About Dan Krell

December 29, 2017October 20, 2020

Consumers are devolving real estate

Consumers directing real estate industry (infographic from househuntnetwork.com)

The National Association of Realtors annual Profile of Home Buyers and Sellers (nar.realtor) reveals insight into consumer real estate trends. It provides an understanding into home buyers’ and sellers’ experiences and what they want. One aspect of focus from the Profile is how consumers choose their real estate agent. The survey consistently indicates that a referral from a friend, neighbor or relative plays a big part in their choice. But how do buyers and sellers view real estate brands?

There are reams of research about the relationship between brands and consumers. However, recent data regarding millennials suggest that brand loyalty may be changing. Jeff Fromm’s article for Forbes (Why Label Transparency Matters When It Comes To Millennial Brand Loyalty; forbes.com; December 13, 2017) points out what consumers are looking for and what they deem important. Fromm states

“If the brand doesn’t provide the information they need, millennials will look elsewhere… when millennials make purchase decisions, they’re considering more than the traditional drivers of taste, price and convenience. They value authenticity, and make decisions based on the way they perceive brands to impact their quality of life, society as a whole, and how that brand may be contributing positively to the world.”

Real estate brokers and agents should pay close attention to the new consumer research.

This evolution of brand loyalty and how consumers perceive brands may explain the growth of independent brokers. A 2015 Special Report by Inman Select (inman.com) The Shift Toward Independent Brokerages indicates that the number of real estate agents affiliating with independent brokerages (not affiliated with corporate or franchise real estate companies) grew significantly over the last decade. The percentage of agents affiliating with independent brokers jumped from about 45 percent in 2006 to about 55 percent in 2015. About 80 percent of real estate brokerages are independent. And the trend is expected to continue.

According to the Special Report, the major advantage cited for affiliating with a brand name brokerage is brand awareness. However, there may be a limit to the influence of a real estate brand. Unlike retail brands, real estate brands do not have total control over the consistency and quality of the services provided. That is left to the individual agent. Independents, on the other hand, cite the ability to quickly adjust to consumers’ needs and being focused on the local real estate market as an advantage.

Yes, the real estate industry appears to be devolving. Another example of the devolution is a decreasing reliance on the MLS for home listings. It’s not to say that home sellers are not listing their homes with agents, because an increasing number of sellers are looking to agents for their expertise. However, brokers and agents are maintaining control over their inventories through alternative means of selling homes, such as pocket listings. An increasing number of brokers are also restricting their listings from internet syndication to increase the quality of information provided to consumers. Although it may sound counter-intuitive to not widely broadcast a home for sale on the MLS or internet, however, a lack of transparency remains a problem for some real estate aggregator portals.

Are real estate brokers and agents listening? The business of real estate is changing and devolving. Control over the industry has slowly been transferred to real estate consumers. Real estate consumers are savvy and intelligent. They know if a broker/agent is really focused on revenue streams, gimmicks and salesy techniques. Real estate consumers want agents and brokers who are authentic, transparent, and provide a quality service.

Original located at https://dankrell.com/blog/2017/12/29/consumers-devolving-real-estate/

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

December 23, 2017November 23, 2021

Net neutrality?

The National Association of Realtors has always championed net neutrality as a means of internet fairness for small businesses and consumers. A recent article for Realtor Magazine (the official magazine of the NAR) by Robert Freedman hits the same talking points of many recent NAR articles and statements (How FCC Plan to End Net Neutrality Hurts You; realtormag.realtor.org; November 21, 2017). Freedman wrote that a reversal of net neutrality rules would “make it harder for real estate companies, multiple listing services, and property data aggregators to provide their services in a cost-effective way.”

The NAR takes the position, like many net neutrality advocates, that net neutrality is good for business and consumers. A December 15^th NAR press release (nar.realtor) stated:

“NAR has actively supported net neutrality for years. We are concerned that a rollback of net neutrality rules could raise costs on business owners, like real estate professionals, who make heavy use of technology and online platforms. In particular, NAR notes that paid-prioritization models and other anti-competitive practices could put small businesses at a significant disadvantage. For example, NAR said, larger companies could pay for internet fast lanes that deliver content to consumers faster on some websites than from others.”

But a recent article for the Foundation of Economic Education by Dr. Kyle Swann (Net Neutrality Isn’t Neutral At All; fee.org; December 14, 2017) lays net neutrality’s real issues. He argues that the growth and innovation of the internet happened during the twenty years prior to FCC regulation. Prior to the net neutrality rule, internet service providers (ISP’s) and edge providers’ (internet content providers and platforms we use daily) services were offered “subject to mutual agreement.” He also points out that the FCC’s “primary function” is to regulate media content, and that the FCC’s Open Internet rules “expressly permit ISPs to block, filter and curate content.” Rolling back the 2015 net neutrality rule shifts ISP oversight from the FCC back to the FTC. Swann’s answer to an open internet is to promote ISP competition, giving consumers a choice.

During the net neutrality rule, ISP’s were no longer exclusively accused of censorship, fast tracking content, and promotion for payment. Some content providers were also accused of similar practices. Rana Foroohar writing for Financial Times (Why Big Tech wants to keep the net neutral; ft.com; December 17, 2017) calls attention to how the larger content providers (FANG) actually benefited from net neutrality. Some of these FANGs have seen exponential growth in the last several years. Foroohar, like Swann and others, expresses her opinion that an application of real internet equality and consistency should be consumer driven.

Contrary to NAR’s point that rolling back the 2015 net neutrality rule will make it more expensive to do business on the internet: the cost of doing business on the internet has already become expensive and cost prohibitive for many Realtors. Some have argued that the prominent real estate content providers have greatly expanded their market share during net neutrality. These content providers promote the agents who can afford the service the content providers offer. Needless to say, this paid arrangement does not guarantee home buyers and sellers a competent, ethical or consumer oriented agent. And it’s not necessarily cost-effective either, because advertising costs are usually passed on to the buyer or seller in the form of admin fees and higher commissions.

The answer may be, as many argue, is competition. Not just with ISP’s, but with content providers as well. A truly open internet will allow for innovation and increased competition, allowing the consumer to choose the winners and losers. Dr. Swann is correct in saying in the article mentioned above, “Whatever side of this you’re on, it’s quite probable that the people you’re demonizing want the same things you want.”

Original published at https://dankrell.com/blog/2017/12/23/net-neutrality/

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December 15, 2017October 9, 2018

Mortgage lender shell game

Realtors and other real estate professionals eagerly look forward to the annual Profile of Home Buyers and Sellers. The Profile, published by the National Association of Realtors, provides insight into the preferences and decisions of home buyers and sellers. After thirty-five years of publication, the Profile has become somewhat of an important contribution to housing trends and economics. But did you know that the mortgage lender and the mortgage industry has a survey of their own?

The National Mortgage Database (NMDB) is a multiyear project conducted by the Federal Housing Finance Agency (fhfa.gov) and the Consumer Financial Protection Bureau (consumerfinance.gov). The NMDB project incorporates two consumer surveys, the National Survey of Mortgage Originations and the American Survey of Mortgage Borrowers. The NMDB is meant to provide statutory guidance and lending policy direction. The database has yielded interesting data about how and why borrowers choose their mortgage lender, as well as their experiences and interactions during the mortgage process.

The NMDB has produced a colossal amount of data across many aspects of the consumer-mortgage lender relationship. The preliminary analysis indicated that consumers don’t really shop for a lender. Many home buyers use the mortgage lender recommended by their agents and others. Most notable is that about half of the home buyers surveyed only considered one mortgage lender. Not a surprise is that the small percentage of home buyers who apply to more than one lender are typically motivated by better terms (such as interest rate).

The mortgage lender is an important aspect of the home buying process. Unfortunately, the NMDB suggests that home buyers are not doing their homework, and possibly choosing their mortgage lenders for the wrong reasons. The mortgage process is an intricate dance between the buyer, the loan officer/processor and the underwriter. The mortgage lender can either provide a smooth and “stress free” closing, or a bumpy process that can cause anxiety and delays.

When you’re buying a home, “time is of the essence” (it states that on the first paragraph of your contract). Choosing the wrong lender can cause delays and potentially cost you money. Issues can occur with any mortgage lender at any time during the mortgage process. Problems can sometimes stem from the inexperience of the loan officer/processor, who does a poor job communicating what is needed from you. More often, issues arise during the underwriting process because of a slow turnaround time.

Believe it or not, many mortgage lenders have their loan officers, processors, and underwriters separated in different offices. Sometimes the different offices are located in different cities, which can add time to the process. Sometimes. lenders have their processing and underwriting all in the same office, which helps facilitate communication and a loan approval.

As a home buyer, RESPA gives you the right to choose your mortgage lender. The process of choosing the best lender for you should not be much different than choosing your Realtor. Ask your agent and others whom you respect for referrals. Do your homework and consider at least three of the referrals, if not more.

In addition to comparing interest rates, compare the lender fees. Lender fees can vary and can add unnecessary cost to your closing. Since you will be communicating with the loan officer and processor a great deal through the home buying process, talk to them to get a feel for how they interact with you. Besides to asking about their company, ask the loan officer about their background and experience. Find out how their underwriter operates and ask about the underwriting turnaround time. And make sure the lender is licensed. You can check a lender’s licensing by checking with the consumer portal of the Nationwide Multistate Licensing System (also known also known as the Nationwide Mortgage Licensing System or the NMLS).

Original located at https://dankrell.com/blog/2017/12/15/mortgage-lender-shell-game/

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December 8, 2017January 26, 2020

New homes allure is neurological

Last week I mentioned that new home sales jumped 18.7 percent year-over-year, which is a ten-year high. It should come as no surprise that new homes are selling like hotcakes. After all, existing home inventory has been and remains historically low, which doesn’t give many options to home buyers. But there are other reasons for the allure of new construction. Some of the home buyers’ motives are apparent and some are not so obvious.

The idea of buying new construction goes beyond the “new home feel.” Buyers of new homes are attracted to modern designs and trends that are incorporated into new houses. New home construction takes advantage of modern building techniques and materials that allow for the open floor-plan concept that many home buyers prefer. Many of the materials used in new construction are “engineered” for efficiency and longevity.

Buyers of new homes like the feeling that there will be minimal maintenance for the first year. Everything is brand new and there is sense of confidence that the home’s systems won’t need major repairs or replacement. Being the first owner of a home also gives assurance that they won’t have to deal with the poor maintenance habits of the previous owner. This is a plus for home buyers who don’t have a lot of financial reserves to address home maintenance emergencies. Instead, they can begin to save and budget for future repairs and replacements that should be years down the road.

New home builders take advantage of current trends in green building practices. Many new home builders tout their LEED certification, demonstrating their commitment to energy efficiency and sustainable resources. Green building practices are not only used when the home is built, but is actually built into the design. Home owners seeking LEED certified builders believe they will have a smaller impact on the environment and save money on energy costs.

A new trend that buyers are pursuing is the “healthy home.” The healthy home concept emphasizes the quality of the air inside the home. Home buyers are becoming aware of the physical and environmental benefits of good indoor air quality, which can improve their emotional well-being and reduce the potential for respiratory distress.

But there is another reason why home buyers are attracted to new homes, and it lies within the brain. Research has demonstrated time and again that consumers respond to novelty. This means that home buyers have a tendency to want “new.” This can be interpreted into making an old home new by renovating a kitchen, bathroom, etc. Or it can mean buying a newly built home.

The novelty seeking behavior of the home buyer isn’t just a choice, as some may argue, it’s neurological. Basically, the desire for a new home lies within the brain. A study conducted by Nico Bunzeck and Emrah Düzel (Absolute Coding of Stimulus Novelty in the Human Substantia Nigra/VTA; 2006; Neuron 51, 369-379) demonstrated that the hippocampal region of the brain responds to novel (new) stimuli. The hippocampal region is part of the limbic system, which is noted for being responsible for memory and emotions. It has also been associated with motivation.

The study also discusses the idea that novelty seeking behavior isn’t just emotional, but it is also rewarding. This means that there is a behavioral loop for seeking new things, including buying a new home.

Home sellers need to take note of these findings. Translating this study to home buyers may mean that a home’s feeling of “newness” is important, regardless if it’s construction, renovation, or even how the home is decorated. Understanding what attracts and motivates home buyers can be the tipping point to get a home sold.

Original published at https://dankrell.com/blog/2017/12/08/new-homes-allure-neurological/

by Dan Krell
Copyright©2017

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November 30, 2017December 1, 2017

Home remodeling to stay or sell

The Remodeling Futures Program at the Joint Center for Housing Studies of Harvard University predicts expanded growth of home remodeling and renovations through most of 2018. That’s a good indication that the economy has picked up and the many homes that fell in disrepair after the Great recession are getting the much-needed attention to extend their functionality.

It wasn’t that long ago when Kermit Baker wrote about a crisis of the declining housing stock due to extensive deferred maintenance (The Return of Substandard Housing; housingperspectives.blogspot.com; February 27, 2013). The article written for the Joint Center for Housing Studies of Harvard University highlighted the considerable reduction of home maintenance as measured by home owner “maintenance spending” during the Great Recession. This seemed to be a low point for the country’s housing stock. The 28 percent decrease in maintenance spending between 2007 and 2011 essentially nullified the renovation spending during the housing boom.

Home remodeling activity Q3-2017 (graph from jchs.harvard.edu)

The Remodeling Futures Program releases a quarterly data for Leading Indicator of Remodeling Activity (LIRA). The LIRA is a “a short-term outlook of national home improvement and repair spending to owner-occupied homes.” The most recent data indicates that home remodeling and repair spending will escalate from the fourth quarter of 2017 into the third quarter of 2018, estimating an increase from 6.3 percent to 7.7 percent. The significant increase in home improvement spending is attributed to a strengthening economy, home equity gains, and low home re-sale inventory. Chris Herbert, Managing Director of the Joint Center for Housing Studies is optimistic about maintenance spending. Herbert said:

“Recent strengthening of the US economy, tight for-sale housing inventories, and healthy home equity gains are all working to boost home improvement activity…Over the coming year, owners are projected to spend in excess of $330 billion on home upgrades and replacements, as well as routine maintenance.“

The current LIRA data doesn’t include the effects of recent hurricanes. It is expected that those recent disasters will significantly increase the anticipated projected maintenance spending.

Home owners really have no choice but to spend on renovations, remodeling and repairs, especially if they are planning on selling their home. Most home buyers want a turnkey home, where the home is fresh and new and offers minimal maintenance during the first year of ownership. The desire for a turnkey home is probably why new home sales are at a ten-year high. This week, the US Census Bureau (census.gov) released new home sale data that indicates a month-over-month increase of 6.2 percent, and a year-over-year increase of 18.7 percent! To compete with other re-sales and new homes, home sellers must factor in the cost of home renovations.

There are many home owners who still can’t afford to move. The fact that many are still priced out of the move-up market has been a major issue holding back the housing market. This phenomenon is also responsible for continued low home re-sale inventories. As a result, many home owners are staying in their homes much longer than anticipated. The National Association of Realtors indicated in the Home Buyer and Seller Generational Trends Report 2017 (nar.realtor) that home buyers anticipate staying in a home about twelve years. This is an increase of about five years compared to a decade ago.

Although many home owners still can’t move, they are deciding to do home “make overs.” The make overs will give their homes a fresh look, that typically include new floors and paint schemes. Additionally, kitchen and bathroom renovations modernize the home. However, home owners needing more room, are opting to expand their homes to give them larger spaces. Some home owners are going beyond the basics and creating different spaces by moving walls.

Regardless of your reasons for home renovations and repairs, home improvement experts recommend to create a budget and stick to it, and always hire licensed contractors.

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