There’s always something to howl about.

Month: February 2007 (page 1 of 7)

Understanding Why Depreciation Isn’t Just An Add-on — Cost Segregation

What is cost segregation? In a nutshell it’s the process by which an investor can increase the amount of total depreciation taken on each investment property. It will deal almost exclusively with the personal property which is part of the real estate. These personal property assets include a building’s non-structural elements, exterior land improvements and indirect construction costs. This is usually the point at which investors begin to glaze over.

Not so fast write-off breath.

Once you fully understand the results of successful cost segregation, you’ll be a fan for life. The difference between what the average investor claims for depreciation and what’s actually available is staggering to most when they see it for the first time. If you want to try it out on your own, go here. I strongly recommend though, that you hire a firm specializing in this process, as the IRS much prefers that approach.

What’s the average? In my experience and in talking with various CPA’s over the years, the average taxpayer claims the normal building depreciation using the schedules requiring a 27.5 or 39 year life. Many will then add a few personal assets to the mix, but not nearly what is available to them.

Take a $500K purchase of residential income property.

Let’s say it was built a couple years ago, and you can support a land value of $100K. This results in the building being depreciated at $14,500 a year. Investors then will add a few items of personal property, depreciated over five years. Let’s say the average runs around $5.5K. They now have $20K in depreciation. At the blended tax rate of 33% state/fed, this results in a tax savings of just under $6,700.

However, if this investor takes advantage of cost segregation, his depreciation could increase dramatically. Typically, the engineers will literally look at every single part of your property. This includes but isn’t limited to driveways, landscaping, exterior stairs, HVAC systems, and on and on. It’s common for them to find roughly 6-20% of the purchase price, including land, in new depreciation. (They often find much more than that.) Using this example that would mean give Read more

RE.tube? RE.cast? Envisioneering a YouTube-like distribution system for RE.net podcasts . . .

The folks at Zillow Blog and Mike’s Corner have been working on a great new idea:

How about a YouTube-like system for distributing RE.net podcasts? Content originators would submit their podcasts to a server run by Mike Price’s MLPodcast, and then that content would be available from any RE.net weblog running a widget to be built by MLPodcast.

The benefit to individual RE.net weblogs? The demands on your file server and its bandwidth are off-loaded to specialized multi-media content servers. Plus which, your podcasts get a much wider distribution.

Is there a downside? People may find your content at other sites, which may be an issue for ad-supported weblogs.

There are big questions to be settled, so now is the time to speak up if you are interested:

1. What kind of content should be accepted, and what should be omitted? Feelings are running strongly against spammy or self-promotional podcasts — for instance, video virtual tours of listed homes.

2. How local is too local? Obviously I am strongly biased in favor of general-interest, nationally-focused and industry-oriented podcasts. Should locally-focused podcasts be accepted, and, if so, should any limits obtain on what kind of local content should be accepted?

3. What’s a good length? I personally prefer podcasts that run from 45-75 minutes, the length of a good workout. The Sales Success podcasts we’re putting together will run from 10-30 minutes. What do you think is a good length?

4. Finally, do you have plans either to create or to subscribe to real estate podcasts, and, if so, would a system like this appeal to you?

Other RE.net weblogs will be entertaining these ideas as well, so speak up if you want to be heard…

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Delighting customers and clients: Doing the thing that no one thought to ask for

As real estate professionals, our clients’/customers’ satisfaction with our service and the outcome of their transactions is unquestionably key to business success. In fact, I’d bet this has been true in every career you have ever had. It sure has been for me… beginning with my first jobs as babysitter, then as counter help at The Red Barn, and then throughout my various corporate positions in management, finance and information technology. Whether my customer has been internal, external, faceless or my very best friend, I’ve always done very well by doing very well for him and her.

And so it’s always been maddening for me to see someone or some organization fail to recognize that the “customer is always right,” or if the customer isn’t right to help the customer become right… at least to try to help. We all know the adage that a happy customer will tell someone else about his satisfactory experience, but an unhappy customer will tell the unhappy story ten times more often. Well, I want to tell you about great customer service that I was just the happy recipient of.

But first some background… It begins with Greg and me wanting to attract more clients than we were getting from reputation alone. Around the end of the amazing sellers’ market of 2004/2005, around the first anniversary of BloodhoundRealty.com, we hoped to jump-start our business by giving someone who didn’t know us personally (or through referral) a reason to believe that we put our clients’ interests above our own. We wanted to offer something more tangible than a motto or a sincere-looking pose. We were doing well when we took listings, but we were turning down more listings than we were accepting, because home owners, who didn’t yet know us, didn’t yet believe us that the buyers were no longer willing to pay top dollar. So we figured we would try to attract buyers by offering to let them keep their money in their pockets — money they would be paying the seller to pay to us. We thought that once we got this word out, we would Read more

What’s Wrong with zipRealty?

Some readers here may be a bit concerned that some of the writers here on BloodhoundBlog don’t find and report enough negative comments about various discount real estate companies. Relax. There is more.

I received the following email today from Dave Marron. As you will see, he is a former executive for Zip Realty.

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Hi Russell:

I saw that you posted on bloodhound about zipRealty awhile back. Did you see their earnings release the other day? I’m an ex-zip exec (and ex-KW broker) and I put my thoughts down on paper about the state of their company (see attached). Do you have any use for this? If not, it’s OK. I just thought I’d shoot it over to you in case you thought it was bloggable.

Thanks,

Dave

What’s Wrong with zipRealty?

Last week zipRealty released their “preliminary” fourth quarter results. I’ve been interested in this company since 1999 when I went to ZipRealtylogowork for them. I
spent over four years at zip performing numerous jobs including VP of Sales. A couple of things popped out at me during their “preliminary” earning release conference call that just don’t make sense. Here are my observations.

One of the initiatives zip’s leaders gave for how they are going to improve in 2007 was an increased effort on training. Stock analyst Wendy Snow asked the team what they intend to do differently in the training arena that will make a difference in 2007. To this, Management answered that their “ideal candidate” would have the qualities of a strong trainer and strong real estate skills. They’ll also consider someone with strong training skills who could be “pick up the real estate craft quickly”. Are they kidding? They would hire a trainer who can “pick up the real estate craft quickly”. Would Pilsbuy, Madison and Sutro hire a legal trainer who could pick up the law craft quickly?

After leaving zipRealty I sold real estate for several years and I’m now an owner in a real estate technology company. The way that I learned the “real estate” craft was by going out and selling lots of homes. It’s not something that you can teach someone to Read more

Does Redfin.com have tougher agents or tougher clients? A challenge in Bloodhound red . . .

I represented the buyer in the sale of a home worth $450,000. Luxury home on the first tee of an exclusive golf course, right next to a million-dollar custom-home lot.

How much did we pay? $310,000.

Now the truth is, I had an ideally-situated buyer and we were working with an ideally-dys-situated seller. Fortune favors the well-prepared, but, in the end, we simply got lucky.

But if I wanted to, I could present that story in such a way that, by the time I finished warming your ears, you’d want to rename Wednesday after me. (Take that, Odin!)

And welcome to Redfinland. They’re determined to take a victory lap, and let ’em. As Kevin Boer said to me in email:

In all fairness to Redfin, if the numbers had come out the opposite, the re.net would have been all over it, showing it as “proof” that they suck.

Indeed. And as much as CEO Glenn Kelman resists the characterization of Redfin.com as a discount real estate brokerage, it remains that their marketing appeal is based on saving clients’ money. It’s hard to doubt that discount-seekers would be discount-finders.

But, as I discussed last night, Redfin’s results are not a slam-dunk validation of its agents skills, zeal, rigor, vigor or charm. The much more likely explanation for the results it reports is that its clients — unlike swimmingly-besotted house-lovers — are congenitally low-balling INTJs and INTPs who do not focus on anything that can’t be expressed numerically.

Tougher agents or tougher clients? There is a way to find out for sure. Last night I made this proposal to Kelman:

I’ll make you a deal. Send me PDF scans of the 170 files. I’ll make a server available for FTP, and y’all can redact for personal details. I can reconstruct a transaction from the file, so I can vet the quality of the work in full, not just as regards price. For example, I can see how complicated the deals are, and how much Redfin’s buyer’s agents are bringing to the transaction. I’ll report my findings in detail, and you can get your incredible PR machine to promote them far and wide. Read more

Thinking skeptically to rain on Redfin.com’s parade . . .

I’m not a Jesuit, but I play one on BloodhoundBlog. The real truth is, I’m a roll-your-own Jesuit, more auto-didact than anything. I didn’t have Brian Brady’s inestimable advantage of having had the gift of reason literally pounded into me. Instead, I had to stuff it between my own ears by hand. But one way or another, lay student or Brother, if you walk in the path of Ignatius Loyola, you learn to think skeptically. Any affirmative claim is far more likely to be false than true.

This morning, Redfin.com posted a claim that MLS results “prove” that Redfin agents are better negotiators than other agents in the Seattle area. If CEO Glenn Kelman had made a claim like this in Brother Paul’s class, he’d be up late tonight writing a paper, striving either to prove or disprove it.

The problem is not that the claim is necessarily false. The problem is that that there are so many ways that it might be false that, to call it true without eliminating each one of these canards and false paths is an inherently tendentious statement — suasion, not persuasion.

Before I begin work on my much shorter paper on why the claim is dubious, I want to raise three meta-issues. First, I do not have access to the underlying data. If I did, I might write a much longer and much more conclusive paper. Second, I would have much greater faith in the mainstream media if more reporters were tuned to a Jesuitical tenor of skepticism. And third, the tabbed browser window is an excellent tool for organizing the resources to be used in an exercise like this.

First, Redfin claims that its results rebut the claim that a salaried (and possibly inexperienced) agent will not negotiate as aggressively as a traditional real estate agent working on a straight commission compensation plan:

After a year in the market, we decided to put our theory to the test, by querying the Northwest Multiple Listing Service for data on every home or condominium sold via a brokerage from February 6, 2006 (the date of Redfin Direct’s launch) through February Read more

The Odysseus Medal: Inman’s real estate weblogging coverage

(I was going to award The Cheez-Whiz Prize to Google’s applications suite, but I decided not to bother. I do think it’s silly to go from centralized processing to distributed processing and then back to centralized processing, but I can understand why people might do just about anything to get away from Microsoft.)

This week’s Odysseus Medal goes to Matt Carter of Inman News for his four-part series on real estate weblogging.

Part I appears today, with the other three parts appearing later this week. The articles will go behind Inman’s pay wall, so if you want to see them for free, hop to it.

Dustin Luther at Rain City Guide writes about the series, also, along with details about a Blogger’s Connect later this year at Inman Connect.

Carter’s series explores real estate weblogging at amazing depth, and I would say so even if he hadn’t given BloodhoundBlog a big write-up. The articles explore work being done by many of the better-known names in the RE.net, including BloodhoundBlog contributors Kris Berg and Dan Green.

For my own part, my hat is off to everyone who got to be a part of this series, and to the RE.net as a whole. And most especially to Matt Carter, who has given us a lovely portrait of where we are now…

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Why The Traditional Real Estate Model Is Fading Away

Kris Berg and Brian Brady inspired me to add my eye witness experience to the subject of the traditional real estate company business model. Their recent posts on the subject were excellent as usual.

I’ve seen real estate from the inside since 1967. I was able to follow the owner of the most successful agency in San Diego at will. He answered any question I ever asked as fully and candidly as he could. It was an amazing learning experience for a teenager. Four straight years this guy closed more than 1,000 sides a year. And he did it with a maximum of 28 full timers and usually less than a dozen part timers.

If he did that now, he’d be making over $15Mil a year in gross commissions before paying his team. Oh yeah, his team. This broker never made less than 40% on any transaction. If you as one of his agents listed a home exclusively you were paid 20% of the listing side of the deal. If you sold the property you made 40% of the selling side. Back in those days a large minority of the listings weren’t exclusive right. Many were either open listings or what we called ‘agency’ listings back then. Opens only received 10% of the listing side, exclusive agency listings got 15%.

This meant that much of the time this broker made 45-50% of the gross commission. Today an average agent at a ‘commission split’ office makes 70-80% of the office’s commission. And the so called top producers are paid 90%. Is it a mystery that the desk rental model came into being? At least if they could hire enough bodies the broker/owners could, by sheer numbers, turn a profit. In some cities I’ve seen operations using this ‘desk rental’ model that employed literally hundreds of agents.

Just how the large firms clinging to the traditional model stay in business is a mystery to me. They’re operating with even higher expenses per square foot than brokers did 30 years ago, and getting a much smaller slice of the pie to boot. For awhile they stalled Read more

The Carnival of Real Estate . . .

…is up at The Real Estate Zebra. Host Daniel Rothamel is one of our favorite real estate webloggers, so it’s a double honor to have our own Kris Berg win yet again for The ABC’s of Agent Hiring – Oops, They Did it Again. This is Kris’ second win and the fourth for BloodhoundBlog.

This week’s Carnival of Real Estate Investing is at TheMillionairesBlog. We entered Michael Cook‘s Negotiation 201: Don’t Just Think about the Best Price, but it didn’t take first place, alas.

There is much good reading at both weblogs. Go take a look…

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The Sunday Real Estate Section Advertisement Problem

REMAX Listing Sheet from papersLet’s all agree on the following:

  1. Most home buyers begin their home search on the Internet
  2. Most home buyers use Web-based software to “preview” homes online
  3. Most home buyers receive regular email/web updates from their agent about new homes worth previewing

If we know all of this to be true, why does my local newspaper’s Sunday Real Estate section get larger and larger every weekend?

If it’s to reach home buyers, I am going to laugh. That’s like advertising White Sox Gear for sale in a Cubs fan magazine — your target market is not in the audience.

So, I think you can make one of two arguments about Sunday Real Estate advertising: that the advertising is there is to make the seller “feel good”, or that it’s there to promote the brokerage’s brand.

Either way, it’s worth a re-evaluation.

For the money that is spent on newspaper advertising weekly, real estate agents could be providing more personalized services for home sellers including single-property listing URLs with custom Web design, better videography of the home, and higher-quality signage.

These are all items to which a buyer would respond favorably. In theory, that should lead to higher sales volume and nothing builds a brand name better than having “SOLD” hanging from a listing sign.

Image courtesy: The Village News

The truth will set you free — but your chains are forged from sob stories . . .

I was at a party about 13 months ago, a going away party for one of my clients whose house we had just sold. I had sold the hostess her house, and somehow or another we started talking about 80/20 loans — nothing down financing. She had just refinanced to retire the second mortgage, so she had 20% equity in her home at next-to-nothing in out-of-pocket costs.

All around the room, people started nodding and saying 80/20, 80/20. They had all done the same thing, a room full of young homeowners with their homeownership made possible by the no-PMI piggy-back loan.

This is Peter Coy in Business Week’s Hot Property:

Is Your Mortgage Choking You?

For an article in BW, I’m looking to interview people who have subprime ARM mortgages and are feeling squeezed by resets.

A few weeks ago, Coy admitted that margins of error in statistical reporting render much of it meaningless. I have never worked with a sub-prime borrower, but I would expect that, among the stories of people being “choked,” there must also be stories of people who bought homes they would not otherwise have been able to purchase, homes they have subsequently refinanced with conforming loans.

“Proof by anecdote” is bogus in the first place, since anecdotes abound (and they’re much easier than real estate to improve). But surely there are countervailing anecdotes for almost any phenomenon. This might seem to argue for presenting “both sides” of the story. To me, it suggests a better approach. An anecdote in a news article is almost always a fallacious Appeal to Emotion dressed up as testimony. With two or three sad tales, the reporter implies that a situation that might be quite rare is in fact ubiquitous — and that the “solution” propounded requires no rational defense. Facts are facts, and surely thoughtful people can digest them without all that saccharine. Why not leave the anecdotes out altogether…?

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Sales Success Training?

Stack of $100 bills - smallerMost of the national real estate sales trainers training today are selling worthless crap. Want proof? Buy their stuff and see if you can apply any of it and actually make your business better.

Most of the real estate magazine articles that are chock full of “what agents ought to be doing” are written by well intentioned people who either were never successful at selling real estate for a living or never did.

One of the most high profile agents in the world endlessly promotes that he will share (if you sign up for his fabulous training program) how he became so successful. He is quite successful and it would seem logical that he could share quite a bit that would help. One of the main things he “shares” is a cluttered looking clone website that you can buy from him. I’m not quite sure how that website helped him so much as he was fantastically successful before the internet existed.

One trainer (rhymes with fairy) knowingly lies from the stage.

Most agents who enter the business (13 out of 14 by actual count) will be gone in a year or two. Can that be changed by “learning about success”? I really doubt it, as most of them didn’t have much commitment to ever really apply themselves. But that doesn’t include everyone – there are a LOT of people in the real estate business who want to do better and aren’t sure what to do next.

I’m planning on doing something about that. Over the years I have figured out what is involved – exactly – to go from “0 – 60” and I also know what is not involved. We are going to make that information broadly available. Free. Free, in the sense that we won’t be charging any money for any of it. Period. We won’t be endlessly attempting to get new people to listen to the audio or watch the videos because it makes us more money. Our only goal will be to see Read more

Interviews Are Back on Track

I have two great interviews coming up this week; I think you’ll enjoy them. The interviews are with real, honest-to-goodness BROKERS.
Lenn Harley is an agent in the DC suburbs and runs a firm called Homefinders. I’m reading background about her now and her story about how she became one of the original “internet brokers” is compelling.

Sharon Simms is an associate broker with RE/Max in St Petersburg. FL. She started her real estate career at Merrill Lynch Realty (remember that experiment?) . She manages a team of agents (including her daughter and son). Her post about how architecture makes neighborhoods shows that she is hardly another licensed hack banging on doors.

I’ll be asking them both questions this week. Feel free to add any that you might have for them in the comments box.