Housing Supply Building Quickly... Will it Cause the Real Estate Bubble to Pop?

Today in BusinessWeek there is an excellent article regarding housing supply and a possible housing bubble. The article indicates... "During the second half of 2005, the supply of new single-family houses available for sale has been growing at the fastest pace since the mid-1980s" while "Making matters worse for homebuilders is a surge in the number of existing homes for sale, up 20.6% from a year ago. The rising inventory will suppress overall home price appreciation".

What is important to those thinking of selling your home FSBO is that you can be at a distinct advantage because as inventory expands there are more listings competing against each-other. Selling FSBO allows you to price your home (1-2%) less than the surround real estate listings for sale with REALTORS making your home more attractive and possibly selling faster, thereby saving you mortgage interest and time.

Inman News Starts it's Own Zillow Guessing Game

Last week, I was seeking guesses regarding what Zillow will be doing? It appears that now that Inman Blog is also looking for feedback... so keep on eye on both to see who will be the closest at guessing the business model.

24% of 2005 Home Buyers Bought Real Estate Found on the Internet According to 2005 National Association of Realtors Profile of Home Buyers and Sellers

Today the NAR released its 2005 National Association of Realtors® Profile of Home Buyers and Sellers and there some great underlying facts that seem support the FSBO movement.

Here are some highlights and some comments regarding the facts from the survey:

- 77% of home buyers used the internet during the home buying process. This means that advertising your home on the internet is probably the single best marketing you can do.

- 24% of buyers found the home they purchased via the internet. This would indicate that home buyers using the internet and making inquiries regarding your home for sale by owner are serious and willing to buy.
(Important Note: this is a 62.5% increase from just the year before - so this year, if using the same number it will be over 39%!)

- 15% of buyers indicated that a yard sign was who they found a home they purchased but 71% identified the yard sign as the second most important way to find homes behind the internet. This is important as it supports that fact that FSBO should put a yard sign up to help market the property.

As I previously noted in my NAR response post to the NYTimes / FSBOMadison article, my theory of was in fact, that a reason why some of the homes sold by owner sold for 16% less. As they stated that "39 percent of those FSBO transactions were "closely held" between parties who knew each other in advance".

What is also interesting is that the survey data regarding price differences was not explained by the survey. So instead of facts, the NAR offers "some context"... "Agents know best how to prepare a home and maximize value, agents provide broader exposure to the market and are more likely to generate multiple bids, and the portion of sales that are between private parties are likely to be at a lower price than those on the open market."

As always, the NAR indicates that the amount of FSBO transactions are at 13% or so percent of the all real estate transactions with the highest number of FSBO sales occuring in 1987 at 20% but I think that this figure may be a matter of preception as to what is a FSBO?

Lastly, the survey made it a point to indicated FSBO's as; "we believe that "unrepresented sellers" would be a much more accurate term to describe this segment,"... now if we could just get the figures for how many real estate transactions were flat-fee "fsbo" transactions that are being counted as "REALTOR represented" transactions. I'm sure if the NAR will not release this number as they do not want to give any credence to the discount model.

I also find it interesting in their survey the NAR indicates that 81% of home buyers on the internet used REALTOR. This is an easy number to believe considering that the use of a "buyers REALTOR" is free... but why does the report negelect to show what percentage of home sellers use a REALTOR and of those what percentage are using a discount real estate model?

So, will the FSBO market grow? We think so, especially if housing prices "normalize" and rates of appreciation come back down to a historical 6% level. We think the most sellers who purchased a home today and sold in two years from now, would explore the FSBO option before electing to sell with a REALTOR and net only 1-3% after costs.

Look's Like Zillow is Still Teasing the Real Estate Community

Well, it looks like I did not have any takers from my previous Zillow post but it appears that my gut feeling was correct. Nothing really new. Although an Inman Real Estate Connect attendee told me that Zillow was actively looking for “property” and “county recorder” information, again nothing new.

Today, BusinessWeek discussed the Zillow and what they heard at the Inman conference. Here are some highlights from their article:

--He's hoping brokers will be Zillow's customers, not its competitors. "If we succeed," he said, "brokers will use Zillow as a marketing vehicle."

--"We're not going to be like Expedia." That is, Zillow won't act as an agent by earning commissions from sales. One reason: It would require too much skilled staff. "I can't hire enough professionals. It doesn't scale."

--Zillow won't be some kind of national Multiple Listing Service of homes for sale. In fact, Barton said he thinks anyone trying to create such a list is wasting time. The reason: "The Web is the national MLS already. It's happened. You're arguing over yesterday's news."

--It will make its money from advertising on the site (presumably lots of it from brokers)

--Lots of its information will come from users of the site--a model that has been proven highly successful by real estate blogs like curbed.com.

Based on this little clues, I will continue to formulate my opinion of the Zillow business model and hopefully some of you readers can do the same and post them here.

One big clue is that when you have $32,000,000 million (so far) to throw at a problem; you can come up with some pretty good solutions and buy a whole lot of advertising, especially when saving a ton with free buzz like this.

Also, from the BusinessWeek article this was this quote from Barton…

"It's very easy to think, 'Great, he's done all the work and I can earn a big, fat commission on 1.94 weeks of work.' You have to rethink that."

I couldn’t resist commenting on the BusinessWeek blog, which I posted below just in case BusinessWeek does not let it fly…

REALTORS, read this carefully again... "It's very easy to think, 'Great, he's done all the work and I can earn a big, fat commission on 1.94 weeks of work.' You have to rethink that."

I think the most real estate agents need to really need to understand what is being stated here. Traditional "Buyers Agents", REALTORS who work with buyers almost exclusively (who also tend to be the newer agents because easier to sell a “free” service) are in big trouble. Homebuyers don’t expect to pay for the buyer’s’ agents’ services of showing houses and negotiation. Home sellers are tried of paying a big fat commission towards hiring the team that is negotiating against them.

Listing agents (usually more seasoned and experience) who basically drive the commission structure of a real estate deal are competing on price and this will continue to do so… especially if Zillow creates a reverse bidding auction format for real estate services. The commission this is being cut is the "buyers agent". These agents in turn will show only houses that are offering a bigger commission. Buyers on the internet will become frustrated at the fact that they are not being shown all homes by these buyers agents and will start contacting the listing agents directly, thus allowing listing agents to further discount their prices. As this downward pressure on the commission structure continues the weaker agents and real estate companies will be forced out of business. With this, you will see a continued growth in alternate business models, such as discount brokers, ala carte and the “for sale by owner”. Additionally, the major real estate franchises are too busy trying to keep their “franchisee's” happy, so they are not focusing on this growing threat. The NAR is pretty busy with the DOJ and the sheer financial resources of the companies working at addressing the opportunity (or problem dependant on your point of view) far exceeds the investments being made by the NAR & traditional brokers.

So as the story goes, the real estate community keeps on being teased and they don’t like it… while some of us continue to play along with the tease and build our own mental pictures of what’s behind the veil.

Oodle, a Real Estate Player

Today, Inman did a little piece on Oodle.com. If you have not used this service yet, you must try it. It searches multiple "Classified Ads" sites and consolidates the listings into local results. So if you are shopping for say a "Longboard Surfboard" (as I do all the time) or say a "3 bedroom 2 bath home in Upland,CA" you can have these listings sent to you via email with a link back to the exact ad. Oodle is indexes real estate agent advertising of listings and consolidates those results locally and according to Oodle they have 1.5 milliion homes listed currently, which now makes them a "real" real estate player in the space. On a side note, all of our FSBO listings appear in the Oodle results to help increase the exposure of our FSBO advertisers.

Madison REALTORS Very Unhappy with Mayor for FSBOMadison Comments

Madison, Wisconsin Mayor Dave Cieslewicz has gotten him self into some hot water with the local real estate community according to The Capital Times. This is not surprising and I'm sure that shortly the NAR will also apply it's power of persuasion on the situation also. So the Mayor will probably feel some tension for the comments he made, especially at election time.

Will the Zillow Veil of Secrecy Finally Come Off?

The highly secretive, well funded real estate start-up, Zillow may finally disclose their business model on Friday, as founder, Rich Barton is scheduled to speak at the Inman Real Estate Connect Conference in NYC starting tomorrow. This may be one of the most anticipated starts-up as it's fishing in a 60 billion dollar pond that can affect the lively hood of a million plus NAR members. The founders already have a successful track record when they changed the travel industry, so a lot of eyes (and pocket books) are following this one.

I can guarantee you that real estate blogs will blow up by 8:01 am as the Zillow CEO is speaking between 8:00am and 9:15am. We may get a nugget or two before then as I am sure that they will be pressed hard for details at the Inman real estate conference from the moment they walk in.

So, this may be the time to seriously discuss your final thoughts on what the business model will be? Will they take-over the For Sale by Owner market as previously mentioned? Will it be a real estate auction site? Maybe a customer / REALTOR / all other real estate services match-maker? National database of all parcels with Google satellite views? Online CMA lead machine? A local real estate business search directory? Are they starting their own national MLS? Post your theory now and the bonus is if your right, that you will go down in internet history as the one who knew first!

Or will we get nothing at all from them, like this quote from the CEO, "We haven't quite figured out how we are going to fit,"... and have to continue to wait until their official launch? If this is the case, (which I suspect) it will cause even more discussion on blogs and the real estate community, a brilliant buzz-marketing ploy on their end!

Here are some active blogs that follow Zillow and feel free to post your thoughts on what is Zillow's business model will be.

Your Seattle Neighborhood Specialist
Rain City Guide
Chase Market Velocity
The Real Estate Bloggers
Seattlepi.com
All things RSS
Zillow CFO personal Blog
RedHerring Article

FSBO / For Sale by Owner, Such a Hot Topic in The News That the National Association of REALTORS Comments

The original Jan. 3rd. NYTimes article on a for sale by owner website called FSBOMadison is still drawing lots of attention and appears to have added fuel to the fire. So much attention that it appears that even the NAR had to respond to the article. Here is the NAR's response.

Dear Editor:

Your article about a for-sale-by-owner web site in Madison, Wisconsin (January 3, 2006) failed to provide your readers an accurate picture of the advantages and disadvantages of going it alone when making the most important transaction of their lifetime.

The fact is that using a professional to sell your home more than makes up for the cost, not to mention the savings in time, effort and hassle. The average home sold with the help of a professional last year brought $230,000 while the average home sold by an owner went for only $198,200 a 16 percent difference. It's no wonder that the percentage of homes sold by owners actually declined last year despite the real estate boom in most areas of the country.

Sincerely,

Thomas M. Stevens
President
NATIONAL ASSOCIATION OF REALTORS®

So in reading the response of this letter there are some interesting items to take notice of. First Mr. Stevens states the advantages of selling using a REALTOR but fails to point out any specific benefits of actually using a agent, just the traditional canned response "makes up for the cost, not to mention the savings in time, effort and hassle" blah, blah, blah...

This would have been the perfect opportunity for the NAR to give a bullet point reasons as to why the public should use an agent and really drive home the benefits of using an agent since this has received so much attention. His quote "...failed to provide your readers an accurate picture of the advantages and disadvantages of going it alone", well from what I can tell his response fails on the same level.

The one fact that the NAR responds to with facts is the average sales fecthed by a FSBO is 16% less than homes sold by a REALTOR. A problem that I see with this fact is:

A) the stat is provided by the NAR itself, so it's rather difficult to know if this is true as Title companies (who record real estate transactions with the county recorders) cannot even provide an accurate number of these types of FSBO transactions.

B) Sure the number is going to be less... there is 5 million less transactions to factor into the average. Just a few multi-million dollar NYC condos will skew the number dramatically. Additionally, many FSBO's are family transactions so the family members are purposely discounting the price of their property for their son, daughter, mom, cousin, etc.

C) "...the percentage of homes sold by owners actually declined last year". Did it really? As far as I can tell a flat fee $299 listing is probably considered a FSBO by most (including the NAR who is pushing for miminum service laws to limit this practice) but yet the NAR will count these transactions as a "REALTOR transaction" because a member of the NAR had to place the listing on the MLS, so these "FSBO's" are probably being accounted for as a traditional real estate transaction. My guess (as no-one appears to have a real number of full service to flat fee transactions) is the number of "FSBO's" has actually increased and their average net proceeds is certainly higher that those using a full service traditional real estate agent at 6%.

As a top free nationwide For Sale by Owner listing site we are excited to see the FSBO movement in the news and for home sellers and buyers to begin understanding that there are more options available to them, be it FSBO, ala carte, flat fee or hourly rates.

I think it is important to understand that everyone is willing to pay for real estate services... maybe just not a full 6%. Additionally, a really good (experianced) agent can be worth every cent as they can help try to avoid problems before they arise. One thing is certain, the real estate model as we know it will change in the year to come.

Here are some active FSBO articles from today:

Baltimore Sun - Do-it-yourselfers, Web force Realtors to face a new reality
Channel 3000 - FSBO Madison Featured In New York Times
Herald Tribune - Listing isn't selling
CBS 11 - KTVA - FSBO: an option for homeowners looking to sell

Updated: Live Stats on Our FSBO Site

Due to user feedback we have now added live stats on each FSBO real estate listing posted on ForSalebyOwnerCenter.com. Home owners can now check their free fsbo listing to see exactly how many times their listing has been viewed. Users can now view daily totals of views and actual listing visits along with a grand total. This listing statistics helps home owners track the success of additional advertising in local papers on weekends and view the spikes. We offer all listings exposure on our home page, so that every seller gets maximum exposure for their home early in the selling process. These statistics can be viewed on the listing page at the contact owner section with the daily totals in by selecting the "Details" link.

Inman News Looking at Inman Dr, Brookfield MO FSBO

We received a new FSBO listing today in Mo, that was on Inman Dr. We are avid readers of Inman.com and mentioned it to them, so that put together a little post on their blog.

NY Times FSBO Coverage Creates Heated Debates

On Jan. 3 Jeff Bailey of the NY Times did an article on FSBOMadison a FSBO site in Madison, Wisconsin. The FSBO article became one of the most emailed stories for a few days and the blog community exploded. With even a comment or two on this FSBO blog comment.

Here are some links to some the most active blogs.

Curbed
Blogrunner
Rain City Guide
Craig Blakcmon, Seattle Attorney
Jersey Shore Real Estate Bubble
Behind The Mortgage
Property Grunt
Matrix from MillerSamuel

Pending Home Sales Index Point South Towards Cooling Real Estate Market

Today the NAR released the Pending Home Sales Index Charts and the leading indicator of the real estate market appears to point towards a cooling trend. This is the third month in a row that shows a cooling trend with some area's affected more than others. What's is interesting to me is the hottest markets (North East & West) appear to be affected the most while the Midwest is still climbing. Here are some highlights of the seasonally adjusted figures:

Northeast - Down 8.3%
West - Down 5.1%

It will be interesting to keep an eye out on this and watch the upcoming new home sales and existing home sales figures to see what the overall impact will be.

Download the Pending Home Sales Index chart