March 6, 2006


Secret Agents offer rebates
Realtor.com test new advertising models
Californians arrested in real estate fraud scam
Home Buying for Dummies
Housing Market Trends
Market Commentary


'Secret agents' quietly offer real estate rebates

Barbara is a secret agent in a new real estate network. At Barbara's request, her last name will not appear in this article because she does not want other agents to know about this affiliation. Barbara is not alone. Other high-profile agents, too, have gone undercover to join the network.

This is not a story about a shadowy underworld of cloak-and-dagger operatives or international intrigue -- it is all about agents who want to offer consumer rebates for real estate services without revealing to their brokers and other agents that they are working at discounted rates.

Barbara has agreed to rebate a portion of her commission income to buyer and seller clients she meets through her participation in this upstart real estate discount network, called Realty Legacy. Through a contract agreement with clients, she agrees to refund sellers at least 1.5 percent of the sales price of their homes after the real estate sale is settled. For buyers, she draws up a contract to refund all of the commission she receives above 1.5 percent of the home's selling price.

So what's the big secret?

Some brokers do not allow their agents to discount real estate commissions without their approval, and some brokerages set specific limits on how low they are willing to go with commission rates for real estate services. Also, some agents worry that advertising a discounted commission rate in a multiple listing service will deter other agents from showing the house, as not all agents are willing to work at a discount rate. These agents could steer their clients away from these homes that offer a discount commission.

The Realty Legacy solution: Discount ... and don't tell.

"No other agent will know that any listing is or is not a Legacy listing," according to the company's Web site description. "Legacy properties look just like any other property in the neighborhood. Only the agent and the client know how much everyone is saving. All of the special refund arrangements are handled strictly between the (clients) and their agents, and all funds are paid outside of the settlement."

According to Real Trends, a real estate research and information company, real estate commissions have hovered around the 5 percent range for the past several years. In a typical real estate transaction, there are two sides -- a buyer's side and a seller's side -- and the seller agrees to pay the listing agent's company a percentage of the home's selling price for service performed. The listing agent's company shares a portion of this commission, usually about half of the amount, with the buyer agent's company.

Additionally, agents typically have an arrangement with their brokers on commission revenue that they bring in for the company, and this sharing can vary widely: from a 50-50 split with their brokers to a 90-10 split (or more) in favor of agents.

Legacy Realty, which is available in Virginia, Maryland and Washington, D.C., keeps up appearances by handling the rebates apart from the typical real estate transaction process. Brokers and other agents are unaware that agents in the network are cutting their commissions because they all receive a typical commission share in the typical manner.

Home buyers who enter into a contract with a Legacy Realty agent receive a refund on any amount above 1.5 percent of the sales price that their agent receives for participating in the sales transaction. So if the Realty Legacy-referred agent receives 2.5 percent in the transaction, the buyer or buyers would receive a rebate of 1 percent of the sale price, for example.

Barbara doesn't need to offer rebates. She has been in the business for about 30 years and is among the top 2 percent of agents nationwide for the volume of business she handles. Her participation in the network is not entirely altruistic -- it's just a way to drum up some new business. "It's another source of referrals. The more referrals you have the more money you can make."

Consumers are definitely looking for deals these days, she noted, and the Internet has contributed to this drive for lower rates. Several of the clients who Barbara has met through Realty Legacy referrals are interested in working with her on both the sale of their existing home and the purchase of a new home, she said, and the clients will receive the rebate discount for both parts of the real estate transaction that she handles.

"This is a legal way to rebate your clients," Barbara said. "It's after the fact -- that way it's not that I'm taking any money out of my broker's pocket at all. It doesn't' take any money out of the other agents' pockets. That's the beauty of this -- you advertise whatever commission split is the norm for your area." She said that if she reveals her identity to other agents, she is worried that real estate companies might try to stamp out the practice.

"I'm afraid of the 'big boxes' saying, 'No, you can't do this.' I don't want to be a test case," she said. The industry attaches a stigma to discount real estate listings, and some agents are more likely to encourage clients to buy homes that offer those agents a higher rate of commission, Barbara added. "Don't think it's not about commission dollars -- it is."

Ron Patterson, a longtime Realtor who founded Realty Legacy, said the network has been wildly popular since its launch a few weeks ago, generating about 120 contracts among its founding group of 12 agents.

Patterson, an associate broker at a Long & Foster office in Alexandria, Va., said he reached out to a core group of agents who he knows personally in forming the group, and he has plans to expand the network to other areas. Agents from Long & Foster, Weichert and Prudential are among those who are affiliated with the network, he said.

"I think eventually it will spread to all major markets around the country," Patterson said. He has applied for patents on the intellectual property and related technology of the referral network.

"It has really exploded much more than we thought it would and that's without any publicity," he said. Clients who choose to list a property with an agent in the Realty Legacy network are assigned to an agent in the network. To participate in the network, agents pay a $200 application fee and a $300 fee to receive referrals for five ZIP code areas for a six-month period. Participating agents can also pay $50 more every six months for each additional ZIP code.

Additionally, agents pay the company a $100 one-time fee for each completed real estate transaction that is related to a Realty Legacy referral.

Clients pay a fee of $200 to participate in the referral network, or $300 if they plan to both buy and sell a house with the referred real estate agent. Clients are matched to an agent within three days. This fee will be fully refunded, Patterson said, if the clients choose not to complete a transaction with the referred agent.

The company requests that consumers enter their credit card information to pay up-front for the referral network services, and Patterson said this is to help ensure that the inquiries are from serious real estate clients.

At the foundation of Realty Legacy is Patterson's belief that house-price increases make it difficult to justify standard real estate commission rates. "On an $800,000 sale, sellers are paying $50,000 to get it done and that's stupid," he said.

Patterson said that because of concerns that other agents will boycott the listings of Realty Legacy-affiliated agents, the company is keeping a low profile on its affiliates. "It has to be done quietly," he said. "The confidentiality of this makes it work."

Even so, Patterson expects that word will spread quickly about the discount network. "There's no question people will find out who's doing it and who's not doing it," he said. "It has already raised a few eyebrows in my office," as the network is pulling in lots of clients.

The timing is right for the network, he said, because home prices have reached a level where rebates make a lot of sense. "It's about time it happened." Patterson has spent 25 years in the real estate business and practiced law for 10 years before that.

Patterson and Barbara said the network is not for every agent. Those agents who already have a lot of business and have very favorable commission splits with their brokers are the most likely to participate in the network, they said.

 

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Realtor.com tests new real estate advertising models

Managers of Realtor.com, a popular Internet home-search destination, are testing out new types of advertising models, including auction-based and pay-per-lead pricing for online ads.

 

Mike Long, CEO for California-based Homestore, Inc., which operates Realtor.com, RentNet.com, HomeBuilder.com and other real estate-related sites, said that these alternative payment methods are undergoing trials.

 

Realtor.com is affiliated with the National Association of Realtors, and the association has endorsed the trials of a pay-per-lead advertising model, Long said. He noted that alternative approaches to advertising at the site would not replace existing forms of advertising at the site. Long spoke during a Homestore conference call today that included a discussion of the company's fourth quarter and 2004 earnings.

 

"Basically a Realtor would buy our advertising product based on a number of leads that are generated by the advertising product," Long said. "We want to test pricing to make sure it's fair for us and our customers. I think our offering is going to be probably different than some of the products in the market today -- they'll be priced differently, they'll look differently."

 

Initial trials of this advertising platform should wrap up by mid-year this year, Long said. "It's early for us . . . to discuss pricing. We're working with local markets. We'll speak more publicly about that at some of the industry events coming up in the next several weeks." He noted that there are already many competitors in the pay-per-lead arena.

 

Also, Long discussed auction-based pricing for Featured Homes listings at the site. These types of home listings receive more prominent placement on the Web site than standard home listings. Standard home listings at Realtor.com, which include a text description and a single photo for each property, are available to Realtors at no cost.

 

Long said that the auction-based pricing for Featured Homes advertising at Realtor.com will be tested in several ZIP codes. Under this trial program, Realtors can bid to win the Featured Homes listing inventory in a market area. The intent, Long said, is to gauge the success of these Featured Homes listings, to penetrate new markets, and to "determine whether auction-based pricing serves the needs of our customers."

 

Brokers are waking up to the opportunities in online advertising, Long also noted. In February, Realtor.com entered into a marketing agreement with NRT that allows NRT brokerages to utilize enhanced, paid property listings and other ads at the site. "The NRT deal is a very strong endorsement of Realtor.com," Long said, and it is also suggests a possible trend toward Internet marketing and advertising by real estate brokerages.

 

"Other brokers will be shifting quite a bit of offline spending to the online world," he said, adding that he expects the NRT deal to stimulate other brokers to step up online advertising efforts.

 

The Homestore network of Web sites gathered 9 million unique visitors in January 2005, according to comScore ratings, for a total of 300 million minutes spent on the Homestore network of sites, Long said.

 

The real estate media and technology provider Wednesday reported fourth-quarter revenue of $54.3 million, up from $51.9 million during the same quarter the previous year. Revenue for the full year 2004 was $216.9 million, up from $205.9 million for the full year 2003.

 

Net income for the quarter was $6 million, or 4 cents a share, up from a loss of $12.1 million, or 10 cents a share, for the same period the prior year. The net income for the current quarter includes a gain on the disposition of assets totaling $7.3 million, and a revision in estimates to previous restructuring charges of $971,000.

 

Homestore recorded a net loss of $7.9 million, or 6 cents a share, for all of 2004. The yearly loss narrowed from a net loss of $47.1 million, or 40 cents a share, for the full year 2003.

 

Homestore's EBITDA (earnings before interest, restructuring charges and certain other non-cash expenses, principally stock-based charges, depreciation, and amortization) for the fourth quarter of 2004, was $2.9 million, compared with a loss of $915,000 for the fourth quarter 2003.

 

Homestore's EBITDA for the full year 2004 was $2.6 million, compared with an EBITDA loss of $17.8 million for the full year 2003.

 

Long said that Homestore is expected to achieve annual revenue growth of greater than 10 percent.

 

 

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Californians arrested in real estate fraud schemeTuesday March 7, 2006

Two California men were arrested Friday March 3 for real estate fraud, the culmination of a six-month investigation.

John Wilfred Curley, 37, of Sacramento, and Muhammad Adenwala, 30, of Roseville, were arrested by the Sacramento Police Department's real estate fraud unit Friday, the department said.

Curley and Adenwala were booked into the Sacramento, Calif. county jail and charged with recording false documents, forgery, grand theft and conspiracy, police said.

The unit had been investigating allegations that Curley, owner of JC Lending in Sacramento, and Adenwala, owner of Mountain View Mortgage and a certified notary public, were involved in a real estate fraud scheme, police said.

According to the department, Curley and Adenwala used information from their customers to falsify quit claim deeds. The suspects would then allegedly record the forged documents and obtain loan proceeds from the false transaction, the department said.

The department doesn't know how many of Curley and Adenwala's customers were affected by the alleged scheme, but investigators are asking anyone who conducted business with the two suspects or their businesses to check their records, police said.

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Home Buying for Dummies

In its two prior editions, "Home Buying for Dummies, Third Edition" by Eric Tyson and Ray Brown sold more than 600,000 copies. But the "new and improved" version, while not perfect, makes this best-seller even more valuable for home buyers and their real estate agents.

Because of its complete coverage of virtually every home-buying topic, this is still the best "how to buy a home" book currently available. The new edition added extensive coverage of Internet resources for home buyers. This information is especially valuable because more than 70 percent of today's home buyers begin their quest on the Internet.

Purchase Bob Bruss reports online.

However, the one section that can stand some improvement deals with the vital topic of obtaining a home mortgage. Although the superb chapter on credit scores leads up to the mortgage chapter, the mortgage explanations are a letdown.

Also, the pros and cons of obtaining a mortgage online are overlooked. The key subject of APRs (annual percentage rate) to compare mortgage offerings among lenders isn't even mentioned. Considering that Tyson and Brown also wrote "Mortgages for Dummies," they know well the key facts home buyers need to understand about home loans.

Especially valuable is the advice for home buyers to "assemble an all-star real estate team." In addition to explaining how to find a top-quality buyer's agent, rather than relying on the seller's listing agent, the authors recommend pre-arranging for a mortgage lender, professional property inspector, and possibly a lawyer, escrow or closing settlement officer, and tax adviser.

Heavy emphasis in the "What's it Worth?" chapter is placed on how home buyers can spot overpriced listings. Shockingly, Tyson and Brown explain the reasons could be inept listing agents and unrealistic sellers. More important, they emphasize how savvy buyers can know what a house or condo is really worth before making a purchase offer.

The book's best chapter explains how home buyers can negotiate a successful purchase. "Put yourself in the sellers' position. The sellers don't care how long you've been looking for a home or how little you can afford to pay. Faced with several offers, sellers select the offer that gives them the best combination of price, terms and contingencies of sale. Find out what the sellers' needs are before making your offer. Their self-interest invariably prevails," the authors sagely advise.

Although the book's original edition was written when co-author Ray Brown was a recently retired Realtor, since then he was "recalled to active duty" two years ago to manage one of San Francisco's largest real estate brokerage offices. Because he is now in the trenches every day supervising more than 100 salespeople, the book's latest edition has become more valuable since it reflects the latest insights Brown learned from being back on the frontline of current home sales.

Chapter topics include: "Deciding Whether to Buy"; "Getting Your Financial House in Order"; "What Can You Afford to Buy?" "Why Home Prices Rise and Fall"; "Understanding and Improving Your Credit Score"; "Selecting a Mortgage"; "Mortgage Quandaries, Conundrums and Paperwork"; "Where and What to Buy"; "Assembling an All-Star Real Estate Team"; "What's It Worth?" "Tapping the Internet's Best Resources"; "Negotiating the Best Deal"; and "Inspecting and Protecting Your Home." The excellent Appendix includes a sample real estate purchase contract and a home inspection report.

Could this already outstanding home-buying book be better? Of course. There is always room for improvement. But the book's small deficits are tiny compared to the valuable and practical home-buying information conveyed in an easily understandable manner. If you plan to buy a home, don't fail to first read this outstanding book. On my scale of one to 10, it still rates an off-the-chart 12.

"Home Buying for Dummies, Third Edition," by Eric Tyson and Ray Brown (Wiley Publishing, Inc., Indianapolis, IN), 2006, $21.99, 328 pages; available in stock or by special order at local bookstores, public libraries, and www.amazon.com.

 

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Housing Market Trends

How to handle 'year of the buyer'

Part 3: Housing market flattening, but no crash

Wednesday, March 08, 2006

By Janis Mara
Inman News

Editor's note: Experts have predicted that the torrid pace of home sales and double-digit price growth would slow this year, and some segments are already experiencing this. In this three-part report we take the housing market's latest pulse to get a feel for what's happening across the country and what real estate executives advise brokers and agents can do to stay on top. (See Part 1 and Part 2.)

In what some have described as "the year of the buyer," as the real estate market continues to slow, real estate brokerages and agents are changing tactics to meet the challenge.

"I adjusted my marketing plan. I look my sellers in the eye and say, 'Guess what. The "real" is back in real estate,'" said Vince Malta, president of the California Association of Realtors.

Getting tough with sellers and insisting on realistic, lower prices is only one part of the puzzle, according to Gib Souza, president of the Bay East Association of Realtors in the San Francisco Bay Area.

"For someone to survive in this marketplace they need to go back to the basics," said Souza. "Stay in touch with your clients via your database, tell people what you do for a living so they understand the value of the services we provide."

The "back to basics" theme was echoed by Harley E. Rouda Jr., CEO and managing partner of national franchisor Real Living Inc., one of the largest U.S. residential real estate firms.

"There has been a distinct shift from a seller's market to at best a balanced market alternatively weighted to a buyer's market," Rouda said. "Because of that we are encouraging our agents to go back to the basics in several areas: prospecting, presentations, marketing the listing and negotiating."

In the prospecting area, Rouda said, "we have a robust Internet technology platform" that automates the process.

"If they've (agents) picked up prospects from open houses, calls on signs, calls on ads, they can identify those prospects as cold leads or hot leads or ultimately a client and input that data."

Then, the system will contact the potential clients with the appropriate type of message and frequency. For example, an e-mail every three months to a cold lead with a few listings, as opposed to contacting the prospect more often, Rouda said.

"The second thing is presentations. In a seller's market, often agents go in knowing they're going to get the listing. But in a highly competitive market, it's imperative the agent go in with the best foot forward," Rouda said. To that end, he said, the company's technology includes a point-and-click technology through which agents can create presentations customized to individual properties.

As for marketing and servicing listings, Rouda said all firms and agents do a good job in this area, but it's key to make sure the client knows this.

"We have created an automated system to communicate marketing efforts directly to the sellers," Rouda said. E-mail messages direct sellers to customized MyRealLiving sites created for the seller, where they can see where the property has been advertised, see what the feedback is, what properties are in competition with theirs, price reductions, expirations, and what has sold.

In some highly competitive markets, in the past few years, such tracking technology would have been unnecessary, because houses listed and sold in just days, sometimes hours, Rouda said.

"But now, when properties stay on the market longer, it's helpful," the CEO said.

The last step, Rouda said, is making sure agents have the education in negotiation and skill development to allow them to succeed in a changing market. His company has partnered with Keith Ferrazzi, CEO of Ferrazzi Greenlight, a sales and marketing consulting firm, to educate its agents in this area.

Real Living isn't the only brokerage educating its agents about the changing market.

"We recognized last fall that the market was more balanced, so we developed some in-branch training particularly for new agents to help bring them up to speed on what new market conditions are like," said Sherry Chris, chief operating officer of Prudential California, Nevada and Texas Realty.

"One of the things we taught them was to keep in mind that listings are going to last on the market longer," Chris said. "In a brisk market where listings were lasting only a matter of hours, they now could be 13, 16, 90 days, and they have to be marketed differently."

Marketing a listing over an extended amount of time involves networking with different agents, putting many photos of the listing on the MLS and on the agent's company Web site and managing the open house process "so you are rotating your listings," the COO said.

Managing the advertising process is also critical, Chris said. Touching on the shift from print media to online media, the COO said, "There are reasons for doing that. One is the longer shelf life of the actual ad. Online, it's on there until it sells."

The online advertising challenge, Chris said, is driving traffic to the actual listing.

"We're exploring with a number of companies, HomeGain being one of them, on lead generation and how we drive traffic to our site and our listings," Chris said.

Like Chris, Souza of the Bay East Association of Realtors is beefing up advertising spend. He will devote 40 percent to 50 percent of ad spend to the Internet, he said. In addition to Realtor.com, Souza plans to invest money in search engine optimization for his Web site to make sure it shows up high on the list of search results.

But Souza doesn't depend on the Internet alone. He sends out a monthly newsletter, both via e-mail and in hardcopy. Indeed, Michael J., a Richmond, Calif., Realtor who goes by his last initial, said his monthly hardcopy newsletter, which has been in existence for 20 years, nets the lion's share of his business, if not all of it.

With all the talk about technology, Chris said, "When consumers are asked what is the most important part of the real estate transaction, they always say it's the relationship between the agent and the client. We train the agents to stay in touch via telephone as well. It's not just technology. There's got to be that balance."

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Market Commentary

Treasury prices opened lower this morning, as business productivity falls 0.5%. Downward revision to fourth- quarter numbers was less than expected, but is still the first decline in nearly five years; labor costs also fell.

U.S. non-farm business productivity fell at a 0.5 percent annual rate in the fourth quarter, a smaller drop than first thought but still the first decline in nearly five years, a government report showed Tuesday.

Wall Street had expected productivity to be revised to a 0.1 percent decrease from the originally reported 0.6 percent drop after an upward revision to fourth-quarter gross domestic product growth.

Unit labor costs -- a key gauge of profit and price pressure -- were revised to a 3.3 percent annual increase, the Labor Department said. That was down from an initially reported rise of 3.5 percent, but analysts on Wall Street had expected an even bigger downward revision, to 3.1 percent.

The increase in unit labor costs, which measures the cost of labor associated with any given unit of production, was the sharpest rise in a year.

Hourly compensation increased at a 2.8 percent rate in the final three months of 2005, unrevised from the Labor Department's first estimate a month ago.

For 2005 as a whole, productivity grew 2.9 percent, the smallest increase since 2.4 percent growth in 2001 and slowing from a 3.4 percent increase in 2004. Productivity tends to slow as an economic expansion lengthens and employers have squeezed as much efficiency as possible from their existing work force and technology.

A slowdown in productivity also tends to drive up labor costs. Unit labor costs were up 2.6 percent in 2005 -- the largest annual increase since 2000. Labor costs had grown just 1.1 percent in 2004 and saw no growth in 2003.

Treasury prices opened lower, but recovered to trade slightly higher as the market digests the news.

Lenders pricing early have raised their price, due to yesterday's weak Treasury price. We may see Lenders reprice and improve yields later today if Treasury prices continue to rally higher.

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