Archive for July, 2008

Virtual Office Websites: VOW Now?

posted on July 13th, 2008 filed under: Real Estate News

The U.S. Department of Justice ("DOJ") recently settled an antitrust lawsuit against the National Association of Realtors ("NAR") over limitations that NAR placed on a new way of doing business called "virtual office website", or VOW.

VOWs primarily concern how buyers can shop.  Ever go on a brokerage website — or NAR’s Realtor.com site — and search for property?  The information is very useful, but somewhat basic (what’s for sale, price, pictures, square footage, etc.).  It derives from the multiple listing service ("MLS"), which contains far more detail.  VOW brokers proposed to give customers access to the full MLS in exchange for users’ agreeing to become customers of the VOW broker.

NAR seemed to view this as a threat.  Perhaps they saw it as a further erosion of Realtors’ relevance.  Once upon a time, buyers who wanted listing information had to visit an office and establish a personal relationship with a Realtor.  Listings were printed in giant paperback volumes that looked like phone books.  Not fancy, but only Realtors had it.  The display of listing information on the internet changed that, but the information remained sufficiently basic that a buyer wanting more information could get it only from an old-fashioned consultation with a Realtor who had MLS access.

The most critical information — and arguably what the VOW dispute was really all about — is historical sales data.  The prices at which properties sold in the past — especially the recent past — are critical to understanding current property values.  The settlement allows MLSs to block VOWs from displaying sold data (as well as pendings, expireds and withdrawns), but only if all other avenues of disclosing that information are blocked as well.  Hard to imagine an MLS could feasibly bar all agents from disclosing that information to their customers in person, by telephone, by e-mail or by snail mail.  (NAR previously took the position that a formal market analysis could include such information even if an informal converstaion couldn’t, but still, stopping all agents from loosely divulging such facts seems like a pipe dream.)

Whether VOWs change the future of real estate brokerage is open to doubt.  To the extent VOWs open up the full MLS to the internet, buyers may become less dependent on Realtors at the start of the buying process.  But internet users are loathe to provide personal information and sign contracts just to get information.  Remember the internet’s mantra: "Information wants to be free."  So VOWs may fall flat as a model for attracting business.

And VOWs can only change how buyers shop, not how they buy.  A buyer will still need a Realtor to visit properties.  Rather than commit to some faceless VOW broker just to get some additional MLS data, buyers may choose their agent first and worry about getting every last drop of information later.

Yet changes like this sometimes lead in directions not initially anticipated.  VOWs may become the industry standard not because online brokers become dominant, but because competition spurs traditional brokers to provide the best information and service.  In the future, maybe all brokers’ customers will be routinely provided with VOW access passwords.  And eventually, perhaps the whole idea of password access will be dropped, and Realtors’ historically possessive attitude toward MLS information will have been completely eviscerated.

Note to traditional brokers: If you implement VOWs, you will need to decide how to allocate business that originates from them.  A customer who starts at the website will need assistance at some point from a live agent.  In the virtual world, who’s on "floor time"?

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Coral Gables Real Estate: (Some) Prices Falling

posted on July 7th, 2008 filed under: Real Estate News

Forecasting the real-estate decline has been easy.  The Federal Reserve’s cheap-money policy turbocharged a pre-existing bull market in real estate, causing severe imbalances between prices and incomes, prices and rents, and good old supply and demand.  It had to end badly, and it did.

But there has been remarkably little effect on prices at the high end.  Consider Coral Gables, Florida.  There is a wide range of properties in the Gables, from 1,500 square-foot bungalows near low-income Miami neighborhoods, to 10,000 square-foot mansions on the bay.

Prices have declined overall, but the lower end of the market is entirely responsible for the decline.  Check out these charts showing the average price per square foot of single-family homes in Coral Gables.  Each chart corresponds to a different price range.

$0 to $499,999:

CG.AvgPPSF.0-499999

$500,000 to $999,999:

CG.AvgPPSF.500-999999

$1 Million to $1,999,999:

CG.AvgPPSF.1M-1999999

$2 Million to $4,999,999:

CG.AvgPPSF.2M-4999999

$5 Million or More:

CG.AvgPPSF.5M&Up

The declines are most noticeable in the $500k to $1M range.  Perhaps that should come as no surprise, as the median home price is about $650k.  Typical buyers in this range are probably stretching to buy a decent house on a moderate income, primarily with borrowed money.

The high end, by contrast, shows no discernable downtrend.  High-end buyers are less likely to depend on the availability and easiness of credit (see the post on cash deals), and may be less likely to fall victim to circumstances that force a sale.

It seems that wealth brings security.  Quelle surprise!

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News Flash: Cash Deals Linked to Money

posted on July 7th, 2008 filed under: Real Estate News

It had to be true, but . . .

A quick study of the financing in closed single-family real estate transactions shows that sale prices are proportional to the odds of a cash deal (i.e., a deal not contingent on the buyer’s ability to obtain a loan).  The higher the sale price, the more likely it will be a cash deal.

Financing statistics were obtained for sales in Coral Gables, Pinecrest and nearby neighborhoods of Miami.  For five price ranges (the same ones used for the post about falling prices, but for a larger geographic area), here is the percentage of deals that were cash.

$0 to $499,999:  8.9%

$500,000 to $999,999:  13.7%

$1M to $1,999,999:  19.7%

$2M to $4,999,999:  20.6%

$5M or More:  40.4%

A la Monty Python, "I Have a Theory": The more money you have, the less you need to borrow.

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