Last night I received a company wide email from one of our "top brass" urging me to turn on 60 Minutes to view their story on discount online real estate brokers and the demise of the 6% commission. Based on this report which was comprised of a "smart" appearance by Glenn Kelman of Redfin, and the frightening "rebuttal" by ReMax agent Deborah Arends (check out her marketing plan), even I came away feeling disdain for my own industry. But heh, that’s nothing new if you read this blog regularly. It’s no secret that a multitude of real estate agents across the country are providing little or no real service for the amount of commissions they charge. This is precisely why services such as Redfin will continue to gain footing and change the face of our industry by providing more options for home buyers and sellers. This is the most widely discussed topic in my industry and the one that brings the highest levels of anxiety to most traditional real estate agents. If you or someone you know is one of these agents, be afraid, be very very afraid.
I feel fortunate to be working in the Manhattan real estate market where I believe full service brokerage will outlive most other markets around the country. I also believe that those in my industry who bring more to the table than simply sending out flyers and mailing postcards (are you kidding me?) will continue to be sought out for representation in real estate transactions. Marketing expertise and negotiating savvy can be worth a significant amount of money when the average market price is $1.4M. Of course, as I have said in the past, a broker shakeout is coming. Having said that, I still don’t see Redfin handling the sale of a $24,000,000 celebrity apartment on Central Park West.
I’m currently training for the 2007 Nautica NYC Triathlon in honor of my father-in-law who has been battling stage 4 pancreatic cancer for 18 months (more about my participation in the race here). So the training is a bit grueling taking up big chunks of time (as much as 3-4 hours a day some days). The race is July 22, so the Friday Link-O-Rama is going to be a regular feature at least until the race is completed. By the way, I’m angry at my coaches for beating me into the ground so today’s L-O-R has an EVIL theme to it 😀 So here goes:
- BED BUGS…ewwww (via Consumerist). Two families in my son’s nursery school had this happen to them last year and it was an absolute NIGHTMARE! Many of their things had to be discarded. It doesn’t just happen in hotels but it appears one friend brought them back to the apartment from a hotel. Check the reference to Harvard School of Public Health on what do to if you are infested.
- Ah ah ah ah ah…the EVIL Yield Spread Premium (via Business Week Online). For the record, most of the mortgage brokers I work with pass this on in form of savings to their clients.
- From Housing Panic Blog comes an open letter from a mortgage broker. He’s scared!
- Surprise surprise…David Lereah speaks with forked tongue (listen on NPR)
- Christine Haughney of The New York Times explains how New York City Renters Cope With Squeeze. Can’t find an apartment to rent after ‘B’ school? Pitch a tent on the roof of a building (I’m kidding).
- For those of you who enjoy a good fight, an Upper West Side Rezoning Fight Begins (via the Sun). Will the skyline of the Upper West Side continue to change?….um…probably.
- And an exit from the EVIL theme unless you see the opportunistic lender in this scenario as evil??? James R. Hagerty from RealEstateJournal.com unveils this: Product Taps Home Equity Without Taking Out Loan.
And that’s about all I’ve got for today. Think about me tomorrow when I’m running and biking for 4 hours! Fun stuff.
In the coming weeks, True Gotham is going to be adding some new features. We are currently in pre-production of TGTV (TrueGotham Television) which will be comprised of 3-7 minute streaming video programs on a weekly basis that will provide useful real estate relevant information in the format of interviews, investigative reports, round table discussions, and various forms of commentary that you the True Gotham reader can request. We hope that over time, this format will become interactive, with TG readers suggesting content that they may like to see. Until then, the topics will be chosen by yours truly. Stay tuned as we hope to have our first segment up very soon.
In addition to TGTV, we will be unveiling a number of articles and interviews from guest bloggers from various industries, from a divorce attorney speaking on real estate in a matrimonial dispute to a principal of a moving company with advice on what to look out for when hiring a mover.
All of this new content will be provided in an effort to provide additional information and further transparency in the real estate industry and those industries closely (and even some not so closely )related.
It’s gonna be fun!
If you’re thinking of becoming a real estate agent because you love architecture, find it fascinating, have always enjoyed looking at property, or better yet…think you’re gonna cash in…THINK AGAIN. As The Real Deal points out the upfront costs for agents are rising…significantly!
Residential real estate companies, claiming that it’s harder than ever to eke out a profit, are increasingly hitting their own agents with additional fees and expenses.
The most dramatic move recently was the Corcoran Group’s introduction of a $1,500 annual marketing fee, to come out of each agent’s commission. Corcoran also decreased agent commissions by raising the threshold for higher splits to $160,000 in gross commissions, up from $140,000 previously.
Similarly, Bond New York is planning on raising the bar on commission splits this year, which means less money in agents’ pockets.
"As rents get more expensive, costs of business become more expensive, and the scales that determine where a commission split increases get raised accordingly," said Bruno Ricciotti, a principal at Bond.
Although I’m sure the costs of doing business have increased for all the big players in the real estate industry, this has been a trend since I began selling real estate 15 years ago. I have worked with 3 different companies and every single one of them has "hit its agents up" in the name of "rising costs" at various times throughout my tenure. I have also watched some of these companies "tighten the belts" of their agents only to see many defect to other companies hoping that the grass is greener. Such defections by top agents often acts as a catalyst for the company to revisit and even change their recently instituted policies. My point: the profession like any other is dynamic.
Over the past ten years many of the large companies have been in a hiring frenzy in an expansion effort like none other in Manhattan real estate history. Now, as the entire industry has been simultaneously flooded with agents and inventory continues to constrict, the numbers just aren’t as sexy as they once were for these firms. Of course the quickest way to effect the companies bottom line is to essentially "tax" (various fees) the "population" (the agents). It’s the American way.
Neil Binder, principal and co-founder of Bellmarc Realty, is critical of the expenses firms are charging salespeople. In The Real Deal’s Q & A this month, he said, "This has become backdoor income for a lot of companies, but I am not in favor of it, and it is not in our plans to do it. Some charge a computer fee of $1,500 a year and $1,000 a year for errors and omissions [insurance]. Those are names given to those expenses; they are just mechanisms to get additional money for the company, in my opinion."
On top of these new fees, there are increased membership dues to organizations like the Real Estate Board of New York, which recently made it mandatory for an agent to join if the agent’s firm was a member of REBNY. And there could be new fees for the REBNY Web-based listing portal that is being floated.
At all real estate companies, salespeople are responsible for paying a slew of different fees before — and while — seeing a return on their investment.
Expenditures vary from company to company, but all traditional companies need their agents, at a minimum, to cover the cost of maintaining a desk, which can run upwards of $50,000 a year, said Barak Realty founder Barak Dunayer. Based on desk costs at Warburg Realty, agents there are expected to bring in at least $120,000 in gross commissions a year, according to president Frederick Peters.
To get started, prospective agents have to run the gamut of fees and charges. They have to pay $350 to $400 for a 45-hour, state-approved real estate course and a $15 entrance examination fee to get their license. Agents then pay a $50 fee to the Department of State, which licenses real estate agents and brokers, every two years.
At companies that belong to REBNY — namely, most companies — agents have an annual membership fee starting at $190. If the company is a member of the Manhattan Association of Realtors — there are only 35 of them — agents incur $350 board dues.
I must say that most of these fees are insignificant to the top producing agents who enjoy the largest company marketing budgets and the highest commission splits and most of whom spend a significant amount of their own money to stay ahead of the pack (that’s precisely why they are top agents). For instance, I budget an additional 20% of my net commissions to marketing above and beyond that which is provided by my company. But for those who are new to the industry and may not close a transaction for 6-12 months, this spells T-R-O-U-B-L-E. Hello to the 100% commission split firm:
For agents who work at 100 percent commission split firms, the up-front charges are even higher, because all administration and operation costs are on the agents.
At Rutenberg, in addition to the REBNY and Manhattan MLS fees, agents pay the company a $99 monthly fee, as well as a $1,000 or $2,000 transaction fee depending on sale price, Braddock said. Agents get a telephone number that forwards to their cellular or home phone, Rutenberg profile page and e-mail address. They have access to a company manager and use of a company office with a desk, fax machine and phone, but they don’t get free business cards or a permanent workstation.
Following a similar corporate model, Pari Passu Realty charges a fixed $299 monthly fee but no transaction charge. Add $176 to the fixed fee, and the agent can get five New York Times advertisements, said Larry Link, the company’s managing director. Agents pay a $200 administrative fee to be set up in the company system. "Our model works by providing all of the services for a fixed fee with no transaction fees," Link said.
It will be very interesting to see if and how this business model takes hold in Manhattan. I suspect that if these companies start to attract top producers (not likely…yet), the "big player firms" will have to restructure their business model to stay competitive.
What’s it all mean? The real estate industry is changing and fast. It’s exciting to think that the industry as we all currently know it will likely be entirely different within 5 years. As the market quiets down (and it will), information becomes more transparent, and companies increase agent costs, I suspect that the average income for a Manhattan real estate agent (and their brokers) will decrease significantly making it less attractive to enter the profession. Can you say shake out?
I still believe that the industry is moving more towards the reality of the "consultant type" real estate professional. The good news for the consumer is that this agent will have to provide a level of service that will be beyond exemplary if they hope to stay profitable. Until then…sit back and enjoy the ride.
It’s up at OCRegisterBlog. Check it out.
Who wears the pants in your family? Are you the husband who will do anything to keep your wife happy including buying a home that you may not feel warm and fuzzy about? Or perhaps your the wife who tells your husband that you trust their opinion and will live wherever they want you to? Maybe you have even convinced yourself that your needs are truly aligned with those of your spouse? Can you say "resentment?"
90% of my business is comprised of marketing and negotiating on behalf of sellers. That said, of the 10% of buyers I work with, almost all come to me either as friends, family, past clients, or friends/family of past clients so I know them well. Most of these buyers also happen to be couples. In my 15 years in the industry I can anecdotally tell you that most men who say they will do whatever their wife wants are absolutely full of it (add an "sh" if you prefer)! June Fletcher of TheRealEstateJournal.com discusses this farce in her piece Why Househunting Can Spark That Age-Old Battle of the Sexes. So who generally wins in the battle of "wishes?" Husband or wife?
To Peter Francese, demographic trend analyst for Ogilvy and Mather, a New York-based advertising, marketing and public relations firm, the answer is clear: The woman’s. Mr. Francese, who has conducted hundreds of interviews on the subject since 2000, says the reason has to do with the fundamentally different way that each sex typically looks at home. "For women, it’s a nest. For men, it’s place to go out from and do their thing."
I’m not buying this and don’t believe for one second that the couples interviewed for such a market study even know how to answer this question. Men almost always pretend to do what the wife wants only to subtly manipulate a situation to help fulfill their needs.
Because a home usually is more meaningful to a woman, married men tend to defer to their wives’ tastes when house-hunting. "Time after time, men describe the home they’re buying as ‘the place their wife wants,’ knowing that if their wife isn’t happy, they won’t be either," he says.
Not my experience at all. I believe that men say this because it’s the "socially correct" thing to say. None of the men I have worked with have surrendered to their wives 100% of the decision making power in any point of a transaction. Those who pretend too almost always veto something as we get closer to contract signing. Men and women do almost always have different agendas even if they don’t realize it.
According to Mr. Francese, most women pay a lot of attention to the overall function of a home, including where various family members will eat and sleep. They are likely to care about how up-to-date kitchens and baths are and be more sensitive to outdoor views.
Men, on the other hand, generally are more concerned about how maintenance-intensive a home is. Most don’t worry about functionality, as long as they have their own retreat. "Show a guy a house with a garage, a workshop, a built-in barbecue and a home office, and he’ll buy it," he says.
Now maybe this is true for the suburban home buying couple, but again my experience in Manhattan real estate does not gel with these stereotypes. I have worked with men (husbands or boyfriends) who insist on specific design elements that some would say are stereotypically a woman’s decision. I also work with a very large percentage of women(wives and girlfriends) who are incredibly sophisticated financially and have strong opinions about the financial structure of a transaction.
I guess what I’m saying here is that I don’t see many "stereotypical" "traditional" couples these days. Nor have I for the past 15 years that I have been selling New York City real estate. In fact, I think all of us (yes me and my wife included) would benefit greatly from a "housing therapist" to help us align our wants, needs and desires in an effort to procure a home that suits the entire family.
Oh, that’s my job!
If I had a nickle for every time one of my clients or colleagues said "did you hear that so and so is doing such and such to this and that," well, I probably would have at least $1.35 by now! I hate rumors mostly because they are hardly ever based in fact. Case in point: the RSS feeds are flooded today of rumors that Stuyvesant Town is going to be leveled so that Tishman Speyer can build lux condos on the parcel that they recently bought for a record breaking and whopping $5.4 BILLION dollars (best stated in a sinister voice with an "ah ah ah ah ah" punctuating the end). Check out the highly speculative rumor from Curbed’s Stuy Town Follies: Rent Hikes and Secret Destruction Plans? (via The Real Deal). It’s worth reading for the comical comments alone lambasting those with cheap rents. And get a load of the "reported" rent increases…up more than 36% for a one year lease renewal of a $2200/mth 1BR…ouch!!!
A very large percentage of Stuy Town is rent stabilized and although not impossible at all, it is a grand task indeed to vacate all of the 8,757 apartments that make up the complex. Looks like a very real concerted effort is being made to rid the complex of it’s market rate tenants. Having said that, I find it very hard to believe that $5.4 billion was "invested" to protect those who can’t afford market rate rents. So no I don’t believe that Stuy Town is going to be demolished in the very near future. But I’m certain that Tishman Speyer has plans for the complex that involve the company stuffing its pockets with greenbacks!
BTW…since we’re on the "rumor" subject…check out the top 25 Urban Legends at Snopes. And the next time you hear a rumor, check out Snopes to determine whether it’s a hoax or not…many of the emails we receive are exactly that…BS.
I’m currently in the midst of a transaction in which the buyer of a property wants to move into their new property before the closing. Sometimes I regret that I work in one of the few real estate markets where I as agent can’t draw up contracts. In this particular instance I’m thrilled that attorneys are involved because I don’t completely understand the legal ramifications of pre-possession (when the buyer moves in before closing) or post-possession (when the seller stays in the property after closing) agreements. Zillow blog’s Wiki Wednesdays has a great post today referencing Greg Swann’s ( of Bloodhound Blog) article The Perils of Pre- and Post-Possession.
Swann wisely points out that it isn’t always clear to insurance companies who is covered under who’s policy should the house burn down, etc. He suggests, and I concur as do almost all attorneys I have asked, that pre or post-possession agreements are "bad ideas:"
Why? Because they create a de facto tenancy. It may be just a friendly agreement between buyer and seller, but when you occupy a home you do not own, you are a tenant. You should ratify the occupancy with a lease. But there is still potential for big trouble.
Suppose the house burns down. Who is liable? The owner, even though he is not occupying the home? Or the occupant, who is not the owner and probably just lost all of his personal property?
But that’s what homeowner’s insurance is for, right?
Maybe not. If the owner did not disclose the tenancy, the insurance company probably will not pay on the house. If the occupant had homeowner’s insurance, not a tenant’s policy, his underwriter also might refuse to pay for the lost personal property. There may be two aggrieved lenders, and both might call their notes due, even though the house is now destroyed.
But the worst is yet to come. Everyone involved gets to spend years in court fighting over who owes what to whom. The owner will be out the value of the house. The occupant will have lost all of his portable wealth, including the memories attached to those things. Everyone will emerge from this lengthy process bruised, begrudging and much, much poorer.
Greg’s advice to those considering these types of agreements:
Take possession at the close of escrow, just as the purchase contract advises. Whatever convenience you might enjoy from pre- or post-possession, the risks are just too great.
As I’m seeing in this current transaction, many of the "friendly" things that were agreed to in the contract have been cause for debate between buyer’s and seller’s attorneys. Certain items suddenly aren’t conveying with the sale and the closing date and terms of pre-possession agreement have become "cloudy" over time. The contract itself is not well written and in this instance, the buyer wants to do work in the new apartment prior to closing. In my humble opinion, this is a potential recipe for disaster for all parties involved…and for what…to save a few days time in the spirit of being more "efficient?" This could end up being one of the most inefficient decisions that these parties have made…only time will tell.
First I would like to apologize to my readers for the "cop-out" post yesterday and the "light" post today (let’s call it TG Lite). There is a bit of an explanation. Of course, the primary reason is that I am in the midst of a still busy Manhattan real estate market with over 70 people attending a 1 1/2 hour open house and multiple offers coming in. For the record and despite what seems like an anomaly, I think the market is likely creeping into a cooling period for the summer. My friend Noah at UrbanDigs feels the same way and he has an intelligent post about the transition that we will likely see over the next couple of months.
I’m not sure we will see a complete shift from seller’s to buyer’s market but I do concur that it is likely that we will see some buying opportunities this summer much like we did last. As an anecdote, I had a buyer who purchased a 9 room apartment last August for $3.1M that they could have easily sold in the past 3 months for $3.6M or more. If I was making a move, I would sell my home now and hope to capture additional equity in the market this summer by picking up a "deal." I am by NO MEANS suggesting anyone try this…I’m a bit of a gambler.
It’s up and you can check it out over at Pat Kitano’s TransparentRE.
