BloodhoundBlog

There’s always something to howl about.

Author: Sean Purcell (page 9 of 11)

Real Estate Renaissance Man

September 18, 2008

Alex, I’ll Take “Hypocrisy” for $800

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Real Estate Renaissance Man

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Numerous stories in the press the past two days regarding the government bailout of AIG as well as the various financial sector failures.  There were many talking heads and an even greater number of vacuous comments.  But one quote stood out among all others.  In relation to the AIG bailout, Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee said:

This is one more affirmation that the lack of regulation has caused serious problems. That the private market screwed itself up and they need the government to come help them unscrew it.

Thank God for the Nanny State.  Big-daddy government is going to ride in and “unscrew” all the problems arising from our lack of responsibility.  This would be the same government, I might add, that bankrupted Social Security with criminal accounting practices, finds 44,000 pages of tax code reasonable, considers limiting their spending to their income irresponsible fiscal management, thinks nothing of paying $600 for toilet seats and bases most of its really, really important personnel decisions – not on talent or ability – but rather a thorough investigation into a person’s opinions on abortion!

Hypocrisy, thy name is government.

September 17, 2008

Alex, I’ll Take “Irony” for $600

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Real Estate Renaissance Man

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The government is now in the mortgage business and the insurance business.  I am sure others will expound on the AIG debacle and all of its implications in due course.  I just wanted to point out the something that should make me laugh so hard it brings a tear to me eye… instead it just brings the tear.

Just before each financial giant goes down, there is a final blow.  One last lynchpin pulled that leads to the immediate cessation of breath for a company: the ratings agencies lower the company’s credit rating.  Standard & Poor’s, Moody’s, etc. take a look at the mortgage based assets the company is carrying, look at the write downs still to come and make an assessment on the credit worthiness of that company.  Once their rating drops they cannot borrow money at a cost that allows them to remain solvent and “a-begging they will go.”

Now that is the job of the ratings agencies and I do not begrudge them their responsibility.  Here’s the funny part though.  The failing, mortgage-based assets that are crushing these financial companies (and now an insurance company) were originally purchased, to a large degree, based on the credit worthiness assigned them by… wait for it… wait for it… these self-same ratings agencies!  Imagine the hubris of being so, so wrong in their primary mission of evaluating the creditworthiness of an investment vehicle, then lowering their evaluation of the creditworthiness of those companies that purchased the very investment vehicles they failed to correctly evaluate!  Talk about having your bread buttered on both sides. I know there is a great joke in there somewhere.  I am just too terrified to find it.

Welcome to the other side of the looking glass.

September 15, 2008

Programs for the Pessimist

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Real Estate Renaissance Man

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The latest news regarding Lehman and Merrill are not surprising.  Still, expecting an impending disaster and enduring a disaster are not the same thing.  For some, a pessimistic leaning may take hold and for you… I have great news.

In a recent article in the San Diego Union Tribune by syndicated writer Lew Sichelman, we learn about a growing business in refinance lending: the cash out, no interest, no payment, no loan… loan.   That’s right.  There are investment companies out there right now loaning cash against the equity in your home.  There is no interest rate and no payments because it is not a loan.  The company simply gets to share in any equity gain you experience between the time you receive the money and when you sell the home.

There are restrictions, including a kind of pre-pay penalty.  You can not sell the home for an agreed to time period (usually at least five years).  But there is also freedom: no restrictions on how you use the money.  The investment company shares in your appreciation and your depreciation.  Of course, if your home goes up substantially, the cost of the money you received can be exorbitant.  But you get use of frozen assets right now, which can be pretty handy.

Here’s the marketing gem in all of this: There are plenty of clients and prospects on the sideline right now, desperately wishing they could get in the game.  This is one of the best buying cycles I have personally ever seen.  The problem: they are house rich and cash poor.  Here is a solution and it does not add to their monthly budget or future debt-to-income calculations.  Show them how to get that “dead” money out their home and into an income producing property.

HIGHLIGHT: If you think housing is in trouble and things are not going to get better for some time, you can take your equity out now at a cost of: nothing.  When you do eventually sell you will still have to pay back the original amount but you will have gained no equity and so the “loan” will have been Read more

September 12, 2008

“Success” Sung in a High C

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Real Estate Renaissance Man

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In the discussions over how much a real estate agent gets paid, there is one aspect often left out: stress.  There is a lot of stress being a real estate agent.  It is probably the least definable aspect of a deal, yet I believe it justifies a large percentage of what an agent earns.  The problem for me is this: stress is hugely unhealthy.  My passion is health; lowering my stress level and the stress level of the agents I do mortgages for is of paramount interest to me and I am always on the lookout for new ways to do so.

The following is an excerpt from a book about a young man on a journey and the guide he meets along the way.  It reveals an interesting way of dealing with stress.

… I had been short-tempered and I was unhappy.  “I’m under a lot of stress” I offered by way of excuse, “and this trip isn’t reducing it any!”  The Guide turned and asked me if I knew the four C’s of diamonds.  A little confused, I nodded yes and began to recite “cut, color…”  “Understand” he interrupted with an impatient wave of his left hand, “people are twice as brilliant as any diamond and require half as many C’s to be happy.”  He sat down across from me with a sigh and rested his hands in his lap.  He reminded me of Sister Christine, my fourth grade teacher, who often gave the exhausted impression of someone sharing something obvious to her, yet so obviously new to me.  “You have only these: Congruence and Continuity.  Congruence is how well your inner vision of yourself matches the outer world you witness every day.  Continuity is when your thoughts and your actions and your interactions align.  Which is just another way of saying ‘Keep your word’ especially to yourself.”

The story continues on a bit about something called The Mirror Effect which, while interesting, would require too much space to cover in this post.

“Your unhappiness is a product of your stress and stays with you because you do not recognize the power of Read more

September 12, 2008

Notes from the Peanut Gallery

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Real Estate Renaissance Man

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I have been enjoying the fray caused by Greg’s post Wednesday inviting one and all to Bloodhound Unchained in November, as I am sure many of you have.  In the post Greg responds to some personal attacks by referencing the success he has had with his ideas.  Interestingly, the “Bloodhound Way” gets criticized, not on merit or content, but rather volume.  Interesting logic that.  Confusing volume with validity is common among common people.  I used to work with a mortgage broker whose office spent $150,000 per month on lead purchases and generated many hundreds of thousands more in gross income.  It was a poorly run, poorly executed operation that succeeded on sheer size and volume.  Was this a valid way to do business?  Numbers don’t lie.  Does his success invalidate the one-man office who uses localism, innovation and advanced marketing skills?  Hardly.  (Side note: can you guess which office is still conducting business?)  High volume is a measure of success… but not the tool I would use to discern quality or even future success.

I have been following the Bloodhound Way for only a few months now.  As I got back into Real Estate it struck me as eminently doable (after all, Greg and the other hounds here share their ideas freely) and obviously innovative.  In today’s real estate industry I believe the motto is “Differentiate of Die”  so innovative works for me.  I posted my first effort at these ideas in Custom Signs and Brake Lights.  That listing was taken June 09, 2008.  Since then I have taken two more listings.  (I am chagrined to say I took no listings in August, but I do have 2 listings coming online in September).  Suffice to say I am not a big volume hitter.  As I said previously, I am getting back into active Real Estate after a prolonged absence running a mortgage division.  Here are the stats:

  • 2219 Eucalyptus SOLD 23 days on market
  • 2324 Donnington SOLD 17 days on market
  • 642 Glover SOLD 2 days on market

That is roughly $1.3 million dollars and an average of 14 days on market.  The absorption rate for Read more

August 19, 2008

Pricing Analysis is Greek to Me

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Real Estate Renaissance Man

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I think most of us can agree that real estate agent, as a profession, lacks “street cred”.  The reputation for our industry is not high and I say this despite the reputable people I meet here and elsewhere.  Two ways to effect a change in that perception are: raise the bar of competition and adopt a better model.  Sometimes we can do both.

In a recent post called It Takes More than Comps to Beat the Competition, I introduced a pricing model based on how assets are valued in the securities industry.  As a former stock broker and options trader, I can tell you that the methods employed in the real estate world for valuing assets and advising clients are rudimentary.  A more thorough understanding of what a property is worth and a framework for better understanding what that knowledge suggests would not only help us to do our job better, but it would separate those that use the tools from those that do not.  Adopting a better model de facto raises the bar of competition.

A Quick Primer
From a securities standpoint, price is rarely the sole motivation behind a buy or sell.  We are usually trading volatility or time or both.  An asset’s value then, is affected by these two items.  This is evident in real estate too.  Good agents take these factors into account when they do comps, but we are generally lacking the common language and function for applying them.  By adopting a better model, we gain these tools.

Volatility
Let’s use options as an example: an options contract is valued in relation to the underlying stock.  This valuation is called its delta.  On a scale of 1-100, a delta of 100 means the options contract might as well be stock.  It is traded, hedged and valued as if it were the underlying stock.  A delta of 20, on the other hand, means the options contract is very unlikely to approach the value of its underlying stock.  It has only a 20 percent chance of holding value.  I would therefore trade, hedge and value it quite differently.  Now a delta Read more

August 18, 2008

It Takes More Than Comps to Beat the Competition

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Real Estate Renaissance Man

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As real estate agents we are always looking for ways to help our clients make sound decisions.  If we find a way of doing so that also differentiates us from the market – all the better.  In the next two posts I am going to share a new way to value property that not only gives clients a vastly superior ability to make home-buying decisions, but should decrease defaults and foreclosures substantially too.  Do you think that will make me a better agent?  More valuable?  Here’s one more way to differentiate yourself in the marketplace of real estate agents.  (Warning: this post and the next involves some arcane securities concepts and new ideas that will require even more of your time and effort.  If this does not interest you, stop reading now.  Pick up a newspaper.  Enjoy the classifieds.  Maybe polish up the old resume…)

CMAs
In a recent article by Greg Swann discussing the woes of the real estate market, he mentioned homes selling for less than they would cost to build.  He referred to homes priced “below their fundamental value.”  Over the past six months or so I have been discussing with Brian Brady different ways to value a property.  Having both come out of the securities field (I was once a securities broker and “enjoyed” some pretty exciting… read: stressful… years as an options trader on the exchange floor), the discussion revolved around how property would be valued if it were a security investment.  First, Comparative Market Analysis or CMAs would be used only as a qualifier or a secondary validation.  They are circularly self-serving and relationally compromised.  Instead of “comps”, let’s wow our clients, protect them and increase our value as agents at the same time.

A New Way to Value
Remember I warned you that this would involve extra work.  That is because there should be four values to any property and they should all be calculated before we advise our clients.  Here are the four values in ascending order:

  1. BREAK-UP VALUE – this is the value of the land itself along with any profits Read more
August 4, 2008

The New Real Estate Model – Part 3.2: Patrick, Dunne & Purcell, A Real Estate Firm

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Real Estate Renaissance Man

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A Real Estate Firm based on the legal model could have many looks, as do actual law firms.  But for a starting point I am going to lay out an achievable structure that will accommodate the greatest majority of agents.  The firm would consist of three distinct levels as well as an administrative staff.

  1. In the top level are the named agents: let’s say Ms. Patrick, Mr. Dunne and Mr. Purcell. These are the founders of the firm and generally speaking they are all three tremendous rain makers. They have a large and active client base from which they receive a tremendous amount of referral business.  It is also quite likely that one or more of them has a strong presence in a niche area.  They are not only the face of the firm, but it is their style and personality that colors the firm’s corporate vision.
  2. Under the named agents are the partner agents.  It is within this level that we see so much of the communal benefit that Mike Farmer has written about.  Similar to the named agents, partner agents bring in a lot of transactions.  They also may have areas (geographic, industrial, network, etc.) of specialty.  These agents have reached a level reminiscent of tenure.  They share ownership of the firm as well as decision making duties and have a say in its direction.
  3. The associate level is where the greatest number of agents are found.  From fresh beginners to agents with years of experience.  The associate level is also the workhorse of the firm.  Associate agents are not only working hard to take care of clients assigned by the partners, but are at the same time trying to impress the partners with business they generate themselves.  The presumed goal of an associate agent is to be made partner.
  4. Finally, there is an administrative staff which grows as the firm’s growth dictates.  It could be as simple as one administrator or as complex as a multiple level staff covering everything from answering the phones to creating the marketing to processing the transactions and more.  Staffing might be the one place where someone Read more
August 4, 2008

The New Real Estate Model – Part 3.1: The Solution

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Real Estate Renaissance Man

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This final post (Part 3) grew rather lengthy.  Considering the fact this has already stretched into a three-part series, I chose to extend the series to five rather than attempt a conclusion of  somnolent proportions.  If brevity is the soul of wit, creating a new model for real estate is witless.  So grab a cup of coffee or your favorite bagel and settle in.  Fairly warned be thee, says I…

The Preamble
In Part 1: Disbrokeration, I looked at the problems that exist within the current, brokerage-based real estate model.  The shift to a 2.0 world is making the traditional position of broker obsolete.  The tax advantaged laws that helped create this model now create a drain on the industry and the level of professionalism is widely perceived to be at an all time low.  This is a topic of some concern, as the most popular response to the current state of affairs is more legislation, more licensing and more efforts to validate capability through pernicious membership rather than actual results.  As Big Al said: “We cannot solve our problems with the same thinking we used when we created them.”

In Part 2: Super Teams, I looked at a natural progression that is already occurring in our industry: Real Estate Teams.  I took that notion further and looked at how a Super Team might be constructed.  There was also a link to some great writing on the concept by Mike Farmer.  There are some problems with the Super Teams though.  They do not go far enough in dealing with issues of independent contractor status, education, professionalism and image.  Their success depends upon either a self-less communal work effort or a strong, unique figurehead to hold all the pieces together.  The former is not realistic across an entire industry and the latter is too uncommon.

The Outline
It is time to outline a new model for the real estate industry.  I believe the following to be a reasonable list of minimum expectations:

  • The new model should account for the natural desire in many people to achieve.  It might even embrace the concept that a great many people enter Read more
August 1, 2008

Are You Making Music?

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Real Estate Renaissance Man

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I recently attended a birthday party with my two beautiful boys (yes they are the most beautiful boys in the world and no, I am not biased).  The birthday guest of honor received a great many gifts and it was lots of fun.  Save for one interesting observation… an odd note that just might reflect a growing problem many agents face in real estate.  But I am ahead of myself.

In particular, the boys all gathered around a video game (I think it is called Guitar Hero) that comes with drums and a guitar.  You put the DVD in and the TV provides music and a video while the boys watch a visual cue telling them when to strum a chord or bang a drum.  Anyway, they all jumped in and so did I.  (Little kid at heart still…)

Now here is the interesting part.  I did well at that game. I did well because of my athleticism.  I still have very good eye-hand coordination and I pick things up pretty quickly.  In hindsight, maybe that is not so interesting.  But let me add this: I am completely tone deaf and possess no rhythm whatsoever.  My ex-wife used to laugh at me when I clapped my hands or tapped my foot along to some song.  Apparently I was never on the beat.  I tried to tell her I was keeping with the “back beat”… but she wasn’t buying.  In any case, I was the source for a good deal of amusement.  Now imagine: a guy with no beat excelling at a game involving music.

(Stay with me because I am going to tie this all together in a moment.)  A day or two later, I catch an episode of Gene Simmons’ Family Jewels on cable.  If you have not seen this you are missing out on insights from one of the greatest marketers of our time.  In this particular episode Gene’s son, along with some friends, challenge Gene to this very same video game… and kick his rock & roll butt.  Gene decides this is not right.  So he calls his buddies Tommy Read more

July 30, 2008

Before They Get It, Make Sure They Get It.

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Real Estate Renaissance Man

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For many buyers’ agents, there are two distinct stages in a real estate transaction.  I know, it may seem like there are many, but in the broadest sense there are only two.  You might call them the Age of Enlightenment and the Dark Ages.

The first stage is when you do most of the work with your client.  From the marketing that first attracts them to the countless showings and all the way to writing an offer and negotiating that last counter before acceptance.  This can be called the Age of Enlightenment.

The second stage, the Dark Ages, often begins just about the time you recommend a lender or two and begin the loan process.  I have heard agents describe this as akin to pushing the contract, the client, the paperwork AND their commission check into a gaping black hole… of silence… then waiting, hoping and praying a deal will come out the other end.

There are a number of reasons for this, most of them beyond the lender’s control, same as yours.  Underwriting guidelines are changing on an almost daily basis.  The actual loan options have decreased just a tad.  Sort of like Basking Robbins 31 Flavors suddenly going down to two flavors… and raising the price while they were at it.  But there is one aspect you have a lot of control over when recommending a lender: the lender themselves.

When it comes to choosing which lenders to keep on your short list, referrals are certainly important and past performance is great, but I also highly recommend you ask a single, all-important question.  Whether interviewing a lender for the first time or seeing your regular lender, stand straight and tall, look them in the eyes and ask this question:  “Mr/Ms Lender, by recommending you to my client I am also commending my commission to you.  In other words, I am handing you $5000, $10,000, $20,000 of my money in hopes of getting it back in a couple of weeks.  Why should I do that?”

If they cannot convey to you that they get it… if they cannot immediately give you a valid, even outstanding Read more

July 30, 2008

The New Real Estate Model – Part 2: Super Teams

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Real Estate Renaissance Man

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In Part 1, I discussed the concept of Disbrokeration; some of its causes and effects. When I originally wrote about Disbrokeration I thought I had a pretty good idea what the next iteration of the industry would be: Super Teams.  This type of development is not new and successful Super Teams abound right now.  For me it seemed the logical next step in a 2.0 world where the Brokers have lost a great deal of their function.  Having said that, I see some flaws with Super Teams.  Especially in their ability to transcend a relatively common problem faced by many self-employed entrepreneurs.  My purpose here is to discover a model that will not just work, but work for the majority.  Let’s look at the pros and cons of the Super Teams and in Part 3 of this three-part series, I will share a model that I think may best serve the future of our industry.

Basic Real Estate Teams
Agents may have more than one reason to create a team in real estate. Some may do so for geographical reasons, some may do so to create multiple streams of income.  It can even be done simply for social reasons.  But the primary reason to create a team is economies of scale.  Simply put, a well managed team can be more efficient through intelligent design and effective division of labor.

Gary Keller, in arguably the best book ever written for real estate success: The Millionaire Real Estate Agent, discusses the team concept as a matter of course.  It is simply a requirement for reaching the millionaire level.  This is due to the economy of scale mentioned earlier.  Mr. Keller’s point is that one person alone cannot see enough clients, list enough homes and work with enough buyers to achieve a million dollars in income.  One simply cannot carry the work load necessary for such a goal.

Others have written on the benefits in creating teams.  Mike Farmer looked at it from the perspective of geographical and technological symbiosis rather than a purely profit driven necessity.  I think I do Mr. Farmer no disservice when I summarize Read more

July 29, 2008

A Decidedly Low-Tech Philosophy for Real Estate Success

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Real Estate Renaissance Man

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When it comes to Real Estate I am, I imagine, like many of you. I strive to stay ahead of the curve and learn everything I can.  In its purest form, I agree with Greg Swann’s philosophy: I want to be so much better than the competition that listings are mine for the choosing.  I want to steamroll over mediocre agents and drive to extinction those that dabble in my profession.  The art, the skill and the passion of a great agent – an agent that is advising clients on the biggest investment of their lives – those are the attributes I seek: for myself and my fellow agents.  If someone is not up to that standard they should be removed from the business; but not by fiat.  They should be driven out on their last breath, gasping and choking on great, heaping spoonfuls of my dust.

Toward that end I am an avid reader, especially of BloodhoundBlog.  Technology is the great equalizer and the great slayer within our industry.  On BHB we are exposed to the best of the best and I am trying to wrap my non-tech brain around the fire hydrant of information that flows here.  I think I am doing alright: I understand how to Twitter people in the Facebook, Share my Mind with Google and constantly talk on miPhone while admiring the Street View out my Zillow window.  Last night I even had a tall glass of milk with my Obeo.   The Soft Infusion of most of these high-tech ideas has occurred in just the past week alone at BHB.  A fire hydrant indeed.

Sometimes though, it relaxes my weary head to go a little Low-Tech.  Here’s why: most people – my clients included – think it their hobby if not their outright job to put off till tomorrow almost anything they can. That desire to delay holds true even when what they put off benefits them.  Life is busy and the demands are great.

You can see this in almost all walks of life, but it is especially acute in women.  My sister is a prime example. I ask Read more

July 28, 2008

A Little Afternoon Fun

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Real Estate Renaissance Man

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On the radio over the weekend, they discussed a survey that had come out about gas prices and people’s habits.  It was reported that 20% of those responding said they would drive 10 miles out of their way to save 5 cents per gallon on gas…

For those of us that are mathematically disinclined, the average car would require an 80 gallon tank just to make that little investment break even.

For me, that survey response is not the scary part. The scary part is… how many of these people vote?

July 28, 2008

The New Real Estate Model – Part 1: Disbrokeration

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Real Estate Renaissance Man

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Ch-Ch-Ch-Changes
The Real Estate industry is going through some pretty rapid changes lately. We have everything from Apple’s iPhone to Zillow’s Zestimates. There is a lot of conflict too. Your local Board of Realtors is most likely still trying to throw a fence around listing information, while a wired world questions the nature and even purpose of a real estate agent. The RE.net is creating opportunities and shifting the nature of the game. The world is 2.0 and it communicates differently. A 2.0 world markets differently and rewards differently too. Throw in the most destructive credit crunch since the Great Depression and you have a recipe for… WHAT? Only one sure answer: change. But the question is this: change into what? What does the future of the real estate industry look like? Will there be agents? Will there be brokers? Will there be a real estate industry? This is the first of a three-part series that will attempt to answer some of these questions.

Back in March I wrote a post on Disbrokeration and the coming changes in the real estate industry. I suggested that Brokers, more than agents, were going to see their positions and their livelihood challenged. I still believe that to be true. In part two of this series I will run through the first evolution I saw for our industry: The Super Team. Not an uncommon idea, the Super Team already exists and the refinement of it is discussed in many areas. Mike Farmer has written about it in great fashion. I will discuss why it may work for some, but in general it simply does not solve enough problems. Worse yet, it adds new ones. In the final installment, part three, I suggest a new model for the real estate industry. A model that is easily copied, well developed and most suited to solving the issues in our industry. But first, we must understand why the current model will not last.

Disbrokeration: The End of the Current Model
The existing Broker model is actually a pretty old one, found in almost any industry that is focused around the act or Read more

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