NAMED THE NATION’S BEST NEWSLETTER BY NAREE
OCTOBER 2017 VOL 11 ISSUE 10
MY TAKE BY TED C. JONES CHIEF ECONOMIST, STEWART TITLE
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DATA IN ACTION
BIG DATA SANDBOX SHOULD YOU BUY NEAR A WHOLE FOODS?
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WHERE HOMEBUYERS ARE MOVING
Contents
FEATURED ARTICLE
Homes sold off the Multiple Listing Service in 2016 accounted for about one in every four home sales in Phoenix, a market that has proven particularly attractive to the off-market trifecta of pocket listings, iBuyers, and real estate investors marketing directly to distressed homeowners. Many of these disrupters are now expanding to more markets, but are they truly here to stay or merely taking advantage of a hot seller’s market? P1 THE OFF-MARKET HOUSING MARKET Just as the seasons of the year change, likewise do both sales volumes and median prices of existing home closings, explains Ted C. Jones, chief economist at Stewart Title Guaranty Company. Stewart contends that this seasonality — often smoothed out in the form of seasonally adjusted sales and price numbers published in housing market reports — is important information that can be leveraged by both buyers and sellers, particularly at the local level. P13 MY TAKE: THERE IS A SEASON FOR HOUSING SALES AND PRICES Two of the most fundamental human needs are food and shelter, so it makes sense that the availability of food and quality of the food available would impact where humans seek shelter. That applied in an ancient agrarian society where most people grew their own food, but it also applies today when most people get their food from the local grocery store. A big data analysis looks at the impact of three grocery stores — Trader Joe’s, Whole Foods and Aldi — on home values, price appreciation and investment returns. P18 BIG DATA SANDBOX: GROCERY STORE WARS U.S. housing market with the highest pre-mover indices during the second quarter — predictive of strong sales activity in the third quarter — were Colorado Springs, Colorado; Chicago, Illinois; Washington, D.C.; Reno, Nevada; and Lexington, Kentucky, according to the Q2 2017 Pre-Mover Housing Index published by ATTOM Data Solutions. An interactive heat map shows pre-mover trends across the country and in your local area. P19 DATA IN ACTION: WHERE HOMEBUYERS ARE MOVING
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HOUSINGNEWS REPORT
LEAD ARTICLE
The Off-Market Housing Market
BY PETER MILLER, STAFF WRITER
There’s a strange omission from the long list of industries vanquished, disrupted, and dismantled by the Internet. Retail chains are closing, cabs are not being hailed, and hotel rooms are going empty.
That isn’t stopping would-be MLS disrupters like REX Real Estate from trying.
digital marketing to show homes directly to potential homebuyers,” explains Ari Sternberg, VP of Digital Marketing at REX, in a blog post. “We target buyers based on their geography, demographics, preferences, and even online behaviors.” One by-product of working outside the MLS system is that REX has a different approach to commissions. The company says that “on average, thanks to our 2 percent all-in fee, REX
“REX homes are not on the MLS and never will be,” says the company, which is active in Southern California and New York’s Long Island. “We advertise directly to buyers on the Internet, not to brokers. REX homes are on Google, Zillow, Trulia, Yahoo and other places buyers search.”
But amid the rumble and ruin of traditional commerce, multiple listing services (MLS) remain remarkably impervious to disruption.
“Instead of using the MLS to advertise homes to agents, we use sophisticated
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SHARE OF OFF-MLS SINGLE FAMI LY HOME SALES IN 2016
MARICOPA COUNTY, ARIZONA (PHOENIX)
24.9%
ORANGE COUNTY, CALIFORNIA
18.7%
DALLAS COUNTY, TEXAS
14.0%
LOS ANGELES COUNTY, CALIFORNIA
8.1%
Off-market sales are calculated by comparing counts of publicly recorded sales deeds with counts of MLS closed sales in each market. Sources: ATTOM Data Solutions, First Team Real Estate, ARMLS, Texas A&M Real Estate Center.
monopoly and the result would be more competition, lower fees, fewer brokers, and more self-selling. The broker at the center of the real estate transaction would be displaced by the free and fluid flow of information and maybe a few hours of legal time. Gary Brown in a 1995 interview with Frank Cook’s Real Estate Intelligence Report. “There will still be a need for some broker services, but brokers will be out of the matching process and some of the peripheral services. Brokers may be go-betweens and help in negotiations. They may fill out forms.” If such predictions were true we should now see a marketplace filled with broker-less transactions, those selling for-sale-by-owner, so-called FSBOs. In fact, precisely the opposite has happened. Self-sellers are a vanishing species. “The broker is out of a job as he knows it,” said MSN Real Estate Forum Manager
“The MLS is an antiquated tool created by real estate brokers to keep buyers dependent on them. But the Internet changed all that.”
REX REAL ESTATE ON ITS WEBSITE
Sellers have netted $25,000 more on their home sale than they would have if they paid traditional agent fees of 6 percent. Of course, the exact savings depends on the list price of the home. But in all cases, the REX fee is 80 percent less than traditional agent commissions, which usually total 5 to 6 percent. There are no other fees beyond the 2 percent.” Plainly there is public demand for something different. A study by Trulia published this summer found that “44 percent of Americans have a regret about their current home or the process they went through” when choosing it.
“The MLS is an antiquated tool created by real estate brokers to keep buyers dependent on them,” according to REX. “But the Internet changed all that.”
Not Dead Yet The MLS has survived previous declarations of its demise.
When the Internet began to gain far- flung acceptability in the early 1990s it was widely believed that real estate brokers would be an instant casualty. Through MLS systems the brokerage community had a lock on real estate data, the core information needed to market homes. Many believed the Internet was going to end the MLS
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MLS SHARE OF SINGLE FAMI LY SALES IN LOS ANGELES COUNTY
PUBLICLY RECORDED DEED SALES
MLS SALES COUNTS
MLS SHARE OF SALES
70,000
96%
94%
93%
94%
60,000
91% 90% 90%
90% 92%
92%
50,000
86%
90%
40,000
88%
86%
30,000
87%
84%
84%
20,000
82%
10,000
80%
78% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
0
SOURCE: FIRST TEAM REAL ESTATE, ATTOM DATA SOLUTIONS
According to the 2016 edition of the National Association of Realtors (NAR) Profile of Home Buyers and Sellers, “only eight percent of recent home sales were FSBO sales again this year. For the second year, this is the lowest share recorded since this report started in 1981.” Grassroots Disruption But the picture is markedly different at the local level in markets where MLS disrupters like REX and others are operating. Single family home sales listed on the MLS represented 89 percent of single family home sales deeds recorded in Los Angeles and Orange counties combined, according to an ATTOM Data Solutions analysis of public record
“Only eight percent of recent home sales were FSBO sales again this year. For the second year, this is the lowest share recorded since this report started in 1981.”
NATIONAL ASSOCIATION OF REALTORS PROFILE OF HOME BUYERS AND SELLERS
deed data and MLS data provided by First Team Real Estate, the largest independent brokerage in California. That indicated about 11 percent of all single family sales in the region were not listed on the MLS, down from 13 percent in 2015 but up from a low of 8 percent in 2008.
numbers when it came to share of sales not on the MLS. The number of non- MLS listed sales were much higher in Orange County at 19 percent than in Los Angeles County at just 8 percent — on par with the national average provided by NAR for 2016.
The disparity between the two counties boils down to “the lack of listing
But each of the two Southern California counties had substantially different
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inventory in Orange County,” according to Michael Mahon, president at First Team Real Estate. “Because listings have been down for 2016, you have a lot of agents who through their own sphere of influence … they already have ready and willing buyers so they never make it to the MLS.”
Mahon believes most off-MLS sales are the result of these so-called pocket listings. “We have agents who have 50 to 75 buyers sitting there as pent-up demand waiting for listings,” he said. “A lot of these home sellers are willing to
entertain an offer that they feel is fair for the asking price they are wanting to get for the property … a ready, willing and able buyer in queue is very appealing.” Off-Market in Middle America The share of off-MLS sales were also much higher than the national average across the country in Dallas and Phoenix. An ATTOM Data Solutions analysis of MLS closed sales counts provided by the Texas A&M Real Estate Center and public record closed sales counts in Dallas County, Texas, shows MLS- closed sales of single family homes in 2016 represented 86 percent of single family home sales recorded with the county for the year — indicating about 14 percent of all sales were not on
“We have agents who have 50 to 75 buyers sitting there as pent-up demand waiting for listings. A lot of these home sellers are willing to entertain an offer that they feel is fair for the asking price they are wanting to get for the property … a ready, willing and able buyer in queue is very appealing.”
MICHAEL MAHON PRESIDENT, FIRST TEAM REAL ESTATE, SOUTHERN CALIFORNIA
MLS SHARE OF SINGLE FAMI LY SALES IN ORANGE COUNTY, CA PUBLICLY RECORDED DEED SALES MLS SALES COUNTS MLS SHARE OF SALES
89%
90%
30,000
88%
87%
87%
88%
25,000
86%
84%
83%
84%
20,000
82%
80%
81%
15,000
80%
80%
78%
76%
10,000
76%
74%
72%
5,000
70%
0
68%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
SOURCE: FIRST TEAM REAL ESTATE, ATTOM DATA SOLUTIONS
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MLS SHARE OF SINGLE FAMI LY HOME SALES IN MARICOPA COUNTY, AZ (PHOENIX)
MARICOPA COUNTY (PHOENIX) iBUYERS
PUBLICLY RECORDED DEED SALES
OFFERPAD
OPENDOOR
MLS SALES COUNTS
MLS SHARE OF SALES
700
75.1%
600
500
87,206
83,476
500
400
61,689
65,503
424
102
73.9%
300
280
200
100
150
0
2015
2014
2015
2016
2016
YTD 2017
SOURCE: ARMLS, ATTOM DATA SOLUTIONS
the MLS. The analysis excluded non- arms length sales such as intra-family transfers and transfers to lenders via the foreclosure process from the public record counts. In Maricopa County, Arizona, home to the city of Phoenix, MLS-closed sales of single family homes represented just 75 percent of the single family home sales recorded with the county for 2016, up slightly from 74 percent in 2015, according to an ATTOM analysis — indicating about one in four sales in that county is not listed on the MLS. What do Dallas and Phoenix have in common? They are both testing grounds for a quickly growing alternative to listings for sale on the MLS: iBuyers such as Opendoor and Offerpad. Disrupter De Jour: iBuyers NAR figures for 2016 estimate about 1 percent of home sales during the
year were from owners to homebuying companies that purchase directly from homeowners that have not listed their homes for sale on the MLS. In the past those companies utilized offline methods to attract sellers. The yellow “We buy ugly homes” signs are a prime example of these offline methods. Now, however, there is a case to be made that direct transactions with homebuying companies might increase with the introduction of newer firms such as Opendoor and Offerpad that attract sellers largely utilizing online methods. An Opendoor entity (OD ARIZONA M LLC) was the second-biggest buyer of existing single family homes in Maricopa County in 2016, with 181, second only to a Blackstone-backed Invitation Homes entity (IH6 PROPERTY PHOENIX LP), which purchased 233 single family homes during the year, according to an ATTOM Data Solutions analysis of public record data.
All Opendoor-related entities identified in the public record data analysis cumulatively purchased 500 single family homes in Maricopa County in 2016, accounting for about 1 percent of all 72,145 existing single family home sales in the county during the year. The 500 purchased by Opendoor entities in 2016 was up 18 percent from 424 purchased in 2015 and up 82 percent from just six single family home purchases in Maricopa County in 2014. Year-to-date in 2017, Opendoor entities have purchased 102 single family homes in Maricopa County, indicating it may be slowing its acquisitions in that market. Meanwhile, fellow iBuyer Offerpad is continuing to ramp up its acquisitions in Maricopa County, with 280 year-to-date in 2017, up from 150 for all of 2016 and just eight for all of 2015.
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A Closer Look at Opendoor Opendoor is important for several reasons: First, it has been able to assemble $320 million in equity and more than $500 million in debt financing. Such numbers instantly make Opendoor a notable player in the local real estate markets where it is active. Moreover, if it finds success, it will be able to go back to
An Opendoor entity (OD TEXAS D LLC) was the second biggest purchaser of existing single family homes in Dallas County so far in 2017 with 117 purchases — behind an entity affiliated with longtime direct buyer NetWorth Realty (DALLAS METRO HOLDINGS LLC), which had 130 purchases. The combined purchases of all Opendoor-affiliated entities was 132 so far in 2017, up from 97 in all of 2016 and none in 2015.
the equity and credit markets for additional funding.
Second, Opendoor is an MLS-member brokerage as well as a direct buyer and seller. This model is well-established in the real estate field: think of inter- generational family firms that buy and sell properties as well as brokers who buy and sell for their own accounts. “The Opendoor difference is simplicity, convenience and certainty,” said Evan Moore, Opendoor’s head of agent experience. “For sellers, Opendoor makes it easy for homeowners to receive a fair market value offer in a few clicks, eliminating the hassle of home showings and months of uncertainty and giving them the power to close on their timeline. For buyers, Opendoor also provides the ultimate in convenience by providing on-demand access to
“For sellers, Opendoor makes it easy for homeowners to receive a fair market value offer in a few clicks, eliminating the hassle of home showings and months of uncertainty and giving them the power to close on their timeline.”
EVAN MOORE HEAD OF AGENT EXPERIENCE, OPEN DOOR
MLS SHARE OF SINGLE FAMI LY HOME SALES IN DALLAS COUNTY
DALLAS COUNTY iBUYERS
PUBLICLY RECORDED DEED SALES
OPENDOOR
MLS SALES
MLS SHARE
140
86.3%
132
120
29,462
100
28,367
25,341
97
24,488
80
60
86.0%
40
20
0
2015
2016
2016
YTD 2017
SOURCE: TEXAS A&M REAL ESTATE CENTER, ATTOM DATA SOLUTIONS
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Opendoor homes all day everyday. When buyers are ready to purchase a home, Opendoor delivers a streamlined experience, offering mortgage and title services, a home warranty and a 30-day money-back guarantee.” The Opendoor model includes brokers. As an example, Moore explained that “if an agent is representing someone who needs to both sell and buy, they’ll often bring an Opendoor contract on the home they need to sell so they have the selling part of the process taken care of up front, giving the client control over their timeline, more leverage on their purchase, and a longer time to search.” The company reports that more than 8,500 customers have bought and sold with Opendoor since launching in 2013. This has been achieved in just four markets — Atlanta, Dallas Fort-Worth, Las Vegas, and Phoenix — but the company expects to enter the Orlando and Raleigh markets before the end of the year. No doubt with more markets, more exposure, and with substantial
“Instant Offers is designed to attract sellers before they call you. Zillow will then try to influence those sellers to list with a Zillow agent… instead of you.”
STOPZILLOW WEBSITE
capital direct sales and purchases will increase.
2017. He said most of the 9,000 homes that the company’s franchisees are on track to buy this year are purchased off the MLS. “We buy direct from the home owner, without hitting MLS,” Hicks said. “And the people we’re buying them from, they don’t want a Realtor or anyone else traipsing through their house. … They got cats or they got smell. Those are the houses we are buying.” Hicks said the company’s growth stems in part from strong demand from real estate investors wanting to buy rental properties.
Old-School Off-Market Expansion It’s not just disruptive startups like Opendoor and Offerpad that are expanding off-market purchasing, however. HomeVestors, a 21-year-old company known for the “We Buy Ugly” houses signs, has exponentially expanded the markets it operates in since the housing bust, according to CEO David Hicks. Hicks said the number of HomeVestors franchises has grown from 165 in 2009 to 870 in 140 cities across the country in
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“There is a huge interest in people wanting to be landlords, wanting to buy investment properties,” he said, explaining that these investors are hungry for inventory to buy. “And that’s what we’re good at. Generating the leads of people who want to sell that ugly house that needs repair.” The off-market footprint of HomeVestors may be also expanding simply because a greater share of the homes their franchisees buy are subsequently re-sold to other investors — typically via another off-MLS
from 941 deals totaling $88 million in 2013, according to its website.
transaction — rather than to an owner- occupant sold through a Realtor and listed on the MLS. “We are selling more properties to other investors now than we were,” Hicks said. “We were selling more than half to end-users a few years ago, and now we are selling more than half to other investors.” NetWorth Realty is another direct buyer that has been around for several years and is continuing to grow, with 1,726 deals totaling $234 million in 2016, up
The basic NetWorth model is built on helping prospective real estate investors find properties to purchase as rentals or fix-and-flip opportunities, according to president Mark Bloom, who helped launch the company in 2008. “We’ll find properties. Our properties are off-market, they are not on the MLS,” he said, adding that the properties are also kept off-market when re-sold to investor clients in an effort to provide those clients with fixed pricing outside of a competitive bidding environment. “We fix our pricing. We keep all of our inventory off market.” Dollars Attracting Disrupters What is attracting the new wave of potential MLS-disrupters such as REX, Opendoor and Offerpad and fueling the growth of more old-school direct buyers such as HomeVestors and Networth Realty? The short answer is dollars. Real estate is a huge business and there is no fundamental reason why it should not change. Indeed, its very size invites new thinking and approaches: Existing home sales for the year are expected to total roughly 5.5 million units. As of June the median sale price was $258,300. That’s a total of $1.4 trillion in 2017, transactions which will generate commissions worth tens of billions of dollars — a number that goes up with new home sales, mortgage originations, title work, and insurance.
“Our properties are off-market, they are not on the MLS. … We fix our pricing. We keep all of our inventory off market.”
MARK BLOOM PRESIDENT, NETWORTH REALTY, DALLAS, TEXAS
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Those billions of dollars are attractive to disrupters looking for ways to make the process more efficient by lowering gross costs to consumers or raising incomes for brokers and salespeople. And now the nascent success of iBuyers in some local markets has drawn industry giant Zillow — which a decade ago entered the real estate marketplace as a disrupter — into the fray. Zillow Jumps on iBuyer Bandwagon In May Zillow announced that it would begin “testing the Zillow Instant Offers™ marketplace, a way for homeowners to sell their homes quickly by providing them with offers from investors and a comparative market analysis (CMA) from a local real estate agent, as an estimate for what the home might fetch on the open market. In addition to investors being required to use an agent, should a homeowner select an investor’s offer, Zillow will also offer to connect them with a local agent to represent them throughout the transaction.” The Motely Fool explains the program this way: “The buyer makes an all- cash offer for the property, allowing the homeowner to sell without the hassle of putting the home on the market. As a result, Realtors are up in arms that the homeowner can complete the transaction with or without their services.” Not everyone is happy with Instant Offers. StopZillow has alleged that “Instant Offers is designed to attract sellers before they call you. Zillow will
then try to influence those sellers to list with a Zillow agent… instead of you.”
“We’re not seeing it hardly at all, because most of the sellers realize they want to maximize the rate of the return … that offer is not going to come from an iBuyer who is looking for a discounted purchase,” said Mahon, adding that pocket listings oftentimes offer the happy medium for high- end sellers. “In the luxury market, for instance, we have some sellers that don’t want it listed on the MLS. … They want private channels in marketing the home. If the seller wants maximum exposure, then yeah put it on the MLS.” MLS Taking Notice The growing number of acquisitions by iBuyers like Opendoor and Offerpad are catching the attention of the Arizona Regional MLS, which in its August STAT report devoted three pages of commentary to an analysis of off-MLS sales in the market, including those by iBuyers.
For its part, NAR explains that it “cannot sponsor or encourage a boycott of Zillow. It would be unlawful for NAR to discourage members from using any product or service provider. Those decisions are made independently by MLSs, brokers, and agents.” Will the Instant Offers plan offend large real estate licensees to the point where they cut back their ad buys? Or, will licensees stick with Zillow? As The Motely Fool asks, “is Zillow about to disrupt the residential real estate industry and put over 70 percent of its ad revenue at risk?” Mahon, with First Team Real Estate in Southern California, doesn’t see the iBuyers as an immediate threat to his market, which tends to skew higher end.
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“As an analyst, the number one question I get asked is, ‘What percentage of homes sold are listed on the MLS?’”, writes Tom Ruff, housing analyst with The Information Market, a subsidiary of the ARMLS. Ruff went on to conclude counties in the Phoenix metro area in the first seven months of 2017 were listed on the MLS. “Does this mean 18.56 percent of the homes sold this year are FSBO (For Sale By Owner)? No, not at all. When we think of FSBOs, we traditionally picture a homeowner that sells their home without using an agent. … Today we have ‘iBuyers’ like Opendoor and Offerpad and for over 20 years we’ve had We Buy Ugly Houses.” that 81.44 percent of all homes purchased in Maricopa and Pinal
comes from within, making it tougher to combat.
Although Ruff admits he believes “it’s impossible to identify a true FSBO from our existing dataset” he does break up non-MLS sales into two categories: FSBO and Pocket listings, which combined he estimates accounted for 13.41 percent of all sales so far in 2017; and BOSA (Buyer offer Solicitation Accepted — his term for iBuyers and other direct buyers), which combined he estimates accounted for 5.15 percent of all sales so far in 2017. By that measure pocket listings, although not as new and flashy as iBuyers, may pose a bigger threat to the dominance MLS. And unlike iBuyers and other tech-centric disrupters, the pocket listing threat
But in a phone conversation with Housing News Report, Ruff
characterized the high share of off-MLS buyers in Phoenix as a natural result of housing market conditions that are more favorable for sellers in general. “It’s something that comes up all the time. It’s something that comes up over the years,” said Ruff. “The two variables that make the biggest determination are new construction and strength of the market. Pocket listings will increase … when the market is strong and new construction (increases).” The Pocket Listings Problem Traditional MLS relationships are being challenged by a growing number of member brokers who believe the fastest and easiest way increase profits is to stop dividing commissions, forget about MLS cooperation, and cut out other brokers. “Off-MLS listings may contribute to the unraveling of the MLS as we know it, and its replacement by a private network that serves to benefit a certain group of participants,” said consultant Stefan Swanepoel in a 2016 report published by NAR called the Definitive Analysis of the Negative Game Changers Emerging In Real Estate – the DANGER Report. “While it’s controversial and its future is uncertain, the growth of off-MLS listings or ‘coming soon listings’ may well blow up the model of cooperation.”
“As an analyst, the number one question I get asked is, ‘What percentage of homes sold are listed on the MLS?’”
TOM RUFF ANALYST, ARIZONA REGIONAL MLS
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FORECLOSURE AUCTION SHARE OF TOTAL HOME SALES
FORECLOSURE AUCTION SALES TO THIRD PARTIES
SHARE OF TOTAL SALES
“Of course there may be legitimate reasons why a ‘pocket listing’ could be of benefit to the seller as well as the lister in a particular instance, but the downside must be clearly explained and signed off on by the client.”
200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
ROBERT N. BASS ATTORNEY, PHOENIX, ARIZONA
1.00%
0.00%
2000 2002 2004 2006 2008 2010 2012 2014 2016
Member brokers are generally required to enter homes into the MLS system within two days, but in an environment with little inventory two days can be quite a head start. The two-day standard can be extended if the seller signs a form allowing the broker to opt out of the MLS as well as a waiver which says the benefits of an MLS placement have been explained. As an example, a seller might not want a listing to appear on an MLS or online site for reasons of privacy, security (think of a home with a lot of small, expensive antiques), or until repairs are completed. “I would be very interested to see the actual disclosure/authorization form that licensees present to their sellers in these scenarios,” said Robert N. Bass, a Phoenix-based attorney with a large real estate practice that includes defending real estate professionals in court. “Of course there may be legitimate reasons why a ‘pocket listing’ could be of benefit to the seller as well
as the lister in a particular instance, but the downside must be clearly explained and signed off on by the client. With a “pocket” listing or a “coming soon” approach a broker markets a property to a small group of potential purchasers or maybe a few friendly brokers before entering the property into the MLS or maybe entering it in the MLS only once an offer has been accepted. This may sound fine if the result is a sale, but sellers can pay a substantial price for such marketing. Because the property is seen by only a small pool of potential buyers, the seller may lose the opportunity to get a better price through wider marketing. For individual brokers the use of pocket listings may lead to accusations of discrimination.
of Realtors, explained in 2013 that “if agents limit their listing exposure to only certain sectors of the market, it may have an alleged discriminatory effect (i.e. reinforcing segregated housing patterns) even when there is no intent to discriminate.” (parenthesis hers) Is there a way that “coming soon” transactions could be made more palatable? “Coming soon can be an issue from many fronts,” said Matthew L. Watercutter, principal broker and senior regional vice president with Ohio-based HER Realtors. “The practice is popular in many communities, and in some instances it has a valid purpose, to make people aware this property is soon to be on the market, while the agent and brokerage prepare marketing materials, as well as needed staging, photography etc. which takes time to put together.
Elizabeth Miller-Gadabouts, senior counsel to the California Association
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“Unfortunately, many utilize this practice to double dip the transaction, therefore not necessarily working in the best interest of the client. More activity and more offers drive up the price, not less activity because the property is held off the market instead of being in the MLS and marketed to many.” Watercutter adds that “the only way for ‘coming soon’ to be truly a benefit, is you still do not show the home to anyone until it is actively marketed, so all potential buyers have a fair and equal opportunity.”
funding can readily hire licensees with the lure of salaries that are the same month after month. They can offer benefits. Suddenly the real estate business is a lot less risky for licensees. In the emerging gig economy finding skilled brokers is hardly a challenge. With the problem of licensure solved, and therefore with MLS defenses overcome from the inside, assuming one wants to be inside, the question is what will make a new approach to brokerage different — and better — than current competitors.
In the new world of capitalism short- term losses don’t matter. What’s important is growth, market share, perception, consumer satisfaction, lower costs, and rising share value — just look at Uber. Bloomberg reports that for 2016 Uber had revenues of $6.5 billion, a $2.8 billion loss, and yet had nearly $10 billion in cash and credit on hand. In June Uber had an estimated market cap of $68 billion. Name a cab company that can lose nearly $3 billion in a year and survive. Or one that’s worth tens of billions of dollars. If your goal is more transactions and your competitor’s objective is a higher market cap you’re not playing the same game. The traditional values in every profession and industry are now being re-hashed and re-thought so is it far- fetched to imagine someone thinking of a more-efficient marketplace where brokerage costs are cut to the bone? Where “gatekeepers” and “middlemen” slow innovation? Where commission structures and percentages change? Where profits can wait and market caps are soaring? If you think entrepreneurs are not looking at these questions day and night you might as well do business with a dial phone. As John Kennedy told us, “change is the law of life. And those who look only to the past or present are certain to miss the future.”
“Coming soon can be an issue from many fronts … More activity and more offers drive up the price, not less activity because the property is held off the market instead of being in the MLS and marketed to many.”
MATTHEW L. WATERCUTTER PRINCIPAL BROKER, HER REALTORS, OHIO
The Ultimate Change According to the National Association of Realtors, members in business for more than 16 years had a median gross income of $78,850 in 2016. That means half earned more and half earned less. “Gross” also means income before business expenses for things like MLS dues, car mileage, and marketing costs. In the end the net is far lower than the gross. These numbers also mean something else: Savvy entrepreneurs with access to hundreds of millions of dollars in
Surely it’s no secret that terms such as “MLS” and “multiple listing system” are not trademarked. New competitors can join or not join existing MLS systems, introduce new concepts, start in a few major metro areas, market like crazy, and in a short time it might be possible to have a major presence. Backed by vast capital resources new players can gain market share by charging less. Not only might new players charge less, given sufficient size they can effectively cause others to charge less as well.
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MY TAKE
There is a Season for Housing Sales and Prices
BY TED C. JONES, PHD STEWART TITLE GUARANTY COMPANY
Just as the seasons of the year change, likewise do both sales volumes and median prices of existing home closings. The best time to buy or sell, however, varies by markets around the country. Buyers naturally want to purchase at lower price points with reduced levels of competition, while sellers want top dollar when demand is at a peak.
volumes (and correspondingly the greatest prices) and buyers the least (less competition with lower prices). The following table utilizes monthly sales data (not seasonally adjusted) from the National Association of Realtors® calculated as follows:
• Within every year, each month was expressed as a percentage of total annual sales
• Average and median percentage monthly statistics were calculated
Shown in the table below are monthly sales and summary statistics. These are almost identical within each month, varying at most by 0.1 percent between the average and median.
• Data includes monthly closings from 2011 through 2016, with the logic being that the rise and implosion of the housing bubble may have skewed sales prior to 2011
Sellers need to know what months have the greatest transaction
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“June is the top month for annual sales in all but two of the six years examined while January had the least percentage of sales across all six years.”
U.S. EXISTING HOUSING SALES SEASONAL ITY — CLOSINGS PER MONTH 2011 2012 2013 2014 2015 2016
AVERAGE MEDIAN
JANUARY FEBRUARY
5.79% 5.93% 8.14% 8.80% 9.17%
5.58% 6.16% 7.73% 8.59%
5.72% 5.98% 7.61% 8.92%
5.69% 5.71% 7.19% 8.55%
5.35% 5.61% 7.71% 8.55% 9.42% 9.59% 8.96% 8.45% 6.68% 8.30%
5.54% 5.76% 7.72% 8.62% 9.63% 9.89% 8.91% 8.16% 7.67% 8.02%
5.6% 5.9% 7.7% 8.7% 9.6% 9.7% 9.9% 8.6% 8.4% 7.5% 8.1%
5.6% 5.8% 7.7% 8.6% 9.6%
MARCH
APRIL MAY JUNE JULY
9.62% 10.10% 9.58%
10.32% 9.94%
9.83% 10.25% 10.89% 10.67% 10.3%
10.3%
9.03%
9.24% 10.20% 10.01% 10.49% 9.41%
9.7%
AUGUST
10.06% 10.22% 10.18% 9.71%
10.0%
SEPTEMBER OCTOBER NOVEMBER DECEMBER
8.66% 8.05% 7.86% 8.19%
7.99% 8.61% 8.27% 8.03%
8.39% 8.33% 7.12% 7.61%
8.83% 8.98% 7.11% 8.37%
8.7% 8.4% 7.4% 8.1%
June is the top month for annual sales in all but two of the six years examined while January had the least percentage of sales across all six years. May, June, July and August, one-third of the months, accounted for four out of every 10 sales (39.6 percent). Meanwhile, October through March (one-half of the year), represented just 43.1 percent of transactions
the same summary statistics for two colder-weather climates, Boise and Minneapolis, and two warmer weather destinations, Orlando and the Phoenix-Mesa-Scottsdale metro. Orlando, the warmest climate of the four, has a more uniform spread of housing sales with no individual month entering the 10 percent range. It also had the greatest level of sales in December at 8.66 percent (average) and 8.46 percent (median).
Not surprisingly, Minneapolis, the coldest climate of the group, had the fewest January sales at 5.19 percent (average) and 5.21 percent (median). Just as with the number of sales, median prices also track seasonal patterns. The graph on page 16 shows U.S. median home prices monthly for the 2014 through 2016 time period. Despite the ongoing trend of rising prices during this term, there is a pronounced seasonality effect in
How does this vary across the country? The table on page 15 shows
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COMPARABLE EXISTING HOUSING SALES SEASONAL ITY — CLOSINGS PER MONTH
BOISE PHOENIX AVERAGE MEDIAN AVERAGE MEDIAN AVERAGE MEDIAN AVERAGE MEDIAN MINNEAPOLIS ORLANDO
JANUARY FEBRUARY
5.36% 6.07% 7.77% 9.19% 9.78%
5.35% 6.12% 7.66% 9.04%
5.19% 5.25% 7.05% 8.20%
5.21% 5.24% 6.89% 8.12%
6.13% 6.95% 8.78% 8.76%
5.98% 6.90% 8.78% 8.82% 9.06% 9.22% 9.13% 8.21% 7.96% 7.32% 8.46%
5.61% 5.86% 7.68% 8.67% 9.59% 9.73% 9.94% 8.63% 8.43% 7.45% 8.08%
5.64% 5.85% 7.72% 8.61% 9.60% 9.71% 9.97% 8.75% 8.39% 7.39% 8.11%
MARCH
APRIL MAY JUNE JULY
9.64% 10.02% 10.07% 9.21%
10.31% 10.27% 11.11% 11.06% 9.35% 10.06% 10.07% 10.33% 10.47% 9.20% 9.89% 10.05% 10.72% 10.75% 9.11%
9.16% 10.32% 10.29%
AUGUST
SEPTEMBER OCTOBER NOVEMBER DECEMBER
8.74% 8.27% 7.30% 7.25%
8.76% 8.26% 7.32% 7.19%
9.04% 8.86% 7.18% 7.05%
9.12% 8.88% 7.24% 7.02%
8.25% 8.23% 7.36% 8.66%
U.S. EXISTING HOME SALES PRICE SEASONAL ITY MEDIAN PRICE — NOT SEASONALLY ADJUSTED - $ THOUSANDS
median prices. Since closings peak in June, likewise do median prices.
2014
2015
2016
The interaction of supply and demand still drives prices.
$250
How much do prices vary seasonally during the year? To address this, median prices by month were compared based on a 100 index for the peak price month. • Data included monthly median prices for existing home sales from 2011 through 2016 • The month with the greatest median price within each year was assigned an index of 100 percent
$225
$200
$175
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
NATIONAL ASSOCIATION OF REALTORS
• The relative percentage of each month’s median price was calculated versus the 100 percent (top price) month, using both average and median statistics The following table shows the price relativity monthly for each year for U.S. existing home sales.
Prices peaked annually in June of each year for all six years while January was the annual price trough – again in each and every year. The typical median price each year in December was 6 percent less than June the same year (median statistic), while
• Monthly median price was expressed as a percentage of the maximum monthly median price within each year
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MY TAKE
U.S. EXISTING HOUSING SALES MEDIAN PRICE SEASONAL ITY
2011
2012
2013
2014
2015
2016
AVERAGE MEDIAN
JANUARY FEBRUARY
90.26% 81.89% 79.72% 84.64% 83.62% 86.31% 84.4% 88.90% 82.42% 80.93% 84.86% 85.44% 85.66% 84.7% 91.00% 87.29% 85.98% 88.60% 89.17% 89.42% 88.6% 91.74% 92.00% 89.63% 90.77% 92.55% 93.26% 91.7% 96.41% 95.50% 94.91% 95.50% 96.87% 96.49% 95.9% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.0% 100.0% 97.49% 99.47% 99.25% 99.82% 98.10% 98.22% 98.7% 98.7% 97.49% 97.93% 97.99% 98.38% 96.70% 96.93% 97.6% 97.7% 94.13% 94.44% 92.76% 94.19% 93.82% 94.99% 94.1% 94.2% 91.57% 93.70% 92.29% 93.47% 92.72% 94.55% 93.0% 93.1% 93.39% 95.02% 91.36% 93.33% 93.10% 94.67% 93.5% 93.4% 92.37% 95.44% 92.38% 93.78% 94.46% 94.22% 93.8% 94.0% 84.1% 85.2% 88.9% 91.9% 96.0%
MARCH
APRIL MAY JUNE JULY
AUGUST
SEPTEMBER OCTOBER NOVEMBER DECEMBER
the median January home sale price was almost 16 percent less than June.
purchase is a February acquisition (with a contract inked in December).
While there could be a unique product mix driving these differences (i.e. a greater percentage of luxury home sales in June and a greater percentage of entry-level home sales in January), the consistency from one year to the next verifies price seasonality. The best strategy for sellers to obtain a maximum sales price is to have a June closing, which corresponds to an April contract signing, assuming a 60-day closing period. That means that sellers need to have their homes actively on the market no later than March on average across the U.S. For buyers that strategy flips. Their optimum January price trough corresponds to a November contract signing assuming a 60-day closing period. Close behind the January
Most sellers become a buyer following their transaction. Their optimum strategy might be to purchase in January (with an almost 16 percent lower price) and then sell their existing property in June. The risk is that their home may not sell in June and they become owners of two properties. Just like the weather varies from season-to-season, so do home sales and prices.
TED C. JONES
Ted C. Jones is Chief Economist for Stewart Title Guaranty Company, and has been in that role for the past two decades. Prior to that he served as Chief Economist at the Real Estate Center at Texas A&M University. He is an internationally recognized real estate expert and was chairman of the board of directors of the Houston Association of Realtors in 2004.
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DATA IN ACTION
Where Homebuyers Are Moving in Q3 2017
Local Market Perspectives “We have noticed an increasing phenomena of the use of reverse mortgages, as well as increasing inventory of single family home rentals, indicating that more homeowners are holding on to their current homes rather than moving up or downsizing,” said Michael Mahon, president at First Team Real Estate, covering the Southern California housing market, where the most affordable county (Riverside) posted the highest pre-mover index and the least affordable county (Orange) posted the lowest pre-mover index in the second quarter. “The data shows greater growth in the index for Snohomish and Pierce Counties relative to the central King County market,” said Matthew Gardner, chief economist at Windermere Real Estate, covering the Seattle market. “I
believe this offers further affirmation that home prices close to Seattle are getting beyond the reach of many would-be buyers who are now being forced to look further afield to find suitable housing.” “The larger markets in Ohio, such as the Columbus market and greater Cincinnati market, are seeing higher-than-normal sales,” said Matthew Watercutter, senior regional vice president and broker of record for HER Realtors, covering the Dayton, Columbus and Cincinnati markets in Ohio, all of which posted pre-mover indices above the national average in the second quarter even though the state as a whole posted a pre-mover index below the national average. “These markets are more urban in nature, and are attracting many millennials as the job markets are improving throughout these areas.”
U.S. housing market with the highest pre-mover indices during the second quarter — predictive of strong sales activity in the third quarter — were Colorado Springs, Colorado; Chicago, Illinois; Washington, D.C.; Reno, Nevada; and Lexington, Kentucky, according to the Q2 2017 Pre-Mover Housing Index published by ATTOM Data Solutions. Using data collected from purchase loan applications on residential real estate transactions, the ATTOM Data Solutions Pre-Mover Housing Index is based on the ratio of homes with a “pre-mover” flag during a quarter to total homes in a given geography, indexed off the national average. An index above 100 is above the national average and indicates an above- average ratio of homes that will likely be sold in the next 30 to 90 days in a given market.
WHERE HOMEBUYERS ARE MOVING IN Q3 2017 Q2 2017 PRE-MOVER INDEX (100 IS NATIONAL AVG) 10 10
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