Blog : Business

Compass, Et Al

Compass, Et Al

It should come as no surprise that there’s a competition to be what’s next. In this context, we should capitalize What’s Next.  If you own a business that makes money, or you own a business that has a lot of customers but fails to make money, you know about private equity. You know they want to buy your business, to pay you a multiple that makes your head spin. Should you sell? Probably.  Those in this investment world that are tasked with finding the next big thing. Recently,  everyone has collectively decided that real estate is that thing.

There’s no debate that the business of real estate is big. The debate is over what that business is going to look like in the future. Will traditional brokerages and their traditional models continue to dominate the national landscape? Or will there be something new, something else, something more.  SoftBank’s Vision Fund recently invested $400MM each in two real estate “tech” companies. One is Opendoor, one is Compass. If you haven’t heard of these two companies, don’t feel bad about it. In time, no one will remember either of their names.

But I jest.  Compass is a rapidly growing real estate business.  The founder was on CNBC last week and talked about his “platform”. There’s all sorts of “tech”, apparently. But what is Compass? Well, it’s a real estate company. What do they do? They list your home for a fee and then they try to sell it. What’s their secret? Nothing, really. They have signs that light up at night, which is cutting edge, or so someone thought. They also have proprietary technology that enables their agents to better serve their customers, and to provide AI insights into markets. This sounds nice, and the fine folks at SoftBank really bought it, but is Compass revolutionizing the real estate business?

Headlines out of Chicago will claim it is. That’s why top teams of agents are leaving @Properties and Sotheby’s and the like to join this new, exciting, dynamic company with the signs that have lights on them. You know, so people can see them at night.  Consumers might assume there’s something here. Something unique, something rare. Something New. But what they don’t know is that agents are being bought. Brokerages are being paid handsome amounts of money to sell to Compass. Agents are typically happy with some free calendars from the title company. Heck, I don’t even get those anymore. Compass is paying them real money to join their company, and in the case of top agents and teams, that might mean signing bonuses of a million dollars or more.

Compass doesn’t want to talk about this, because they want the consumers and their target audience, the agents, to think there’s something here. @properties did the same thing over the past decade as they grew a real estate behemoth. They told the market that they’re something better. Something rare. Something unique. But really they were a traditional real estate model banking on a consumer who was looking for whatever was next. Something New, that’s all this game is about.

Compass is growing, Compass is moving into your neighborhood, but why? The answer, as with all answers relating to the growth of real estate companies, is that they’re simply poaching agents. There’s nothing new under the sun, especially in a business where the entire business lives and dies on one simple thing: a real estate agent.  Every real estate company that grows only does so by taking agents from other companies. These agents flee what’s old, and move to what’s next. They send out postcards. They issue a press release. I’m What’s Next!

OpenDoor wants to buy your home, I think. They also just bought a traditional brokerage in California, or maybe Arizona, so they want to be in the regular business of real estate as well. Maybe they’re hedging their own business model, assuming not everyone will want to sell their home for cash at a market discount.  This model has been around for ions, or at least a few years, and it’s working. Opendoor is reinventing the business of real estate, or so they think. They’re just like Amazon and Uber, the CEO says.  They’ve raised fortunes, led by a who’s who in the world of investing, including a big fat investment of $400MM by SoftBank. SoftBank knows one thing, they want in on whatever is next. Is it Opendoor?

Opendoor has a current valuation over $2B, yet they only operate in 19 cities more than five years after their launch. Why aren’t they in more cities? Why aren’t they everywhere? Well, because the model relies on algorithms to determine the current value of your home, as well as the value of your home in the coming weeks and months.  Opendoor will buy your home, without a pesky agent, and without that pesky market exposure, and then, once you’ve moved out and closed your deal with them, they’ll resell your house for a profit. That’s it. They’re the modern day tech company that has replaced the yellow signs on the side of the interstate that promise “I BUY HOUSES CASH”.

The model works as long as the market is appreciating. It also works as long as the market has a very tight pattern of sales. Would Opendoor work in Lake Geneva? Not in a million years. Will it work in Winnetka? Nope.  Will it work when the market falters? No.  The reason is simple. When a market stalls, consumers generally fail to recognize the slowdown for a reasonably long period of time. They are defiant. They are insistent. They are stubborn. If OpenDoor needs to buy your home for a 5% discount to actual value today (in an escalating market), what will they offer you in a declining market? 90% of the value? 80% of the value? Will consumers be willing to sign on for this initial, deep cut, without finding out if the market is indeed as poor as OpenDoor is telling them? No, they won’t.

Compass closed their last round at a $4.4B valuation. In 2017, Compass closed $17B in sales. There’s another real estate company in these United States, one called Realogy. Realogy owns some brokerages that you may have heard of. Some small companies like Century 21, Caldwell Banker, Sotheby’s, ERA, Better Homes and Gardens, among others. Realogy is a publicly traded company with total 2017 sales over $500B. Realogy’s market cap? $2.5B. The world, it seems, has gone mad.

As a small independent broker in a small Wisconsin town, I’m not immune to the changes in the real estate business. Competition increases every year, and much of that competition comes to my office to beg me to work with them. They want me to be part of What’s Next. But in that, there’s an admission, and I can already see What’s Next. They don’t believe in their own models. They don’t think they have anything proprietary. Not Compass, not @properties, not OpenDoor, not Realogy. The real estate business, at the end of every long day, is only about one thing: A Real Estate Agent.  No matter the broker names, no matter the affiliation, the agents will remain. They’ll just change their name tags and wear a different color jacket, but if you think they’re somehow different because their sign has a nightlight on it, then you haven’t been paying attention.

Weekend Caller

Weekend Caller

We need to have an honest discussion. It’s rare, in any business involving sales, to have such a conversation, but converse we must.  This is about me, sure, but it’s about you. It’s about people you don’t know and people I don’t know. It’s about regular, good people. People we’d go to church with or go to fish fry with. People we’d do both with. It’s about the sorts of people we all are at points in our life. It’s about the weekend real estate caller.

In real estate, it’s a generally understood concept that Realtors work on weekends. We do. We all do.  There are some Realtors who take days off for religious reasons, and I applaud them for their conviction. There are other Realtors who take certain hours off- no calls after 6 pm- that sort of thing. But the vast majority of Realtors will show you a house Sunday morning at 8 am and they’ll show you one Friday night at 9 pm. There are no bounds for most agents, no time when they aren’t hungry to sell you something. Would it surprise you now that I tell you this is a bad thing?

Last weekend I had several real estate calls at my office line (262-245-9000). That’s not abnormal. But this was a Holiday weekend and you’ll be somewhat shocked to find out that Realtors also like Holidays.  These days were not created purely for bankers and school teachers and financial analysts. These are the holidays for the people, and while there is some testing that has not been entirely vetted, Realtors are also people. The business expects Realtors to be available at all times, at the drop of a hat, because shouldn’t these blood-sucking sales people be available whenever the job calls. Can I say no?

Of course I can, but it’s taboo to admit it. Could you imagine that on Memorial Day weekend I, too, like the idea of a cookout? I was momentarily undertaking the world’s greatest physical transformation earlier this year, but it didn’t stick so I’m back to preferring my protein to be wrapped in carbs. Soft, pillowy, deliciously doughy carbs. And so I like the cook brats and burgers and steaks, just like every other red blooded American.   I was in my office Saturday morning for a couple of hours, which felt like a nice effort on a Holiday, and that was that.

I stopped back on Sunday evening, after having spent the day Sunday out tiling at the never-ending cabin project I’m embroiled in.  Last weekend,  calls came for me to my office number. Voicemails were left. The weekend calls had left a couple of messages, and I was too late in my reply. Both buyers had moved on without me, which is both slightly understandable and also disappointing. And that comes back to the concept of this business and what it is different agents can offer.

Let’s say you’re looking to have some estate work done and you were told by a friend that their attorney is the absolute best. He does estate work all of the time, and he’s without rival. So you call the attorney, let’s just say on a Sunday morning of Memorial Day Weekend. If the attorney didn’t call you back within a few hours would you have called another attorney? Or similarly, if you call this attorney on a Monday but he hasn’t called you back by Monday evening, would you waltz into the closest lawyer’s office, the one in the strip mall next to the Cinnabon, and have the junior attorney from Middle Appalachia Technical College draft your docs? Of course you wouldn’t. Why then is real estate so different?

I love phone calls from clients and would-be clients. I crave them.  So please, if you’re calling me on a weekend, call my cell phone (262-245-1993). Text me. Email me (dave@genevalakefrontrealty.com). Do all of these things, but I’m begging you not to leave a voicemail at my office for me if you’re expecting a Sunday morning return call. While real estate is a game built around endless availability, I’d prefer it be built around the concept that some agents are more valuable than others, and if you’d like a Sunday morning agent with an hour notice I’m pretty sure I know you’re not going to get the agent who can guide you towards the right property at the right price.

Here’s to the weekend, and to cell phone calls. Above, a pier shot from Thursday. It’s summer. Be here.

 

The Business Of This

The Business Of This

This is, after all, a business. It’s not hard to think of real estate as a business. The business of the business has an office and a phone and some computers and in this, it’s just like all of the other businesses. We all understand that, the business of real estate. But it’s harder to think of Realtors themselves as businessmen and businesswomen. This is because I’m wearing jeans right now and there are some holes in them, and I’ve only discovered these slight oil spots in my t-shirt now that I’ve left my house and am at my office. These oil spots vex, because I haven’t been spilling oil on myself, nor have I been rubbing shoulders with those who might have done so. Still, jeans with holes and oily t-shirts and yet I’m at an office that appears to be functioning as a proper business. But I’m here, at this office and it’s seven something and the majority of the real estate world is still in their pajamas, sipping their coffee, cracking open their laptops on their breakfast room tables. You could argue that pajamas without oil spots are superior to t-shirts with, but that’s not the point.

In this business there are wins and there are losses. I’ve been fortunate to win a bit this year, quite a bit, really, and in that there is comfort. Not comfort that I’ll always be okay but comfort in knowing I’ve successfully pushed off failure for another year. There’s some struggle now, knowing that I must either keep producing or whither away, but there is mostly gratitude for this incredible base of clients that have chosen to trust me with their Lake Geneva maneuvering. This trust is important, in fact it’s everything, and trust placed in a guy with oil spots on his black t-shirt is a meaningful level of trust. But still, this business and this life and the facts of real estate. I continue to feel that there are misconceptions revolving around Realtors and this life, and while most of the cliches are actually true and damning, there are some things I think you should know. Consider the curtain drawn back:

When I interview with a potential seller for their potential listing, I usually want the business. In the event that I don’t get that business, and instead another agent does, I can admit to you now that I wish bad things to happen to that listing. I actively hope it doesn’t sell. I aggressively root against the success. Now, now, don’t assume that means I won’t bring in a buyer and sell that property, because I will in order to drive home the point that the seller made an egregious mistake in listing with anyone other than me, but I do wish ill for the property in general. Petty? Absolutely.  This is a confession, but it’s not unique to me. Every Realtor everywhere feels the same, and now you know.

When I push a seller to take an offer that might be lower than what the seller wants, I’m not doing that because I want to get paid. I like getting paid, as does everyone who works at any sort of job, but when I urge a seller to accept a price I do so without any particular regard for a future paycheck. I do so because for every seller that refuses an offer and then, soon thereafter, ends up getting his price, I’ve seen 500 sellers who refuse an offer and are later filled with deep regret over their missed opportunity. Do I like making commissions so that my children might be able to eat their dinners of chicken, rice and corn? Of course. But do I tell a seller to take the money and run because I’m thinking about what I’ll get out of it? Absolutely not. The business is structured in such a way that compensation only occurs in conjunction with a closing, which leaves the interests of the agents subjected to conflicted scrutiny, but I assure you that I only push a seller because I know the seller needs that buyer far more than the buyer could ever need that seller. To put it more succinctly: Don’t hate the player, hate the game.

Agents are not always busy. They’re not. No matter what their Facebook or Twitter feeds tell you, they aren’t always on showings when they aren’t at closings. In fact, most of them are at home. That’s why I built this office to feel like a house, so that when the middle of winter comes and with it cold and dark and snowy, I can simply stoke a fire and work without feeling the need to drive home and do the same. Most agents work from home a shocking percentage of the time. So when you call them and they’re busy, they may be napping or sipping tea or they may be binging on House Of Cards because they assume it’s about real estate. I’m hardly ever at home, but that doesn’t mean I’m working 18 hour days, either. In fact, about once every 7-10 days I’ll go fishing and take that day mostly off, even though the cadence of my cast is continually disrupted by cellular notifications. And when I take a Monday or a Tuesday off and that’s the day you call me, don’t be upset, because on Sunday when you were playing I was showing houses to someone from Palatine.

The business is far more stressful than you might imagine. That’s because the agent is the cog that seems unnecessary and overpaid, but if the agent is doing this correctly the agent is also the glue that holds a transaction together. Being the glue is stressful, and it creates significant tension for the agent.  The world loves to view agents as overpaid cheeseballs, because in fact we often are, but successful agents are often so because they feel the burden of knowing the deal rests of their shoulders, and without them, the deal would often fall apart. Bad agents know this but they don’t care, good agents know this and it causes them to wake up at 2 am because they’ve had a nightmare that your deal fell apart and it was their fault, even though it wasn’t actually their fault. Good agents are stressed agents, and I’ve often done my best work when scrambling and stressing, especially when I’ve already forgotten that I have oil spots on this shirt and I’m already late for my first appointment.

Lake Geneva Negotiations

Lake Geneva Negotiations

I could have negotiated this deal in 10 minutes if you had put me in a room with him. This is what I hear. I hear it often. This is the refrain of those negotiating pros who buy and sell real estate through a broker. When a deal comes together, I hear this. When a deal falls apart, I hear it then, too. I hear it so much I hear it when I close my eyes and I hear it again when I open them.  That one kid heard dead people, I hear this.

Many buyers and sellers feel that the deals could come together if only they had a chance to handle the deal directly. This might often be the case- that the deal would come together in spite of a broker, not because of one. But this assumes that the deal was an easy one to put together, that neither side needing the convincing that can only come from a market backed perspective. This also assumes that both sides are in a hurry to make a deal, which is generally far from the case.  Consider, some of the best deals I’ve put together have come together only as a result of long enduring negotiations. Time might heal most wounds, but it also bridges many negotiations that might have failed if they were on the clock.

In 2010, I negotiated the purchase side of 1014 South Lakeshore Drive, Fontana. That deal started slowly, as many do, and after a few months of negotiations, we had an accepted contract. Then we negotiated throughout the deal, over another three months, and finally closed on the transaction. What a fantastic deal that was. And many more like it have come about the same way- only through buy side patience, as a seller is worn down through a recognition that his or her property is just not quite as desirable as originally thought.

The problem with this, of course, is that 2010 was a year void of an abundance of buyers and 2016, though the year has started ominously with indices in an funk, has an abundance of such vacation home buyers. Long enduring negotiations only work in the absence of a competing bid. Lately, there have been competing bids.

Two weeks ago I was going to show a listing on Bonnie Brae to a buyer of mine. We set up the showing, we were ready to pounce on a property that was purported to be able to be bought right. We ended up canceling our showing, because the property sold earlier that week to a buyer that had just a bit more motivation, or schedule flexibility, than we did.  A year ago this month I negotiated an offer on a lakefront listing I had on Oriole Lane. That humble, odd home, didn’t sell in 2015, but throughout the year my buyer reaffirmed their earlier offer. The sellers didn’t bite.

Then, a couple of weeks ago, a change in seller sentiment, and our deal was ready to be locked. On Friday, we had a deal in principle, on Saturday, the seller took a bid from another buyer.  I had negotiated patiently with a lakefront buyer for exactly 12 months, and when victory was nearly ours, the property sold to another buyer. Sniped, again.

This week, a deal on an off-water home in Glenwood Springs was apparently nearly complete. A buyer of mine who had seen that home in the summer of 2015, inquired of the property. It was available, I told him, but nearly under contract. He jumped, we offered, we have the property under contract and the other buyer, the one who was patiently working the seller to his favor, is on the outside looking in. This is the trouble with negotiating slowly. It leaves open too many variables beyond the negotiator’s control.

Of course, the most important aspect of any negotiation is in sensing the direction of the market and its response to that particular property. That’s not quite as easy as it might sound. In the case of the Oriole Lane property, I wrongly assumed that time was on my side. I assumed that a property that had languished on the open market for years would not sell in the dead of a Wisconsin winter, on the heels of a volatile week in the markets. I was wrong. So today,  a quick admonition. If you like a property, watch it with me, and we’ll work to strangle the seller together (figuratively, of course). If you love a property, buy it, before someone else does.

Real Estate 201

Real Estate 201

I fear this job of real estate is a no-win proposition. There is very little left to do here, little left to prove, little that can be done to change the outcome. The profession is a miserable one. It is miserable because it must be, because any profession that so easily takes the blame cannot ever be a noble profession. If I were a plumber, this would be noble. I could hang out a sign, Dave’s Plumbing. What a sign it would be. I would have a truck, a big four door truck with leather seats so that when I was done with work on Friday I could clean the seats and take my family to Chili’s. Then, on Monday, the phone would ring and I’d need to go fix a leaking sink. The lady who would call would be frantic. I’d rush over, fix the leak, be a hero. And I’d charge $129 for the visit, which would be paid quickly and happily by the leaky sink owner. My effectiveness would be tangible. When I showed up the faucet leaked, then I fixed it. I fixed it. Without me, the sink would still be leaking. I’d do that five days a week, this hero work, and then I’d clean my truck and I’d go to Chili’s. That would be rewarding work.

This real estate business is not rewarding. If you hear of a Realtor who says their reward is in the smiling faces of their clients, they must not have very many clients. It’s very easy to be happy in the business when you get to sell a few houses a year, and each one is a splendid surprise. It’s different when you must sell many, constantly and without pause. There are no victories in this business, only temporary breaks from the battle. The breaks last hours, if that. That’s because the industry has never, ever, created an environment of respect. There is no respect for the Realtor. This is not a grievance, nor a litany of self pity, this is only an accurate observation. There is nothing noble about this profession, about this work. There is no level at which the job of Realtor could be elevated to be something meaningful. It is a position filled by those who either have little else they are capable of, or by those like me, who felt they could excel at the post and perhaps, just perhaps, change a few perceptions along the way. I was right about the excel part, wrong about the shift in perception.

No level of proficiency can shift the perception. No level of effectiveness, of success, of individual service. I closed a transaction recently that was a win for all parties. The buyer found the rare bit that fit their needs. The seller sold quickly, easily, efficiently and at a market rate. There were no losers in this sale, only different sorts of winners. The job of Realtor was administered by this guy, and the job was done with proficiency. Everyone succeeded in this sale, yet, for the success, there is a bad guy. Lest you not understand the business, the bad guy is always, without fail, the Realtor. That’s not because Realtors are, by nature, bad, it’s because the Realtor is the link that holds these individual transactions together, and it’s the Realtor that bears the brunt of the unrealistic expectations that the different parties bring with them through a transaction. Realtors might make lots of money on television, and they might wear super pointy shoes and drive sportscars, but the business, even at that outrageous level, requires a serious dedication. Dedication to the deal? Sure. But really it’s dedication to being treated poorly, as an overpaid, unnecessary cog in the transaction. The irony here is that most times the transaction would not exist without that cog.

Most of the trouble in a real estate transaction involves perception. Buyers and sellers, perceiving what they will, understanding the business and the process as they will. Their understanding is not universally accurate. The customer is always right, except when the customer is usually wrong. But it’s about the perception and the way different parties enter into an agreement to sell a home. There are showings, which are good and tedious at once. There are offers, some bad, others good, most requiring work to bridge. The game of real estate is, up until the point of accepted contract, just that, a game. It is a game to find the properties, to list the properties. It is a game to negotiate a deal. Negotiations are games with serious outcomes, but they are most obviously a game. This is the game that some clients love to play, and this is a game that I’ve become quiet capable of winning. But the process ceases to be a game at the point of contract. What comes next is the work of actually selling a property. The point of contract is not the end of the process, but it is the end of the game playing.

When a party to a transaction adopts the juvenile approach that sees the entire process as a game, the transaction will, without fail, turn ugly. Will the buyer see the seller turn ugly? Will the seller see the buyer turn ugly? Well, that depends on the Realtor. If the process is being handled correctly, the ugliness that is pettiness will be masked by the go between, by that unnecessary cog. This morning I am not intending on whining, though I can hear the whine coming through the keyboard with each new letter. This morning is intended to serve as a reminder to the parties of a transaction. There is a goal in this game of real estate, and that’s to sell or buy whatever real estate is in focus. Play the game, negotiate, win. But once the dust of a contract has settled, recognize the task at hand. Complete the transaction. Be flexible to understand the situations, be attentive to a buyer’s request. When selling real estate, do so with a grain of salt, knowing the goal is not to win each individual battle but to win the war. When buying, think of the process in the same way. But just know that if you’re unreasonable or otherwise inflexible, it will, at the end of this day and every day, be the fault of that unnecessary cog that made the entire thing happen.