Author: Brian Brady (page 26 of 27)

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

I interviewed Lenn Harley of Homefinders.com, a buyer’s brokerage in Maryland and Virginia (DC suburbs). Lenn is one of the true pioneers in online real estate brokerage. She figured out the power of internet marketing for real estate services while redfin.com’s Glenn Kelman was marketing data servers and zillow.com’s Lloyd Frink was convincing Bill Gates to get into the travel business.

I bring this up not to discredit Messrs. Kelman and Frink but rather to highlight the gutsy business model Lenn pioneered. If Time Magazine dubbed 2006 as the year of “YOU”, then Lenn Harley has been one of “YOUR” facilitators for the past thirteen years.

Lenn, why don’t we start off with a recap of your career. You mentioned that you built your business on “in-house relocations” at a big brokerage then struck it on your own when you discovered the power of the internet.

I was an analyst with the government specializing in FOIA review. Following that, I operated a title company in conjunction with a local law office. When I started real estate practice, I found that I preferred working with buyers, contrary to the 1980’s mantra of list, list, list.

In 1994, I left the mega-broker to practice buyer’s agency. I generated sufficient business for a comfortable income but I was missing the relocation buyers because I didn’t have a “relo” connection. Then, one day with the TV in the background, I heard an interview with an attorney who had a “website”. It was like an epiphany. I thought, “THAT is the way to appeal to relocating home buyers.”

I started to “study” the Internet in mid-1994. In early 1995, I took a few “Introduction to the Internet” courses and by March of 1995, I was ready. I interviewed web design companies and hired one to design a web site for me. I had my first Internet settlement, a civilian army employee relocating from Germany to Andrews AFB in Maryland by the end of the year.

So, it worked?

Brian, I just “love it when a plan comes together”

Were there fears or trepidations or were you confident in your strategy?

There was Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

As an would be Money-Geek, I hosted a little competition. The hounds represented.
Michael Cook wrote an analysis of the pricing of real estate “options” dismissing a parallel to the Black-Sholes options pricing model in favor of the binomial pricing model (probablity analysis). VERY econo-geeky! I loved it!

Greg Swann walked us through the trickle-down of a commission dollar as it withered away but built a mountain. QUITE econo-geeky and pleasing to my calculator.

The judges opted for a “twist” on the agent-broker compensation agreement; one blatantly worthy of victory.

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

I have two great interviews coming up this week; I think you’ll enjoy them. The interviews are with real, honest-to-goodness BROKERS.
Lenn Harley is an agent in the DC suburbs and runs a firm called Homefinders. I’m reading background about her now and her story about how she became one of the original “internet brokers” is compelling.

Sharon Simms is an associate broker with RE/Max in St Petersburg. FL. She started her real estate career at Merrill Lynch Realty (remember that experiment?) . She manages a team of agents (including her daughter and son). Her post about how architecture makes neighborhoods shows that she is hardly another licensed hack banging on doors.

I’ll be asking them both questions this week. Feel free to add any that you might have for them in the comments box.

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

I am hosting my own little contest over on Active Rain. You should have a pretty good grasp of economics should you expect to win.

You have to be a member to play but membership is FREE.

I’m even giving away a prize.

This commercial is over. Back to our regularly scheduled programming.

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Everyone loves to point to California as the prime example of the excessive greed of the recent real estate boom. Media, bubble bloggers, and pundits predict that California will plummet to new lows and bring on a lengthy recession akin to the Great Depression. Even home-grown and respected PIMCO of Newport Beach predicts a heavy fog for the state’s real estate forecast.

Here are a few snippets about the “rising” real estate boom extracted from the Kiplinger California Newsletter:

Evanisko Realty and Investment plans an urban living project with 58 loft-style condominiums targeted at young professionals. The North Hollywood (NoHo) project will be called 4900 and is a conversion from an old theater and auto parts store.

OWR Development is planning 3000 The Plaza, a 200-unit condo tower project near the John Wayne Airport in Orange County. This is the first “urban living” high-rise project in Orange County.

Summerhill plans an urban living condo project at the site of the former Lou’s Village in San Jose. They plan 95 units with 10% of the units having a live-work capability. They expect the price point to be in the mid $600,000 range.

The Sheraton Palace Hotel in San Francisco plans to build a 60 story condo complex ON TOP OF the hotel. There will be over 250 units.

The Towers on Capitol Mall in Sacramento is a 53 story mixed use project with over 750 condos, a four star hotel, and retail space.

The Downtown San Diego condo boom may be over but don’t tell it’s little neighbor to the south, National City. The little municipality plans over 4000 units. Prices could be as low as under $200,000.

How can this development persist in a real estate market that all experts predict to plunge? The simple answer is that demographics are on California’s side:

1- Population still grows here statewide at a 1.5% annual clip. Now that may seem like anemic percentage growth compared to Nevada and Arizona but look at the astounding number of people moving to the Golden State. California enjoys a net gain of some 700,000 Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

The 100%, desk fee model was made popular some 25 years ago by one HUGE national franchisor. There have been several companies that have adopted that model and had equal success. Essentially, the business model is along the lines of “rent-a-broker” for a flat fee per month. The term “rent-a-broker”, really isn’t fair because it implies that the designated broker isn’t supervising the transactions but I’ll use it for the sake of illustration.

The compensation proposition to the agent is that you get to keep 100% of your commissions and pay a monthly fee to the brokerage. There is an mutation of that model that charges a flat-fee per transaction but I think I’ll focus on the “rent-a-broker” model for this post. The best analogy for this model is one of a landlord and tenant. Like a property lease, there is a contract outlining the rights, responsibilities, and financial consideration expected from each party. In most markets with a median sales price of $250,000, the monthly “desk fee” would be approximately $1,000.

The broker/owner, really doesn’t have to provide much to the agent in terns of advertising or office space. Essentially, the only expenses associated with the brokerage would be the three administrative salaries and a small office space (with conference room and copier). I’ll pull the administrative costs from my post about the traditional model:

Let’s analyze the annual expenses. Receptionist, operations assistant, and sales manager salaries will total $130,000. We gross that number up 115% to include payroll taxes and benefits for a total of $149,500. This is a traditional model so you should figure on $12,000 for advertising. Throw in the rent and facilities charges of $75,000 for a 2000 sq. ft. office, $12,000 for supplies and $12,000 for phone/internet, equipments lease and we are approaching $260,500.

Some of the costs will be recouped by “a la carte” services. Five individual offices could be rented to agents for $1,000 per month and the supplies and equipment costs could be passed through to the agents. The real Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

I had a chance to talk to Mark Sennott, President of Home Gift, this week. Home Gift is an affinity marketer much like MBNA. MBNA started as a credit card marketing division of the old Maryland National Bank. Their model was to offer credit cards to alumni association members that were “branded” as the official card. MBNA then rebated a portion of their income to the alumni association. Joe College felt good about racking up the old debt because he was supporting State U.

It was a wildly successful idea. It was so successful that MBNA spun-off from Maryland National Bank in 1991 in a public offering.. They grew to a 12% market share of all credit card customers before being bought by Bank of America in 2005.

Enter Mark Sennott. His company offers a consumer access to a network of real estate agents and mortgage companies who are willing to “rebate” a portion of their fee to the consumer. Portions of that “rebate” are earmarked for a certain charity. Home Gift takes an administrative fee. It’s relocation company meets Redfin wrapped up in the warm and fuzzy blanket of philanthropy. Check out Mark at his web log. He’s passionate, engaging, and claims to be an avid reader of Bloodhound Blog (so he can’t be all that bad).

I found out about Home Gift some two months ago. I was trying to help a little Carmelite Monastery in Massachusetts make American Tower Company honor a contract. ATC found out that the land the monks bought for their monastery was the perfect location for a wind farm and pulled out of the sale. The monks are suing the cell tower behemoth for specific performance. I posted “Don’t Mess with My Monks” on Active Rain and was referred to Mark by the Prior of the Monastery.

Mark’s doing what so many real estate professionals deplore. He’s rebating fees to the consumer and charging a toll for access to the customer. Customers, however, like the idea. They deal Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Have you ever analyzed the business model your broker has? Try to run the numbers sometime and see just how much profit the owners(s) of your real estate brokerage really earn. I learned a lot about running a mortgage brokerage and real estate brokerage from 1999-2002. I’ve owned both and was successful with the former and a walking disaster with the latter.

Here is the deep, dark truth about traditional real estate brokerage as a business; it’s just not that profitable in its purest sense of practice unless (a) the broker produces (which brings up a whole host of issues) or (b) the brokerage is really HUGE. Let’s analyze the typical medium-sized brokerage (25 producers) in a typical American city ($250,000 median value).

There are A, B, and C agents. There will be five “A” agents who close 20 transactions per year or $5,000,000. Assume they average a fee of $7,500 per transaction. Each producer closes $150,000 in gross commission income (GCI). These producers generally command a commission split of 90%. This means that their gross contribution to the brokerage is $750 per transaction or $15,000 per agent annually. This translates to an aggregate GCI for “A” agents of $75,000.

There will be five “B” agents who close 10 transactions per year or $2,500,000. The average GCI per producer is $75,000. Now, they might command as little as a 80% commission split so the aggregate GCI translates to $75,500. We’re up to $150,000.

The rest are “C” agents who close an average of just 3 transactions per year. They will receive a commission split of 50%. So the aggregate GCI to the company is $168,750. Now we have total revenues to the brokerage of $318,750.

Let’s analyze the annual expenses. Receptionist, operations assistant, and sales manager salaries will total $130,000. We gross that number up 115% to include payroll taxes and benefits for a total of $149,500. This is a traditional model so you should figure on $12,000 for advertising. Throw in the rent and facilities charges of $75,000 for a 2000 sq. ft. office, $12,000 for supplies and $12,000 for Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Dustin Luther’s seminar was an excellent primer for the real estate professional who is contemplating web logging as a business tool. Mary McKnight from RSS Pieces, wrote that you should have already established your web log by January, 2007. However, if you’re the type that puts off the book report until the night before it was due, here are the Cliff Notes to Dustin’s Seminar.

The full podcast of the seminar is hosted by Rudy over at Sellsius. I believe he has broken it up into three parts.

The “4C’s” of the RE.net evolution:
1- Change: The “techies” decided that there was inefficiency in the pricing of real estate brokerage and attempted to disinter mediate; they found that more than “raw data” access was needed bu the consumer.
2- Communication: Real estate 1.0 was all about publishing, 2.0 is about communication with the consumer. RSS feeds, weblogs, and sticky websites are the solution.
3- Community: social networking sites and web logs are creating communities where you, as a real estate professional, want to be known as an “expert”.
4- Consumers: This movement is about the consumer and inviting them to a conversation online.

The way to invite the consumer to a conversation and create your online expert reputation is to:
1- Create a weblog
2- Post interesting content
3- Link to other sites
4- Leave lots of comments

He further outlined the steps to creating a web log, the steps to writing a blog post (along with an excellent analogy to composing an e-mail message), how to comment on other’s web logs, and how to create a link.

The second half was dedicated to more advanced ideas for creating communities. It was agreed (as it was in Phoenix at the Webloggers Roundtable) that Active Rain is an excellent place to learn how to create and write a blog post. If you are in the profession, and haven’t joined The Active Rain Real Estate network, do so right now. It’s free and you can click this link to join.

Dustin also showed us how to effectively use a feed reader. He demonstrated Google Feed Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Dustin Luther, Director of Interactive Marketing for Move.com gave an outstanding seminar today in Long Beach, CA entitled “Finding Relevance on the Internet“. Dustin offered something for both the upstart and the more advanced real estate blogger. In typical “LA fashion”, it was a star-studded event with real estate webloggers from all over the country in attendance.

Dustin’s presentation used examples of live weblogs. This picture is from the presentation as an example of “expert knowledge”.

We just love Dustin for that example.

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Do you want to look into the crystal ball through the eyes of Federal Reserve Chairman, Ben Bernanke? Will that help you predict mortgage rates and housing prices for 2007? I try to outguess the Fed all the time and I’ve decided that we’ll see a significant decline in short-term interest rates by YE2007.

The answer is usually buried in paragraph three or four of government reports. The economic benchmark that is oft overlooked is the nominal GDP growth rate. The nominal GDP growth rate includes the effect of inflation. Nominal GDP growth reflects the ability of the US economy to pay our debts. The Fed Funds rate reflects the interest the economy pays on its debt. When the two are imbalanced, runaway inflation or its opposite effect, asset deflation, occurs. When nominal GDP exceeds the Fed Funds rate, we have a capital surplus which leads to inflationary pressures. When nominal GDP is less than the Fed Funds rate, asset deflation occurs. Leveraged assets, notably stocks and houses, decline.

Let’s look at recent history to understand recent Fed activity as it related to nominal GDP. In 1990, 1995, and 2001, The Fed Funds rate exceeded nominal GDP; the economy wasn’t growing fast enough to service its debt. The Fed responded by slashing the Fed Funds rate to just under the nominal GDP to spur economic growth. This caused companies to take their money out of cash reserves (read: the bank) and into capital investment (read: plants, machines, equipment). That capital investment takes time so the Fed’s rate cuts take 12-18 months to have an effect. The Fed fine tunes the economy in a slow and deliberate manner, like the captain of an ocean liner.

The nominal GDP growth rate target for the Fed has been 5%. When it approached 7% in 2004, what do you think they did? They raised the Fed Funds rate 13 times in a two year period from a low of 1.0% to the present day 5.25%. That brought nominal GDP under control but it took 12-18 months for the economy to feel the effect. What happened in late Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

There is a movement to create a national licensing platform for loan originators similar to the one the National Association of Securities Dealers (NASD) requires for registered representatives.

Supporters of this movement claim that originators must be licensed because the quality of advice given to the consumer is woefully inadequate. Those supporters cite a need for background checks, testing for professional competency, and continuing education to protect the consumer against predatory lending and unsuitable loan recommendations.

Opponents of this movement,, most notably, the National Association of Mortgage Brokers (NAMB), claim that a national licensing platform is “fatally flawed” because federally-chartered banks and their subsidiaries are exempt from any regulation other than the Office of Thrift Supervision (OTS). They argue that while they support it in principle, unless the banks “level the playing field” , licensing is unfair to the independent originator.

I’m all for the national licensing, in spite of the controversy, but not for the reasons you might think.

Will national licensing reduce the number of originators out there? Sure it will. You can’t swing a dead cat without hitting an originator in Southern California today. Everybody has a business card with “mortgage” or “financial” in the company title. The consumer has never had the number of loan choices as she has today. Consumers know at least 2-3 people “in the biz” and that gives them choices. I support the effort to nationalize licensed originators because it will dramatically reduce my competition.

Will licensing protect the consumer? Everybody complains that predatory lending is driving up foreclosure rates. Foreclosure rates are well below that average (although they have significantly spiked from the historical lows of two years ago). The fact is that over 95% of the mortgagors are doing just fine. Should the consumer be denied choices and face rising costs to subsidize the fringe borrower in trouble?

Will educational standards increase the service offering to the consumer? Lending is becoming a specialized business with originators defining certain niches. The era of “generalists” is coming to an end due to the sheer magnitude Read more

by Brian Brady

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Mortgage origination is a contact sport. It’s retailing. It’s selling. Too many of us can get caught up in the irrelevant tasks that top producing originators simply refuse to do. Why do we fall into the task trap rather than be focused on dollar productive activities? We do it because it makes us FEEL productive and we want to appear to have value to our Realtor partners.

Let’s pretend that Russell Shaw was the National Sales Manager of the mythical Bloodhound Blog Mortgage. I listened to the three podcasts of Mr. Shaw’s interview and he didn’t say a damn thing (that you haven’t already heard). That is what was so inspiring about the interview. There is no magic pill that you need to swallow to become the next mega-producer in mortgage originations. You already know what you have to do; take lots of loan applications that have a high probability of funding. Listen to the podcasts and you’ll be as stoked as I am right now.

The first notable piece of advice I heard from Russell Shaw was to write down all the stuff you hate about the business…then…don’t do it. Pay someone else to do it. I laughed so hard at my utter stupidity. I was a superstar rookie originator because I refused to do the “paperwork”. I took good applications, gathered up documentation,, locked the rate, and said…NEXT. I let processors process, underwriters underwrite, and funders fund while I sold and looked for ways to sell more than the other guy.

How easy it is to forget all of the basics. Don’t like placing loans? Lay off this work on your wholesale lending reps. If they’re incompetent, don’t use them. I remember the day when they came to your office and actually competed for the business. You don’t like taking applications? Invest in a website with an online 1003 (about $50/month) and give away a free appraisal to applicants who use that function. Don’t like following the market daily? Read more