Rough Strategy

The housing market is crashing! Or is it? Thank you Mark Zuckerburg, Jack Dorsey, Donald Trump, WordPress, and TikTok for empowering the world to convince itself that everything and nothing is true all at the same time. What a time to be alive.

Depending on who you talk to the sky may or may not be falling at the moment for housing. One truth is unavoidable for all. The rates are too damn high!

This may (or may not) be the start of a potential gridlock in housing where people refuse to give up their sweet old rate/payment leading to stagnation of inventory growth which also can equal a floor on prices preventing declines big enough to attract enough buyers back into the game.

The sad irony is that all those buyers waiting for houses to get cheap again literally missed the window. (whoops)

So what’s a buyer, seller, agent, and loan officer to do in a time like this? Take up fly fishing and wait for Jerome Powell to throw us a bone again? Likely that’s exactly what some will do. The rest of us (myself included) will do something slightly more productive and take this time to focus, build, and make deals happen.

The Rise of The Macro-Bro

One of the most fundamental shifts in the world of investing that I’ve been able to witness in my relatively short time on this earth is the growing trend toward a macro-mindset. Efficient market theory may have temporarily collapsed under the weight of Long-Term Capital’s hubris, but from its ashes came the rise of ETF trading and the mindset to go with it.

If markets are so efficient and one can’t find an edge what’s any self-respecting narcissist who thinks they’re smarter than the average bear supposed to do? Become a macro-bro.

Suddenly a huge number of people who can’t seem to beat the S&P (and have a twitter account) know more about what China is going to do better than the Chinese government. With the ease and liquidity that allows virtually anyone to play entire markets via ETF’s we’ve seen a growing trend toward a common mentality that glorifies thinking and investing at a 30,000 foot altitude than one that’s on the ground. (the meme-stock craze being a short and entertaining break).

Real Estate Really Is Local. (Seriously)

The biggest problem with the Macro-Bro mindset is that it ironically for many makes the world such a small and simple place to live in. Real estate is down therefore don’t buy real estate right?

A quick glance in my backyard market (Greenville, SC) demonstrates the far more complex situation. Despite all the doom and gloom homes posted as sold in the last 14 days are mostly selling at list price and in very short/reasonable turn times. Yet just like all markets at the moment; there are tons of listings starting to sit and plenty of 5-10% price reductions happening to those listings.

What do the houses selling quickly and at full price despite the rate hike have in common? They’re great houses with great marketing. Solid locations, good size/value, attractive features/finishes, and listing agents who respect their clients and their profession with top-notch photos, descriptions, and marketing.

A Macro-Bro could never stoop to such a level as to analyze the photos of a particular home. They need to know the trend for Greenville as a whole, how it fits into the U.S. Housing trends and what the current state of the currency and the pending European gas crises will mean for all of this. If you only look at the forest you’ll never chop down a tree.

Real Estate Is About Deals and Deal Making

How can one find success in what looks to be a potentially confusing, gloomy, and uncertain macro-market? Focus on your next deal.

As a real estate investor what attracted me and my capital slowly away from the world of Stocks, ETFs, and Options was the limitless creativity of making a deal. This is the creativity that your typical Macro-Bro just can’t comprehend.

123 Main Street may have a cap rate of only 4% but what if you could find a better use for the land? What if that land is in an opportunity zone and no one has utilized that designation? What if 123 Main Street’s property manager Tony has been asleep at the wheel for the last decade and the rents haven’t been raised accordingly? What if your favorite uncle gave you a below-average rate loan to buy 123 Main because he has too much cash that’s being eaten by inflation?

A Macro-Bro mindset is to invest in a market and hope their predictions come true. A deal-maker’s mindset is to find opportunities that exist or create ones where they don’t. This is what’s going to separate the best from the rest over the next couple of uncertain months.

Agents who find creative ways to market their listings to the right audiences will find themselves buyer. Investors who see the potential to turn a shabby 3/1 into a nice 2/2 will generate above average cash-flows, etc.

Macro trends are immensely important and impactful for market participants to know, follow, and understand; but at the end of the day what really matters is the deal that happens today. The price, terms, and circumstances of that transaction will be what determines its ROI if it’s an investment or its enjoyment if it’s your next home.

If you’re looking for an opportunity it’s time to zoom in.

I tend to keep the posts on this blog focused around strategies for agents, but with all the iBuyer talk out there one can’t help, but ponder the possibilities.

I’m a car nerd at heart; so it’s hard for me to resist the temptation of comparing the rise of iBuyers to the world of the automotive industry.

Selling a car sucks. You get tire kickers, low ballers, scammers, and all other forms of internet yahoo’s beating down your door, and creeping you out.

But is this the primary reason that drives people to trade vehicles in vs selling on the private market? My stance has always been there’s a much simpler desire. Something new. This is particularly magnified when monthly payments are involved, which encompasses the majority (66%) of todays homeowners.

Rob Hanh made an excellent point about the impact of holding costs on the consumer, and why it could actually favor some to sell to an iBuyer from a cost perspective. Holding costs (housing costs) even in a 0 DOM market can really add up, and for most Americans are the largest monthly bill to pay. This is a key reason many people trade that old clunker car in. The equity in the vehicle is important, but what really matters is the monthly cost. The typical American family struggles to afford one cost of living let alone floating a second for an undisclosed period of time. This doesn’t change their needs and desires. We still want the new/different car.

If the vehicle was totally paid off one would think we’d scoff at a dealer’s typically below true market value offer. That is unless we truly value the convenience of the service provided. Again selling a car, even with the help of an eyeball drawing market place is not the easiest experience.

Car dealers are not in the business of helping people sell their cars. They are in the business of buying inventory, and selling it for a profit. When that product is not exclusively available through a single dealer, and pricing transparency becomes widely available that really makes an impact on the margins in which one can do such a thing. So what’s a crazy Larry , sitting on his bull, with a fist full of balloons supposed to do to make a few bucks? Sell financing, and warranties.

What This is Really All About

I went car shopping with my fiancé the other day. My goodness was it awful. I spent my youth driving glorious $500 piles of crap so to even walk into a dealership for me is a bit of a foreign territory. The reason being I’m the buyer that they despise. The cash buyer.

When people pay cash, turn down the 10 year warranty, and pass on the 25 discounted oil changes boy does that sticker price have a way of being sticky. I’ve since learned to conceal the fact that I may be paying cash or have already been pre-approved by my local credit union until the bitter end of the dance.

This leads me to ask some interesting questions of where iBuying, and innovations in underwriting/financing are taking the industry. Clearly the iBuy crowd already understands that the margins are thin, and are looking at added services like mortgage, title, etc. to be the main driver of revenue from the transactions being generated. Non-homogeneous markets offer more opportunity for flip margin, but bring a greater risk of mis-pricing.

W.I.W.D.W.Y.D.J.A.L.B.B

Yup, this all makes a lot of sense to me. Big tech comes in, topples the industry, vertically integrates all the associated transaction fees, and we all go home.

One of the earliest lessons I learned as an entrepreneur was the power of a simple acronym. W.I.W.D.W.Y.D.J.A.L.B.B. Easy to remember right?

What If We Do What You Do Just A Little Bit Better. Okay, maybe I was being a bit cheeky about the easy part. First out of the gate is an advantage, but consistently better is what makes a race winner. From a strategic stand point (what this blog is all about) This is where the opportunity lies, and will continue to be so.

Think you can’t compete? Think again. Back to our auto-analogy; there are 45,000 independent used car dealers in the united states. Plus nearly 20K selling new cars. That’s a lot of dealers, a lot of choice, and a lot of people all asking W.I.W.D.W.Y.D.J.A.L.B.B. Does it take billions to become an auto-dealer? Nope.

During a panel session at Unite about iBuying, Lane Hornung of 8z answered the question How much capital do you actually need to get started? “Enough to buy one house”. Lane who is also the co-founder of Zavvie makes an excellent point. Billions in VC money will most definitely grease the wheels, but it doesn’t make solving the problems iBuyers do exclusive to Silicon Valley. (If you’re looking for a great example of what evolving to compete looks like click on the link to Zavvie)

Consumers need mobility, and are cash poor. That’s the reality. Innovations in financing are trying to solve these problems. Most shop first, and finance later (backwards) anyway so who better to offer these solutions than a real estate agent?

(i’m clearly glancing over a lot of fine print about co-marketing agreements, but I’m far from qualified enough to speak on those)

Same Trend New Headline

iBuying is without a doubt gaining some traction, and the dollars to influence consumer opinions are being spent. The real estate business that’s constantly evolving, and asking W.I.W.D.W.Y.D.J.A.L.B.B. shouldn’t be scared of a new model. Models are easily replicated. Scale however isn’t.

Consolidation is the real agent killer. It has been for years. Teams, call centers, salaried employees, and service extras (free moving trucks etc) have been, and will continue to be the thing that’s putting the real pressure on the traditional agent. It doesn’t matter what the model looks like, or if it involves the purchase of a home. The grand opportunity that the disrupters of this space are really circling around are the profits, and the inefficiency. These two things create the space for people to ponder W.I.W.D.W.Y.D.J.A.L.B.B.

TL;DR

• Consumers want access to their equity. iBuying is making this happen.
• Auto Dealers sell inventory, and credit. Consumers still hate them. Experience matters.
• You don’t need to be first, second, or third. Just consistently good.
• Don’t be scared. Be excited. There is no Google of iBuying or real estate. This is the wild west. An opportunity.

I love a good twitter battle. Over the weekend one of my favorite people in Real Estate Steve Harney challenged Gary Vee to a little debate over a topic that’s really important to this industry. Home Ownership.

Click to see the Inman Article with Gary’s full comments.

I’m not even going to attempt to hide my bias here; I’m not a fan of people who post pictures of themselves with quotes of themselves.

But I do even in my own circles see this debate come up quite often, and thought it might fun for some of my readers who are over the age of knowing who most people were at the Grammy’s last night to see a perspective and personal story from a person who’s lived on both sides of the fence.

Real Estate Appreciation is a Poor Investment

Here’s a chart I see over and over again in this argument. That money would be better invested in the stock market, because look at the graph!

Yes, if you buy a house in any town USA, and hold it for 100 years chances are the S&P will out perform the appreciation. As a very investment minded person this initially gave me a tremendous sense of pause. However once I educated myself throughly on the practice of real estate investing I found the comparison to be pineapples to parakeets.

What can make the conversation so confusing for people young, and old is that the word “investing” gets used in a very broad way in reference to real estate. Owning a real estate business is probably a better phrase that describes what people who make money in REI actually do. No matter what niche you operate in flipping, private lending, SFH rentals, multi-family, etc. what you find is the same thing that lies underneath every share of stock you own. A business. One that must generate more revenue that it has expenses, and is valued based on its ability to do so into the future.

I don’t think I’m going out on a limb to state that most retail investors who purchase stocks or Index ETF’s have any idea that the value of of the stocks within that index are derived from the calculated discount rate of the earnings of those companies; or that the rate of this discount can vary by the opinion of the person making the analysis. This being the case one should assume that the average non-real estate investor also doesn’t know how the game works!

It’s More Like a 401k Match 

If your company offers you 100% match on 3% of your salary should you take it? The short simple answer is yes. You’re getting a 100% return with virtually no risk. Even if the investments in that 401k don’t perform particularly well in comparison to another investment you have the huge cushion of every dollar invested being matched assuming that’s all you invest.

When you “invest” in a property with leverage (a mortgage), and rent it out you now have someone paying that principal/interest down every month. Regardless of the appreciation of that asset the tenant is paying off the loan on the asset that you own. As Steve Harney, and many others far smarter than me have pointed out, when it comes to your living situation either you pay your own mortgage or someone else’s.

Money paid to interest goes to the bank. Money paid to principal converts into equity. The caveat of course is that equity is tied to the asset. This however isn’t as big of a hurdle as one would think. (enter the HELOC). This is something in my observation a lot of people could use some further education on. When you’re young, broke, and dreaming of bigger things it’s easy to focus on the return of the investment, and lose sight of the other side of the equation: Risk.

Money “invested” into a personal residence may not carry a large return in comparison to stocks, but it does provide some return in an asset that has shown long-term stability. Can the value of a home decline? I think we’re all still a little shell shocked from that reality, but like any investment including the stock market; we must understand that things can be over and under valued. As an agent even when it comes to clients who are purely emotional in their buying need; I strongly believe it’s your fiduciary responsibility to equip your clients with market data to help them understand this.

Leverage Is A Powerful Tool

If there’s one aspect of home ownership I think that scares my avocado loving generation more than anything it’s the idea of leverage gone wrong. Many of our parents borrowed too much, and paid dearly for it.

Already debt ridden in student loans I can see the hesitation to borrow. I myself was turned off from the idea of home ownership for this very reason for most of my 20’s. Why would I want to take that risk? Why would I want that ball and chain?

What Gary described in his video is exactly the life I was living. I was paying $850 per month (well below market rate) and living in an apt in a neighborhood with an average price range of $750K+. In my mind I was going to milk that deal forever. I can’t afford to buy here so i’ll just continue to rent at my cheap rate, and enjoy a higher standard of living than I can afford to own. (doesn’t that sound like borrowing?)

That plan literally went up in flames when my apartment burned down. Buh-bye $850 rent. Now I had a choice rent another place at $1400+ in the same hood or make a change. It was a few months before that I saw Steve speak and I learned something that I didn’t know… that buyers with good credit could obtain 3% down conventional loans. Previously I like many others was burned from the horror stories of 0% down undocumented income loans of the mid 00’s. I thought those products were for over-leveraged morons.

Quickly however I saw the potential. With a very SMALL amount of capital I could lock in a monthly payment on an asset over a long period of time. This is truly what turned me into a home owner. I didn’t have the lump sum of $$$ to put 20% down on most Charleston, SC area properties, but I certainly had 3%, and stable income with excellent credit.

Had I rented another apt it would’ve taken me a very long time to be able save enough money to make a > 20% payment on even a modest property. During that time the money spent on rent would’ve simply been gone. If I could purchase a home at a fair value with a monthly payment (including PMI) that was significantly less than what I would pay in rent then buying would make a lot of sense. Unfortunately what I had to do is something most people won’t: Compromise.

Buying a property with 3% down that was much cheaper than an apartment involved my girlfriend and I needing to look in places that we’re less than Ideal. We didn’t get a walk-in closet, or a lot of the features we wanted within our budget which was about 25% below the avg for the area. Eventually however we found something that worked. It wasn’t perfect, but it was ours. What influenced our decision to buy the home we bought was that we felt the property was undervalued, and the neighborhood appreciation to be on track for an above average trend. We happened to be right. (and more so than we ever thought) Our home appreciated at a rate that exceeded even our wildest expectations. Our modest $X,XXX downpayment turned into a very large return thanks to the power of leverage.

Does my success story warrant everyone going out and getting a 3% down loan? Of course not, but what people sitting on the fence really need to understand is that in business leverage is a tool. Credit is part of what makes the economy work. We should not be scared of leverage if it’s being used in a smart, and conservative way. Leverage allowed me to secure a lower monthly cost of living, and start putting some of those costs to equity instead of someone else.

Again this is where I think agents really need to bring a sense of fiduciary obligation to the table. One can easily borrow too much. One can surely use leverage to live a lifestyle that should be out of reach, and in doing so create an unacceptable profile of risk.

Be Responsible

While at Inman NYC ’19 this year I heard many luxury agents talk about repositioning themselves as financial advisors. Educating their clients on how their asset is performing. For those who don’t exclusively cater to the Viking appliances crowd; education on the power of leverage, the options available, and risks involved should be par for the course. This is going beyond “Don’t worry I know a lender who will approve you“

Explaining what a cap rate is should not be a conversation for just “Investor” clients or the rich. What Gary Vee is very spot on about is that the reasons many people DO go to college, and BUY homes is complete bullshit. They made that decision because that’s what they were told to do, and now they (we) are finding ourselves very skeptical as to why. Agents that are not educating their clients on the pro’s and con’s of leverage, how wealth can be created through ownership, and providing evidence driven pricing analysis are only contributing to screwing over a generation that already feels pretty gipped. Do the right thing, and strive to be better.

TL;DR

• Think Real Estate is a good investment? Educate people on how real estate investing actually works. Appreciation is a perk not the core appeal. Show them the math.
• Don’t be a door opener: This is typically the most expensive purchase a person will make in their life. Be their advisor. Show them the benefits, and the risks. Help them understand what a cap rate is and what it looks like with and without leverage.
• The Market is inefficient: As an agent you’re in one of the best positions to determine the market value of a property. Do so in an objective, and evidence driven way and you’ll gain a lot of trust as an expert advisor. Cater to the wants of what those with less information “think” and you’re only contributing to the low opinion the general public holds of agents.
• Do the right thing.

• 

I’ve got a new obsession. Options trading. I’m not a millionaire, and I’m not planning to quit my day job, but frankly I’ve become a bit obsessed. Why? Options give me a gratification that I haven’t had since my days as a full time affiliate marketer managing thousands in advertising spend. That gratification is the ability to learn through decision making.

I’ve read a lot of books over the past year about the subject of forecasting, probability, and data analysis. (I’ll list them with links in the TL;DR summary). If I had to pick one to recommend it would be “Thinking in Bets” by professional poker player Annie Duke. Annie’s wonderful and easy to read book spells out a life lesson from Poker that can be applied to just about anything.

(my paraphrasing) “We grow and improve by focusing on improving our decision making process not just the outcomes”

Annie refers to this as “Resulting” where we judge, and measure our progress purely by the end result, and not the process itself. In her world of poker “bad beats” happen. You make the smart bet. The one with the 98% chance of winning, and sometimes your opponent catches that card on the river. The 2% outcome. This result today is not favorable, but given the chance to make that choice over and over again thousands of times would you make the same bet?

The Law of Large Numbers

What’s fascinated me with options trading is the same thing that Annie finds fulfilling in poker. It’s an environment in which we get the opportunity to make lots of decisions with quickly observed outcomes. Managing a real estate business is also a game where we get to make lots of little decisions with arguably even higher stakes. However the outcomes don’t always come as quick.

This is in my observation one of the greatest problems that agents face when it comes to choosing a strategy for growth. Lack of time and occurrences. It often takes more time and occurrences than agents are willing to invest to realize the desired results or see the theoretical mean.

Keep on Rolling

Let’s go through a little exercise where we can fast forward, and see how this movie ends.

Scenario: I’m going to give you 10,000 internet leads, and the rest of your career to convert them. Let’s just assume for some calculations that time frame is 25 years.

Now we’ll assume some various costs later, but for now assume these leads cost $15 dollars a piece.

Now it’s time for you to make a forecast. What % of these internet leads which indicated through their action some interest in buying or selling a home will actually do so over the next 25 years? 10%? 20%? 5%? Whatever number you decide upon that’s your potential opportunity.

Obviously we can’t capture 100% of the opportunities out there so let’s make another forecast on what is feasible. Out of 10,000 leads over the rest of your career what % do you think you could close? 3%? 2%? Maybe just 1%? Let’s low ball it, and take the 1%.

Alrighty so 1% conversion rate over the rest of our career. Assuming you sell homes at the current national avg price point of about $222,000; that nets you $6,660 in GCI (3% side) and let’s assume you give 40% of that away. Which leaves us with $2,664 bucks. I personally know that some of my readers don’t step foot out of their Mercedes for less than $10K in commission so i’m really slumming it up here.

  10,000 leads * $15 dollars = $150K in advertising spend.
  1% conversion rate of 10,000 = 100 closings. 
 100 closings * $2,664 dollars = $266,400 – $150K = $116,400

We’ve achieved a 77.6% Return on our investment!

None of these numbers are even remotely above average. In fact I’d call some of them rather piss poor. By giving 40% of our GCI away we’ve also accounted for a number of expenses here and still came out crushing it. So what gives? Why wouldn’t we make an investment like this with such a hefty return?

What makes life tough is we live it one agonizing or glorious moment at a time. We can look back at time anyway we please. We can think about whole decades. The 90’s for me were pretty much pogs, cargo pants, and bone thugs n’ harmony. But today I can just live one moment. The future is uncertain.

10,000 leads at $15 per pop divided evenly over 25 years looks like…
10,000/25 years = 400leads/12 months = 33 leads per month. Now think back to the charts above on the laws of large numbers. If after a month passes (33 leads), and we don’t see a conversion; one could understandably be nervous.

Consider however that 33 leads is only .0033 of the total lead volume (10,000). Variance from the mean is highly likely. Particularly when our win rate is only 1% over the long haul. Keep adding occurrences (leads) into the mix, and the law of large numbers shows that our results will become more reflective of our theoretical predictions.

Stay The Course: Be Consistent

So as you can see i’ve spelled out the guaranteed formula for success…
1. Spend money on leads
2. ????
3. Profit

Obviously phase 2 is kind of important. How we achieve our 1% or higher conversion rate might require a few more posts. (or you could just read my old ones. They’re ok) I can’t give you the magic formula for lead conversion, but if you’ve found something that does seem to be working here’s how we can realize our long term success. Be Consistent!

In trading we must be mechanical in our management, in poker we know when to fold ’em, and in real estate we must consistently do the things that improve our success. Every time you walk into a casino you’re playing a short game against the casino’s long one. The house has an edge. In Roulette you bet on a single number which pays 35-1. The odds? 37-1. Damn 00’s. All the free suites, and crab legs are designed to give the casino the thing that helps them win: Occurrences. If you keep playing you’ll most definitely lose in the long run.

In real estate, when we find an edge we must consistently implement that edge over as many occurrences as possible. This edge could be an increased response rate from texting instead of calling. Contacting leads when they engage with our website. Or as we performed in the example generating leads at a cost of $15 or less with a conversion rate of 1%. When we define our edge we need to keep using it. As Annie Duke puts it; don’t succumb to “Resulting” or a narrow zoom in perspective.

An example of this is to take a perfectly proven source of leads like Google or Zillow and exclaim. “This doesn’t work! These leads are low quality! I’m gonna try something else now. There’s no ROI here!” Again I would strongly encourage any agent to do the same math we did in this article. Don’t look back at the last 2 months of conversion rates and extrapolate a trend into the future. Consider the long term number of leads that could be generated, and forecast what your best and worst case scenarios could look like. This will likely give you the confidence you need. Does it guarantee success? Of course not. If you’re a hack on the phone, or not following up then there’s probably someone out there trying harder than you to pick up the slack.

TL:DR Summary

• Don’t be a “Resulter” Take control by becoming a better decision maker.
• Understand and estimate the long-term probabilities of success, and build a frame of reference around them
• Leverage The Law of Large Numbers: More occurrences will bring us closer to the theoretical mean.
• Be consistent: We must consistently use our edge, or whatever drives results for our business in order for the this reversion to the mean to become realized.
• Read these books!
• Superforecasting by Philip Tetlock & Dan Gardner
• Thinking in Bets by Annie Duke
• The Signal & The Noise by Nate Silver
• Watch Tasty Trade: A Financial Network

As 2018 comes to an end watchers and gamblers in the worlds financial markets are finding themselves in one of three basic categories. 
1. Bullish
2. Bearish
3. Throughly Confused

Every increase in market volatility adds more people to column number three. Before I throw out some ideas about where this train might be heading let’s take a quick look at how one could potentially arrive at any prediction.

One method that consumers who don’t wake up and watch the markets daily might take is to see what the experts think. Right away this is where we might find ourselves in a bit of a pickle. One can barely look through the top stories of any financial news site at the moment without feeling like we’re watching a soap opera. The emotions are highly intensified. 

“The end is nigh! says person who once said this before!” 
“Everything is gravy time to get back in! Says person who has never gotten out”
“Fed asked by America Is everything okay? It’s reply “I’m fine”

The tricky thing about consuming news today is that it’s rather hard to keep score, or determine if a consensus even exists.  How many opinions have actually stated that prices will fall? How many stated now is still a good time to buy? How strong is the feeling that the fed will continue to raise rates? 

Luckily there are some great resources out there that actually do this. Like Pulsenomic’s Home Price Expectations Survey. Which survey’s 100 economists for their predictions. Click the link and look for the “latest panelist’s expectations” to download the spreadsheet. There’s some interesting stuff in there.  With individual expert predictions as high as 7% to as low as 0%. Which by the way are probably much more likely to show up in pundit land than The Median 2019 prediction of 4.05% appreciation.

To be clear, I’m not saying we shouldn’t trust the media or that what we’re seeing is “Fake News”. We must simply  recognize that the content being put out to the average consumer may in some cases overstate the volatility of the predictions out there. A smart agent who wants to provide objective information on what the experts are saying should use resources like the one above. (Which by the way I found via http://www.keepingcurrentmatters.com in their resources section of their fantastic monthly market reports. <3 those guys)

Method #2 would be to put ourselves in the shoes of one of those surveyed economists, and go digging for the raw data ourselves to draw our own conclusions. I’ve made some half assed attempts to do this myself, and have come away with a few notes of interest that have influenced my own opinion on the matter. Here they are…

Supply & Demand matter equally. 

As of this writing 12/19/18 the Fed is preparing to make it’s next announcement, and the market is awaiting impatiently to interpret a statement that is usually designed to be as vague as possible. This announcement is regarding the increase of interest rates. For the real estate world rates have become extremely important, because for the first time in a long time they’ve begun to rise. 

Rising rates have an impact on asset prices. They increase the cost of borrowing, and put limits on what people can afford to pay. SO MUCH attention is being paid to this particular aspect right now. That’s probably because a lot of other things are at stake. Like an extremely overheated stock market, a main street economy that’s just begun to show progress, and a bunch of highly leveraged companies who’ve gobbled up their own stock through buybacks; just to name a few. 

But what about the supply side? An article that I frequently come back to that was written in a totally different world (6 whole months ago) points out what I find to be an extremely important piece of the supply puzzle. “Over 50% of homeowners have a mortgage rate of less than 3.75%.” That means a lot of people have locked in a historically low rate/payment on an asset that’s appreciated greatly over the last 5 years. The same goes for those institutional investors who gobbled up homes in the 2010-2012 low point with cash. 

Rising rates may put a ceiling on the price of demand, but they also stand to perpetuate what has been a real squeeze on home supply. If trading up or sideways continues to be a difficult task for existing sellers then that doesn’t provide much room for prices to come tumbling down. With the equity homeowners have they can afford to stay put, and potentially even remodel to suit their growing needs. 

In the same article linked above another important piece of the puzzle is that “Another 26% of the top 100 metropolitan areas were undervalued, while 34% were at value.” 60% of the top metros are at fair or below market value prices. Would a reversion in the mean of the 40% that are overheated be enough to offset the 60% that are not? 

In conclusion, I can see why the economists are providing a median response that is just slightly above the 3% avg expected appreciation. The cheap credit party is ending, but the supply issues may not have gone away. 

For my own reference I’ll put out a prediction of 3.5% growth with an 80% degree of confidence. (20% accounting for an pending recession which does stand to create supply from dangers such as increased unemployment) 

TL;DR
1. Volatility is often overstated in the news. 
2. Expert consensus is slightly bullish as of Q4 2018
3. Help Consumers find the median, not the extremes
4. Rate hikes are as influential on supply as they are on demand.

 

Richard Thaler won the Nobel prize by proving a fact that real estate agents are all too familiar with; people are pretty irrational.

In his famous study he found that taxi drivers behaved in a manner that was not conducive to maximizing their economic benefits. In summary they set daily earnings targets. On busy days (lots of rides) they hit their targets faster. On slow days (less rides) they had to work harder/longer to earn the daily income target. This is really fascinating stuff to economists who have operated under the simple assumption that humans will work harder when there is more opportunity. Had the cab drivers worked more on busy days or simply worked a set schedule they would have ultimately earned more money with less effort. (the max benefit)

This is a scene that looks familiar in real estate today. Rising asset prices from low inventory (and cheap credit) have been sending droves of people into the market. In such a time of pure feast agents (in my observation) have taken the non-maximizing behavior. They want less. Less leads, and less time spent working with them. Give any agent a huge abundance of leads, and the common behavior is to cherry pick.  The providers of these leads (broker/team owners) tend to hope for the opposite behavior. One of maximization. This creates a divide in perspective. The solution? Automation.

Owners train their reps to follow often rigid “proven” follow-up processes. Agents like all humans have a natural capacity for how many people they can physically execute the proven process upon. This is where automation comes to the rescue. We automate as much of the proven process as possible, and therefore give our agents a boost in productivity. Whenever I participate in a discussion on the benefits of automation; often what’s discussed can be summarized as “Let the machines do the dirty work”.

This is certainly a great concept. Who doesn’t love their washing machine? If we had to hand wash all of our clothes we’d all dress more like Gary Keller.

This is usually as deep as conversations on automation tend to get. Let the machine do the monotonous boring stuff so we can do other things. Now take a step back, and think about this. How much has the world changed since the invention of washing machine? Does it seem a bit more complex? I’m sure this could be a great debate, but I’ve yet to find any writings of Lincoln expressing his frustration with managing three google apps accounts. Simplicity in a complex world holds a lot of value. (Fun game: count how many times you see “simplified” in advertising) Even though I poke fun at ‘ole Gary above, there’s no doubt his wardrobe choice is intentional, and provides the benefit of simplicity.

When adding automation to your business; consider what type of automation you might actually need. Here are two types for your consideration.

1.  Dumb Automation: Let the machines do the simple/dirty work so I don’t have to. I’m busy, and can’t be bogged down with such tasks.
2. Smart Automation: This is really important, crazy complicated, and I’m bound to screw it up. Help me Mr. Roboto!

Dumb automation makes our lives easier by reducing the volume of tasks we have to execute ourselves. Smart automation makes our tasks simpler to execute. There are obvious merits for both, but the real estate industry with it’s “proven formulas for success” tends to heavily favor the former.  This may not always be the right choice. An example….

Picture a wall with two doors. Now imagine on the other side of those doors lies your next commission check. Both doors are locked, and to open either one you must accomplish a task…

Door #1: Send an email. That’s it! You can even copy & paste one of your proven scripts. Just Ctrl + P and click send.

Door #2: Review a database with 100,000 leads. Find ones you have spoken too before that are ready, willing, and able to buy/sell. Rank those in order of importance with a mathematical weighting. Now take the top 10% of the ranking, and sort them by likelihood to open, read, and respond to a sent email.

Clearly this is a no-brainer of which task will be easier to accomplish in order to get the commission check. This is the beauty of smart automation. It can take the incredibly complex job of choosing where to spend our time as an agent, and make that decision for us in a predictable way. That consistent predictability also allows us to tune/tweak the decision making overtime to make it better. This is the beauty of Artificial Intelligence, and how it’s been used by a lot of smart people to accomplish some great things. Meanwhile the real estate industry has successfully dumbed it down to “responding to inquiries so we don’t have too” What a pity.

Ray Kroc (McDonalds), Henry Ford, and a lot of other rich jerks figured out long ago that most people can be trained to execute simple tasks effectively. They took complex processes, eliminated the complexity, and put people to work on the execution.  It’s a pretty effective business model. Consider this when looking for automation to grow your business (even if it’s just you). Sending a text, an email, etc. might be a little boring, but what if it’s all you have to worry about to make lots of money? That’s a pretty sweet deal too.

Want more ramblings on automation? Look no further

 

Coming straight out of BoomTown Unite 2017; I had the awesome opportunity to meet some of the best in the industry over a bottomless supply of bourbon. This year I discussed a few of the topics I’ve written about extensively here; namely the idea that funnels suck and subscribers rule.

Expanding on this a bit I’ve realized I’ve missed some really important info in my blog. “How to market stuff”.  Real estate is a sales industry. We think and approach things with a sales mindset; qualify, buy , or die.  In previous posts I’ve covered the concepts of building orbits subscribers can live in, but now it’s time to dig into this whole marketing thing a bit further.

Congratulations you’re a CMO!

CMO’s get hired and fired more than any other C-level executive. Why? It’s a tough job, and proving your worth through measurement isn’t always easy to do. (the finance guy has it so easy) Luckily you’re also your own CEO so just try not to screw this up. Now that we’ve accepted the promotion we need to do what every good CMO does; create a goal, and define how we’re going to measure our success.

It’s very important to understand that by creating goals we prove to ourselves what tactics are ultimately going to make sense; not the other way around. If you dive into just doing stuff in the marketing world you’ll find yourself stranded with 2 possible outcomes…

1. It doesn’t get “results” and you quit.
   Our sales brain dominates our goals. There’s nothing wrong with a little direct-response marketing, but we have to remember that everything we do isn’t just varied forms of lead generation. User engagement with our brand is the piece we’re picking up here that our sales agents can’t do for us or on their own.
2. Even worse! It doesn’t work and you don’t even realize it.
   I see a lot of great blogs with no readers (like this one). I see plenty of slick videos with no views. What makes marketing so difficult is that it really does require all that “creativity” agencies claim they have. (booze helps too) Coming up with fresh, unique, and inspiring content on a regular basis is no easy task. That’s why even the best teams get sucked into complacency. We do this weekly newsletter that we crushed the first few times, and here we are 2 years later nobody wants to write it, and we just go through the motions to churn this crap out. Not setting acceptable levels of engagement lets us live in a state of ignorant bliss that is “well it’s branding; better than nothing”

In order to create an effective marketing plan we have to clearly state what metrics we consider effective, and what we can actually measure. Positive sentiment is a great thing to strive for, but good luck measuring this without pulling your hair out. My advice is customizing our metrics by channel, and tying them into our ultimate goal. Here’s an example…

I can’t easily measure how many deals my online video commercial generated. I can however measure the exposure of my commercial. My goal is to have at least 3 soft interactions with my past clients per month. I uploaded a video to facebook, and targeted a list of my 1000 past clients. My video achieved 75% exposure to my list, with a frequency of 5 views per person. My average watch time was 18 seconds of 25.

Frequency, exposure, list size, video % watched. These are all ways we can measure the performance of a video. Most importantly above we set a goal of achieving 3 soft interactions with our past clients. We didn’t expect new leads as this is a small and targeted list. Doing this on FB is ridiculously cheap. Emphasis on the word cheap. As CMO budget management is one of our primary duties. The balance of new leads vs engaging old ones is the executive decision we must make for ourselves.

Now mix it all together

Don’t let your channels of engagement become islands. I can fill 20 pages on this topic alone; so let’s focus on one simple idea for today…

If I spend time making a XYZ; I want exposure for that XYZ. My XYZ can’t promote itself. I must leverage my other channels and database to promote my XYZ.

Change XYZ to anything like a blog post, video, photo, social post, etc. If we’re going to create marketing of any kind it needs to be worthy of promoting so that it will ultimately be worth doing. If we do this a surprising thing might happen. Our “branding” soft plays might actually generate leads! Things that make your customers happy might make other people want to be your customer too.

TL;DR Tips

• Set engagement goals in the same manner you create lead generation goals.
• Branding is not fluff. Branding should drive engagement and interaction.
• Consistency vs Habit: Sticky marketing requires consistent commitment. However don’t fall into the trap of creating marketing out of habit. Measure, execute, and measure again.
• Leverage your database and channels to cross promote. The greatest benefit of a well engaged database is you get to market to them for a far reduced cost! Getting likes on social for example is dirt cheap vs form conversions. Get the likes, build the audience, get the power. All those random pages you love on Instagram will eventually try to sell you a T-shirt, because they understand how to leverage an audience.

Effective marketers are not pragmatists nor big dreamers; they’re something in between.  In my previous post we discussed how identifying user phases, and assigning tactics to them would free us up to concentrate our efforts on our hottest prospects.  Now let’s apply that mentality to a much higher level task of getting shit done.

Of the pragmatists, and dreamers I’m most certainly the latter.  I hate work sheets, filling in metrics, and anything that feels less than striving towards the highest level of achievement. People like myself often hate goal setting, because it can actually feel like we’re placing limits on our dreams. (I didn’t steal that from a facebook meme I swear)

Even the most pragmatic of marketers can struggle with creating goals, because it can quickly turn into this really annoying conversation about what the goal is, how it’s going to be measured, and oh look 6 hours of my day just disappeared.

The gained benefit of setting a goal is not the goal itself; it’s how it makes us think about getting there.

Even when you can’t agree on the exact details of what the right goal should be, and your mentality is to “shoot for the moon” don’t put your strategy in the trash by avoiding the conversation altogether.  Those limits that goals can impose on big dreams are a great thing, because they force us to choose. It also makes that marketing process you’ve been doing forever come into question by asking “is this achieving our goal?”

By setting goals we commit to creating a strategy to get there. This keeps us in check from doing things just because we “feel” like it might help/won’t hurt, and wasting our time.  The successful agents I meet have a few things in common…

• They have goals for the year, quarter, themselves, and their team set.
• They don’t try everything. They do a handful of things that work really well.
• They track their metrics towards their goals, and make adjustments once things have truly proven themselves to not be effective or in-effective. (Hint this requires more patience than you think you have. testing something brand new for 30 days doesn’t really cut it.)
• They carefully try new things in addition to their proven plan for success, and often decide to not do one tactic anymore to make room for another.

It’s almost 2017! Sit down create some goals, and most importantly choose your strategy to achieve them in the most efficient manner possible.

 

TL;DR

• Setting goals puts you in a position to select one strategy vs the other.
• Not having goals opens the door for anything to be a good idea.
• Goals sometimes feel like limits, but they can push you to think bigger.

 

“How do I force people to do what I want; when I want them to do it?”

-Marketing

The above question is commonly asked by modern results-driven, data-oriented, ROI-monitoring marketers.  Typically it’s stated in much more subtle terms to disguise its demanding nature. Here are a few examples specific to real estate…

• How do I prevent leads from giving me fake information?
• Should I even talk to a buyer who isn’t pre-qualified?
• Where can I find luxury listing leads who are looking to sell in the next 30 days?

Frankly I’ve always been confused as to why so many people get into the field of real estate seeking more (income, freedom, etc.) yet their approach to achieving success is to shoot for less. (less leads, less conversations, and less effort)

Managing smaller volumes of leads in theory sounds like a way to simplify, but the reality is that we might just be running a very inefficient model (more work) at a scale that ultimately yields us less of what we want. (growth)

Going back to an example readers of this blog know I’m fond of; If we think of our business as a simple funnel, then we’re constantly weeding through large volumes of leads in search of a relatively tiny number of true opportunities. This results in a large scale effort to constantly refill the funnel, and a tremendous amount of resources to convert.

Create Circles Not Triangles

If we think of our database as a circle with layers instead of a funnel then we free ourselves from having to reject leads from coming in. Lets build an example…

•  Loyal customers who also actively refer new customers to me.
•  Loyal Customers who like me, but don’t refer or talk about my business
•  Active users in my database who have not become my customers
• In-Active users in my database
• People who have seen my ads, website, marketing, but have not become a part of my database
• Addressable Market
• and Beyond!

Listing out the various potential layers of the circle you should quickly see, and recognize nearly every type of labeled user having a presence in your various marketing tactics.  Now here’s an interesting question…

“Isn’t that circle graphic kind of like a funnel?”

Absolutely! It starts from a broad audience leading a path to a smaller group of loyal customers, and it appears that the goal is to bring someone from the outer ring towards the middle. However there are very key differences in the circular approach.

1. Users are free to orbit within a layer. They are not forced to come to a point or exit.
2. The circles are free to expand independently.

Now before you think all this talk of Orbiting means my brain has gone to outer space let’s quickly address each of these in more detail.

Users are free to orbit within a layer. They are not forced to come to a point or exit.

This is where we pick back up on that greedy mentality of wanting more by doing less. Our frustration with the need to crush ourselves with rigid follow up processes for every lead we interact with leaves us with the feeling that we want fewer leads to manage. (that’s stupid)

By creating layers based on user types (which could also be hot, cold, warm, A, B, C, etc.), and defining what marketing actions we’re willing to take for these users; we insulate ourselves from putting hot lead effort into cold leads we acquire.

 

The Circles Are Free To Expand Independently

This one is fairly simple, but powerful. When operating on a funnel based model we fight a constant battle of balance.

“I’ve got too many agents and not enough leads!”

” Now I’ve got too many leads and not enough agents!”

“$%&#! Now I’ve got lots of agents, lots of leads, and nobody is following up and I’m going broke!”

When your tactics are tailored for the audience, and that audience is free to expand; things will not come crashing down. If your process is to give every lead 25 phone calls over a 3 month period a sudden boost in publicity from that kick ass facebook video you posted could easily overwhelm your team.

In the circular model I’m comfortable having as many loyal referring customers as I please because I’ve created a program designed to give them exclusive offers, information, etc. a sudden influx of new users will not cause me to stop doing this.  One process does not fit all.

Tl;DR

• Don’t point yourself in the wrong direction with funnels
• Tailor  your follow up for your audience
• Better to have users orbit then force them to exit when they’re not ready to go to the next step
• Create great content, offer valuable information, and you’ll keep growing
• One process does not fit all leads

 

 

“Get More Listings” -every real estate guru ever.

Over the past couple of years we’ve watched markets heat up, and fight the battle of low inventory. This has put more pressure than ever to be listing focused, and it’s causing a lot of people to forget common sense in search of the holy grail we call “Seller Leads”.

Let’s get straight to the point. Seller Leads are bullshit.

They’re the same leads you could of gotten for a lot less money.  My point being that Leads are in fact “people”, and every person we meet at a very basic level needs to go through a similar process we refer to as qualification.  In a world of online marketing campaigns, and CRM’s it’s easy to get hooked on labels like “buyer” or “seller” based on keywords we use, and sources we advertise on.  Combine this with selfish thinking, and you get a resulting ask that defies some basic common sense.  “I just want seller leads, because I’m trying to get more listings”.

Volume = Opportunity

The basic need of an agent to get more seller leads often leads s/he on the shortest path to success, which rarely is the easy one.  This path is typically to advertise to people who are searching/browsing for “seller” related things.  An example target keyword on Google Adwords would be “What’s My Home Worth?” or “Sell My Home”.

Since our focus is to obtain seller leads this appears to be the most relevant search for a person looking to sell. However a quick search on Google Keyword Planner reveals a very different story…

 

In the above report you’ll see an estimated keyword volume of some seller related searches, and a typical “buyer” search like homes for sale.  Adwords nerds ignore the broad search terms, and understand the actual volume is based on a nationwide search. The important take away above is that “Homes For Sale” has significantly more search volume and less competition in comparison to any of the seller related terms.

In today’s market conditions are there more buyers than sellers? Generally yes, but not in levels this lop sided.  What the data above is smacking us upside the head with is the very common sense principal that most people enter the real estate ecosystem by looking at homes they want to buy.  Remember s/he who has the most subscribers is going to be ahead of this game in the end.  So if you want to capture more subscribers at a lower cost then you should focus your efforts where there is more volume, and less competition.  How does this get you sellers? Start by understanding that most people who have a home to sell are planning to buy another one. 

Think about the last car you bought/sold/traded.  Did the value of your current automobile inspire you to buy another? I’d venture a guess not likely. You probably saw that shiny new thing that other guy has, and thought “I want that”.  From there you began searching for that car for sale. Checking prices, comparing features, reading reviews etc. At some point along the line you probably considered what to do with your old vehicle, and turned to KBB or yet again a market place looking for comps to compare your car with in an effort to establish it’s market value.  The key point is that while eventually you did perform an evaluation of your vehicle it was likely not your point of entry to the Automotive ecosystem.

(note: In this particular moment in history we’re in a hot fire seller market, and values are most certainly a driving force behind some of the shopping activity. However where the volume of people begin is by checking what’s on the market to browse asking prices aka buyer activity. The entire phenomenon is brought to us by easy access to MLS/Market data. I don’t need to talk to an agent to find what’s on the market, and begin my pricing research.)

Build An Ecosystem That Brings In Listings

Now that we’ve got some common sense back into our brains, and understand that chasing seller leads is a path of high resistance it’s time to figure out the path of least resistance.  It’s time to build an ecosystem.

Based on the previous keyword metrics you might draw the conclusion that I’m Anti-Home Value tools.  That’s not necessarily the case.  I do believe that many over promise, and are generally full of it, but leveraging a valuation landing page is actually a great strategy to use if it’s part of a bigger picture.

The above graphic is just a very basic example of places typical person might visit during the process of completing a real estate transaction. By no means is this complete, but gives a simple reminder that very few people visit one website then complete a transaction.  We all have our own methods, and it’s a well known fact that the buying/selling process is not a short cycle.  It’s likely that every person you interact with is going to turn to the internet to…

1. Browse homes for sale
2. Research financing options
3. Do something on a portal like Zillow
4. Read your reviews to see if they can trust you
5. Research the neighborhood/city

Is your brand and marketing mix covering all of these aspects? Are they all working towards building one database that fills in the missing gaps of information? This should be our goal.  Marketing experts like myself beat Agents over the head with concepts like “diversifying your lead generation”, and this is what we’re talking about.  It’s not about creating lots of paths that assume a straight click to closing. It’s about creating multiple paths that ultimately lead to one place.

Where Do I Get Started?

At a basic level here are some tactics you can start doing to build your ecosystem and win more listings.

1. Bring your leads into a centralized database.
2. QUALIFY EVERY LEAD! No excuses. Stop looking at what form they came in from, what property they squeezed with, what information they provided. Always make an attempt to contact and discuss the basics.
3.  Always get the address: So many agents focus on a correct phone number or email. It should be a no-brainer to always ask for an address of any lead you collect during the qualification, but I see many a database with this field blank among others.
4. Goal = Complete Profiles: Give someone a 10 field form and they’ll give you one place to stick it.  We can’t bog people down and accurately collect all their info at once. (wouldn’t that be easy?) Think about leveraging your ecosystem to fill in the gaps. Homes for sale might get the name, email, and phone, while secondary marketing those leads a home val tool might get you the address. Don’t churn and burn leads, which create duplicates. Find a process that allows you to see if their account exists, and append new interests or data.
   (hint: qualfying every lead makes this easy to do.)
5. Budget Accordingly: Is Homes for sale based PPC or posting listings on Facebook your best bang for buck in getting new quality subscribers? Then focus your budget there. Leverage other forms or channels of marketing to fill in those gaps. Always remember that if you’re focused on building a database of subscribers; once you have that database you can communicate with them at a very low cost!
   1. Collect Subscribers
   2. Qualify Them
   3. Market To Them
   4. Keep them subscribed (quality content)