Tuolumne County Foreclosure Activity (heat map plus graph)

Calaveras County Foreclosure Activity (heat map plus graph)

United States Foreclosure Activity (heat map plus graph)

A Snap Shot of the Business of Real Estate

Throwing money at the real estate business has been the nature of the business for most of history. Unlike other business models, real estate people go into business to establish the “biggest” presence possible in order to overwhelm the consumer and real estate agents, offer to pay the most commissions, and provide the largest advertising presence.

Rather than focus on the “best” consumer product, the industry is focused strictly on numbers and size. (When using strictly numbers and size we validate the consumers’ impression that we are wealthy, and that we rip off more consumers than the competition.)

While providing ruinous competition to other Brokers, the cost of this folly is usually unsustainable especially when at the bottom of a recession.

In a hot market, while revenues are high, spending stays commensurate and margins of profit decline severely. In the last hot market (2004) the average profit to a Brokerage per transaction side was only $132.00.

Then, what happens in the hot market:

BROKERS…

(1) Throw money at business to grow the business (and avoid taxes), resulting in lower profit margins.

(2) Throw money at advertising (that, of course, does not work), resulting in lower margins of profit.

(3) Pay agents too much (overheated competition), resulting in lower margins of profit.

(4) Discount commissions to consumers, resulting in lower margins of profit (when our only product is to discount, we can only go lower to compete).

(5) See desperation as market sinks leading to scams and frauds.

(6) Add on fees, desk rents, etc., to offset costs.

(7) Businesses just stop when recession again hits, while costs are still at their highest.

Due to the competitive nature of the business, Brokers try to keep the rate of spending up too long, and consequently, some just disappear.

Currently there is little or no profit in this market or even less. REO’s, short-sales, foreclosures pay less to Brokerages, they are unreliable, and take a long time to pay out.

We survivors in the industry will make it to the next market cycle, which hopefully is soon. We can either continue to brutalize each others’ profit potentials or we can rework our business models.

The starting point I think should be to focus more on the real estate consumer’s needs, provide the best products and services, and do business on our own two feet, not on each others’ backs. When we elevate each other in the consumer’s eyes, we all win. To accomplish the above, we need to abandon mistrust among ourselves and resist the urge to cannibalize each other – a great concept that takes open and honest communications. The local Association of Realtors needs to start that dialogue today.

Sincerely,

Emmett Brennan
Owner-Broker
Sugar Pine Realty, GMAC

Housing Market Comeback: One Man's Take

I've got a link for you to a Bloomberg News Video (see below). In it, Rick Sharga, Vice President of RealtyTrac, discusses the latest foreclosure statistics and then gives his take on the timing of the housing market comeback. It'll be worth your while to watch. Among other things discussed in the video are the following statistics: 1 in every 519 U.S. households are in some stage of foreclosure; April had the single highest number of U.S. households getting foreclosure notices in one month; April foreclosures increased 4% over March and 65% over April 2007; an extraordinarily high number of subprime adjustable rate loans reset next month (which can't help but continue the foreclosure problems). Sharga then gives his forecast on the housing market comeback. Based on the continuing foreclosure situation, he thinks it won't be until late 2009 or early 2010 that we see a turnaround. It's just one man's take. The video is about 5 minutes.

CLICK HERE TO WATCH INTERVIEW

CLICK HERE TO READ ARTICLE

Interpreting the Foreclosure News

By now you've heard the news on foreclosures released today. Here are some of the numbers according to ForeclosurePulse blog and cnn.com: 405,000 lost their homes in the U.S. in 2007 versus 268,532 in 2006, a 51 percent increase - 66,000 lost their homes in California alone; foreclosure filings totaled 2.2 million - a 75 percent increase over 2006; the percentage of households in the U.S. in some stage of foreclosure is up from 0.58 percent in 2006 to more than 1 percent in 2007. (To read either article these stats are taken from, click: Foreclosures Continue to Soar or Unraveling 2007 Foreclosure Numbers. To see a cool map that lays it out visually, click: Foreclosure Rate Map.) Now I guess after you take this latest news in - and as it relates to real estate - you could say it's just adding insult to injury. Right? We already knew things were going south. The numbers are just bearing that out. But beyond that, and at the risk of being called a "Pollyanna," I couldn't help but note one comment on the ForeclosurePulse blog which had to do with the last stat above about U.S. households: More than 1 percent have been in some stage of foreclosure in 2007. The comment on the blog was this: "Why isn't the head line 'ALMOST 99% OF AMERICAN HOME OWNERS PAYING MORTGAGE ON TIME.' All you are doing is fanning the flames." And he's right (or was it a she?). There are still a ton of people out there who are doing okay holding on to their homes and even in a challenging time. I think it's something that those of us in the real estate business ought not forget. The glass may be half empty, yes. But it's also half full at the same time. And in the case of the latest news regarding foreclosures, it's almost 99% full.