New Home Builders Continue Spiral

While some areas of the country start to feel like their feet are firmly sitting on the bottom of this market, there are segments of the housing market that continue to get hit hard. We are not just talking about little mom and pop players here. Some of the biggest names in new home construction are taking hard hits that some fear could cause some of these familiar names to fall by the wayside.

First up is Lennar homes. As reported by the Mercury News on June 26th, Lennar posted a 61% drop in revenue. What is worse is that these folks are expected the market for new homes to continue its downward trend at least to the end of this year.

Lennar is a publicly traded Miami based company. So when a company like this goes down, it also takes down vast numbers of investors.

Lennar has had to write off $5,400,000 in losses on land sales which includes $2,100,000 in land sale losses. They also took a hit in options on property they now do not intend to buy to the tune of $6,600,000.

As for overall revenue, Lennars total revenue dropped from $2.8 billion to $1.1 billion.

Then there is KB homes. KB is one of the nations largest home builders. Based in Los Angeles, KB has had to report a larger second quarter loss which represented a 55% drop in revenue. They are also having to lower the value of unsold homes and take the same kind of losses as Lennar by not exercising options on land.

KB is another publicly traded company that has seen a loss of $3.30 per share for the three months ending May 31. The loss last year over the same period was $1,93 per share.

What is worse for these new home manufacturers is that even when the market does start to recover, as it seems to be doing in some key areas, the benefits of that shift will not immediately lift their sales.

Part of this is their own fault. Such a large number of homes have been built over the last few years tha few buyers are motivated to purchase a brand new home when ones that are just a few years old are plentiful. At least that is what I am seeing in my area.

Let me give you an example. As is true with most devlopments, homes are often built in phases. Not long ago, I was holding an open house in a home from the first phase. I found myself seeing buyer after buyer who had just come from the newest open model homes in the new phase and wanted to reap the benefits of buying a home from the earlier phase with the same basic layout. With the market as it is now, there is simply too much distance between an existing home price and a new home price for buyers to be drawn into the new homes. In many cases, in order for new home builders to compete with what these homes from earlier phases are selling for, they would have to sell at a loss.

There is more to that is pushing buyers away from the new home construction. For too long, builders were focusing on how to cram the largest amount of home onto the smallest lot. We are at the tail end of the “Decade Of The McMansion”.  Fewer and fewer buyers are responding to this type of new home. Builders can no longer survive on a “build anything and they will buy it” proposition. When demand is this low for housing, those that do buy want more than an 8 foot strip of backyard or a cookie cutter with few if any distinguishing characteristics from any other house on the street.

I mean really, how many two story entry arches did you think you could build before people got tired of it?

So what I am seeing is buyers, who when given the ultimate in choices are not moving toward the high density developments but want a little space around their home.  They want some tree lined streets, some parks. When they find these places, it is rarely a new home that fit the bill.

Builders need to wise up and realize we are no longer in a time when buyers “Have” to buy what they build. When they continue to build a home as if it was 2002, they deserve what they get.

Why “Top 1%” titles should mean NOTHING to buyers and sellers.

We often sort of move through life and simply absorb what comes our way. That’s natural. We don’t all have time to sit back and ponder what someone really means when they give us some statistic or number that is designed to convince us of one thing or another. In the world of sports, when someone claims to be in the “Top 1%”, we have a pretty good idea of what that means. In baseball it probably relates to how many homeruns they have hit. In tennis, games won. In golf, tournaments won. In real estate…. who knows?

What would come to mind if a real estate person approached you and told you that they were in the “Top 1%”? The truth is that I have yet to meet someone outside the business who knows. It really is a mystery for most. Some might simply say, “Well, it must mean that they are a good agent… right?” That really is the question. Are they a good agent? First, lets talk about what it actually means to be a “Top 1%” agent. Sadly, it is not as clear cut as you might like.

The Mover

This agent achieves “Top 1%” status by selling a large number homes. It does not say anything about how many homes he or she tried to sell, just how many they actually got sold.

The Shaker

This agent has sold a high dollar amount of homes. They may have only sold 1 $20,000,000 property, but they still make the “Top 1%”

The Scope

The next question to ask would be, who are these agents competing with? Well, that is a bit of a moving target. On a good day, when they are not trying to hard, these agents will be comparing themselves to agents in their own office, city, county, state or even with all the agents belonging to their franchise in the entire country. Most real estate offices routinely hand out awards for being the number 1 agent in various areas including homes sold and largest dollar amount sold. So when an agent talks about how great they are, they are not likely to be talking about being compared to a huge number of other agents.

The Stretch

But then there is another class of the “1%”. These are folks who pretty much just make it up as they go along. When asked what puts them in the “Top 1%” (and if they were honest), they might have to say things like:

“I am in the top 1% when judged by height.”

“I was in the top 1% of agents in my office who are under 27, went on the most listing appointments, in the month of June”

“I am in the top 1% of agents who spent time in the office.”

It really can get that ridiculous. Even when an agent really is in the “Top 1%” in sales or volume, you have to realize that in larger offices you can get into the top 1% simply by selling a few homes a year. Many offices carry inactive agents. These are folks who don’t want to give up their real estate license and just need to “park” it somewhere. Of course, when folks start calculating who the “Top 1%” is, they do not leave out these agents who are completely inactive. Finally, never forget that once an agent achieves that “Top 1%” status, it is not likely to ever go away. So if that agent got to be in the “Top 1%” in sales in April, 1999, you can bet your bottom dollar that the “Top 1%” logo is still on their business card in 2008.

Ok, so we have covered what being in the “Top 1%” is. But even if we pretend that none of the hanky panky with this number is going on, should buyers and sellers really be impressed? What does selling the most homes or the highest dollar amount of homes tell you about how well your agent is going to perform for you?

The REAL Numbers

If you wanted a real estate agent to sell widgets for you, then the first thing you would want to know is how many he you sell and how much cash flow can he generate? Sadly, that is not what real estate agents do for you. Frankly, the ONLY people who care about sales volume and total dollar sales are the brokers who have these agents working under them. At least, they are the only people that should care about these numbers.

When an agent advertises their “Top 1%” status, the ONLY people who should care are real estate offices. Sadly, the public has been sold the idea that it should matter to them as well.

If the reason everyone is focused on sales volume and dollars was because that was what best serves people buying and selling homes, then everythig would be dandy. But the bottom line is that these numbers mean absolutely nothing to buyers and sellers.

The real numbers that buyers and sellers should care about focus on the quality of what agents do, not the quantity. What is even more nuts is that these numbers are readily available. Every multiple listing system in the country tracks these numbers or records numbers that could be used to calculate them. Despite this, the data is kept secret, available only to those that have access to the MLS system – agents and brokers.

Sellers are in the best position to get a handle on how good an agent is at doing their job. Here is a rundown on the things that all sellers should be thinking about before they give one thought to the “Top 1%”:

• Successful Listings – A successful listing is one that sells. So if you are a seller, you are going to want to know what the chances are that your home is going to sell with a particular agent. Well, if an agent takes 100 listings a year and only 50 of them sell, that means that you only have a 50% chance of selling your home with that agent. Just to calibrate you to reality, I have met “Top 1%” agents who only sell 20-30% of the homes that they list. Frankly, I think that this one statistic alone scares the crap out of agents more than any other. You would be amazed at how many agents take a listing knowing full well it will not sell. It happens so often it even has a name. They call these homes a “Lost Leader”. Why would they take such a listing? Lots of reasons, not the least of which is so that they can claim to be a “Top 1%” listing agent. Another common reason is so that they can use that lost leader as a marketing tool. They get to put their sign in your yard and advertise to your neighbors.
• Days On Market – What is the average amount of time it takes the agent to sell a home. Is it above or below the average for the area? As a seller, you want to know how long it usually takes an agent to get your home sold.
• How Close To Asking Price? – When an agent sells a home, how close was it to asking price? This is usually expressed as a percentage. This is another statistic you want to compare to the local market. If the average home in the area has been selling for 97% of asking price, what is the average for the agent your talking to? If this agents average for homes he lists is 88%, you are going to want to know why. From this number you can get an idea of how good a negotiator the agent is. You can also tell if they are any good at picking a sales price in the first place. If their clients keep having to take 12% below asking price, then the home must have been over priced to begin with. In these cases, you will usually find that if an agent is bad in this area, they will also not stack up in the “Days On Market” evaluation.

There is a little less data out there to help buyers, but here are some that can help you decide if this agent is good at working for your best interests as a buyer:

• How Close To Asking Price? - Thats right, this number can work for you too. However, in this case, we look at the agents numbers for deals where he was on the buyers side. You want a low percentage number here. You also want to know what the average is for the area your buying in. If the average home sells for 95% of asking price and your agent, on average, gets a home for thier buyers at 89% of asking, then this agent is beating the average in the market.
• Closed Escrows – This is one you would like to know but relies entirely on what the agent tells you. There is no independent source of data on this one. What you want to know is, how often does this agent successfully close an escrow he has started? Unfortunately, there is no central place that keeps track of how many escrows an agent opens. The only ones that get tracked are the closed escrows and a home is successfull purchased. An agent who closes nearly all escrows for their buyer is someone who solves problems and gets things done on time as required by the purchase agreement.

Why Is It Like This?

REASON 1: I think the first answer is that the primary thing agents learn is that “It’s a numbers game.” In order to get business going at all for a real estate agent, they need to get in front of as many people as possible. It is all about the volume, marketing and self promotion. After all, you are not going to get clients by sitting at a desk in a real estate office somewhere. So the public needs to understand that agents have to play the numbers game at this stage.

What is wrong is that agents never learn how to switch from high volume mode into quality service mode. We have all heard the horror stores of agents who list a house for someone and then the sellers never see them again. That is because the agent is playing the numbers game. They see their time as better spent rustling up the next listing rather than really servicing the one they have. If a few homes don’t sell, they don’t care because they are constantly adding to their listed homes. Agents relied on the power of the market to just sell the homes they were ignoring. At the time of this writing, those days are past. If an agent does not really work with their listings, their listings are not likely to sell.

REASON 2: Life is a whole lot easier when there are not real ways to measure the job your doing. In this case, there are plenty of ways to measure how good a job is being done, just no willingness to do so. Since real estate offices just want their piece of a deal, the idea of being focused on volume and sales amounts is fine for them. Since the public is mostly ignorant of the availability of this data, they never think to ask for it. The state licensing folks and the associations have no motivation to push for something like this. After all, if their were real measurable metrics for real estate agent performance, the number of folks becoming agents might drop. That would lower the license and membersip fees… and we can’t have that! The average agent would likely consider leaving the business if suddenly there was a publicly available way to really track how well they do. As long as they are wearing the right suit and driving the BMW, it seems everyone will assume they are good at what they do. And they like it that way.

But by now, YOU have the power to ask the questions that are going to scare the crap out of most of these agents. You now understand that the things that really matter to you as someone who is trying to buy or sell real estate has just about NOTHING to do with the things everyone is telling you are important.

You are now too well informed to fall for the “Top 1%” pitch.

Building Steam

Sometimes it is hard to put your finger on what gets you going. It’s like there is something just hovering outside your sight and just out of reach. Whatever it is, I can feel it coming.

I am in one of those places where ideas and plans are finally crossing paths. Where nebulous concepts become policy plans. How often have you come up with what seemed like a great idea, only to “lose” it?  I know I have suffered from that phenomenon more times than I can remember. Lately though, I have been able to have those moments, then retain them long enough to get them down on paper…. or into a handy word processor anyway.

I am sure that the fact that I am able to capture these thoughts is contributing to this build-up.  It is like each day is helping me build on the ideas I recorded the day before.

What it all seems to be adding up to is a vision of how things should be in real estate. Ok, so that is a very broad statement. To dial it down a bit further, it is a vision of how a single real estate brokerage firm can work to redefine how agents work together and in the process provide their clients with the absolute best in service and value for money possible. A whole lot of this gels with things I have said, half jokingly, in some of my previous podcasts. I am talking about a system that rewards participants in the process for achieving greatness in areas that actually mean something to the client, rather than to the agent. In essence, it is about making the clients best interests, our best interests – and making more money by doing so. The best part is that it lets me take some of the things that annoy me most about this business and turn them on their head within my own framework.

I get a little excited just talking about it. But I am not ready to let the cat out of the bag just yet. I have built a good starting point, but I have a long way to go. Like many things worth doing, it is not the easy path. It will take more work, and more “selling” of the concept than simply opening yet another brokerage firm would. In this case, it is not the potential clients that will need to be sold on this new model (It is built for them to love it), the real hard sell is going to be the world of real estate agents out there.

This is not a cutting edge concept. This is an OVER the bleeding edge concept. The kind of concept where you are putting into practice ideas that nobody else has ever tried – and having faith that when you take that step, you will be standing on solid ground.

IronMan

Every once in a while you come across a movie that does something to you. I think the first one I can recall just being dazzled by was ‘Indiana Jones Raiders Of The Lost Ark”. I was just a kid when I saw that one and I can still remember walking out of the theater with that tingly feeling. You know the one that gets all the hairs on your arm standing up?

Since then, very few have managed to get added to that list. I suspect some of that has to do with getting older and less easy to impress. Despite the years tho, IronMan has managed to bring back that feeling I’ve been missing for a very long time. Back when I was a kid, I would have just called it “Awesome Factor”. Today, we get a bit more specific by discussing things like editing, directing, writing, etc.

In the case of IronMan, the discussion about writing would have to start with the comic book of the same name. The good news is that if you have never picked up a comic book in your life, you are still likely to really enjoy this movie. If you have ever loved an action flick, your not going to be disappointed here.

I have not read the comic version myself, but if the writing in the movie is any indication, I just might have to make a point of reading up.

Your not going to find yourself looking at your watch either. The movie has been edited and shot so that the roller-coaster ride has just the right amount ups, downs and turns to keep you interested without leaving you time to wonder if you locked the doors to your car.

Next, let’s talk about Robert Downey Jr. Whether you are a fan of his previous work or not, let me suggest you take the time to check this performance out. After seeing it, you will be convinced that there is not another soul on the planet who could be Mr. Stark (IronMans alter identity) but Robert Downey, Jr. His transition from womanizing drunk to … well… a more aware womanizing drunk, is believable and leaves you wondering who came first, Stark or Downey.

Then there is the soundtrack. Normally, this kind of thing just sits there and serves as a backdrop to the movie – operating at an almost subconscious level. There is some of that here, but some of the standout music from folks like AC/DC add some very cool punctuation marks to already amazing movie.

I consider myself a pretty tough critic of movies. I am particularly annoyed by bad editing and timing. In my case, once the first scene in the HummVee had rolled by, I was captivated. The amazing thing is that I just saw this movie yesterday, and I will likely see it again today – something I have not done since high school…. that should tell you something!

Not Made In China: Mr. BAR-B-Q 18-Piece Stainless-Steel Tool Set

I have been looking far and wide for a new set of BBQ tools. I have dropped by some local places like Target, Walgreens, etc. None offered a product that was not made in China. Now I have tried Amazon before, but I find that where items are made is often a mystery. If that information is available at all, it is usually in the “Product Description” portion instead of having a field dedicated to that info (something I have asked Amazon to add).

Now the Mr. Bar-B-Q product is made in the United States and has just been ordered by yours truly. I am happy to make this product the very first entry in the “NOT Made In China” list of honor!

If you want to check this product out for yourself, you can find it here at Amazon.

NOT Made In China

I am not a fan of China. I have great admiration for the people of China, but frankly, their government is just pure evil.

Even if you put aside the fact that we are talking about a Communist government (reason enough for me to shun them), here is a country that reacts to just about any dissent with tanks, imprisonment and death. Despite this, we still see regular uprisings of the people to try and obtain a more democratic form of government. In a future post, I will get more down and dirty in enumerating all the atrocities committed by the Chinese government. What this post is focusing on is the great coup that has been perpetrated by China on the entire world. Unlike other communist governments, China has figured out a way to financially support the bankrupt policies of communism and oppression. They provide manufacturing services to the very companies of the world that would not even exist if their form of government existed where these companies do. So, our own companies are helping to subsidize a nation that is diametrically opposed to the very system that allows those companies to exist at all! They have figured out how to appeal to corporate greed in the form of cheap/slave labor.

So, I think we should applaud companies that make their products outside China. I am not going to suggest that these companies have made their manufacturing decisions based on some higher moral consideration. Frankly, I don’t care why they do not have their products made in China, only that they DON’T!

And furthermore, you should too!

So what should we be thinking when we start to care about where things we buy are made? Well, for me, I focus on trying to buy things that are made in countries that embrace a form of government where the peoples rights and freedoms are recognized. Some sort of democracy usually fits the bill. However, there are plenty of countries out there that are democracies in name only. Having said that, there is no question that given all the nations of the world, the absolute WORST country to support by buying items made there is China.

If you come across something that is NOT made in China, let me know about it so I can post it here.

The Bigger Picture on Real Estate

There are lots of reasons I like real estate. Anyone who has met me when showing a home can tell you that I really do enjoy the process of viewing homes and imagining what they could be and what they have been.

I love trying to figure out what the architect or builder was going for. What were they thinking? Some of the best fun is in looking at much older homes and seeing how it evolved and was changed over the years. You can track how society values change with what was popular when different homes were built. For instance, the change in trend from having the kitchen be a place that is hidden away to a focal point of the family and having over guests. Sort of a rebirth of the hearth. I love that stuff.

But there is another level of real estate that I am particularly passionate about. Personal property rights are a cornerstone of democracy and a free society. Being able to buy land and tell the government to go screw themselves when they want to do something on it is practically built into the constitution. Our private property rights were born from American colonists being forced to open their doors to the British. If soldiers needed a place to sleep or food to eat, you had no rights other than simply opening your door and letting them have whatever they wanted.

So, the idea of private property rights were enshrined in our Bill Of Rights. The third amendment states.

“No Soldier shall, in time of peace be quartered in any house, without the consent of the Owner, nor in time of war, but in a manner to be prescribed by law.”.

The principles were so important, that even the fourth amendment makes further mention of private property rights,

The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures , shall not be violated, and no Warrants shall issue , but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

That is a big deal. It should remind all of us just how important it was to the founding fathers to preserve our freedoms when it came to our property.

A whole lot has happened since the days those words were written. The government, as most governments do, work constantly to enlarge their reach and power over us – at the expense of the rights set down when our country was born.

Whenever I get the chance, I try to expose these efforts. The use of “Eminent Domain” is the most well known example. We live in a time when the idea of eminent domain is used by government, even if the only public good is that the city can get more taxes by taking away your property and giving it to someone else who will do something else with it! I despise this trend. I wrote on eminent domain on my business website last year. If you want to check out what I said, you can look at it here.

The point I am trying to make tho is just what draws me to this business. Some of these bigger issues are exactly what makes the area of real estate so attractive to me. I suspect that most people do not consider this sort of thing when they are looking for their first home. But perhaps more of us should realize that we are exercising a critical right when we purchase property.

Welcome listeners from “Real Estate Realities”

Well, I just posted this weeks podcast for “Real Estate Realities” and it will be the first time I have officially made mention of “Being The Better Agent” publicly. So I am assuming some folks who listen to that podcast might find their way here.

Now, this new podcast is aimed directly at real estate agents. I don’t have a problem with non-agents listening to it. However, this will often be where I take the gloves off. I am likely to use grown up words and express some grown up opinions. In short, this show is where I worry less about controlling myself and sort of let it all out. If your not interested in hearing someone gripe about real estate in the way you would if you were complaining to someone about how they do their job, then stick with “Real Estate Realities”.

In this show I will also spend some time talking about my business. What things are working for me in terms of being a better agent and also a successful agent.

The first post

So here it is. This is my venue for sharing my more unvarnished thoughts on just about everything. Real estate will, of course, figure prominently here. I would guess that most of my frustrations relating to real estate will be taken out in my podcast “Being The Better Agent” which you can find links to right here. My other podcast “Real Estate Realities” is my more proper and consumer oriented podcast to help people just get good, honest information about real estate, the market and anything else that might help people better navigate the process of buying, selling or investing in real estate.

I am fortunate that I work in a field that I actually enjoy. However, it is not without its shortcomings. That will become evident as this blog grows. But there are other things I enjoy. I like taking my frustrations out on a good video game. I love movies and I tend to be a bit of a politics junky. So plan on all of those things getting some attention as well.