2/22/10david r. phillips, rce, cae1 2010 swanepoel trends report the economy, commercial real...

2/22/10 David R. Phillips, RCE, CAE 1

2010 Swanepoel Trends Report

The Economy, Commercial Real Estate, and Social Media, plus 7

Top Trends


Residential Economics

• Bailouts

• Stimulus Packages

• Foreclosures

• Have We Hit Bottom?

• Housing Starts

• Potential Potholes Ahead


Bailouts and Stimulus

• 4 consecutive quarters of negative GDP until a 2.2% growth in Q3 2009

• 140+ banks closed in 2009 – more than in 1992’s S&L crisis

• The rest of the world is rebounding faster from the global recession


Foreclosures

• No good source of data, but Realtytrac.com is often sited as source

• 3.5 million foreclosures in 2009

• Banks are holding properties and creating a shadow inventory

• 2nd wave of foreclosures to hit in 2010 with 88% of option ARMS being recasted

• 94% of option ARMS are interest only


Have We Hit Bottom?

• Two Schools of Thought

• #1 The Glass is Half Full– The worst is behind us– GDP headed up– Home sales will be up in 2010– Consumer confidence is up– Housing Affordability Index at all-time high– Inventory down, building should increase


Have We Hit Bottom?

• Two Schools of Thought

• #2 The Glass has some water in it– Slow 1st quarter with improvement in 2nd half– After-tax-credit sluggishness– Foreclosures are looking at second wave– Distressed sales are 30% of market– Inventory may increase due to increased

foreclosures and the shadow inventory


Housing Starts

• Housing shortage ahead?

• 1 to 1.4 million households added each year, but only adding 560,000 currently

• Still a glut of inventory on the market

• The overbuilding of the past 10 years is resulting in under-building now

• We will not be ready when the surplus is sold and more units are needed


Potential Potholes Ahead

• More foreclosures ahead

• The impending debacle in the commercial real estate market

• Increased inventory from the shadow market and more foreclosures

• The true effects of the housing tax credit

• Tight credit, lack of private lending

• Continued unemployment


Quote

“Most of the tax credit is simply shifting sales from one period to another. It doesn’t get rid of the fundamental problem; there is

still a glut of houses.”

Dr. Patrick Newport, Economist

HIS Global Insight


Commercial Real Estate

Impact of the Ticking Time Bomb


Quote

“The commercial sector has become a ticking time bomb.”

Stefan Swanepoel


Quote

“The most prominent area of risk for rising credit losses at FDIC-insured institutions during the next several

quarters is in CRE lending.”

Sheila Blair, Chair

FDIC


The Commercial Problem

• No money from Wall Street available

• Banks have tightened their lending requirements

• Prices for commercial real estate dropped 40% in the last two years

• Bad economy, reduction in consumer spending, and unemployment


Quote

“The commercial real estate loan s dead in the water. A severe ongoing

credit crunch in commercial lending is hampering the economic recovery.”

Dr. Lawrence Yun

NAR Chief Economist


The Commercial Fix

• Job creation/less unemployment

• Real Estate Investment Trusts (REITs)

• Initial Public Offerings – a new wave coming

• Solutions need to be in place before the 2011 when commercial loans reset


Social Media

Continual Confusion, Infinite Innovation, and Endless Opportunities


Quote

“The game has changed. The new game is called the Golden Triangle and here are its players: Social Content Production, Mobile

Media, and Real-Time Information.”

Stefan Swanepoel


Social Content Production

“Social Media today is a pure mess: it has become a collection of countless

features, tools, and applications fighting for a piece of the pie.”

Ravit Lichtenberg

Founder and Chief Strategist, Ustrategy.com


Changes in Social Media

• It is now a business opportunity

• User growth is coming from older people– Up 60% in 35-54 year olds– 55 and over have increased 77%– 48% of adults use social media


Mobile Media

• Mobile Internet users are expected to grow 30% in 2010.

• Mobile users on social networks is expected to increase 60% in 2010

• Location-Based Services (GPS)– RPR Mobile App– Navigation, locating nearby services/people– Traffic alerts and location-based ads/notices


The Rise of Real Time

• Twitter

• FaceBook

• Ustream – live video from smart phone

• Posterous – email to blog posts

• Cell phone cameras

• Texting


Quote

“The social web is you. It’s your customers, your friends, your family, your employees, your shareholders, your colleagues, and everyone else. Social media presents a new avenue to listen and communicate.”

Stefan Swanepoel


Quote

“If you don’t master Social Media, your competition will.”

Stefan Swanepoel


Seven Top Trends

#7 Straddling the FenceAre You Committed?


Career Facts

• Even in good times, only 1 in 4 agents make it past their first year

• Median income for a Realtor® in 2004 was $49,300 and in 2008 it was $36,700

• 26% of Realtors® indicate that real estate is not their only job

• 44% indicate that real estate was their primary household income


Quote

“Historically when the market slows real estate agents often turned to the support

services such as appraisal, title or insurance to find some additional work. But now, those industries are suffering

along with real estate…”

Stefan Swanepoel


Ethical Question

Should Realtors® who are working part-time disclose that

fact to their clients?


Impact on Consumers

• What are my agent’s priorities?

• Who will handle urgent issues that arise?

• Will I get promised marketing services?

• Are my agent’s skills up-to-date?

• What happens when timing is critical?

• Will my agent completely leave the business?


Impact on Associations

• Ethics complaints and arbitration requests are on the rise

• Declining membership

• Need for weekend and evening hours

• Volunteerism good and bad– Some have more time/less business– Some have less time/other career


Impact on Brokers

• Difficulty in communicating effectively

• Loss of commission generation

• Increase in complaints

• Broker having to cover the transaction

• Need to provide more technical support and promotion services


Broker Stats

51% of brokers surveyed said they held a second job which is up 21% from a

year ago.

42% of brokers indicated they spent more than half their time at their

second jobs.


Impact on Dual-Career Agents

• Cost of entry was high, but cost of staying is still worth it.

• Agent annual net income is $30,900

• 39% report earning less than $25,000

• 16% report earning $100,000 or more

• Full-time agents have to cover the transaction for part-timers


Considerations for Associations

• Should we offer more evening/weekend classes and services?

• How do we need to change the way we communicate with members?

• How do we avoid becoming co-dependent on part-time agents (providing service to help them stay in the business in return for dues dollars)?


#6 In Search of Innovation

How Do “You” Change the Game?


NAR Game Changers

• 0ver 200 entries

• 14 Winners funded at $1.7 Million

• 22 Runners Up funded at $170,000

• Others received $500

• $2 Million total invested to generate new, game changing ideas


Quote

“Traditional players often cannot change, but they can invest in the game changers.”

Ken Auletta

Author, Googled: The End of the World as We Know It


Winning Ideas

• Trademarking Broker Listing Coop to change the name MLS to BLC

• Rating system for all real estate services including the licensee

• A Realtor® Finder system that allows consumers to match needs with skills

• Create the virtual Realtor® Association


CAAR’s Game Changer

• One of the 22 Runner-up prizes

• Funded at $10,000

• Develop a mobile app for Realtors® to use to access the Realtors® Property Resource

• Mobile Web based to work on all smart phones

• GPS based to deliver on-site data


#5 Read All About It

The End of Advertising as We Know It


Winds of Change

• Newspapers and Magazines are struggling

• Subscriptions and circulation are down

• Many newspapers are out of business (105 closed during 2009)

• Ad revenues dropped 30% in 2009

• There are still over 1400 daily newspapers so the industry is far from dead


Quote

“If TV represented a body blow to the newspaper industry, the world wide web may prove to be the nail in the coffin.”

About.com

(always consider the source)


Quote

“Marketing is not about traffic, it’s about conversion…brokers that decide to

advertise online need a clear and defined game plan, and they had better

understand their return on investment.”

Tom Tognoli

COO, Intero Real Estate Services


Facts

• Decline in print ads mirrors the market and the economy

• After 2001 recession, print ads rebounded

• Direct Mail has been declining as well and has dropped from #1 ad revenue generator to #4 behind the Internet, TV, and newspapers


Quote

“Real estate advertising will not go back to the way it used to be in 2006.

The down market has created a needed reevaluation of how

Realtors® advertise. After recovery, we will find a new normal.”

Dave Phillips, CEOCAAR Real Estate Weekly


The Shift Is On

2005• Newspaper

45.1%• Online

36.4%• Other Print 7.8%• Direct Mail 5%• TV 2.9%• Other 2.8%

200928.8%

55.4%

6.4%

3.8%

3.3%

2.3%


Quote

“Print and TV spending will go down to nearly zero and online spending starts to ramp up as the housing

market starts to improve.”

Spencer Rascoff

COO, Zillow.com

(consider the source)


Quote

“Prioritize your advertising efforts and commit to evaluating and changing it

when and where required.”

Stefan Swanepoel


#4 Change By Design

Time to Grow Up


Professionalism is the Key

• Professionalism means different things

• Today, it means changing the way you do things and being better at what you do

• Stop waiting for someone to “fix” the industry or the economy – take the initiative and step out with the answer


Quote

“This market will separate those who are skilled and true professionals from those who aren’t, and will force the industry to

set its standards higher.”

Martin Bouma

The Bouma Group, Keller Williams Realty


What Buyers Want

• Agents to have a better understanding of the direction of the market

• Agents to be better at negotiation (82% were dissatisfied)

• More assistance in mortgage process

• Knowledge about buying distressed properties

• A faster response time from their agent


Quote

“What they (consumers) are looking for is trust, confidence, transparency,

interpretation of information and services (mortgage, home warranty, inspection,

etc.), all of which takes time.”

Stefan Swanepoel


Solutions to Grow Up

• Change from a short-term transactional relationship to a long-term relationship

• Define your Unique Selling Point (USP)

• Improve your knowledge base

• Let consumers grade/rate your service

• Connect with consumers in the new media


Quote

“It is no longer about being licensed. It is no longer about being a member of the NAR. Few consumers understand the difference. It is no longer about the letters behind your

name. The consumer doesn’t care.”

Stefan Swanepoel


Quote

“We used to call it education and training. Now it is called knowledge

and skills enhancement.”

Stefan Swanepoel


Rated by Consumers

• Houston Association implemented in 2009

• Initial skeptics, but only 200 have opted out of the program

• 26,000 survey responses

• Mostly positive feedback

• Satisfaction with value received took a nose dive when the market tanked


Quote

“Professionalism has been defined in many ways, but they all have one thing in

common: it’s a mindset. It is not about what one does but rather how one does it.”

Stefan Swanepoel


Characteristics of Professionalism

• Driven by purpose, meaning and values

• Constantly seek ways to improve

• Focus on what you do best

• Focused on people

• Consistent and committed


#3 Franchising Mix Modifies

Do You Want to Sit Up Front?


Franchising

• 40 years since it entered residential real estate

• Has shaped and re-shaped the industry

• Its impact ranks with the MLS and the Internet as the top three game changing strategies since WWII

• Expanded significantly since the 1990’s


Quote

“There is an obvious need for consolidation in the number of

franchisors just based on the size of the market.”

Stewart Wilson

Sr. VP, Realogy


Changes to Franchising

• The roll-up of multiple brands under one owner

• The evolution of the real estate business model

• The adoption of franchising by historically independent brokers


Franchise Roll-up

• HFS (now called Realogy) changed the game in 1995

• Acquired multiple brands

• Paid companies to join franchise system

• Acquired firms as company-owned stores and then signed them to long-term franchise agreements


Evolution of Business Model

Quote“What has happened…is that every time someone

comes up with a better way or different approach to solving the real estate business model, a new franchise is usually born and offered up as the

next big thing.”

Stefan Swanepoel


2009 Franchise Moves of Note

• C21 Town and Country (largest C21 in the world) filed for bankruptcy

• Schwetzer (Huge CB franchise) was acquired by much smaller Weir Manuel

• Metro Brokers (largest GMAC) moved to Better Homes and Gardens

• Brookfield RPS (Canadian firm) acquired Real Living (2008’s most promising new brand)


Categories of Franchising

• Traditional

• Managerial

• Collaborative

• Residual

• Regional

• Niche

• Discount


Quote

“(the bad market) has caused many of them to cut back on the services

offered…causing many to question, legitimately or not, why are they still

paying franchise fees.”

Stefan Swanepoel


#2 Time for Market Fundamentals

Is the Tax Credit All It’s Supposed to Be?


Tax Credit Confusion

• Facts are hard to find, opinions are not

• It is either the answer or the problem, depending on who you want to believe

• NAR’s Lawrence Yun believes it is a drop in the price of the home and not really a tax credit

• 1.4 million taxpayers have claimed credit

• 57% had Gross Income less than $50K


Tax Credit Costs

• NAR claims it added $22 billion to economy so far

• $10 billion in tax credits so far and $15 billion total expected by April’s deadline

• 94,000 of the 1.4 million claims are expected to be denied

• Most buyers would have purchased anyway


Quote

“In about 4 out of 5 cases, the tax credit went to people who would have bought a home anyway. So that

means the real cost of getting that one extra buyer into the market is five

times $8000 – about $40,000.”

Andrew Jakabovics, Center for American Progress


#1 Protecting Your #1 Asset

Mission Statement: To Organize All Real Estate Data


Realtor® Property Resource

• Nickname – RPR

• All property data from every property in the United States mashed up into one giant database for Realtors®

• Plus, Realtors® can add opinions, observations, and insights on properties

• Available only to Realtors®

• Will it include your MLS data?


Quote

“MLS and Realtor® Association Executives would be well advised to be reminded that Realtors® own the

listing information, not the MLS.”

Walt Baczkowski

CEO, Metropolitan Consolidated Association of Realtors®


Data in RPR

• Unlisted properties from builders and FSBO’s

• Mortgage and other lien information

• Foreclosure information

• Archived property photos

• Insurance claim information (CLUE)

• Environmental information


What’s Not To Like About RPR?

• Many MLS’s already have rich data

• Money – it will start as a free service, but many think it may have a cost later

• Money – RPR is projected to sell analytical information and raise lots of money – some think MLS’s and even brokers should get a piece of the pie

• Could become a National MLS


RPR’s AVM

• Automated Valuation Model (AVM)

• Popularized by Zillow in 2006

• Not very good at first, but getting better

• RPR’s better data could present opportunity to create the “gold standard”

• Without MLS data, the gold standard will be impossible to achieve


Our Own Worst Enemy

• We give our data away to strangers, but resist giving it to ourselves (RPR)

• 93% of listings are found on multiple sites and were provided to these strangers for the promise of more exposure

• NAR and RPR smelled gold and did not plan to share it with the rest of the family

• Can’t we all just get along?


Possible Competition for RPR

• Zillow and First American

• Trulia and Google

• Google

• Realtor.com and First American

• Someone we have not heard of yet

• Ourselves


Quote

“Whose ox gets gored, who benefits and where the money flows is anybody’s guess

at this point. But what I can safely say is that this is a significant shock to a system

that needs it.”

Brian Lawson

Consultant and Lawyer


Questions and Comments

David R. Phillips, RCE, CAE

[email protected]

@DRPnet on Twitter

mailto:[email protected]

2/22/10david r. phillips, rce, cae1 2010 swanepoel trends report the economy, commercial real...

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