The XBroker: October 2007

Zillow, Trulia, Google, Yahoo, and a slew of other real estate listing (and other) information providers out there demonstrate the want/need for alternative ways to locate and act on property listings instead of using a traditional Realtor and their antiquated methods. The genesis can be traced back to Google’s opening of their mapping API, catalyzing the map mash-up based user interfaces that prove to be a more intuitive way to search, find, and see listings. Innovation rarely comes from within, so you can’t fault the NAR and their legion of subscribers for falling asleep at the wheel. Although their strategy of smash and smear these new technology based companies wasn’t pleasant or becoming to watch…

What’s interesting is how each of these companies has gone about trying to fill the gaping void between tradition and innovation. It’s been a mad rush to engage the consumer and/or the professional in the spirit that somebody will come away as the perceived champion of what could be called ‘Project MLS, 2.0’. He who has the most listings wins, right? Kind of…there is a lesson that hasn’t been learned (IMHO) — one that says consumers aren’t looking for a destination site as the end all/ be all place to research real estate. Realtor.com knows this, Microsoft found this out, and the other players seem to now be in a mad scramble to invent and/or implement the next killer application to add to their site - e.g. Trulia Voices, Zillow’s wiki and pending foray into the mortgage arena, syndication tools et - all as a way to set them apart from the competition.

In the end consumers will always shop alternatives; trying to be “The Destination Site” in any vertical using the web is a continually expensive process. Big Business died at the end of the Industrial Age, yet there are still businesses trying to practice archaic models and destination sites are in-line with out-of-date. The business of real estate and mortgage services is a cottage industry; new technologies and business models should adapt to this paradigm instead of develop in spite of it. Don’t get me wrong, I think any of the sites mentioned above are better alternatives to what real estate and mortgage search was, even 18 months ago, however they seem to be a new skin to an old cat.

IMHO: The future of real estate search and marketing (as well as other info based industries) does not lie in the realm of destination sites, it lies in the widgets, or small snippets of code that can be plugged into a greater platform. Today, widgets typically offer incremental improvements to a web-blogsite, tomorrow’s versions (by their very Darwinian nature) will be larger more robust chunks of code that can be plugged into the same (or evolved) web platform. Because widgets are typically developed in an open source type environment, their advances and improvements comes from the minds of many, not just a few. Technology that once required $10M in development costs can now be developed and implemented at pennies on the dollar.

To date, I have only seen a (very) few widgets that actually cost money e.g. Inman Innovation Award Winner Altos Research…this is going to change. When it does, a new sub-industry of progressive, easily adoptable, easily implementable technologies that get to market in a fraction of the time will seem to manifest itself almost overnight. What’s available today are first generation, embryonic versions of what they can be. As enough of them permeate the market, it’s not difficult to imagine people will start mashing them up to create new widgets all together for a second generation and on from there…

For those not familiar with what a widget is in practice: Meebo, MyBlogLog, Deans FCK word processing editor, even Truia and Zillow provide widgets. They even have frontend and backend functionality, e.g. Deans FCKEditor adds backend functionality while Meebo adds to the consumer facing front side of a web site. The difference between what is popular widget functionality today and what it is tomorrow can be seen by comparing Altos to MyBlogLog. MBL adds an innovative way to add a social networking aspect to your site, allowing everyone to see who (from MBL community) is reading your blog…randoms, inter-industry professionals, highly respected pundits..Altos’ widget adds a property valuation tool to a blog-site using an innovative system to aggregate, crunch, and redisplay local housing valuation trends. It’s a great marketing and analytical tool Realtors, and the info can be used in potent off line material like charts and spreadsheets.

So, if this ‘theory’ could be construed as possible, which it assuredly is…How long will it be before a map mash-up or intuitive UI of similar ilk to the big Z, Trulia, et.al finds its way into a widgetized format for real estate professionals to host within their own domain?

Real estate professionals already have access to unadulterated MLS data, precluding said sites single largest hurdle to obtaining good current listing (and sold) data. WordPress is open source that allows collective brain power to develop at the speed of light compared to even the most well funded companies. The aggregate independent talent pool is far greater than any one company…not to repeat myself but, innovation rarely comes from within. The analogy’s are already out there as to this strategy’s viability.

The advent of the open web-logging platforms (blogs) like WordPress and TypePad represent an evolution of the web, allowing it to get much smaller, smarter, and more personal, if you will. In one sense or another when your hear ‘Web 2.0′, which sounds like fingernails across a chalk board to some people, this is pretty much what it means. Due to these platforms open nature, programmers of all skill levels have developed widgets (or gadgets if your Google) that add incremental functionality for anyone with a small bit of technology acumen. Facebook has become the rage of general social networking by walking down this path of communal development, growing at a rate that now far exceeds MySpace. Their product is much better because of it…MySpace has the putrid petri dish of web-cams and pedophiles stigma, while I actively engage my Facebook account. One tried to become an Empire, was first to market, and is now succumbing to someone that does it a little better and alot faster.

The strategy of controlling and confining information in the Information Age is futile, even the most staunch advocates of the NAR recognize this, proven by their strong turn out at this past August’s Inman Connect San Francisco. Realtors and mortgage professionals who less than a year ago told me (and many others) that ‘they’ve seen these fads come and go, no technology is going to replace us!’, are now doing an about face…putting down the Kool-Aid and paying attention to how their respective industry is going through a dramatic paradigm shift, as well as learning how to adopt and adapt.

These industries are being blown to bits, very small ones…I believe it is Seth Godin that wrote, ‘Small is the new big’. I didn’t read the book, but the title sure does resonate…A ‘Blog-Site’ isn’t just a blog anymore…it’s an open platform that can be easily configured to help the real estate and mortgage professional grow in harmony with technology, instead of moving against it.

*Disclaimer* I’m currently only involved with one company, called Realespace,that looks to promote advanced widgetry specifically for the real estate and mortgage verticals.

This post was originally submitted to Geek Estate and Drew Myers, who rightfully saw a conflict between my post and Geek Estates philosophy: Objective Opinion. My subjective involvement in a company that will become sqaurely involved in the opinions of this post, pretty much disqualifies it. Regardless, the Geek Estate Blog has some great writers and content…it’s made my RSS Feed Top 20 :)

This months copy of Business 2.0 magazine features an article to help one navigate the real estate markets pending 'bounce back', identifying 10 cities primed for pumping (I'll disclose them in a minute). What the core of the article is about, is a tried and true investing practice that I've mentioned here before, yet seems to escape the minds of the statu-quo reader out there:

If you want to make money on a commodity (like property) you must buy it lower than you sell it for, in short...Buy Low, Sell High. (Yes there are plenty of ways to make money when a commodities value goes south too...short selling, put options et.al., but thats not pertinent here.)

Markets across the nation are generally soft right now and getting softer. Why? Foreclosures and other 'fire sales' by individuals who bought real estate during the stooopid appreciation curve are starting to effect the current and immediate future value of property. There is an innate lag effect as these reduced sales prices are booked as sold, thus becoming viable comparables for new sales, thus driving down overall values going forward.

So, for once I'm going to agree with the NAR and say: 'It is a great time to buy real estate.' Property is on sale and it's not uncommon to find deals 20%-40% off on the open market, not just via foreclosure or short selling.

According to Biz 2.0, the following cities are about prime for buying:

1. Dallas/Ft Worth, TX
2. Indianapolis, IN
3. New Orleans, LA
4. Atlanta, GA
5. Montgomery AL
6. Memphis, TN
7. Mobile, AL
8. Austin, TX
9. Houston, TX
10. St. Louis, MO

View Map

There are a few things about these cities that intrigue me...(I'll bold out the reasons speculation for appreciation is high, so you can look for such trends in other markets). First, none of these cities experienced the rapid appreciation curve that consumed many markets, so there is/was far less room to fall. They're all in the South/South East, not areas of the country where 'Housing Bubble' crossed many pundits lips. Ominously absent are any cities in California...which is an economy in and of itself. It's hard to tell where, when, what, or how this market will shake out...

Mobile, Montgomery, and New Orleans were ravished by Hurricane Katrina, thus making them prime rebuild areas. New construction will help raise values in a market, especially these...they really have no where to go but out of the ground and up.

St. Louis is the very definition of 'average'. It's in the middle of the country, average per capita income equals the national average ($36k), it's pretty much an average city...The optimism comes from the fact that people are moving back to the urban core, where developers are converting old warehouses into swanky lofts, apartments, and condos. Urban sprawl steadily depreciated city real estate for years as the population moved to the suburbs, polarizing it from achieving any measurable appreciation during the refi boom.

Indianapolis is one of two state capitals on this list. State capitals mean government jobs, government jobs mean above average salaries and security, which equate to a solid economy. Plus the Colts won the Super Bowl...

Atlanta has the state of Georgia to partially thank for appearing on this list. The state is a pioneer of many anti-predatory mortgage laws that kept artificial housing appreciation from getting out of hand. Atlanta is also a hub of industry (Fortune 500 companies are also abundant in Hotlanta) making it a hot spot for young professionals just entering the job market. Hartsfield airport is an international hub and the worlds busiest. All of these factors make for a very active market, consistent turnover of housing inventory will spell an earlier relief for the center of the Dirty South...

Memphis was considered to be one the foreclosure capitals of the United States very early in the game, it was the early mover to bottom out, if you will. This is another 'no where but up' scenario...as a matter of fact Memphis is now considered one of the most undervalued cities in America.

Dallas/Ft. Worth. The Metroplexicalmegapolitan. I recently moved to Plano, TX (Northeast side of Dallas), and this area is freaking HUGE. It just goes and goes and goes...according to Business 2.0, this area will add 6.4 Million more people to it's infrastructure in the next two decades. WTF, thats ridiculous. Moving from Greensboro NC, the 3rd largest city in the entire state, Plano has more people and it's just a measly little suburb...Everything is big in Texas.

Houston. Hot, humid, and hot...did I say humid? All I remember about Houston, besides it being prohibitively hot and humid, is sitting in the most amazing traffic jams. Being the oil and gas hub of the USA is a plus for the economy and apparently the inner city is going through a housing revitalization...apparently other people really don't care to sit in traffic when it's 105 degrees with 95% humidity either.

Austin. Solid industry with big name tech companies like Dell and IBM, being the state capital (see Indianapolis), as well as home to the University of Texas makes Austin an uber-progressive city. The inner cities housing infrastructure is new and highly coveted. Austin retains many college grads where other college towns typically lose their graduates to other cities.

The three cities in Texas: Dallas/Ft Worth, Houston, and Austin. While each city has their upsides as far as industry and the such, there is one main reason why three cities from Texas made this list that the article failed to identify. There is a lending law in the Lone Star state that prohibits anyone from taking cash out of their home in excess on 80% of it's appraised value. You can buy property at (up to) 100% of it's purchase price, but you cannot cash-out anything above 80%. This law has effectively prevented consumers from using their house as an ATM, thus repressing the artificial appreciation that has stung places like California so hard. You can get alot of house for your money in Texas, and land too.

This is a law that should be looked at real hard by other states in the Union. It's a simple and effective measure to countering irrational personal finance decisions and keeps home values in relative check.

There are many other cities that should have made the list, but 10 was a good number. In any case, I don't see cities like Montgomery, Mobile, Memphis, and St Louis as the next great places to live, though for investors looking to make some nice acquisitions and gains, all of the above markets seem ready to put the days of a housing recession behind them.

Estately gets ‘Mobetta’ with local school information.

The Seattle area based Washington State property listing portal has long been my favorite mapping UI. Easy and intuitive to navigate, it’s just so fresh and so clean. Galen Ward announced on the company blog yesterday that the site would now include local school data, adding more value to an already solid array of information.

Joel at FoREM thinks someone should buy Estately to leverage spreading the love to other parts of the country. I think Joel needs to keep those comments to himself for a little while longer ;)

Homescopes rolls the Uber-Blog.

Realivent and Domus Consulting Group have collaborated to create the Uber-Blog. From Pat Kitano’s Transparent Real Estate Blog:

Homescopes.com is a new website developed by a group of Coldwell Banker real estate agents in the San Francisco Bay Area and Sonoma County. Its mission is to draw in consumers who are interested in hyperlocal news - market conditions, neighborhood details - supplied by agent bloggers covering different regions around the Bay (and later Northern California).

Homescopes.com’s local “blog network” site architecture (code named “uber-blog” for those who have been working with us) was developed to bring immediate traffic to its individual bloggers. The layman metaphor is Homescopes acts as the “newspaper front page” to aggregate and distribute the published content of their blogging agent “editors”. As a content repository, Homescopes is positioned as a search engine magnet, and the resulting traffic flows through directly to the participating agents’ blogs. Think magnifying lens. Homescopes will initially receive greater traffic than the blogs due to its portal position, but in the long run, both the “uber blog” and the individual blogs will mutually benefit from the augmented traffic.

This looks like a solid strategy that can help overcome the biggest hurdle individual agents face when they decide to enter the strange world of blogging:

Professional, fresh, engaging, consistent, relevant Content.

Penning 5 or so posts per week (a ‘Google Juice’ maximizer according to many SEO pundits) of interesting hyper-local (and other) material will usually tap a real estate professionals bank of knowledge within about < 3 months…not to mention the time it takes to make 5 posts per week is often prohibitive to a busy agent and/or a novice blogger.

On the flip side, if you have 5 agents contributing content to the tune of 2-3 posts per week, thats 10-15 pieces of fresh content, with a less likely burn-out factor.
The uber-blog approach could be deemed as a hybrid model to the increasingly popular Community Blogsites. See: Bloodhound, GeekEstate, Phoenix Real Estate Technology Blog, 3 Oceans, Rain City Guide…

The main difference between the two is method of aggregation of content/information and subsequent redistribution. Each individual agent has their own blog-site which feeds up to the uber-blog, a method that stands to benefit both individual and parent sites in a number of ways.

The Uber-Blog concept looks to be a scaleable and potent mash-up of of current RE web strategies: SEO friendly fresh content delivery plus social networking/community traits, as well as the hyper-local info that has become a prerequisite to successful agent web sites. This seems to only be a partial of what should be a growing list of potential benefits once other creative types wrap their brains around the concept.

Community blogsites offer a weighted benefit to the proprietor/host of the site while offering some, however diminished, value to the individual contributors. Community sites also usually require additional unique content from it’s members that is in line with what the sites theme/genre is…a barrier for many already busy Blogauthors.

Personally, I see room for both strategies as they each satisfy a need and offer unique marketing plays.

It’s interesting to watch how quickly new ideas, strategies, and models splinter and evolve in this space. Technology in relation to sharing information related to real estate has evolved more over the past 18 months than it has in the past 10 years…It’s moving at such a torrid pace with new products, services, and solutions popping up weekly, the challenge has become trying to keep up with it all…

Refinancing a house for a lower monthly payment and/or cash-out is almost as common as applying for a new credit card. Saving $100 per month on your mortgage payment seems like worthy reason to rewrite the debt on a home, penny saved, penny earned right? Not necessarily.

Traditional mortgages are written with payback terms applied against an amortization payment schedule, typically figured over a 30 year term.Even shorter fixed term, Adjustable Rate Mortgages (ARM’s), use a 30 year amortization schedule to determine the monthly payment, i.e. a 5-Year ARM’s payment is still figured over a 30 year amortization schedule.

Recently 40 year and 50 year amortized loan products have made their way into the available product section at any of your favorite mortgage peddlers, stretching out the pay-back period and thus reducing required monthly payment amounts.

What doesn’t get disclosed are some of the following facts about amortized loans:

On a 30-Year amortization schedule with an 8% interest rate, the first payment is allocated with ~90% going towards interest and ~10% going towards principle.For every $1000 in payment, $900 towards interest and $100 towards paying off the debt. It’s worse for the 40-50 year loans.

This disparity only improves by .01% to 1% better per month (increasing as the loan ages) and it takes ~21 years before your monthly payment is equally allocated towards interest and principle, then tipping in favor of principle over interest. I don’t know anyone who keeps a mortgage for 21 years anymore…

The real financial transgression occurs when you refinance an amortized loan into another amortized loan, even if you are lowering the interest rate and monthly payment.

Below are abbreviated amortization schedules and loan terms that demonstrate how much one stands to pay for a home using a series of 4 refinances every 5 years that both lower interest rate and payments…

Assumptions:

• $100,000 is the original loan amount for simplicity.
• No cash-out transactions, i.e. only refinancing what is owed on the previous mortgage, (demonstrating a best case scenario).
• No pre-payment penalties are assumed.
• 30-Year Fixed Programs are the consistent term.
• Closing costs factored into the equation = $4000
• Payments rounded to the nearest $1.00

Purchase Loan

• Amount Financed = $100,000
• Interest Rate = 8%
• Payment = $734

60 Months later:

• Total Interest Paid = $39,096
• Total Principle Paid = $4930
• Principle Balance to be refinanced = $95,070

Refinance 1

• Amount Financed = $99,070 (Principle balance + closing costs)
• Interest Rate = 7.5%
• Payment = $692.71

60 Months later:

• Total Interest Paid = $36,230
• Total Principle Paid = $5332
• Principle Balance to be refinanced = $93,737

Refinance 2

• Amount Financed = $97,737 (Principle balance + closing costs)
• Interest Rate = 7.0%
• Payment = $650

60 Months later:

• Total Interest Paid = $33,279
• Total Principle Paid = $5736
• Principle Balance to be refinanced = $92,001

Refinance 3

• Amount Financed = $96,001 (Principle balance + closing costs)
• Interest Rate = 6.5%
• Payment = $607

60 Months later:

• Total Interest Paid = $30,274
• Total Principle Paid = $6133
• Principle Balance to be refinanced = $89,868

Refinance 4

• Amount Financed = $93,868 (Principle balance + closing costs)
• Interest Rate = 6.0%
• Payment = $563

60 Months later:

• Total Interest Paid = $27,247
• Total Principle Paid = $6520
• Principle Balance remaining = $87,347

Recap…

25 years and 4 refinances later.

• Your payment has gone down $171/Month (Yay!)
• Total Monies Paid (Interest + Principle + Closing Costs) = $214,777
• Total Remaining Payments @ 6% = $168,396

Assuming the mortgage was then taken to term:

The $100,000 original loan amount would equate to $383,173 in total expense.

Consider that if the original loan was never refinanced, the total expense would be ~$265,000 and paid off 20 years sooner.

What no Truth in Lending Act will tell you…

In effect you are leasing the home from the bank.

Refinancing an amortized loan with another amortized loan will cost you (under this scenario) 383% of the original mortgage amount.

Assuming your home doesn’t double in value and you sell or you don’t hit the lottery, you will never pay your mortgage off.
The mortgage news waves have been understandably saturated with stories of fraud, predatory lending, the sub-prime fallout, and a slew of other tragic tales about an industry that has molested consumers in the wrongest of ways. It seems like only yesterday that I was being challenged as an ignorant blow-hard who ‘slandered’ the mortgage industry without discretion.

Now it’s the rage.

It’s great to see more mortgage pundits pick up the lens of transparency and challenge the status-quo…

Blown Mortgage
The Mortgage Porter
Americas Most Opinionated Mortgage Broker
Mortgages Undressed
LendingClarity
The Mortgage Reports
Mortgage Fraud Blog
The Mortgage Lender Implode-o-Meter
Patrick.re

…all blog-sites populated by fine authors who are less concerned with being politically correct and more in tune with exposing truth.

Credit Freezing looks to be a very simple, yet very effective counter-measure to identity thieves. Freezing effectively denies any permission to access to a consumers credit report, new lines of credit cannot be opened and existing information is placed behind a firewall. When a consumer decides they want to apply for new credit a ‘thaw period’ may be requested and access to their bureaus is restored.

Freezing your credit will not prevent further damage if an identity theft is in progress nor would it prevent someone from fraudulently using existing credit cards and the such.

Watchdog groups are making a heavy push toward mandating the three credit repositories, Experian, Trans Union, and Equifax offer consumers an easy, timely, and inexpensive ability to ‘Freeze’ access their credit profiles. Apparently the process is less than fluid, so a little massaging seems in order.

A less than perfect process to freeze and thaw makes sense, from the credit repository side of the equation. They make a whole bunch of cash by selling their ‘credit monitoring’ services. No need to monitor what no one can access. At between $5 and $12 per freeze or thaw, depending on what state you live in, it’s inexcusably cheap considering that the monthly cost of monitoring ones credit costs north of $20 per month, and does little more than notify you of fraudulent activities quicker…alas the damage has already been done.

This strategy makes a great deal of sense, the ability to turn on and off access to your credit file is a stout preventative measure that should be seriously considered by everyone…especially husbands with a wife who sees the 10% discount on an overpriced something-or-other, just for opening a store credit card, as a sound personal financial decision…