank statement is too uncomfortable, then simply ask the question:  Do you have six months of cash reserves in the bank to get you through the down times in the market? 

Maybe you want to require 12 months.  Heck, maybe 24 is your number.  Go crazy.  See what your agent does with the question. 

But take it seriously, and don’t automatically count on others to have your back.  However you choose to do it, make sure the people who say they are on your team are actually on your team.

CALLING OUT THE SELLERS ON THE SIDELINES

Hindsight is always 20/20, and one day soon everyone will have this market figured out and it will be plainly obvious that we were supposed to be buying… I mean selling… I mean digging a bomb shelter in the backyard (hopefully wrong on that last one). 

No one really knows what tomorrow holds, but the one thing you can bank on is that no set of conditions lasts forever.

A few weeks ago, I wrote a very well-reasoned article entitled “Are Sellers Overplaying Their Hand?”.  Of course, since no one is selling right now, I’m guessing no one read it.

But I’ve been thinking about it a lot, because I’m highly frustrated with the number of sellers who do seem to be quite comfortable overplaying their hand, to the detriment of buyers but also quite possibly to themselves. 

As I share with my clients, while I can provide all the data, reports, insight and historical perspective of 19 years in real estate… ultimately, decisions are yours.  And no one wants to sell right now, because prices are going up.

"I’m getting rich by not selling,” people seem to be saying, “so why would I change course now?”

As I said, no one knows what tomorrow holds.  But here’s what I do know.  An awful lot of people with reasons to sell are not selling.  For example, I have a client whose mother died almost a year ago.  She lived in a little ranch home in Denver which she owned free and clear, and rather than rent it out (headache, in the mind of my client), they are just sitting on a vacant home and watching its value go up $2,000 per month or more. 

Easy money.  "Why sell?"

The concept of social proof is an important one to understand.  It’s pretty simple.  People take cues from those around them.  Robert Cialdini has written an amazing book that talks about this called “Influence: The Psychology of Persuasion”.  It’s one of the best books I have ever read and I strongly recommend it.

In real estate, it works like this.  When there are lots of buyers in the market, everyone wants to buy a home.  These new buyers are validated by all of the activity they see, so they follow the herd.

But it works the other way as well.

Right now, inventory remains near an all-time low and sellers are stubbornly refusing to put their homes on the market.  As I referenced earlier, there are people literally holding vacant homes off the market because they feel it’s more profitable to pay property taxes and holding costs on an empty home than it is to sell it in a hot market and potentially miss out on more appreciation.

One day, interest rates will rise.  In fact, last week, rates took their biggest one day jump in six months.  The Fed has announced that it is getting out of the mortgage bond-buying business by the end of the year.  The economy in many parts of the country is doing well, if not flat-out surging (like in Denver).

Wall Street is hanging on every word coming from the Fed, as more and more people think rate hikes have to be coming soon to slow down an economy that truly is performing at a much higher level than two or three years ago.

When rates go up, affordability falls further, and buyers will think longer and harder about whether they really want to pay 20%, 40% or even 50% more than the guy next door is paying for the same house just because the guy next door took action three years ago, when prices and rates were both crazy low.

At that point, whenever it may happen, the market will begin to tip.  And when people start to feel this shift taking place, every vacant house being held off the market will suddenly have a For Sale sign in the yard within about a week.  I have seen this phenomenon before (California, 2005) and it is predictable. 

When will this happen?  I don’t know.  But will it happen?  Yes.

Now I don’t see values crashing.  Not when all buyers have real down payments, real jobs and real credit scores.  But 10% appreciation is not sustainable.  There will be a slowdown, which is why it is so important for buyers to hunt for value, even if it means being extra patient.   

But sellers need to recognize that the wind is at their back, right now.  This is the easiest market to sell a home in since Denver was part of the Territory of Kansas 150 years ago (or something like that).  You want to sell when prices are up, buyers are plentiful, and (most importantly) when there is little or no competition.  

To those sellers sitting on the sidelines, I say… your window of opportunity to sell for top dollar is wide open.  But when it closes, I believe it will close faster than you think, and lots of sellers who have overplayed their hands will be stunned to learn that not every home sells in a week, with multiple offers, over list price.  

DELUSIONAL PRICING

Long, long ago, like a year ago, the Denver real estate market was still a relatively sane place. 

Yes, it was a hot market.  Buyers far outnumbered sellers.  Prices were clearly rising. 

But because Denver remains a place where very few agents actually KNOW the numbers, our market has often been moved more by myth and rumor than by factual data.  And there’s a lag time to people figuring out what is actually going on, because there is zero “reporting” in the local media, just the lazy regurgitation of press releases from real estate companies and interviews with the same pod of talking-head industry insiders and DU professors who may or may not have any idea what is actually happening at street level.

After three years of solid, consistent recovery, however, we moved into new territory this spring.  Overheat mode.  Basically, everything that wasn’t falling down suddenly had multiple offers.  Hideous homes that had no prayer of selling three years ago went under contract, often “as is”.  For good homes, multiple offers became an expected norm, appraisal clauses were waived and buyers agreed to anything short of auctioning off their children in order to land a desirable piece of real estate. 

Even though the market began its sharp turn three years ago – and you could see it, if you actually tracked and followed real numbers – because of this lag time between what I will call “street knowledge” and “mass audience knowledge”, buyers could still find value. 

Many sellers felt it was still a buyer’s market, even when it wasn’t.  Many agents had no idea that they could price listings $10k, $15k or $25k over the most recent comp and sometimes actually get it.

So value lingered, even after the market had clearly moved from a buyer’s market to a seller’s market.

But that advantage only lasts so long. 

The good news, in Denver, is that the lag time wasn’t a few days or a few weeks.  I would argue it was a year or more before word fully got out that the buyer’s market had ended and a brave new era of seller-domination had begun.

Today, I am sad to report, the seller’s market is no longer a secret.  Even the most reclusive, disengaged, off-the-grid sellers knows buyers are everywhere and nothing is for sale.  And that means we have entered an era where delusional pricing is an increasingly common reality.

What is delusional pricing?  In my mind, it’s any home listed more than 10% over the most recent comparable sale.  If the last sale in your neighborhood of a model match was $300,000 and you price yours at $315,000, that's defensible.  If you price it at $330,000, that’s delusional.

And delusional pricing is now everywhere.

It’s not helped by desperate agents who have no listings and are sick of working with buyers.  Agents who fall into this category will say anything – anything – to get a listing, even if it’s $25,000 or $50,000 overpriced. 

What these agents know is that either, a) maybe somebody is desperate enough to waive their appraisal clause and pay the big number, or b) although it may be uncomfortable and take a few months to beat the seller down on price, eventually the home will sell.

It’s hard to compete against these tactics, which is what they are. 

I always tell my sellers that advising is my job, but pricing is their job.  It is, after all, their home.  I will show them comps, give them suggestions on how to prepare it, help them stage it, professionally photograph it, digitally market it, proactively engage with agents and buyers, creatively and skillfully negotiate contracts, and fight like crazy to get the best possible outcome… but pricing it is their call.

Within reason.

I believe that in a hot market, time is too valuable to let crazy people take over your ship.  If a home is worth $400,000 and somebody wants to list it for $425,000, that can be done.  Leave room for the market to come to you, but don’t be crazy. 

But if the same seller wants $475,000, I’m not interested.  Somebody else can take the punishment.  There are enough other motivated people in the market that you don’t have to hit yourself in the head with a hammer for six months to close a sale, with a broken relationship and unkept promises as your transactional legacy. 

Now every listing is unique.  Just as in life, some people are reasonable and some people are not.  There are good agents and lousy agents.  There are ethical people and there are people who think taking advantage of others is part of the game.  This is why it's really important to assemble a team of people you trust to help navigate these waters.

As a buyer, if you find a home that’s priced reasonably and you have faith in the market, then by all means get in there and swing hard.  Being on the sidelines is costing you money.  The median home value in Denver increased by $74 per day last year, with similar numbers likely this year as well.  Every day you continue to rent, you are paying someone else’s mortgage while your future mortgage becomes more expensive.

For you, time is money.

But if the pricing is crazy, you don’t have to play along.  Put a red line through it.  Wait for something else.  Be proactive and knock on some doors.  Try another neighborhood.

The problem with delusional pricing is that it feeds upon itself.  When Neighbor Smith sees that Neighbor Jones listed his $250,000 home for $325,000, Neighbor Smith now believes his home is worth $325,000. 

That’s wrong.  Your home is worth what a ready, willing and able buyer will pay for it.

Delusional pricing is like a cancer that gets into the market, spreading false perceptions of reality and emboldening others to become delusional.  That’s one of the maddening themes of 2014, especially over the past few months. 

A list price is not a sold price, and wishing won’t make it so.  

A MARKET THAT DOESN'T EXIST ANYMORE

Let me put one thing out there, right off the bat.  In 2014, my average closed sales price is $331,000.  I’ve closed a half-dozen sales of $500,000 or higher, and I’ve sold nearly $8 million in real estate so far this year.  I’m very happy with my mix of clients, and I successfully help people at all different price points.

Having said that, I don’t make decisions about who to work with based solely on price.  Because my business is 90% referral-based, relationships are the true currency of my business.  And so I make decisions about who to work with based not just on commission potential, but also on my assessment of the person I’m talking to and whether or not I can actually help them.

Yesterday, I spent nearly two hours in dialog with a referred prospect who wants to buy a home on the west side of town.  All good, except he wants to keep his principle and interest payment under $1,000 per month. 

The problem with that, when you run the numbers, is that the payment he’s looking for equates to a purchase price of about $200,000.  And that, unfortunately, is a market that doesn’t exist anymore.

Here are the facts.  Denver is as hot a real estate market as there is in the country, and it has been for two-plus years.  Active inventory – currently about 8,700 homes in the metro area – is down a whopping 17% from a year ago, down 48% from three years ago and down 72% from 2007, when there were more than 31,000 homes listed for sale in the Denver MLS.

Transactions are up.  A lot.  Over the first eight monthly reporting cycles of the year, there have 47,516 homes to go under contract in the Denver MLS.  During the corresponding period one year ago, there were 41,383.  That’s an increase of 13%.

If you go back to 2011 and measure contracts in the same period (26,155 vs 47,516), the number of contracts in the first eight months of the year is up 81%.  That's frenzied.  

Here’s what it means.  When inventory isn’t there, and buyers are everywhere, prices go up.  We’ve had no inventory, by the standard of historical norms, for two solid years.  And with inventory nosediving once again in August, down 17% YOY, market conditions appear to only be getting tighter. 

So there’s less for sale, prices are already up significantly, and guess what… buyers are still kicking down the gates trying to get into the market.  What’s happening here is not, and has not been, a small deal.  It’s huge, so huge and ongoing that Denver is rapidly becoming a “high cost” market.

As I wrote a few weeks ago, a major factor in this is the Fed’s intervention into the bond market since 2009, which has created artificially low rates that have made refinancing an obvious choice for anyone (especially in 2012-13) with equity and a job.  The net result of that intervention, a policy the Fed will terminate by the end of this year, is that we have a generation of recently-refinanced homeowners who are addicted to low payments, which is what you get when your monthly payments are based on a 3% or 3.25% or 3.50% mortgage for the next 30 years. 

For these people, selling and moving up makes little sense now, because they will be hit twice… once with a higher interest rate, but also with home values that have gone up 20% or more.  For many of them, adding an extra bedroom or picking up a larger yard would recast their existing payments upward by 45% to 60%, and that’s just not worth it.

“We’re not going to list, but do you know the name of a good contractor?  We want to finish the basement.”

So these people simply aren’t selling, and that’s making our price escalation even more dramatic.

The gentleman I dialoged with yesterday is a nice guy.  Thoughtful, intelligent, trying to do the right thing.  But the bottom line is I don’t have the ability to go back in time.  Try as I may, I cannot find a magic wand.

The search I ran for him yesterday… 3/2 single family detached homes, under $200k, in Littleton, Lakewood, Wheat Ridge, Morrison, Golden, Arvada, Broomfield or Westminster… turned up eight homes.  Eight.  How awful must those eight be to linger on the market when five years ago, there would have been 200 or more sub-$200k homes for sale at any point in time?

You can say you want to buy a fixer, you can say you are willing to do some work, I hear it all the time.  Until you walk in and there’s standing water in the basement, holes punched in the drywall, pet urine in every square inch of carpet, mold growing in the closets and foundation cracks in three of the four walls. 

Then, suddenly, most people reconsider this romanticized vision of "buying a fixer".

I went back and ran some amazing numbers to demonstrate for this prospective buyer how dramatically things had changed.

Between 2008 and 2012, over a five year period, I personally helped 64 buyers purchase homes in the Denver metro area for less than $200,000.  That's more than 12 per year, on average.  Then in 2013, the number fell to four.  This year, I’ve had one buyer successfully purchase a home for less than $200,000.  One.

I’ve had several others who thought they were in the market to buy, only to chase after fleeting inventory for weeks or months, constantly beaten out by investors or cash buyers (or those armed with the resources of The Bank of Mom and Dad), before eventually capitulating and signing another lease or moving back in to their parents’ basement.  For them, game over.

The era of sub-$200,000 house in Denver is a thing of the past.  It lasted for a hundred years, but in 2013, the clock finally ran out.  Today, $250,000 is the new $200,000.  If you can’t write that check, then you may want to start looking for a roommate.

The next big booms are coming in the outlying areas… the Firestones, Daconos, Brightons and Strausburgs.  Places where, if you’re willing to drive and take on projects, you might still have a chance for less than $200k.

But the game has changed, and if you didn’t get in when you had the chance, the window isn't  just closing, it's almost nailed shut. 

This isn’t the Denver you grew up in or knew even 10 years ago.  It’s a bigger, more sophisticated, wealthier, increasingly metropolitan place.  It’s drawing people from everywhere, but especially from California, where high taxes, crummy schools and ridiculous home prices are driving people toward saner places. 

Places where the sun shines bright and there’s lots to do.  Places where there are good jobs and plenty of opportunity for anyone who is willing to work.  Places where it’s possible to enjoy an amazing sunrise or a remarkable sunset almost every day of the year.  Places like Denver.

Places like that are really awesome places to live.  They just don’t have homes for less than $200,000 anymore.

RISING ABOVE THE DRAMA

I closed a deal last week that had an interesting twist… well, actually, it was something more than that, but I prefer to think of it as “interesting”.

For the second time in four years, I went to a routine walkthrough en route to a routine closing only to find that the house had been stripped of all its copper plumbing the night before settlement.

The home in question was an estate sale in Wheat Ridge, vacant for probably three months before it hit the market in July.  My client put it under contract on the first day it hit the market (which is another story, because we wrote some very creative provisions into the contract that ensured we would have it under contract within hours of going on the market), it inspected cleanly, and we were scheduled to close just 21 days after our offer was accepted. 

Closing was scheduled for Friday, so on the preceding Sunday, I went to the house just to make sure all was calm and quiet.  No problems, all was well.

On Friday morning, I met the client at the house one hour before our appointed closing time.  As soon as we opened the front door, we knew there was trouble.  Broken glass on the carpet.  The thick, rotten egg smell of natural gas.  And then, looking into the kitchen, water on the floor. 

I stepped outside and instructed my client to do the same.  I took a deep breath and went back into the house.  Quickly, it was apparent what had happened. 

In the utility room, the water heater had been removed.  The copper from the walls had been cut and stripped.  The water heater had been drained on the floor, all 40 gallons of it, flooding into the garage and rolling out the back door on to the patio. 

In the bathroom, we found the same thing.  Copper lines stolen, those running to the sink as well as those running to the tub and shower.  Ditto for the kitchen.

This, as I mentioned, is the second time in four years I have had copper stripped from a vacant home on the way to closing.  Previously, I had had another bank-owned home stripped, which resulted in about a four week delay before the bank finally had the home re-plumbed, allowing us to close.  So I had walked this beat before.

My 19 years in real estate has not been without occasional drama.  While under contract, I have had appliances stolen from vacant homes, hail storms that destroyed roofs, kitchen fires, broken windows, floods, buyers who lost jobs… not to mention the usual fare of tax liens, low appraisals, financing crashes, inspection objection disagreements, and sellers who have suddenly decided they didn’t want to sell after executing a contract obligating them to do exactly that.   

Every agent handles adversity differently.  Some project that emotion right back at everyone else in the transaction (bad idea).  Some make threats (bad).  Some drink or do drugs (bad).  Some quit the business (yes!).

As for me, I’ve come up with one strategy that usually allows me to keep going.  Rather than looking at anything as “good” or “bad”, I simply view everything that happens as “interesting”.

So when we walked into a stripped house one hour before closing, I didn’t panic.  I didn’t cry.  I didn’t get angry.  I simply said to my client, “This is...interesting.”

Then I took a deep breath (literally, outside), and evaluated the situation.  The copper has been stripped, the water heater has been stolen, the house is full of gas.

Deep breath.

Call the police, call the seller’s agent, get Xcel out to shut off the gas.  Call the lender, call the title company and let them know we won’t be closing today. 

Talk to my client, tell him it’s all correctable, and with some focused effort, we’ll get to the closing table in a week.  He’ll get a new water heater (upgrade).  He’ll get new plumbing (upgrade).  We’ll have a fire and flood company remediate the water damage. 

There's no basement, just a crawl space.  That helps us.  No water downstairs.  No ancillary damage.  

With any luck, we’ll get the seller’s insurance company to foot the bill. If not, we’ll negotiate our way to a solution.  It will be… interesting.

We did get full repairs done inside of a week, in part because we had a terrific agent on the other side of the deal who also took ownership of the challenges.  My client had a great attitude about it as well.  We all focused on solutions, and so that’s what we got.

You never what tomorrow holds in real estate.  There are big wins.  Demoralizing losses.  If you’re competing at a high level, there are going to be up and downs.  You have to be careful with that roller coaster, because it’s more than a lot of people can handle.

By keeping things “interesting”, you learn to park your emotions outside and focus on solving problems.  Effective agents solve problems.  They don’t get caught up in drama.  To make it for the long haul, you have to rise above it.

THE NEW BULLIES ON THE BLOCK

The recent proposed merger between Zillow and Trulia is a game-changer, in my opinion.

While the average buyer or seller on the street might not give it much thought or understand its ramifications, as someone who has been in the business for two decades, to me it represents the beginning of the end for traditional real estate brokerages.

The reason for this is that, for the past decade, NAR and real estate brokerages all over the country have been pouring millions of dollars into building brokerage-centric websites, trying to capture eyeballs and, ultimately, business from the ever-expanding pool of consumers who are searching for homes online. 

Those fat costs have been passed through to agents, both through higher Realtor dues and larger franchise and brokerage fees.  Agents, in effect, have shouldered the cost of experimentation as brokerages built sites focused on the BRAND, not the CONSUMER.

What Zillow has skillfully done for the past eight years is build a consumer-centric site, or at least what appears to be a consumer-centric site.  What Zillow has done is create value for the consumer, with a massive online data platform that went soft on selling and big on educating. 

Exactly what the consumer wanted.

Meantime, brands and brokerages built sites that screamed “CALL US!”, “CLICK HERE!”, and “REGISTER FOR MORE INFORMATION!”, but which should have said “LET US HAVE OUR AGENTS PURSUE YOU UNTIL YOU BUY OR DIE!”

Don’t kid yourself.  Zillow has been selling, too.  They have just taken a more subtle approach, and because they are not directly affiliated with a single brokerage, it has been harder for the consumer to see their motivations.

What Zillow always wanted was the eyeballs, and over time they got them. 

Now it’s time to leverage that traffic.  It’s time to cash in.

The merger between Zillow (#1 in online traffic) and Trulia (#2) means that “God-Zillow”, “Zoolia”, “Trillow”, or whatever you want to call it… will have the resources and leverage to deal directly with agents in terms of selling advertising and, ultimately, leads.  Brokerages have been cut out of the loop. 

If Zillow and Trulia become the most important suppliers of leads to you as an agent, then what value does your brokerage offer? 

This is where it gets dicey for the big brands.

I love the RE/MAX brand and what it stands for.  I love that RE/MAX has set up a model that rewards agents who sells houses, and drives unproductive agents out of the system.  I often tell my clients that RE/MAX is like the “New York Yankees of Real Estate”, able to bring in the best talent and most proven agents because of their unique compensation model which works ONLY if you are selling large numbers of houses.

But if Zillow and Trulia control the online world, why should agents write fat checks each month to brokerages who will continue to spend that money chasing after table scraps?

Now fortunately for me, the core of my business has been and always will be referral-based.  90% of my business is by direct referral from past clients and networking partners or from people who discover me through this blog of from my online reviews.  I don't need to be "fed" leads to survive, but it does matter to me since I am being asked to write checks each month to support the pursuit of people I will probably never work with.  

So if Zillow and Trulia are the new power brokers of online traffic, the value of the individual brokerage has been greatly diminished.  Which means that there is a huge opportunity for a low cost brokerage with good technology to become a major player rather quickly. 

As I said at the beginning of this post, this is technical stuff and the consumer may or may not see the ramifications.  But it’s a game-changer for those of us in real estate, because increasingly, agents without strong referral bases are going to have to decide if they want to spend their money supporting a dying brokerage model, or spend their money buying leads from the new bullies on the block, who become increasingly empowered every time another agent signs an advertising contract.  

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.