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Volume XXIII, Number 8 August 2009www.realtrends.com

COMMENTARYThe Housing Recovery

According to several economic and housing experts the keys to the recovery in housing will be the expansion and extension of the existing tax credit, the expansion and extension of higher loan limits on government-insured loans, some corrections to new valuation guidelines and success in the loan modification program. Each of these would

(Commentary continued on page 2)

ADDiTiONAl COMMENTARY:The Real Estate Company of the FutureAffiliated Versus IndependentWill Real Estate Brokerage be a Good Investment in the Post-Recession Economy?

ANAlYSiS:Agent of the FutureREAL Trends Housing Market Report Shows IncreaseAre You Good at Comebacks?

TRENDS:Summary on Effectiveness of Online StrategiesRelevant Content is KingState of the Market Much Pressure on Mortgage Joint VenturesConsumer Spending Shift

NEWS:Mergers and AcquisitionsExecutive Appointments Announcements

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contribute towards the reduction of inventories of unsold vacant homes that are choking the market of homes for sales and feeding the decline in home prices. The decline in home prices itself is feeding a lack of confidence in homebuyers in many markets in the United States. Added to these issues is the impact of unemployment across all sectors as well as the lack of secondary markets for Jumbo loans where pricing spreads are still considerably above normal levels.

These points were made at a gathering of leading economic and industry experts who attended The Housing Renaissance meetings that were held August 13-15. Among the economists who participated were Dr. David Berson, chief economist of PMI, Dr. Norm Miller, academic director of the Burnham-Moores Center for Real Estate at the University of San Diego, Dr. Mark Zandi, chief economist and cofounder of Moody’s Economy.com. A separate panel was composed of Steve O’Connor, senior vice president of Governmental Affairs, Mortgage Bankers Association, Nicolas Retsinas, director of the Joint Center for Housing Studies at Harvard University and David Stevens, recently appointed as the assistant secretary of housing–commissioner of the Federal Housing Administration. Moderating the panel was Henry Cisneros, secretary of HUD during the Clinton Administration and Phil Bracken, executive vice president of Wells Fargo Home and Consumer Finance Group.

It goes without saying that the six expert panelists have a fairly good sense of key policy initiatives that will have the most impact on housing in the future. Participants in the meeting included senior leadership from the mortgage, securities underwriting, residential brokerage and real estate data fields from across the country.

The challenges in housing are well known. Regardless of what caused the collapse in housing (which those in attendance spent little time discussing) the challenges include a rapid decline in pricing, huge oversupplies of homes for sale, the tightening of credit and valuation guidelines and the surge in distressed properties. Estimates were that nearly 16 million homeowners now have negative equity positions in their homes, a number expected to rise through next spring. Vacancies are now estimated at 1.8 million with an expected rise to more than 2.0 million by the 2nd quarter of 2010 before the numbers begin to subside.

Areas to watch

Mortgage Tax Credit extension and expansionThe panelists agreed that this was a vital component in turning the housing market around. Extending the $8,000 tax credit into 2010 was vital. In addition, there was a general consensus that the tax credit should be expanded to include all buyers of homes and that income limits on buyers should be removed. While the potential of an increase of the tax credit to $15,000 was still being considered, those who have close engagement with policy makers in Washington did not expect that to be adopted.

Possibility: Good

Expansion and extension of higher loan limitsThe panelists mostly agreed that the continuation and expansion of higher loan limits would be extremely beneficial to improving the housing market. The slowness in higher priced housing markets, the high spreads in the jumbo loan categories and the spread of distressed properties into higher priced segments all have the high probability of further damage to housing.

Office:

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Editor:

Steve Murray – [email protected]

REAL Trends Staff:

Amy Broset – [email protected] Stufft – [email protected] Velt – [email protected] Welch – [email protected]

Copyright 2009 by REAL Trends. All rights reserved. Material in this publication may not be electronically stored or reproduced in any form without written permission. Violators will be punishable by a fine of up to $100,000 per offense.

To purchase a membership orany of the following REAL Trends products please visit us at www.realtrends.com:

• REAL Trends 500 • REAL Facts • Valuing a Residential Real Estate Service Business • People Still Matter • The Invaluable Investor Study

(Commentary continued from page 1)

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Possibility: Good

Loan ModificationsWhile all agreed that the program was not off to a strong start, according to several sources, major banks and servicers were starting to see much better results in the past few weeks and months. Several banking and servicing organizations indicated that there were great challenges in building and training staff to handle the surge of requests without having final guidelines in place as to the proper servicing; while there are many homeowners for whom a reduction of mortgage liability to 31 percent of income was possible they were still considerably underwater when considering all debts (autos, credit card and other) and a small number of homeowners who chose strategic default (as a way out of a position of significant negative equity positions). Stevens reported however that the level of modifications was now nearly the same number as new Notice of Defaults (NOD).

Possibility: Excellent

There was a general agreement that housing normally leads an economy out of recession but that in the case of this downturn that is not a given. Most thought that the

economy was now bottoming out and that growth would resume in the 3rd or 4th quarter of this year. Most thought that housing prices would stabilize by the 2nd or 3rd quarter of next year and would be followed by some years of slower than average growth before resuming a more normal pace (1-2 points above rate of inflation) in the out years.

The major risks to a recovery in housing were seen as:

• Employment and the general economy

• Mortgage rates must remain at or below 6 percent

• Modification programs must work and reduce the number of distressed vacant properties coming into the market

• Consumer confidence must stabilize and begin to recover

All agreed to a moderate or strong level that without a recovery in housing there is a far lower probability that the general economy will recover. Family balance sheets are not in good shape overall and without some strengthening consumer confidence likely won’t recover sufficiently enough to sustain a recovery. n

The Real Estate Company of the Future I have heard many comments and questions about what the real estate company of the future will look like. Some would say larger with larger fewer offices; others say totally sales professional driven; some say smaller and more niche oriented; others think only consumer focused and driven.

We say yes – it will be a mix of all these kinds and likely more than we can even imagine. One new model may well be a sales associate franchise model, something like the Top5 program currently being offered nationally. We are seeing the launch of some that are totally referral driven models based on marketing online. Any of these could grab some share and become a new fierce competitor in the brokerage business.

The question “What does the real estate company of the future look like?” is too broad. There will be many different models and too many entrepreneurs trying them to know. Will Redfin work at some point (gain large share and be profitable) or will it be ZipRealty’s structure that will do so. Some would say they are the same but they aren’t really. Perhaps they can both be described as “online, discount” models but after that the similarities are few.

However should we focus the question a little bit and ask the question “What will the future look like for the dominant real estate brokerage firms today, regardless of whether they are traditional, high commission, capped company dollar or freedom shops then we have a different question - one that we will be reporting on in future issues.

Here is what we believe about the fundamentals of our business.

Americans will still prefer owning their homes above renting them. While the homeownership rate will decline from the record highs that were achieved earlier this decade, they will not drop precipitously. We have found not one economist or business expert who disagrees with this notion.

Americans will still prefer using a full-service real estate sales professional to assist them in buying and selling their homes. Throughout the period from 2001-2009 numerous studies, including those from REAL Trends, NAR, MBA, CAR and others confirm that while consumers have more choices than ever in how they buy and sell homes they still overwhelmingly use full service sales professionals to assist them through the process. The rate of usage varies with the study but it is somewhere safely north of 72 percent of all homebuyers and home sellers who use a real estate professional.

Further this number has not changed materially in all the years since the founding of the Internet.

Should these make you feel safer about the fundamentals of the future? Certainly. Should you feel very safe that the past tells us precisely about the future? No that’s not a safe bet. We know that the newspaper industry felt safe about their hold over real estate classified advertising, until they didn’t own it anymore; we know that few real estate “experts” (including NAR and REAL Trends) saw the downturn as being this severe and long lasting.

But for now we can make investments based on the assumption that Americans will continue to want to own homes and


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they’ll continue to want to have professional assistance in procuring or disposing of their homes.

We can further state the following with some certainty for all traditional brokerage firms regardless of type or brand or region;

To be successful you will have to do one or more of the following:

• Recruit good people

• Work to improve their productivity

• Reduce your fixed costs per dollar of revenue

• Find ways to firm the pricing for your services

• Find new sources and channels of business for your firm.

These won’t change. They are the same as for the past 20-30 years. You don’t necessarily have to do all of them well. But to be successful you will have to do at least three of them well.

More on the real estate company of the future in later editions. n

Several readers have asked us to take a long-term look at the relative performance of leading brokerage firms relative to whether they are affiliated with a national brand or independent. It goes without saying that the market has been indiscriminate as to which kind of brokerage firm suffered worse as all brokerage firms regardless of this question have suffered the same downturns in their gross revenues and other key operating measurements.

We would like to make two points. In terms of key benchmarks of operating performance such as transactions per sales associate and per office and sales volume per sales associate and per office there has been little difference between those brokerage firms affiliated with national firms and those considered independent. We reported this first in the March 2009 edition of REAL Trends in a number of charts that outlined the relative performance of the two types of brokerage firms that had been ranked on the REAL Trends 500 Report from 1999-2008. One key measurement was in sales volume per office where there was less than a 3 percent difference between the two types of brokerage firms over a ten year period of time.

As to profitability we can say with some certainty that again there is little difference. Murray Consulting provides valuation services to a wide variety of brokerage firms of all shapes and sizes from all regions of the country each year. In any given year we will analyze over 100 brokerage firms financial statements in providing valuation services. We review over 65 additional firms financial statements as part of our services to CEO groups that we manage.

Our observation is that there is simply no material difference between the financial performance of nationally affiliated brokerage firms and those that are independent. We know of some outstanding independents that have remained profitable through the end of 2008; as well we know of some outstanding affiliated companies.

We have seen affiliates of virtually every national brand that remain profitable.

Our opinion is that the most important attribute of successful brokerage firms is found first in the quality of the leadership of the firm and not its affiliation or type of brokerage. Recently we completed a White Paper on the financial performance of five different types of brokerage firms: Traditional, High Commission, Capped Company Dollar, Freedom Shops and New Old Model firms. While there are significant differences in the revenue and cost components of each type of firm, the best in each category were still profitable in 2008. For a free copy of the White Paper and a free 30-day trial subscription to Profit Navigator please contact [email protected] or [email protected]. n

Affiliated Versus Independent Brokerage Firms

Volume Per Office

$0

$50,000,000

$100,000,000

$150,000,000

$200,000,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Independents- Volume per Office Branded- Volume per Office

Volume Per Agent

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Independents- Volume per Agent Branded- Volume per Agent


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In each of the past five months, the operational benchmarks and real estate market indicators have been increasingly posi-tive. While these trends in no way suggest that we are out of the storm, they do indicate that the sun is shining through somewhat. They suggest that the industry should be engaged in a dialogue relative to identifying what factors will determine success or failure in the post recession real estate economy.

By way of example, this is an appropriate time to discuss the industry’s ability to attract the debt and equity capital necessary to fund its recovery and re-invention after five years of disappear-ing profits, hunkering down, doing without, transition and stress.

A number of approaches can be taken to the discussion regarding the role of capital in the real estate industry over the next few years. The dialogue might be stated in terms of what has not happened during the down market. It is important to note that, to their credit, virtually every brokerage has sharply reduced its expenditures in all key areas. This cost reduction process has created a new business configuration called the “slash” model. However admirable this cost-control effort has been no company should adopt the idea that the slash model will allow for consistent performance in a normal or accelerated marketplace. A slash model, like a lifeboat, is a very limited-use vessel.

In a similar vein, the rash of “shotgun” mergers that have taken place over the past few years may experience dysfunction in a recovering market. After all, the objectives that created these mergers were not based upon growing together but rather surviving together. Many of the participants in these mergers will find that while their survival instincts were similar their success visions are not. Capital will be required to extract from these arrangements.

Age and retirement will also create a “capital” issue in the post recession industry. Broker seniority was an issue going into 2006 and it is five years more an issue today. Many senior brokers are going to have serious questions whether or not 66-68 is the right age for reinvention. Where will the capital come from to purchase these assets, or will they just fail?

Beware of an assumption that suggests that there has always been capital to invest in the industry and there always will be. That may become the $1 billion question. Many of the firms that have traditionally been active in acquisition have not done well during the past five years. Their investors may have to ask whether or not they want to invest “good money after bad.”

Investment in and the replacement of furniture, equipment and technologies will require significant amounts of capital. Most economists suggest that inflation will become a major issue as companies in all industries seek to “catch up” with lost opportunities. Inflation will hit brokerages in a number of ways. Will the industry go back to its bricks and mortar heritage or will it be investing in alternative service delivery models.

Good employees will discover better paying opportunities.

In any event, a strong argument can be made to support the proposition that most if not all firms are going to need new capital to be contenders in the post recession industry. Given this quandary, the industry should start thinking about what it can do to become an appropriate and prudent investment.

Obviously all investors have unique and specific elements that they look for before investing in a real estate brokerage. However there are certain consistent criteria that the industry should be considering.

• Does the company have a competent business plan?

A business plan is more than just a blueprint or a documented course of future direction. A business plan also constitutes a commitment, an attitude and a centerpiece for the company’s vision and culture. By reading the business plan an investor can determine whether or not the firm is headed where the investor wants to go. By demonstrating progress towards the objectives of its business plan the firm can prove that it has the imagination and energy to get there.

• Does the company fill a real need or just a traditional function?

Much about the function of real estate marketing has changed over the past five years. Twelve new consumer expectations and demands have been identified. Is the brokerage working towards these new opportunities or simply treading water waiting for the old market environment to return? A number of circumstances have arisen since 2002 that together have fundamentally changed the consumer’s needs. In other words the “real need” in 2010 is far different than the available delivery in 2002.

• Is the company managed well?

Many firms had to let their “young tigers” go during the down period. They may be left with a legacy executive and a skeleton crew of pre-retirement veterans who may or may not be prepared or capable of taking the company into the new real estate marketplace. Most investors will realize that knowing how to survive in a down market may or may not constitute the ability to compete in a new market with new price points, new consumers, new business practices and new competitors.

• Does the company have integrity?

Years ago investors were worried about a company’s reputation. In today’s social and business environment integrity has become the new behavioral standard. Today’s investors are very savvy regarding the dangers facing firms that do not integrate integrity into every level of their operations, especially when they are engaged with today’s social media empowered consumer.

Will Real Estate Brokerage be a Good Investment in the Post Recession Economy?


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• Does the firm have “franchise” value or is it selling a commodity?

In the investment world, franchise value refers to the sustain-ability and uniqueness of a particular brand or product with consumers. There is great interest in organizations that have “good” franchises that may be focused either on low cost or high value business model. The market will have little interest in organizations that have neither. The past five years have proven that while the commodity based brokerage may be a great entrepreneurial opportunity it doesn’t necessarily convert well to an investment opportunity.

• Does the market where the company operates have high barrier to entry?

What are the costs and complexities of entering an industry? The higher the cost or more complex the entry into a business is the more likely for the development of sustainable points of competition. In addition, investors are going to be interested in whether or not the brokerage is differentiating itself in the

marketplace or is simple selling a commodity. Investors will be knowledgeable about current industry environment and the contemporary consumer. Premium investors will not be interested in ABC Realty or a “same old same old” outfit that can be duplicated by anyone in the industry.

There are many other factors that will be considered by the contemporary investor. The amount of debt carried by the firm is one. Does the company have increasing/stable earnings? What is the company’s profit history? Structuring the deal (cash versus payouts and the time periods.)

The purpose of this article is not to provide an in-depth MBA level investment analysis but rather to suggest that over the next few years the capitalization of the real estate industry will become an increasingly important issue for retirement, replenishing and reinvention purposes. It is time to undertake this discussion and begin to develop a post recession brokerage business model that will generate market level profits and attract quality investors with its positive and productive qualities. n

ANAlYSiSAgent of the Future

We’ve all seen sales associates who entered the business during the boom years only to choose another career when times got tough. The sales associates who hung in there and found success can weather any market. Times are changing quickly and so is real estate.

Last year, REAL Trends and Anne Randolph did a study on the Agent of the Future. The study identified five characteristics that successful agents need to stay successful in the future. They must: improve the fundamentals, become the expert desired by consumers in a particular niche, use technology to increase effectiveness and efficiency, manage the business professionally and manage a work/life balance.

REAL Trends spoke with sales associates and brokers around the country to find out what they think the agent of the future will need to succeed. Here’s what they had to say:

John R. Kersten, president/ownerCentury 21 Town & CountryDetroit, Mich.

1. A very good understanding of technology. Sales associates must be available to the consuming public through the Internet. We’ve been successful with our Web site and have close to 200,000 visitors a month. Our sales people are highly operational wherever they are. However, sales associates must also be able to use phone systems, text

messaging and more. The consumer would like their information yesterday, so we’re really, in the truest sense of the word, in a now business and agents must be fully accessible.

2. Knowledge about the market. Sales associates must know what is on the market and be able to access that information immediately. They must have a solid understanding of the marketplace.

3. Ability to communicate on a highly professional level. Sales associates must communicate with a great deal of confidence and reassurance so buyers and sellers understand they’ll get competent service. Standards have become much higher and I feel the agent today has to communicate verbally in a much more professional and alert manner. Sales associates must become better listeners—those are basic sales skills.

They must have those basic sales skills. When an agent has a great sense of commitment, the consumer is ready to separate the wheat from the shaft. They have a right to do that so the agents today must be honest and do the right thing.

Lori Arnold, presidentColdwell Banker ApexDallas, Texas


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1. Tech literacy. Agents must know how to use Facebook, LinkedIn, YouTube, FLIP mini camcorders and more in their daily business. This includes everything from photo organization to marketing to social networking. A willingness to be open-minded in this arena is vital. I find that the biggest detriment to knowing these things is that some associates believe they can’t learn or “aren’t techie.” You don’t have to be “techie” to learn.

2. Understanding that it is ALL about the client. I believe we’ve allowed our egos in real estate to drive us to make very bad business decisions. We love to see our name/face in lights and it’s not about us, it has never been about us and never will be about us. It’s about the client. This same ego drives agents and brokers to spend money in places that are not effective.

3. Market savvy. This is the ability to know our markets. What is our absorption rate? What is the proper pricing for properties the day they hit the market? That’s important so we don’t spend time reducing over and over to hit the proper price point. Really, truly know our markets so we can give good advice to both buyers and sellers.

Daniel Jacuzzi, president/CEOCentury 21 Select Real EstateSacramento, CA

1. Enjoy people. The basic lead skill of an agent remains the same as it’s always been. Sales associates must have a true enjoyment of people, a desire to serve, be good listeners and great communicators.

2. Have basic sales skills. I believe that many people are getting lost in the notion that times have completely changed and the base skills of an agent are different today. While it’s true that a solid understanding of technology, social networking and online marketing have replaced some of the old marketing methods, successful

agents always have been and always will be “people” people first and everything else comes second.

3. Industry knowledge. Once we have our people and sales skills in place, then the items noted above coupled with a strong knowledge of the industry is critical to the long-term success of an agent. In these days of the Internet where customers can do independent research, an agent needs the knowledge and skill to assist the customer in the interpretation of that information.

Eddie Speas, executive vice presidentColdwell Banker AdvantageRaleigh, North Carolina

There are three core values that every sales associate should have but you can’t take out the sales aspect of it.

1. Trustworthy. The first thing is that no matter what an agent needs to be trustworthy. It’s a core value that will always be there in dealing with such a large transaction. We define success by closing transactions and making money but also having a sustained career and creating enduring relationships. The key to that is trust.

2. Knowledgeable. To compliment that you must be knowledgeable, competent and continually growing.

3. Exude Professionalism. When you look at what a professional is now, things are different because you think of a professional as someone who is tech savvy and responsive to the client. Communicate with the client in the way in which they want to be communicated.Professionalism will change and grow in the future as more technology comes in to enhance the professionalism of the sales associate. But, you still have to have that sales aspect—you can’t get away from prospecting and capturing leads. n

For the first time in four years, the number of closed unit sales was up from the same period in the prior year according to REAL Trends, signaling that a floor may have been reached in the housing market. Nationally, unit sales were up 2.8 percent in July 2009 over July 2008. The Western region again showed the greatest strength with unit sales up 12.3 percent while the Midwest region showed the greatest improvement with unit sales climbing 3.7 percent over last July.

Price declines were mixed. Nationally, the average home price declined 10.4 percent, a huge improvement over the decline recorded in June 2009 of 16.5 percent. The Western region

saw the biggest improvement with prices down 11.3 percent versus the decline of 26.1 percent in the prior month. The Southern region also saw improvement with home prices down only 8.7 percent versus a decline of 9.7 percent in June 2009. The Midwest remained at 10.9 percent while the Northeast continues to see softness in pricing with an average decline of 13.9 percent and increase over the decline of 10.9 percent last month.

“July 2009 is the first month in four years where unit sales increased over the same month a year ago. With June being nearly equal and July showing a small increase in unit sales

REAL Trends Housing Market Report Shows First Month-over-Month Increase in Unit Sales Since 2005 as Housing Market Appears to Reach a Floor

(Analysis continued on page 8)

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there is evidence that home sales have found a floor. These results are very encouraging. While home prices continue to decline they are doing so at a slower rate than at any time in the last year, another signal that, at least for the moment, the housing market shows signs of stabilizing,” said Steve Murray, editor of REAL Trends.

“This is clearly the best month of results that we have seen since we first started publishing the REAL Trends Housing Market Report two years ago. While we know that there are substan-tial challenges ahead, with a predicted rise in foreclosures and continued downward pressure on prices as a result, it would appear that we are closer to the floor of this recession in housing than we have been at any time in the last four years.”

About the REAL Trends Market Report

REAL Trends’ analysis of closed home sales data is pulled from

real estate brokers representing more than 35 percent of all homes sales throughout the country. The REAL Trends Housing Market Report collects actual closed housing sales data each month directly from brokerage firms. With all 50 states covered and results from thousands of brokerage firms

in every metropolitan area, the sample size and geographical reach of the study exceeds virtually every other report issued about the housing market. n

REAL Trends July/June Housing Market Report

July 2009 July 2009 June 2009 June 2009 Closed Sales Avg. Price Closed Sales Avg. Price

National +2.8% -10.4% -0.7% -16.5%

Regional Report

Northeast -1.2% -13.9% -1.3% -10.9%

South -1.7% -8.7% -6.5% -9.7%

Midwest +3.7% -10.9% -1.2% -10.9%

West +12.3% -11.3% +10.0% -26.1%

(Versus same month a year ago)

(Analysis continued from page 7)

Coaches Corner: Are You Good at Comebacks?by Mike Staver, Professional Coach and Speaker

It’s time to turn off the television set, put down the newspa-per, throw away your IRA, or 401K statement and get about the work of a comeback. It’s time to look at your life and future in terms of what you can make happen RIGHT now. No longer is there room for worry. No longer can we afford a minute of doubt.

Despite the negative, stress-laden world around us, we must change the pattern of energy that so easily sidetracks us from doing the things we know we are good at. I am in the middle of a brand consistency campaign. That is simply making sure that the experience before I speak, matches the experience when I speak.

I am amazed at the energy this has brought to bear on me. Why? Because it requires a focus on new, fresh and stimulating ways of working and seeing the world. It’s what comebacks are made of. No matter where you are in your life or work, know that momentum is your best friend or worst enemy.

It’s time to either stop the negative momentum or increase the positive momentum. That’s what makes you good at comebacks.

Here are a few more suggestions:

• Identify the direction of the momentum in your life and work.

• Identify three behaviors that, if you changed them, would improve momentum.

• Get clear about what you want to accomplish as the momentum improves.

• Be relentless on just those three things until you feel the energy shift.

• As positive momentum increases, add new behaviors and do them quicker. n

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TRENDSSummary on Effectiveness of Online Strategies

We reviewed some data provided to REAL Trends recently by ListHub that showed some basic data about the effectiveness of online syndication and marketing. The results show only the traffic that was generated on listings that were syndicated to these sites through ListHub for brokerage firms and MLSs that used ListHub for these purposes.

It is not that this data is the final word on the effectiveness of the various Web locations but it does give clients and customers one more piece of knowledge that can assist when selecting where to spend one’s time and money when marketing online.

We thank ListHub for allowing us to review this data and look forward to sharing additional data with our readers in the future.

JuNE DATA

Relevant Content is KingWhite Paper by Eric CoswayPresident, Quantum Digital

No one likes being ignored, lumped in with the masses or seen as anything but the individual that they really are. Many people would argue that a one-size-fits-all approach in marketing is ineffective and a waste of time, money and resources. Well, in most cases, they’re right.

Highly personalized direct marketing efforts—direct mail, printed collateral, e-mail and personalized landing pages—have been proven time and time again to improve response rates, boost sales and motivate an action on the part of the consumer/prospect.

A 2007 InfoTrends/CAP Ventures personalization study found that highly personalized color direct mail generated a 6.5 percent response rate—much improved from the 2 percent response rate non-personalized direct mail is said to generate. This is just one example of many that shows how adding personalization to your marketing campaign can dramatically increase ROI.

Variable data technology is making it easier, more effective and cheaper than ever to include personalized data on direct mail pieces, printed collateral, in e-mail messages and on landing pages. Each element within a direct marketing campaign may be personalized with information such as an individual’s name, recent purchase activity, special promotional offers, variable messages and images—making the experience unique and relevant for each customer and/or prospect.

Even elements used to track response behavior and measure

campaign performance can be personalized. A PURL (personalized URL) is a dynamically generated web address that contains information unique to each individual, like a name or offer. PURLs lead responders from one source, like a direct mail piece or printed catalog, to a personalized landing page tailored specifically for that individual. According to the DMA, close to 33 percent of consumers go online to respond to direct mail. This response rate is increased by 20 to 30 percent when personalized URL addresses and landing pages, are used. PURLs allow marketers to speak directly and specifically to each individual, capture valuable consumer data and track conversions.

Consider these statistics regarding personalization:

• A recent survey conducted by Prospectiv and published in Brand Week revealed that 80 percent of consumers stated that personalized coupons tailored to their interest would increase the likelihood of coupon use.

• 42 percent of consumers read direct mail that addresses their unique needs. (Customer Focus®: Direct Mail Study 2007)

• Approximently 20 percent of consumers read e-mail marketing when messages respond to their needs. (Customer Focus®: Direct Mail Study 2007)

• According to the Winterberry Group’s 2007 review of multiple reports, surveys and communications with marketing-industry executives, the top factors in driving response rates included timing, relevance and personalization of the marketing message.

Traffic: (as measured per listing)

The total viewings of listings by site.

1 Yahoo2 Trulia 3 Zillow

Leads: (as measured per listing)

The total number of leads that were generated.

1 Trulia2 Zillow3 Yahoo

Conversion Rate: (for those with at least 1,000 leads generated)

How many resulted in a connection to a real estate professional?

1 HotPads2 Zillow3 Oodle n

(Trends continued on page 10)

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Marketers within any industry can benefit from finding ways to personalize direct marketing content in order to address their customers’ and prospects’ specific needs. By working

with all the available data, both in-house and external, marketers have the power to personalize and capture the audience’s attention. The result is undeniably improved ROI. n

State of the Market Many economists are predicting the bottom of the housing slump while others are on the fence about just how quickly the market is recovering. REAL Trends spoke with brokers and sales associates around the country to get a snapshot of individual markets. Here’s what they had to say:

Lynn Fruth, CEOThe Danberry Co., RealtorsToledo, Ohio

REAL Trends: Tell me about your market today compared to this time last year.

Fruth: The “feel” of the market is that it’s better than a year ago. The hard statistics for the first half of 2008 compared to 2009 tells a slightly different story. The good news is that halfway through the year, we have a total area inventory that is 9 percent less than the same date last year.

Unit sales are down 6 percent and sales volume is down 24 percent. The average sold property is on the market only two days longer than a year ago. We have approximately 14 months of inventory compared to 15 months a year ago.

REAL Trends: What percentage of your business is short sale and foreclosure?

Fruth: Short sales make up approximately 20 percent of our business, foreclosures 35 percent and traditional sales 45 percent.

REAL Trends: What is your biggest challenge today as it relates to short sales?

Fruth: The biggest challenge pertaining to short sales is the length of time that it takes to get a firm decision from the lender or investor. Some lenders have improved considerably, but it’s amazing to me that it can still take over six months to get an approval from certain lenders.

If you do enough of these you understand how the lenders got into this mess in the first place. Some lenders can tell you within weeks, and you can close in less than six weeks. Unfortunately we are soon reaching a critical time for first-time buyers who are seeking the $8,000 tax credit. They’re seriously asking themselves if they can afford to get tied up in a transaction that involves a short sale since it would have to close by the end of November.

REAL Trends: Are there any bright spots in the market?

Fruth: There are a few bright spots. Because this downturn has lasted more than a year, some weaker agents and brokers are taking early retirement. We’ve also been able to recruit some newer, quality agents who were downsized by their employers in other industries. We’ve increased our market share. Also, it’s a tremendous time to be buying properties—more wealth will exchange hands over the next two years than any time in the last three decades.

REAL Trends: Are you seeing any investor activity?

Fruth: Investors represent a large segment of our market. Our firm currently represents investors from as far away as Hawaii and California. Some are buying and holding and others are fix up and flippers.

REAL Trends: Is there anything else significant going on in your area that is affecting sales?

Fruth: Toledo’s economy remains on a downward slide. We are ground zero when it comes to the American auto industry. Two of our largest employers are GM and Chrysler. Manufacturing jobs have declined 25 percent in the last year and the unemployment level in Toledo is almost 16 percent.

If Obama’s cap and trade bill goes into effect, the Toledo area will suffer even more. I will conclude by saying that our company’s leadership is committed to being the best lemonade makers in the country—we have plenty of lemons at our disposal. On a positive note, it appears that the Toledo area has staked out a positive position in the alternative energy field and in particular the design and production of solar panels.

Jim Reese, general managerCarolina One11 offices865 sales associates


Reese: Our units are off about 22 percent and volume is down 31 percent. Our average listing on market is 114 days for those that sell. As for standing inventory, we’re selling 10-15 percent of it in the 90-day period. The odds of a property selling within the listing period are about 28 percent. Our company is selling about 40 percent the first time around, so we’re better than average.

(Trends continued from page 9)

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Reese: We’re running around 18-22 percent of our sales as foreclosure and short sales. We’re just in the beginning of this distressed property market because there was a moratorium in South Carolina for foreclosures.

REAL Trends: What is your biggest challenge today as it relates to short sales?

Reese: Communication with the banks. We’re struggling just to get some answer back. Buyers are getting frustrated with the total lack of communication. The banks are sometimes openly shopping their contract. We’re advising buyers that it can take 30 to 120 days and the bank can still pull out of the contract right up until closing.

The second issue is not a bank issue; it’s an agent issue. We’ve had agents who say they’re experts offer an unrealistic price to encourage bidding wars. Sure, the bank gets a lot of offers but they reject them all because they’re not near what market is.


Reese: Builders who are still alive are starting to offer a new construction product that’s a great deal. REOs are starting to get realistic in pricing and that’s a good deal. On the coast, you’ll see extremely high-end properties (over $1 million) dropping 40 percent.

It’s scary but they’re absorbing on a monthly rate of 2-4 percent. We’re starting to see shadow inventory, a market has 8000 properties for sale, behind that is a group of people who don’t have to sell but want to sell. When some properties sell at decent prices, all of a sudden a bunch of resales jump on the market. We’re looking at that as a good prospecting method— it’s a great time to move up. We find the move-up buyers, those who may have put their property on the market a year ago but didn’t sell and didn’t have to sell.


Reese: We’re seeing some investors but not the everyday investor—that day is over. The investor we’re seeing is very well capitalized investors and going at REOs and significant low buys. We see offshore investors coming in to buy an oceanfront property for half the price it was listed at a few years ago.


Reese: The credit implications for people who get out of a short sale need to change. These people are recorded with a “non pay in full” and it hurts their credit scores and ability to

buy another house. We have to free those people up but not impair their ability to get a house.

Locally, we’ve had a Boeing aircraft factory, a defense contractor and an electronics firm expand recently. Two major employers have announced expansions. Despite that, our unemployment is still bouncing up against 10 percent and that’s a major issue. Our company is offering a job loss protection program. We’re doing what we can to take the buyer who has that anxiety and help them feel comfortable buying. We’re offering home warranties on resales, job loss protection for those who are in the market and a little worried—anything that can take the anxiety out of the market.

Iris Ade, brokerPrudential Preferred PropertiesChicago


Ade: This time last year, it was still a good market for me. Even though I could see some changes. I did have clients who had difficulties carrying financing for purchases of new construction that may have gone to contract a year earlier. We’ve had to expend a lot of effort to secure financing.

I specialize in the $750,000 to $6 million-price range, in the resale side and 85 to 90 percent of that was cash—as a result 2008 was huge for me.

Going into 2009, that same luxury buyer who can still pay cash in that price range is out there but there isn’t the same sense of urgency. They’ve been waiting it out, the media has been so broad in its interpretation of what’s going on that the buyer is taking a “wait and see attitude.” I’m just now seeing an increase in traffic.

My cash buyer doesn’t have a problem moving forward but the market is giving that buyer a pause—what is appropriate market value? That’s the unknown and the buyer who has cash wants the best value and the seller isn’t in a hurry to sell. The biggest issue is what that number is and doing the homework and research so I’m on the same page with the buyer and seller.


Ade: I’ve not worked with any short sales, I’m a listing agent but I’ve represented a few buyers who bought at auction of new construction. In my luxury market, foreclosures are such a small percentage of the inventory.



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Ade: I don’t see the fear that we saw earlier this year. We aren’t seeing that level of uncertainty. I’m seeing activity now. Buyers want more information, and they’re more receptive to receiving it. At one point, we saw traffic just drop off; it’s getting back to what this market should be going into fall.


Ade: Not at this time. Typically, I would say a good one-third of my clients were investors but that’s fallen off tremendously. The buyers out here now are end users. Investors are probably after short sales and foreclosures—that’s where the deals are now.


Ade: The largest challenge that a listing agent is experiencing is the new challenges with the appraisal process. Eventually we’ll work though it. Right now you can often have a significant disparity with two appraisers on the same property, especially if one appraiser is not familiar with the product or the market area. With the new appraisal codes of conduct, you can’t provide comps.

Despite that, I’m excited that the market is finally active again. n


Economic conditions have forced mortgage joint ventures to restructure and become more efficient. REAL Trends spoke with three different companies to find out what they’re doing to weather the storm.

Carter MurdochBank of America

REAL Trends: How do you see the market for the remainder of this year and early next year?

Murdoch: According to National Association of Realtors (NAR) research, the economic recovery appears to be underway with real estate. Certain markets will most likely continue to have a significant supply of distressed properties causing price declines, but most markets will begin to show signs of price stability.

This is not to say that I would expect a “V” shaped recovery. Instead, NAR believes that most markets will experience a flat or slow recovery in unit growth and price appreciation, dependent on stabilization in the U.S. economy and job loss.

According to the Bureau of Labor Statistics, unemployment has blossomed from historic lows (under 5 percent) just a few years ago to 8.9 percent and growing in April of 2009. As job growth/loss goes, so goes the US economy. Consumer confidence is driven by job stability and wage growth. Historically, the labor market is a lagging indicator to economic recovery and this business cycle appears no different. REAL Trends: What do you see as the future of mortgage joint ventures? How will (or have they changed) they change in the next year or two?

Murdoch: According to the Mortgage Bankers Association, purchase mortgage originations have dropped more than 35 percent over the past three years. And, NAR reports that existing home sales have dropped from 7.2 million to less than 4.5 million units per year. This has invariably put

pressure on mortgage joint ventures (JVs), resulting in a concerted tightening of the belt. This tightening of the belt has meant more nimble, cost efficient JV structures that should yield a higher ROI in the coming years, especially as the purchase market rebounds.

Companies like Bank of America should be uniquely positioned to offer large real estate brokerages and home builders highly competitive JV opportunities that will be additive to a firm’s bottom line.

REAL Trends: What are some trends you’re seeing in this arena?

Murdoch: Many wholly owned mortgage companies have seen a tightening in the availability of various lines of credit. It’s a cliché, but change does create opportunity for those that are properly positioned.

In many cases, shrinking margins combined with line of credit issues are resulting in many wholly owned mortgage operations entering into JVs with large financial institutions like Bank of America. This process has accelerated the velocity of JV turnover, thereby creating additional opportunity for proficient JV operators.

Anna Ruotolo, EVPProspect Mortgage, previously know as Metrocities

REAL Trends: How do you see the market for the remainder of this year and early next year?

Ruotolo: I see the recovery as bumpy. It’s interesting, one of the things I observe is that things are moving very fast but slow at the same time. There’s a certain velocity that’s exciting, a lot of activity in refinancing and that’s active and fast. But, there are so many rule and guideline changes that we’re seeing the entire process slow down. Close times take longer.

As a mortgage industry, we’re getting a tidal wave of

Much Pressure on Mortgage Joint Ventures

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regulatory changes and lending guidelines, and we’re trying to stay on top of this wave and it’s difficult. We’re just trying to keep up with warehouse lenders’ changes, mortgage insurance company changes, regulatory changes—there’s a lot to absorb. I think we’ll bounce for a while—the jumbos are hard to sell and finance and the higher price ranges are difficult to deal with.

Until the liquidity opens up, the conforming FHA segment is where the market’s at right now.

I think prices will be flat for some time, and then we’ll go back to traditional real estate appreciation. We’re seeing increased activity in distressed markets and a lot of pent up buyer demand in those areas too. I think we’ll see some areas that will have average sales price increases and more units selling.

My partners think we’ll see a lull this summer. That’s speaking from the real estate side, they’re being hopeful for fall. I think we have some inventory that needs to come on the market and that’s worrisome to me. I think we’ll see a lot more short sale activity hit the market.

I still think we’re in a transition market and there will still be some shakeout, that’s a gut feeling I have. I don’t think the consolidations are over yet. And that’s normal in a transition market.

REAL Trends: What do you see as the future of mortgage joint ventures? How will (or have they changed) they change in the next year or two?

Ruotolo: What’s interesting is that right now the JV focus is on the low end where the products and the inventory (thus activity) is. Those will work, because you can get good profitability out of it. In the high-end market, or even the mid-range, in those markets there’s little service release premium (SRP) on a product—that will be tough to run.

I think JVs during this time frame are becoming more important to real estate companies because we’re a primary source of profit for them—even more so now than in the past. I’m hoping that partners will take advantage of strengthening their JV with us so when the market turns, the market share increase can dramatically spike. We’re having stronger capture rates, which can signal a market turnaround, however that’s not always a good prediction. But, now’s the time to be there working with agents, training them on working properly, setting expectations on escrows, how to handle short sales, REOs, foreclosures and more.

The future of mortgage JV should be stronger because we have such a strong piece of the brokerage. Loan officers are seeing the value of being there. When the market recovers, they’ll be rewarded with loyalty.

REAL Trends: What are some trends you’re seeing in this arena?

Ruotolo: A lot of institutional lenders have reduced commissions to loan offices quite a bit and that creates profit opportunities for partners. Small JVs aren’t making sense right now because partners don’t have enough transactions. And they’re hard to administer. We’re seeing a lot of marketing agreements and JVs dissolved because of the decline in the market across the industry.

It means the JVs that stay will be more focused. The same things as far as loan officers, a lot of people are dismissing loan officers that aren’t productive, you’re seeing more focus on loan officers and JVs that are real partnerships.

Joe JacksonWells Fargo Ventures REAL Trends: How do you see the market for the remainder of this year and early next year?

Jackson: After this latest wave of refinancing, we’ll return to a market dominated by purchase volume. We also anticipate a continued shift toward alliances, which enables the real estate company to offer more control and integration of the customer experience—and the strongest capabilities to support new federal requirements.

It also feels like next year could be a year characterized by the “survival of the fittest.” Mortgage partners succeeding will be those who know how to thrive in a purchase market, and who are seamless in integrating the new realities. It will be critical to have these core capabilities in place and some lenders aren’t really prepared.

As lawmakers move to implement changes in the mortgage and title industries, those who haven’t been anticipating and planning and staying ahead of the trends will find it harder to respond.

REAL Trends: What do you see as the future of mortgage joint ventures? How will (or have they changed) they change in the next year or two?Jackson: Our alliance model has proven to be flexible over the long-term—and to be successful in all economic environments. While the market has gone down, capture rates are way up as consumers look for trusted lenders. During this downturn, mortgage, title and other core services are providing brokerages invested in integration of all real estate services a way to meet customer needs and a strong competitive advantage.

One of our partners sat on a RESPRO panel this past spring. He said that real estate companies who don’t have mortgage and title companies might not survive. Many are truly


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looking at themselves as full-service companies and have incorporated management structures that support a business model that focuses on all the customers’ needs.

We believe this support will continue to increase the success and sustainability of the model.

We are seeing, more than ever, that reputation counts. Broker/Owners are comparing notes and talking with peers about how they’re surviving in this challenging market, and how their core services are helping them. One such partner is our newest Joint Venture partner, Prudential Douglas Elliman Real Estate (PDE). We’re excited to begin this relationship and feel it’s a validation of the strength of the model.

REAL Trends: What are some trends you’re seeing in this arena?Jackson: More than ever, survival and success come down to execution. It’s not a good time to face business interruption from the loss of capabilities or to be with a partner struggling to comply with new regulations.

Thus, we continue to see movement toward alliances by real estate companies as a way to offset this business risk while still providing the one-stop shopping services their customers prefer. A Joint Venture truly offers the best combination of integrated lending, comprehensive business capabilities and reduced risk. This will keep the alliance business model at the forefront for the foreseeable future. n

Consumer Spending ShiftBy Jerry Matthews, Consultant

Consumers have stopped discretionary spending. If this is a permanent shift it originates from several sources and will impact critical areas in the future.

Trend: Consumers have dramatically reduced spending. In fact, they have made the amazing flip from consuming to – gulp – saving. The spending behaviors seem quite different from past recessions.

This could be a permanent change in the consumer. If so, it is leveraged by the convergence of three trends.

First, the recession is severe and economy-wide. Happening after excessive spending fueled by easy credit and inflated assets, the change was abrupt. Deep recessions with high unemployment will retard spending. Everyone is fear-frozen.

Second, is the transfer of power from Baby Boomers to Generation X. The influence of Boomers is fading through dropping numbers (retirement or death) and Gen X is asserting control. These generations have different attitudes about life style. Gen X is more quality-of-life driven and careful financially. So the emerging power group of the future is naturally a non-consumer.

Third, the Internet is making shopping, comparing and purchasing easier than ever. The lowest possible price anywhere is available to everyone. Impulse buying from advertising or physical stores is not likely with such empowering technology. Frugality has technology as a partner.

Future Impact: After the recession the level of consumption will be lower. Oh, there will be the occasional small extravagance, but the deeper trend seems set. Obvious losers are economic growth, retail services and high-end consumables. Retail and commercial business properties are very vulnerable.

Increased savings will fuel capital investment in new age businesses. Robust web-based shopping will continue growing. Trust of web transactions will increase with third-party guarantees and transfer services.

[Note: Consumers is one of 10 areas with greatest future impact that I track in the “Way of Tomorrow” series.]

For more information go to [email protected]. n


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NEWS

Mergers & Acquisitions

Coldwell Banker Residential Brokerage in Chicago announced it has acquired the assets of Drake Realtors Inc. in Clarendon Hills, Ill. The formerly independently owned and operated company, which has served the Clarendon Hills and the Western Suburbs for more than 18 years, will now do business under the banner of Coldwell Banker Residential Brokerage. Drake Realtors Inc. has 17 sales associates; co-owners Diane Smith Cochran, Marie Krasne and Arlene Kubasek will stay at the office as sales associates with Coldwell Banker Residential Brokerage.

Coldwell Banker and Burgdorff ERA in New Jersey are being combined by their parent company, NRT, itself owned by Realogy Corp. The merger was announced June 23. Since then, the Burgdorff ERA offices all over the area are being rebranded as Coldwell Banker outlets. Coldwell Banker now has a total of 63 offices and 3,700 practitioners in New Jersey, the company says.

Morgan Lane, a fast-growing boutique real estate firm in Marin County, California announced on July 20, 2009 that it has entered into an agreement with Brookfield Residential Property Services to purchase Pacific Union Real Estate. Mark A. McLaughlin, owner of Morgan Lane Marin, will serve as the CEO of both companies. Currently, Morgan Lane has 24 sales professionals working from four offices and Pacific Union has 410 sales professionals in 13 offices in the Bay area.

Sotheby’s International Realty Affiliates LLC announced the signing of an exclusive 25-year master franchise agreement covering Lazio, Rome, with St. Peter—Real Estate s.r.l. The new firm now will operate as St. Peter Sotheby’s International Realty, with Angelo Savioli serving as office manager and managing director, Arch. Gianluca Puracchio as senior broker and Lola Echeverria Precioso as broker.

Altera Real Estate announced that Judy Kalbrener, GRI, CRS, is the newest Altera Real Estate affiliate. Kalbrener is the broker/owner of Altera Real Estate, Honolulu, Hawaii.

Brookfield Residential Property Services announced that it has re-branded its Royal LePage Relocation Services business unit and re-named it Brookfield Global Relocation Services. Keller Williams Realty Inc. recently announced that it’s expanded its growing network to the Newton, Mass. area by the

opening of Keller Williams Realty. Operating Principal David McCarthy and Team Leader Carole Helwig will run the new office.

Coldwell Banker Residential Real Estate LLC announced that it has acquired the assets of Tourtelot Brothers Inc. based in St. Petersburg, Fla. More than 35 sales associates from two Tourtelot Brothers locations will join Coldwell Banker Residential Real Estate’s St. Petersburg operations. Coldwell Banker Residential Real Estate will now have nearly 750 real estate sales associates in the local market and nearly 5,000 associates throughout Florida, located in 76 offices.

Executive Appointments

The National Association of REALTORS® announced the Weichert Relocation Resources Inc. (WRRI) recently named Dean Mellor as client service director for the Calgary office. In this role, he will serve as the single point of contact and knowledge resource for his clients, and manage the service teams assigned to work with his clients’ mobile employees. Also in the Calgary office, Lori Nymark was named senior relocation counselor. In this role, Nymark will serve as the single point of contact for relocating employees on domestic, international and cross-border moves. In WRRI’s Toronto office, Peter Cloutier was named client service director, responsible for fostering and maintaining superior working partnerships with clients and overseeing the service teams assisting their relocating employees and families.

Former Putnam Investments chairman Charles “Ed” Haldeman Jr. has been named chief executive of Freddie Mac, the mortgage giant’s third CEO this year. Haldeman, who resigned in June as chairman of Putnam Investment Management LLC, replaces John Koskinen, who has been interim CEO at Freddie Mac since March, when David Moffett resigned.

Announcements

Leading Real Estate Companies of the World has aligned with eRealInvestor Inc. to provide the network’s 600 brokerage firms a Web-based suite of financial analysis software for residential real estate investors. The company’s eRealAnalyzer is a one-click financial analysis application. The solution enables the analysis of thousands of properties listed on real estate portals and Websites. n

Editor’s NoteGood news – July 2009 unit sales were above July 2008 unit sales by 2.8 percent. This is the first time since June 2005 that one months unit sales results were better than the same month a year earlier. While prices were still down they were down less than at any time year over year since early 2008.

Many real estate industry economists believe that the worst of these declines are over. Much of the optimism is based on the continuation of current government efforts to stimulate housing. One trusts that those in Washington understand the implications. n

2009InnovationConference

Today, everyone in our business must be focused on innovation – delivering service better, faster and cost-effectively. This year, moderated round tables and small group sessions will be fine-tuned to focus on the new challenges faced by real estate professionals. Join us in Dallas to get the knowledge you need to move forward.

September 23-25, 2009Four Seasons Resort & ClubDallas at Las Colinas

Here’s what others thought about our last REAL Trends conference:

Simply no better conference for the time and money invested.– Charlie Bengel, Jr., CEO, RE/MAX Allegiance

REAL Trends’ brings the best minds and business models in the industry together to learn from each other.– Chuck McNeal, President,

The Group, Inc. Real Estate

The most progressive real estate conference I’ve attended!”– Lola Audet, Grand Rapids Association of REALTORS

After 23 years of publishing REAL Trends in a written format we have decided that it is now time to shift to a PDF format for all of our readers. At this time over 24,000 leaders in the industry receive REAL Trends each month with less than 200 still receiving it in a printed form. The cost of printing and postage for so few exceeds the revenue at this level.

We do not make this decision lightly and only after two years of attempting to lower the costs of delivering it in the printed fashion. Like many of our dedicated readers we do so with great reluctance. We trust that our readers will feel that they are getting the same or better value than before. – Steve Murray, editor, REAL Trends

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