2011 Swanepoel TRENDS Report

The Following Is An Extract From: 2011 Swanepoel TRENDS Report

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ɄȽɕɄȵȨȇǸɜȨɄȽField of Dreams Swanepoel TRENDS Report 2011

Overview Title Industry of 2010 has helped but along the way there were a number of major changes Over the years consolidation in The pins began to fall for the that took place that will impact title the real estate industry in the form title industry in 2008 when revenues companies for many years to come. of mergers and acquisitions (M&A) dropped drastically, resulting in net Here are the main ones. has primarily been generated by losses across the board for the major companies flush with cash or those title companies, estimated at $670 Regulating the Market with superior management talent. million. It was the single worst year The primary driver has usually been to ever recorded for the title industry, On the policy and regulatory gain market share through expanded which included the bankruptcy of front there were a number of key pieces relationships or agent count. Today, Land America Financial Group. There of legislation passed in 2010 including however, there is another strong the Health Care Reform Act and the driver in the mix — survival. BY THE NUMBERS Financial Regulatory and Reform HOW MUCH Act (included the establishment of Assimilating relationships is critical the Financial Protection Agency). to the success of any M&A program, DOES IT COST? While the title industry does not fall especially in real estate, which is first –––––––––––––––––––– directly under these new regulations and foremost a “people business.” For it nevertheless is experiencing much Realtors® that has always remained greater federal oversight than before the most important factor; irrespective $670 as a result of their passage. of the reason for the M&A. million estimated net loss for An example of the impact the current The state of the economy has impacted major title companies in 2008. real estate market is having on title –––––––––––––––––––– almost everyone involved in real estate companies was the announcement from the federal government to the by Bank of America in October 2010 consumers, the agents and ultimately that it had suspended foreclosures due the brokers. Fewer sales, shrinking $1.0 to potentially flawed documentation. margins and high overheads have left billion As a result, Old Republic notified drop in title orders in 2009. numerous companies with limited BofA, Chase and Ally Financial’s options. Many long-time Realtors® GMAC Mortgage that it would no have been forced to seek other sources longer write new policies for those of income while a number of long- lenders. was some improvement in premiums time successful brokerage companies written in 2009 ($8.8 billion) find themselves up against the wall. In November 2010 Stewart Title even though title orders dropped However, in all business cycles, even increased its underwriting guidelines below 2008 levels ($9.7 billion) as ones in which the overall market size making it difficult to write policies companies slashed operating costs. shrinks, there are opportunities for on properties foreclosed upon by the One of the major fallouts has been smart, well-positioned companies. same lenders, and Fidelity National the failure of some title companies stated that it would require warranties to create adequate reserves during In this Trend we delve into from all lenders beginning November the good times. That under-reserving consolidation on all levels as we 1st to limit its liability in any “robo- is now causing financial problems in explore the title industry, mortgage signing” disputes. Fidelity wanted dealing with the high number of post industry, brokerage industry and even them in place before it would issue meltdown claims. associations. any title policies on REO properties but later dropped the requirement as The surge in refinancing during the a result of no other title companies latter half of 2009 through the middle

©2010 RealSure, Inc. www.RETrends.com 117 Trend 1 Consolidation: Field of Dreams following suit making it a competitive Last Men Standing remaining smaller companies. Two issue. But rest assured we have not interesting exceptions would be if one heard the last of this one. Ten years ago there were roughly of them were to be acquired by one five times as many title insurance of the other three or by The New Another area of change for title underwriters as today. At the Millennium Title, recently founded companies is their withdrawal from present time the industry has been by Pat Ston,; former CEO of Fidelity Affiliated Joint Ventures. As the consolidated down to only four major and Director of First American. Either interpretation of the constantly national companies that share 70% to could result in a major shift in market changing rules is becoming more 80% of the market: share. It's certainly something to keep difficult, and with the increased risk your eye on. • Fidelity (fnf.com) for the title company on significantly reduced margins, the risk/reward no • First American (firstam.com) Added regulations and compliance longer balances out. First American issues are also impacting the way a • Old Republic (oldrepublictitle. has backed away from the majority of normal title sales team operates. No com) its Affiliated Joint Ventures and, while longer do title companies have the others are still engaged, the number • Stewart (stewart.com) ability to co-market with Realtors®, of relationships has dramatically offering “perks” to the brokerage In addition to these companies declined over the past five years. community. As the pendulum there are an estimated 30 smaller continues to swing in the direction national and regional providers that It is not surprising then that as a of increased regulation it has become share the remaining 20% to 30% result of more stringent regulation, a a game of continual “catch-up” of the market. It is anticipated that changing market and a bad economy with all title companies establishing these four companies will maintain the title industry has experienced compliance departments. dominance in the title industry significant consolidation, bringing it as they continue to roll up any down to only a few major players. HUD (hud.gov) also recently ruled that Did You Know Number of Commercial Banks June 30, 2010 8,500 8,178 7,967 8,000 7,831 7,967 7,549 7,479 7,500 7,350 7,203 6,995 7,000 6,676

6,500

Source: FDIC

“home warranty” is now considered a is not making the transition an easy American is already seeing an settlement service and therefore falls one. In large part the brokerage increasing number of title orders under the same regulations as title community still wants to do “business coming directly from the lender; insurance; precluding the paying especially with refis.” In the of a referral fee. Title companies future this is going to force have conversely argued that We bubbled up to about 1.4 million members both title companies and home warranty is “not” always ´(in 2006). We don’t need 1.4 million. We need real estate brokerages to a part of the transaction as its probably 750,000 agents. revisit their strategies and purchase is optional. This change RON PELTIER streamline the process with is potentially a large concern for Chairman and CEO,µ HomeServices of America new business models that companies like First American employ mobile technology that own a home warranty and the Internet to make company. as usual,” which places the title the process faster, more efficient and company between the proverbial rock customer-centric. The overall result of this increased and the hard place; putting the Title regulatory environment has been Rep on the front line in jeopardy Mortgage Companies and Banks to move the title business into of losing his/her certification for more of a commodity with highly violating these regulations. More than 225 mortgage-related regulated rates. The response has companies ended operations or failed been an increased focus on better If you add to this shift the impact of in 2009 according to MortgageDaily. service through technology and the consolidation taking place in the com: 140 banks, 66 non-banks and 19 management; improved customer care banking industry (more below) the credit unions. Their tracking reflected and communication like Smartphone source of title orders is going to be another 158 closings through the apps for delivering property profiles increasingly initiated by the lenders. third-quarter of 2010. and opening title orders. According to Mike Lancaster, executive vice president of First The Federal Deposit Insurance However, the customer (the Realtor®) American Residential Group: “First Company (FDIC; fdic.gov) reported

Did You Know Bank Market Share June 30, 2010 Bank of America [11.71%]

Balance [63.66%] Wells Fargo [9.78%]

JP Morgan Chase [8.50%]

Citigroup [4.04%]

PNC Bank [2.31%]

Source: SNL

©2010 RealSure, Inc. www.RETrends.com 119 Trend 1 Consolidation: Field of Dreams that 151 banks had failed through country’s banks could be gone. The too many remaining options. One of December 2010, bringing the total result, if history repeats itself, is going the few left is to buy another bank. since 2007 to 319 with total losses to to be far less competition. The only question is whether the FDIC of $7.2 billion; an additional major players like Bank of America, 860 banks remain on the FDIC’s According to the Wall Street Journal JPMorgan Chase and Wells Fargo troubled watch list. the new fee assessments proposed by that each control approximately 10% the FDIC in an attempt to level the of the total U.S. deposits — putting As one would expect, there has been playing field for community banks them at the legal limit — can or will an associated increase in consolidation will require JPMorgan Chase, Bank of be inclined to participate in this next accompanying these failures. With America and Citigroup collectively to round of takeovers. At least one still continued declining house sales, hand over $1 billion in additional fees is. increased regulatory costs/fees, every year. heftier capital requirements and new In November, JPMorgan Chase was restrictions working their way through Furthermore, low loan demand and cleared to absorb Bank One Corp., Congress under the massive financial borrower repayments reduced lenders forming the second-largest bank in reform, even more banks will disappear cash flow by $150 billion in 2009. Add the U.S. behind number one, Bank of in the months ahead. According to a to that the fact that 2.7% of all U.S. America. recent report by Kiplinger (Kiplinger. mortgages — over 7 million — were com), within the next several years delinquent at the end of Q3 2010 and Consolidation is already having an as many as another one-fifth of the it becomes clear that banks don’t have impact on the real estate industry.

MORTGAGE STATISTICS

Residential Mortgages Rank Lender Marketshare (In Billions) 1 Wells Fargo & Company $82.99 23.36% 2 Bank of America $74.07 20.85% 3 JPMorgan Chase $33.69 9.48% 4 Ally Bank/ResCap (GMAC) $13.16 3.70% 5 CitiMortgage $12.17 3.42% 6 US Bank Home Mortgage $10.69 3.01% 7 PHH Mortgage $10.08 2.84% 8 Sun Trust Ban $ 7.00 1.97% 9 Met Life Home Loans $ 5.52 1.55% 10 Branch Banking & Trust Company $ 5.34 1.50% Total Marketshare $254.71 71.68% Balance $100.62 28.32% Total Market $355.33 100.00%

Source: MortgageStats.com

With 30% of the lending market now are strengthening that relationship. Many real estate brokerage company controlled by three banks the level of It is not surprising then to see that a consolidations, if not most, go by influence the lending community has growing number of other services are completely unaccounted for. They are on the consumer is increasing daily, also being based on the relationship often small in scope or roll-ups within thereby reducing the influence of between the lender and the consumer. a franchise brand or group of brands. Realtors®. Consolidations aren’t new. However, Real Estate Brokerage Companies in past years the driving force behind Impact on Real Estate them was organic growth and regular Lawrence Yun, chief economist retirement. Today, the motivation At the end of the second quarter with the NAR, reports that gross to consolidate is changing with of 2010 the top 10 lenders controlled commission dollars have plunged 50% the large number of Baby Boomers 71.68% of the residential mortgage in the last five years. To compensate approaching retirement age. Add to market with the top three snatching for the lost revenue many brokerage that the exceptionally poor economy more than 50%. From a real estate companies have taken on debt and and we have a disproportionately high brokerage perspective this is troubling. are operating with large monthly number of brokerages that are “being As the bigger banks buy up the smaller fixed expenses. In the process they are forced to consolidate or go broke.” ones they are also assuming their finding their options severely limited: existing relationships, which results in merge, consolidate, close branches On the Franchise Level existing relationships with real estate or file bankruptcy. As a result many brokerage companies no longer having brokerage operations are going to One’s loss is another’s gain. Entire the same value. In many cases long- disappear. franchise networks don’t change hands term relationships between Realtors® very often so when it happens we and Title Reps are being quickly The number of agents and brokers, take note. In our previous Reports we eroded; another highlighted Canada’s prime example of Brookfield Residential how an industry We expect a slow recovery in both the housing market as well as the Property Services’ can and does market for mergers and acquisitions; challenges include lack of capital, (brookfieldrps.com) change. We will ´lack of managerial and leadership talent and the failure to appreciate acquisition of the increasingly see the nonfinancial issues that sellers and purchasers alike face. GMAC Real Estate more customers franchise network STEPHEN H. MURRAY coming into President, Murrayµ Consulting in 2008 and then the transaction RealLiving Network not only having Services (realliving. completed their home search but according to the NAR, has dropped com) in 2009. Well, 2010 was the year having already been pre-qualified by by 25% since the housing crash when it started to come together for their lender — the same lender that began with home sales down by one- them. will be ordering the title policy and third since 2005. We also know other services. that the total number of agents is According to Managing Partner and very inflated with many part time CEO Graham Badun, they were aware Now that a small number of financial and “dual career” agents. The latest of the declining market before making institutions have a significant — and number of all licensees (all types; the move and saw it as an opportunity for the first time — national market active and inactive) as compiled by to become a dominate player in North share they can and will increasingly the Association of Real Estate License America and not just in Canada. leverage their brands. So, by going Law Officials (ARELLO; arello.org) in Asked to list the greatest challenges directly to the consumer through its 2010 report is 2.98 million; down they encountered Badun noted the pre-qualification process they 4% from 2009, at 3.11 million. that: “There were really two: the

DID YOU KNOW DOING THE MATH

When business is good, volume tends to overshadow the ﬁnancials but when the market turns there is an immediate search to ensure that the most is being gotten out of every penny. Along this line we asked David Cocks, managing partner of CompensationMaster (compensationmaster.com), to comment on what companies are doing to put themselves on a more secure ﬁnancial footing. The following are two of his suggestions that apply across the board to any company taking a hard look at their bottom line.

First - Get The Math Right

Today brokerage companies are constantly looking for new ways to get insight into their ﬁnancials and operations, and to help them identify any areas where they can gain some leverage. Many have ﬁnally realized that desk cost is not a good basis for commission splits and they are beginning to look at Effective Desk Occupancy (EDO), which includes sales productivity in the analysis.

For example, if a company has physical costs of $480,000 and 20 desks, then the desk cost would be $24,000. With EDO, if you have 10 sales associates producing Retained Company Dollar of $24,000 or more, then 10 desks are generating cost recovery. If four associates produce $12,000 of Company Dollar each, then effectively two more desks are generating cost recovery. If the remaining six associates produce $4,000 each, then effectively one more desk is generating cost recovery. In this example, that means 13 desks are covering costs and seven are not; only 65% of the desks are recovering costs. An even better number is what is referred to as the Fully Productive Equivalent (FPE). With FPE you can design plans that let a company pay sales associates the absolute maximum possible while still ensuring that the company can cover all of its expenses. Today it is critical to get the math right.

Second - Ask What Associates Really Want

Managers can no longer assume they know what their sales associates want. They need to stop, sit down and ask the question.

Use a concept called "hysteresis," which refers to systems where there is a lag in the calculation and there are a number of interdependent variables. What it means is that you can’t ﬁx a problem or design compensation systems that work more effectively than what you have without ﬁnding out what’s causing a problem. Asking sales associates what they want – and what they don’t want – is the key to discovering new opportunities. Typically brokers provide services agents don’t value, and then there are things — often simple, inexpensive things — which they do value a great deal. In most cases it only requires a re-allocation of funds in order to make the change and provide better support in the process.

It is a simple fact that when agents are more motivated, revenue increases. Compensation Master has tracked a 30% increase even in the current market — which is a substantial improvement both for the company and the sales associate. When a compensation plan is designed to meet the needs of the sales associates and when the math is right, you can increase and protect company dollar by 2% to 8% of GCI; making it well worth paying attention to the math and listening to the sales force.

122 www.RETrends.com ©2010 RealSure, Inc. Swanepoel TRENDS Report 2011 economy, of course, and then working or not the industry will continue On the Brokerage Level through the option the franchisees with the “old paradigm.” Are they had to leave us in light of the brand just merely making their offices According to Stephen Murray change to RealLiving, which we had larger — increasing the problems and of REALTrends, the period between to work through on an individual expediting their demise — or will 1996 and 2006 was probably the most the growth in size truly active period in M&A history before provide them more slowing down over the past couple of Realtors® association costs are one of the muscle to reengineer years. Today M&A interest is again best "deals" available today. Once the confusion themselves, remaining reaching a high level but the terms óf the "three way agreement"— that the local relevant and successful? are not quite the same. Murray reports association is getting all of that money — is that over the past four years every clarified the actual cost is quite low. So far it seems that acquisition that his company has been all major real estate involved with has included an “earn JEREMY CONAWAY CEO, Recon Intelligenceµ Services franchise brands, with out” provision in which 70% of the the exception of Keller transaction payments are contingent: Williams, have seen usually over two to five years with basis.” Through October there were a their office numbers decline sharply less than 10% cash up front. Today’s reported 50 franchises affiliated with and their agent count follow suit on market definitely does not favor the the RealLiving brand comprising a lesser scale. Almost every brand has seller. 400 offices and approximately 10,000 experienced failures, seen companies agents. leave to join another franchise brand According to David Charon, CEO or go independent. of MRIS, use of technology will National franchise networks clearly continue to chip away at the edges reflect the trend of consolidation Brands within the Realogy stable have of the broker’s business. Once in the industry with almost all been permitted to move or consolidate considered “ancillary” services are national networks experiencing into another “sister” brand within the now “core” as the transaction itself declines including: Century21, stable, which makes it even more generates marginal broker profit. Coldwell Banker, RE/MAX, ERA and difficult to tabulate numbers. Realogy As brokers search for profitability, Weicherts. Although, at first glance, did announce a program in 2010 that improved technology will actually it appears that franchises are losing includes providing its' experience make it tougher for them to create a market share — that isn’t an “accurate and financial resources to help its sustainable competitive advantage. across the board” statement. Clearly 'franchisees consolidate, which the number of offices has declined through September, had assisted 75 With so many brokerage companies but the number of agents has not transactions in the U.S. staring down high overhead, reduced decreased more than the contraction margins, franchise fees and slumping of the industry as a whole. Overall, there are two companies that sales it is not surprising that there are seem to have benefited most from far more companies desiring to sell In most cases consolidation has current consolidation trends. Firstly, than there are buyers in the market. actually resulted in many franchises Keller Williams Realty due to its strong This often results in the consolidation becoming larger. Hopefully this growth surge during the past three of different brands into one brand will also over time lead them into years and secondly, Better Homes & with formerly strong brands in a becoming more efficient, effective Gardens due to the “newness” of the region disappearing overnight. and profitable as critical mass allows brand and the fact that it has more Some of the recent larger and higher them to do things they may not have “open” territories available than most profile conversions, switches or been able to do before. Only time other franchises. consolidations include: will answer the question of whether

• Mason McDuffie Real Estate Realty International. To accomplish this, the board moved its 36 offices and 1,900 established its own MLS — Mid- • Prudential Georgia Realty agents from Prudential (after South MLS — in association with acquired Atlanta-based Bo 13 years) to BH&G under a Discover MLS Software Solutions, Bridgeport Brokers. long-term “strategic franchise which is also open to affiliated brokers agreement.” and agents. The annual membership On the Assn. Level fee of $100 covers both the board and • Realty Executives in Phoenix the MLS and provides for the entry of moved its seven offices and 375 In 2010 under the leadership of agents across to Keller Williams Larry Mayall, a group Realty Southern Arizona. of independent brokers The goal is to provide a new association that formed a non-NAR • Coldwell Banker The Real Estate continues to provide added value service to its affiliated real estate board ´members with an outlook to adapt and change to Group brought ERA Titletown — Mid-South Real Estate in Green Bay into its 20 offices future needs. Board (MSREB) — to and 450 agent operation in CAROLINA MOUNTAIN BOARD OF REALTORS® serve the needs of non- Northeastern and Central µ NAR affiliated brokers Wisconsin. and agents serving • Century 21 Gross & Jansen Tennessee, Mississippi and Arkansas. an unlimited number of listings at no Realtors® joined Prudential New They have taken this action not as cost. The board is compensated if and Jersey Highlands Realty resulting anti Realtor® but with the goal of when the listing is sold by a 0.125% in a combined 120 agents in five ensuring that they can compete on fee; i.e. $125 on a $100,000 sale. Prudential offices. what they deem to be an unlevel playing field. Then, in a surprise move in December • HomeServices of America, a 2010, Russell & Jeffcoat Realtors®, subsidiary of Berkshire Hathaway, MSREB’s goal is to provide agents Midland’s largest real estate company, acquired Schiller Real Estate and that cannot afford to belong to the pulled out from the Central Carolina merged it with its Chicago-based three-tier structure of the NAR, the Realtors® Association. For the Koenig & Strey Real Living. same basic support as the NAR and real estate brokerage the decision • NRT, a subsidiary of Realogy, specifically, access to the MLS in was caused by the “all-or-nothing” acquired Santa Fe Realty Partners Tennessee. membership requirement that has and merged it with their existing been in place for 100 years. While Sotheby’s International Realty in many Realtor® organizations have New Mexico. BY THE NUMBERS been losing members due to the –––––––––––––––––––– prolonged economic downturn some • Northwest Arkansas Coldwell think that this 450 agent withdrawal Banker Fayetteville, founded may be the largest single loss yet. in 1956, merged with Harris ® 50% McHaney Realtors founded in of all agents expected to earn "zero" Realtor® Assns. Consolidating 1976. commission in 2010. –––––––––––––––––––– • Howard Hanna Real Estate With declining membership many acquired Masters Real Estate, associations are bracing for a difficult formerly RE/MAX of Boardman 5of20 2011 and are exploring options not in Northeast Ohio. known board mergers since 2004 previously entertained. • Elite Pacific Properties in Oahu, occurred in the last half of 2010. According to Jeremy Conaway, CEO Hawaii merged with Bondroff of RECON Intelligence Services,

124 www.RETrends.com ©2010 RealSure, Inc. Swanepoel TRENDS Report 2011 a simple market value analysis will highly successful. There usually show that most local Realtor® are significant gains to be associations deliver a minimum of realized from the merger The 'changing of the guard' will evidence $2,000 worth of services each year of multiple adjoining or itself in the next few years. It is no longer just ´the agents and brokers leaving the business, but in exchange for local dues that fall neighboring Realtor® in a range of $100 to $300. This associations with cost increasingly also the folks that lead Associations analysis is seldom undertaken by savings being promoted as and MLS's. most members who have little or no the primary reason. DAVID CHARRON µ CEO, MRIS idea of all the programs, products and services offered by their local Realtor® The positives most often association. The question is of course listed are: fact that there will be only one AE more than just value, it’s whether it is salary instead of two. This anticipated • Financial synergy and affordable when it is estimated that savings is often washed away by sustainability approximately 50% of all agents will the reality of the surviving AE have earned “zero” commission in • Reduction in operating costs usually getting a raise because of the 2010. “additional” workload and increased • Ability to fund additional membership size or the frequent education Substantial churn will also continue appointment of an assistant not to impact the industry as many who • Reduction in number of financial previously a part of the budget. become agents do so because they audits lost their "real" job. When they find That said, mergers and consolidations • Improvement/expansion in the another one again most will choose of Realtor® associations appears to be offering of products and services to leave sales rather than try to build gaining momentum and, if business a book of business. At issue here are The largest concerns often and financial logic prevails, it will the accidental sales that accrue to mentioned are: accelerate in 2011. According to real this migrating agent population. estate consultant Jerry Matthews, he • Reduction and/or centralization Although most top producers will is busy with several other associations of offices not be impacted, the loss of these considering the process. Here are a few accidental transactions will impact • Loss of local identity of the higher profile announcements those that desperately need just a few made during the latter half of 2010; • Complexity of transition more sides to achieve profitability and most will become effective beginning continue to drive them out of the • Termination of certain key 2011. business; which is both good and bad employees, including the • The Realtor® Association of news for Realtor® Associations. Association Executive (AE) Greater Miami and the Beaches According to Conaway the reality is merged with the Realtor® Since 2004 we found at least 20 boards that many mergers have not always Association of Miami-Dade that have merged, five of which were made good on the promise of cost County making them the largest announced during the last half of savings. This is because some savings regional association in the country 2010. In most cases it was only two that might appear on the pro forma with over 23,000 members. boards joining forces (approximately P&L at the onset of the negotiations 75% of the time) while the largest • The St. Paul Area Association of are often eaten up by the expenses of merger involved six boards. According Realtors® and the North Metro reality during the first three years of to our research all the boards that Realtors® Association announced the merged operation. have merged are still operating as such their intention to merge and today with 80% according to a survey By way of example, he cites the become a 6,800 member single considering the merger successful or suggested savings based upon the association.

• Three Denver area associations consumers into the fold. These are the and franchise networks grow to new — the Denver Board of concepts that create great mergers and heights. Realtors®, North Metro Realtors® great associations.” Association and Jefferson County Association of Realtors® — agreed Summary to merge effective January 2011 to form the largest association in the As we said at the outset, it state with approximately 5,000 is no longer “just” about gaining members. marketshare; in many cases it’s about “survival.” Everywhere there is • The Metropolitan Consolidated recurring evidence that the shifting Association of Realtors® and parts of the struggling economy are the Western Wayne Oakland forcing many players on all levels County Association of Realtors®, to consolidate. As a result, M&A Michigan’s two largest local became the hottest trend in the real associations, adopted a merger to estate industry in 2010. It doesn’t create an entity with about 6,500 matter whether the sector is title, members. mortgage, brokerage or associations, • Four boards in Western North the concept of maximizing resources Carolina: Asheville, Brevard, while minimizing costs applies to all Hendersonville and Haywood participants. County Associations of Realtors® are discussing a merger. As more and more brokerage companies come to grips with fewer Not all consolidation attempts sales and shrinking margins and have, however, been successful. For decide to call it a day, they will find example, the San Diego Association others standing in the wings that are of Realtors® and the North San Diego ready, willing and able to pick up County Association of Realtors® did the pieces. Unfortunately, they will not ink the deal. often find that the associated price and terms are more likely to favor the If there is a bottom line in the acquiring party. association merger world it should not only be to merge and save money The emergence of new approaches to but also to create a great association the brokerage business is certain to over the next ten years. We now know change not only the complexion of how to create Realtor® associations the industry but its market balance as that "pop" for their members,” says well. Add in government regulation Conaway. “Bring respect and affinities at all levels and it is going to become to our industry: Move leadership increasingly more difficult for many and volunteer participation to companies to remain competitive. management and staff roles; move agent and broker support services to Winners have started to emerge in generationally appropriate social and the title and financial industries and Realtor® family support programs; and in the years ahead we will see some move from communications programs real estate brokerage companies that listen to bringing real estate

<ɉɉɄɑɜɤȽȨɜȨȐɕDiversiﬁng Your Business Swanepoel TRENDS Report 2011

Overview million seriously delinquent loans in BY THE NUMBERS the pipeline. If the majority of those If there ever was a time in the real Foreclosures and loans default, which is probable, it estate industry to embrace the word Payments in 2010 would nearly double the month’s “diversify,” it would be now. Being a –––––––––––––––––––– supply, adding downward pressure on real estate company or professional is home prices.” no longer a one-dimensional activity. in Prudent leaders and Realtors® already 1 139 There was significant concern in understand that diversification is an homes filed for foreclosure. September when the number of integral part of being successful in a –––––––––––––––––––– homes taken over by banks topped modern real estate economy. 100,000 per month for the first time. in The previous month the shadow During the previous decade a great 1 7 inventory of potential foreclosures homeowners were late on their deal of emphasis was placed on or those already in their inventory mortgage payment. expanding real estate activities to but not yet on the market reached –––––––––––––––––––– include mortgage, title and insurance 2.1 million units. CoreLogic expects services. In this next decade the shift that in 2011 distressed sales will once will be focused on exploring different 1in3 again reach a 35% of the market. niches in the real estate industry itself, homes were in some state of such as distressed properties, luxury foreclosure. Short Sales homes and property management. Towards the end of 2010 it was properties entering the market, In this distressed market lenders estimated that one in seven (14%) homeowners with current mortgages are delaying the foreclosure process homeowners nationwide were late that want to sell are finding it difficult through government-sponsored on their mortgage payment or already to do so. As reported by the NAR, programs in an effort to regulate the in foreclosure and getting refinanced the month’s supply at the end of flow of REOs (Real Estate Owned) isn’t an option for most of them. October was running in excess of 10 into the market. This market segment Faced with no alternative, many are months (over 3.86 million units), presents an opportunity via the REO just walking away when there may be which vastly exceeds the normal or Short Sale processes. They are other options on the table. Lenders level of five months. CoreLogic going to be with us for the next several are not excited about adding to (corelogic.com) further stated: “More years as individual buyers are spurred their REO inventory and there is a concerning is that there are over 3.3 into action by investors moving into growing interest in this sector by the the market. The other segment that is starting to come out of the doldrums is REOS AND SHORT SALES the luxury home market. We believe these channels afford real estate Buyer Type REOs Short Sales professionals an excellent opportunity First-time Buyers 47% 54% to diversify if they are willing to expand their thinking. Investors 28% 17% Move-up Buyers 14% 16% OPTION 1: Distressed Properties Second-home Buyers 5% 5% With approximately 25% of Other 4% 4% mortgagees being upside down and a growing number of foreclosed Move-down Buyers 3% 3% Source: Keller Williams Navigator Report

©2010 RealSure, Inc. www.RETrends.com 107 Trend 2 Opportunities: Diversifying Your Business investment community. The result is Sale; Short Sales are becoming made the commitment to focus on an environment that is favorable to the lesser of two evils. this market with over 15,000 of its the Short Sale process. agents now trained in Short Sales and • The Home Affordable Foreclosure foreclosures. Alternatives (HAFA) program is • Short Sales in many markets intended to drive Short Sales as an are getting a little easier to get There is a large and growing base alternative to homeowners ending approved as more lenders have of customers that are facing what up in foreclosure by streamlining had enough time to get adjusted is probably their greatest financial the process, incentivizing lenders to the process and adapt their challenge while at the same time and providing homeowners systems accordingly. These lenders are facing staggering $3,000 in relocation assistance. transactions, however, still tend foreclosure numbers and are to be paperwork-intensive and • A pending bill in the house (H.R. increasingly becoming more interested require a substantial amount of 6133; September 15, 2010), the in minimizing their losses, albeit they documentation. Prompt Decision for Qualification are not “giving” properties away. of Short Sale Act of 2010, would • With a large volume of adjustable rate mortgages coming due in 2011 lenders are increasingly … The current short sale process is time-consuming and cumbersome. allowing more Short Sales in ŃAR has been urging lenders and servicers to approve reasonable short order to minimize their REO sale offers that allow homeowners to avoid foreclosure …

inventories. VICKI COX GOLDER Persident,µ NAR 2010 • Approximately 4% of Short Sales result in a “resale” within 18 months and the Federal Housing force lenders to make a yes or no There are plenty of courses out there to Administration’s (fha.gov) one- decision on a Short Sale within provide Realtors® the skills necessary year waiver of the anti-flipping 45 days of the request. If the to help maneuver buyers and sellers rules allows FHA borrowers to homeowner does not receive a through all the complexities of the acquire foreclosed homes from written notification by the end of Short Sale process, and while this owners who have held title less the 45-day period that the Short is not the place to detail them, the than 90 days; investors are already Sale has been approved (subject following should be considered: moving off the sidelines. to specified changes or required • Certified Distressed Property additional information to make • Freddie Mac (freddiemac.com) Expert (cdpe.com) a determination), the Short Sale reported in 2010 that Short Sales will be considered to have been • Short Sale & Foreclosure Resource were up 600%, a reflection of its approved by the servicer. Certification (rebac.net) resorting to Short Sales seven times more often than it did in • Certified HAFA Specialist Smart real estate professionals have 2008. Both Freddie Mac and (hafacertification.com) deliberately made Short Sales a Fannie Mae (fanniemae.com) substantial part of their portfolio. • Five Star Short Sale Certification want delinquent mortgages off Ensuring that they acquire the (fivestarprofessional.com) their books as soon as possible. skills necessary to function in this Short Sales are going to be with us for • Lenders view the legal cost environment is no longer just a number of years and avoiding that associated with foreclosure and something for brokers to consider; it market segment in your brokerage the maintenance required with has become almost mandatory. RE/ operations is to turn aside from a very most distressed properties as far MAX is an excellent example of a viable and profitable opportunity. exceeding their loss with a Short national real estate franchise that has There are, however, other options.

REO - General Market asset managers that act as the conduit This is needed to cover some of the between Fannie and the brokerage normal expenses of getting a property During a large part of 2010 company. Bank of America splits the on the market, including turning one-third of all sales according work while Chase, on the other hand, on the utilities (usually done in to RealtyTrac (realtytrac.com), outsources all of its REOs. As a result the broker’s name) and completing were properties in some state of the brokerage may get a property from some modest cosmetic work like the foreclosure, and all indications are different asset managers, which could yard and clean-up to make sure the that the inventory of REOs will be a Fannie Mae property. property shows well. These expenses remain very strong for the foreseeable are in the neighborhood of $1,500 per future. A significant number of Brokers that want to become a Fannie house; all of which are reimbursed by those transactions are being made Mae Listing Broker can contact the asset manager within 30 days of by investors that are making Fannie Mae direct or one of their signing the listing. If the broker takes more purchases as banks become asset management providers through a number of listings this could require increasingly more willing to cut their HomePath (homepath.com). Freddie a substantial operating budget. Asset losses and get out of maintaining Mac offers to train listing brokers on managers usually provide a 60 to 90 properties. For the real estate the policies and procedures employed day listing period; if the property is professional, REO sales provide a great by its REO sales unit HomeSteps not sold renewals can be negotiated. opportunity but the most difficult part (homesteps.com). There are also of taking advantage of it is not only conferences across the country that REO - The Hispanic Market acquiring the knowledge necessary to are attended by the various asset function in thatarena but to actually managers or if the broker has a good The Center for Responsible get into the game itself. relationship with a lender he or she Lending (responsiblelending.org) should approach their loan rep for an reports that on a national level 8% of Where does one begin the process of introduction. both African Americans and Latinos getting into the REO market? have lost their homes to foreclosure What is involved in actively selling REO compared to 4.5% of White, non- There is really a small group of sellers properties once you have a relationship Hispanics. Its August report — Dreams — Fannie Mae, Freddie Mac, Wells established? Deferred: Impacts and Characteristics Fargo, Bank of America and Chase — of the California Foreclosure Crisis — that will work with the broker either Brokers need to be aware that there revealed that in California, where directly or through asset managers. are very specific capital requirements. there is a large Hispanic population They prefer to work with a limited number of brokers in a given market so CALIFORNIA FORECLOSURE RATE 2006-2009 they can ensure a speedy disposition of their properties. It really gets Race/Ethnicity Total Foreclosures Share of Total down to managing relationships and Latino 301,086 48.2% the more relationships there are the longer the process can take. White, Non-Hispanic 216,037 34.6% Black or African Who are the asset managers and how 47,337 7.6% American does a broker locate them? Asian 39,718 6.4% Each of the major lenders does Other 21,178 3.2% business a little differently. For example, Fannie Mae handles 50% Total 625,356 100% in-house and outsources 50% to Source: Center For Responsible Lending

©2010 RealSure, Inc. www.RETrends.com 109 Trend 2 Opportunities: Diversifying Your Business segment, the statistics are even more disparate. Without a doubt the luxury consumer market is in a much better place today than it was a year or so ago, but the latest survey warns marketers not According to Gary Acosta, Co- ´ to ease up or be over-confident. Founder and Chairman of The PAM DANZIGER National Association of Hispanic µ President, Unity Marketing Real Estate Professionals (NAHREP: nahrep.org), NAHREP wants to see better opportunity to compete with account they are ready to hit the Hispanics become more involved the investors that are currently ground running; capitalized and in REOs and Short Sales so they dominating that program. with a team in place. can operate as conduits to their • They network with other brokers local communities. The association REO - Summary in the REO business and get to believes that by using a proficient know the asset manager’s pre- Hispanic real estate professional According to those involved in marketers, appraisers and closers managing and selling a REO asset it REO training and those managing for introduction. Title companies is more likely that the buyer will be the assets it is not too late for real are also good sources. Hispanic. Unfortunately, there are estate professionals to get into the not enough Hispanic buyers as many REO business. Asset managers are • The opportunity for success in are being outmaneuvered by investors. constantly replacing professionals the REO market is excellent but When it comes to approving a sale that haven’t performed well while also it doesn’t come without risks. that requires financing compared with concentrating on a more “local” focus. Margins are thin and choosing an all cash deal, cash and a “quick” Here are a few things to consider for who you want to do business with closing usually win out. those contemplating entering this is critical. market: NAHREP not only provides guidance OPTION 2: Luxury Home Market • Those who are successful in the and professional education but is REO market all have one thing in supporting the advancement of The Wall Street Journal reported common; a strong commitment. policies that are consistent with during the first quarter of 2010 that community stabilization. It is their • They are selective in the sales of homes with asking prices between $2 and $5 million were up 32%; driven by increased buyer All of the branding, specialized tools, services and advertising will be of confidence and available financing. ´little benefit however, if you don’t have a deep understanding of the mindset While the NAR, in November, and the lifestyle of high net-worth consumers. reported a decline of 19% in overall

RON SIEGEL sales it revealed an increase of 11.5% µ Partner, Napa Consutants in sales over $1 million and a 4.6% increase in sales between $700,000 and $1 million. goal to see more diversity in the utilization of their capital; looking listing and REO disposition space for the best software, training The Luxury Sub-brand with a continued focus on bringing in classes and conferences, seeking the ﬁrst-time homebuyer. To achieve out those who are successful as Companies that work in the luxury that goal they would like to see the personal references. marketplace understand that this government attach a longer time • They do their homework and ﬁnd market is a “breed” apart. Luxury frame to the “National First Look the one or two asset managers that properties almost always require a Program” (hud.gov) in order to give are in their market. If they get the higher level of individual attention individual owner/occupant buyers a

homebuyer. The brand in this market Some that are utilized by the BY THE NUMBERS segment encompasses much more major brands include: than adding a label to a product or • LuxuryRealEstate.com A LOOK AT service, it includes many intangibles LUXURY HOMES that impact its value. For example, the • WSJ.com –––––––––––––––––––– Sotheby’s brand (sothebys.com) offers • DuPontRegistry.com an emotional currency that seems to transcend logic and exudes “luxury.” • LuxuryTravelMagazine.com In addition to establishing a strong 32% • RobbReportCollection.com increase in sales of homes valued luxury sub-brand, brokers considering between $2 - $5 million during this market need to evaluate the • Paradizo.com Q1 2010, according to the WSJ. tools, products and services that are –––––––––––––––––––– • Affluence.org often considered unique to the luxury home market and adopt those that are The table below lists several appropriate for their market. examples of the largest websites in 4.6% the luxury home market. increase in sales for homes valued 1. Access to a global network. between $700,000 - $1 million, 6. High quality marketing materials according to NAR in November. 2. Quality print collateral such as the luxury magazine solely that professionally reflects identified with a brand like the and a marketing plan for an audience the company’s image in the following: often outside the local market. Luxury marketplace. buyers and sellers are usually more • Who's Who in Luxury Real 3. A lead generation website and discerning with a set of requirements Estate and Luxury Real Estate listing syndication specifically that vary from those viewing average Magazine; Luxury Real Estate focused on high-traffic luxury priced homes. Therefore, for the home websites. • Christie’s Great Estates; brokerage company considering Christies Great Estates moving into the high-end of the 4. An established advertising plan in market, education in dealing with the prime luxury home publications • Reside Magazine; Sotheby’s luxury home client is a critical and that are central to advertising in Real Estate essential requirement. this market. • Global Guide; Engel and 5. Affiliations and relationships with Völkers More than in other segment of brands that endorse the brand the real estate industry the luxury such as luxury vacation websites brand is closely associated with the and luxury social media outlets. image of the product for the luxury

LUXURY HOME WEBSITES - UNIQUE VISITORS PER MONTH

50,000 to 100,000 20,000 to 50,000 10,000 to 20,000 Southebysrealty.com Sothebyshomes.com LuxuryHomes.com

LuxuryRealEstate.com LuxuryPortfolio.com UniqueHomes.com

DuPontRegistry.com ChristiesRealEstates.com ColdwellBankerPreviews.com

Source: Compete, Inc.

Getting Into The Game According to Moore-Moore, agents business (don’t assume you know). focusing on this market niche can This will not only identify your Affluent homebuyers and sellers expect the following in 2011: brokerage competition, it will also often have a higher level of market give you a “hit list” of agents to • Negotiation on price as affluent knowledge and expertise and they target for recruiting. Be sure you consumers are looking for prices expect (require) that the professionals know what other firms’ luxury well below those of 2006 and they work with know even more. programs offer so you can build a 2007. These buyers and sellers are extremely competitive offering. detailed in setting their goals and their • More skepticism regarding pre- 3. Train your agents. Proper analysis of the market and have the construction offerings. training is critical for your agents necessary clarity of purpose, education • Increased interest in lower-key, less in order to acquire the necessary and skills, along with a healthy flashy properties with an emphasis competencies and to make sure skepticism. This directly translates to on artisanship, exclusivity and they have the right “luxury the requirement of establishing your quality. marketing toolbox.” Agents’ agents’ priorities at the outset: market success is dependent upon knowledge, expertise and the ability • More and better information understanding who the affluent to effectively communicate that to a about the market and the property. are, how to reach them, how very well informed clients. • Boomers want communities with they choose their agent and what available health care, low cost of they expect in a marketing plan, Agents that want to specialize in living and safety. etc. They also must understand the luxury home market need to how to market a luxury property obtain the background knowledge • Green is good; but maybe not if using lifestyle marketing and the and specialized skills required. the price is much higher. concept of “best prospects.” This can be accomplished through The following are three important a number of organizations and/ strategies for building a or websites. However, we find the strong position in the leader in the industry to be The Luxury homebuyers have been buying this luxury market: Institute for Luxury Home Marketing ´summer. After waiting in the wings, many (luxuryhomemarketing.com). This 1. Position your affluent buyers spent the summer shopping organization was developed by Laurie firm as the expert. for value and snapping up trophy properties. Moore-Moore and it offers both a live This is going to LAURIE MOORE-MOORE CEO, The Institute for Luxury Home Marketingµ two-day and an online class to earn entail doing all the the Certified Luxury Home Marketing necessary research Specialist (CLHMS) designation. to define exactly Moore-Moore feels that the number what’s happening in each price of “money millionaires” (those with According to The Institute the luxury band within the luxury market a million or more in investible assets) market is defined as the top 10% of and compiling that research on a has rebounded after the drastic decline a market’s residential sales (in sale quarterly basis in a luxury market of 2008 and that there are a growing price) over the last 12 months with report. Today’s affluent consumer number of wealthy individuals who a minimum of $500,000. Often this wants to understand the market are feeling better about the economy. market segment is referred to as the and will gravitate to the source of But the attitudes of affluent consumers “million dollar market.” It is a small valuable market information. have undergone changes in recent niche part of the market and estimated 2. Know your competition. Analyze times. Today “whispering your wealth” by The Institute to be approximately luxury listings and sales for the is more in vogue than “flaunting your 2% to 3% of the total market. past year and determine which wealth.” firms and agents really do the

OPTION 3: Property Management scale the Massachusetts Institute of relationships but to also develop a Technology (MIT; web.mit.edu) pegs referral basis for future sales. There is When one hears the term property that number at 27%. a natural synergy between brokerage management it often brings up the and property management that not image of taking on a large number of Investors are looking at markets in only involves investors, but also opens properties and dealing with multiple which prices have fallen dramatically doors into the lending community. tenants and tenant issues. There but where rents have not. Those may, however, More individual be opportunities homeowners are on a smaller Management is the number one reason why people are afraid to invest in also becoming scale in property ´real estate. After all, an investment is only as good as it is managed. candidates for m a n a g e m e n t NATIONAL ASSOCIATION OF REALTORSµ ® property management that can be services. Some cannot very profitable afford to stay in their for many Realtors®. Consider just investors entering the market at this home and need a financial lifeline two segments in the market today time seem to be different from the to keep it. Others need to move but where property management on a investors that jumped in during the don’t want to put their home on the smaller scale provides an opportunity; pre-housing bubble. Rather than market in the midst of declining investors and homeowners that need looking for the “quick flip” many prices or are simply aging and no management services but can’t afford (individuals, small pools or funds) longer want the headaches associated the cost of large property management appear to be in for the longer haul, with homeownership. There is also companies. which is reflected in the increased an opportunity with smaller lenders number of all-cash transactions. that do not have a large inventory Investors and Homeowners They are utilizing all-cash offers to of REOs and are not equipped to give them an edge where the market handle management issues. In all Lured into the market by REOs is becoming competitive and where cases, providing both leasing and and Short Sales, an increasing a quick close is often the dominant management services has become a number of investors are beginning to factor. A Move (move.com) survey very viable alternative. The other buy properties with cash from private revealed that almost half (46.5%) of positive in providing these services to capital sources or small investment potential real estate investors plan to individuals, small investment groups pools. There is also an increase from own the property for six years or more and lenders is the void that exists foreign investors that are interested in and 16% two to five years; only 10.6% at that level. Most major property benefiting from the weak dollar. between six and 24 months. management firms that dominate the industry do not serve that smaller According to the NAR, investors in The fear of property management, niche as it is often not economically October 2010 represented 19% of including those 3:00 AM emergency feasible for them to do so. the market and the share of all-cash calls, is near the top of the list of transactions for the same period was reasons why people hesitate to Adding property management to your 29%. The result is that many markets personally invest in income producing brokerage business on either a limited are seeing an upward push in bidding properties. Leasing, maintenance and or partial basis involves added risk and prices making it more difficult to all of the administrative issues are capital, but the opportunity to bolster make a short-term profit. According often viewed as barriers to owning revenue and build relationships for to ForeclosureRadar (forclosureradar. income producing property. As such, the future may well be worth it. In the com), the average discount at there is an opportunity in providing majority of brokerage offices today the auctions in California was 22%; down that service to not only improve leasing option is already in play on a from 28% in January. On a national your cash flow and build long term limited basis and the step to providing

©2010 RealSure, Inc. www.RETrends.com 113 Trend 2 Opportunities: Diversifying Your Business added property management to serve Summary the investor market may not be as big as it appears. As noted at the beginning of this Trend, if there ever was a time in the Making the Commitment real estate industry to embrace that magic word “diversify,” it is now. As Entering the property management the industry enters the next decade area should coincide with a there are multiple opportunities commitment to specialized education available for the real estate brokerage through programs such as Certified that is prepared to step up and make Property Manager (CPM), Accredited the commitment. Residential Manager (ARM) or Accredited Commercial Manager Real estate will forever, at its roots (ACoM) that are offered by the remain, a local product in a local Institute of Real Estate Management market and successful companies (IREM; irem.org). have always been built on knowing and understanding their market better Alternatively, there are courses than anyone else. They have invested offered by the National Association years in building relationships that are of Residential Property Managers the very keys to expanding into any of (NARPM; narpm.org) that provide the diverse opportunities discussed in training that leads to designations like this Trend. Residential Management Professional Overview (RMP) or Master Property In all cases knowledge of the Manger Overview (MPM). For brokers opportunities and the associated that only want to provide limited players in a specific market provides management and leasing services, a distinct advantage. The only taking these courses in the classroom thing standing in the path of taking or online will provide an excellent advantage of the opportunity is introduction and background. making the decision to step out, obtain the knowledge and skills necessary to Property management is a make the transition and leveraging diversification that can result in the years of experience that have establishing an additional source already been earned in the market. of revenue while at the same time building long term relationships There will always be those who look with your clients. As with distressed at the economy or the market and see properties and luxury homes, it’s walls that discourage making change, all about determining to make the and then there are those who look at change and then stepping up to the the landscape beyond the walls and plate. Opportunity is only a doorway see opportunity. — you still need to walk down the path.

PȣȐ ȵɄɤȇBandwidth's Ubiquity Swanepoel TRENDS Report 2011

Overview in the capability of Smartphones $148.3 billion in 2014; up from $68.3 and their adoption rates (for more billion in 2010. Today’s consumers expect their on Smartphones see Trend #6). In Internet experience, whether at a the U.S. Smartphones are gaining This virtualization of resources won't, desk or on the road, to meet the momentum as 29% of wireless however, occur overnight. The single needs of the moment in real time, in subscribers were using them at the biggest hurdle to overcome is the any location. Managing partner of close of 2010 compared with 21% in difficulty in delivering a standardized M/C Venture Partners, James Wade, 2009 and 15% in 2008. environment to all members. This says that consumers are sharing and initiative is still at a very early stage of demanding more rich media than ever In a recent Gartner study it was development with Forrester Research before and they are demanding it in estimated that worldwide wireless (forrester.com) estimating that new ways, all of which increases the email users would reach 1 billion by only 5% of companies are currently stress on their data connections. year-end 2014; a 1,250% increase prepared for cloud deployment. over five years. By the end of 2011 A BBC (bbc.com) study of over they expect more than 85% of the A major driver of cloud computing is 27,000 people in 26 countries handsets shipped globally will include the freedom in mobility, the ability revealed that access to the Internet a browser, more than 75% in mature to use Software as a Service (SaaS) is deemed a “basic human right.” In a markets will include a GPS and touch like cloud-based email services Gmail screens will become the and Yahoo! Mail anywhere without dominant user interface having specific hardware with you. Life might be better in the cloud, but it takes a included in more than In 2009 only 3% of email accounts lot to get it that way. 60% of all mobile were in the cloud. By the end of 2012 ´ MARISA PEACOCK devices. that number is expected to explode to CMSWire Analyst µ 10%. Gartner believes that as cloud There is also an email offerings are adopted it will pull similar vein, France’s High Court has increasing departure from traditional wireless email implementations into also ruled that access to the Internet offices with a move into cloud the cloud. Companies like Research is a “fundamental human right” and computing. This groundswell places In Motion (rim.com) and other Finland has even declared that by 2015 an increased need for more and more wireless email vendors are forming it would make a 100Mb broadband bandwidth. Internet connection a “legal right.” It would certainly appear the Internet Cloud Computing BY THE NUMBERS has a bandwidth “bandwagon” and –––––––––––––––––––– as broadband consumption increases In cloud computing, the word there will be a natural desensitization “cloud” is a metaphor for “the of the differences between work and Internet,” so the phrase describes 1 home. According to Gartner (gartner. computing services (servers, storage, billion com) this means that more than 40% applications, etc.) that are delivered the number of estimated worldwide of an organization's work in 2015 to an organization's computers email users by year-end 2014. will be “non-routine,” up from 25% and devices through the Internet. –––––––––––––––––––– percent in 2010. Customers pay for services on an as- needed, pay-per-use business model in According to a study by Nielsen which the cloud provider maintains 85% (nielsen.com) the rise in consumer the infrastructure, not the individual of mobile handsets shipped globally expectations over the past three user. Gartner projects that worldwide in 2011 will include a web browser. years is tied closely to the increase “cloud service” revenue will reach

partnerships with cloud providers to 1996 Do not redistribute.” Now, a BY THE NUMBERS address their customers' cloud needs. decade and a half later, those same pages have at their core a social aspect The power of Social Media is mind- Cloud computing and SaaS is listed as “Copyright 2011 Click here boggling. Ever Imagine what happens changing the IT equation; moving the to share with friends.” As a result we in one day in Social Media? computing world away from the on- find that sharing and storing all the IN A 24 HOUR CYCLE: premises requirements of servers, PCs information online, as opposed to –––––––––––––––––––– and software licensing to anywhere a walled garden policy of guarding and any product at lower costs. Cloud information, has become the golden computing will free up bulging IT standard for information access 34,600 budgets allowing a whole new array online. This shift speaks volumes to hours of video uploaded to YouTube. of developments and possibilities to not only the amount of data created –––––––––––––––––––– become available. SaaS has low start- globally, but also to the way our lives up costs, low cost for sporadic use, are changed. ease of management, scalability and 1. It is estimated that 10 blog posts 83.3 the ability for the rapid assimilation million photos uploaded to Facebook. are created every second; in of innovation. –––––––––––––––––––– the time you take to read this sentence more than 50 will have Think of the impact of cloud been created. 298,000 computing on a typical real estate accounts opened on Twitter. office as it opens up ways to stay on top 2. If you or your company releases –––––––––––––––––––– of the latest technological advances data once a month — a new in the growing demand for data and webpage or blog post — realize bandwidth without all 833,000 the infrastructure cost. accounts created on Facebook. One example is Cloud Cloud computing is really a no-brainer for –––––––––––––––––––– CMA, which was ány start-up because it allows you to test your launched in January business plan very quickly for little money. 2010 as an online or BRAD JEFFERSON 2 Smartphone report CEO, Animoto Productionsµ billion searches on Google. generator. It allows –––––––––––––––––––– agents access to several that by the time of your next report sets including a CMA, buyer release some 27 million posts will tour and single property reports. The have been made. Reducing that power of the cloud allows the system 16.4 time to one post per week will billion to pull in data from third-parties to only set you some 6 million posts texts sent worldwide. blend data from local MLS systems –––––––––––––––––––– behind, which means that you and websites like Zillow, Google, etc. are probably not operating at the in order to provide a full spectrum of current speed of the Internet and available real estate data. 247 that you are “losing voice.” billion emails sent globally. Increasing the Pace 3. Homebuyers and sellers looking for information regarding their real As economist Hal Varian noted, estate transaction are operating Source: PersonalizeMedia in the early days of the Internet, every on an overload of information webpage had in its footer, “Copyright from sources both credited and

DID YOU KNOW clutter is becoming more difﬁcult as the more than 10 billion videos INTERNET TIME bandwidth becomes ubiquitous: streamed per month in the U.S. will grow. Online video viewers • Servers: Data consumption The way consumers spend time are expected to increase to 160 continues to rise. In 2010 the online using a mobile phone is vastly million users in 2011 according number of physical servers in different from how they spend time to eMarketer (emarketer.com), online using a computer. the world was estimated at 50 up from 147.5 million in 2010. million. Google alone is running Within four years, the number of According to Nielsen, while there has more than one million servers to been a 28% increase in the prevalence viewers is set to increase by more process over one billion search of social networking behavior among than 20% to include over 193 queries and 24 petabytes – that’s mobile web users, email activity still million. continues to lead with an increase of more than 1.57 million 16 GB 41.6% of mobile Internet time. iPads – of user data daily. Mobile Broadband Consumption • Home Connections: According unaccredited; remember 10 posts to PEW Internet Research, 66% The 2010 SWANEPOEL SOCIAL MEDIA are created every second. of American adults have a high- Report discussed the Connectivity speed broadband connection Revolution that has taken place over Beginning the hunt for information at home. The remaining 34% the past two decades, focusing on the is overwhelming. According to PEW included those individuals development of personal websites, Internet Research (pewinternet. who connect using a dial- the World Wide Web and Search org): “The Internet and mobile up connection (5%), do not Engines. In recent years, the focus technologies are the center of how connect from home (26%) or are shifted as users began utilizing social people’s relationship to news is unable to determine their type of networking. Now, the focus has shifted changing.” Information ﬁltering is connection (3%). again, this time to mobile media (for becoming portable, personalized and more details on mobile media read • Video Viewership: As mobile participatory: the about the Mobile Market in devices become more capable Book I). People increasingly want to • Portable: 33% of cell phone and network-spending increases, owners now access news/ information on their cell phones. • Personalized: 28% of Internet users customize their home page to topics that interest them including news sources. • Participatory: 37% of Internet users contribute to the creation of information/news, comment on it or share it with others on sites like Facebook or Twitter. But despite all this activity PEW research indicates that 70% of respondents still feel that the amount of information available online is overwhelming. That leaves a growing challenge — standing out above the Source: Nielsen 2010

©2010 RealSure, Inc. www.RETrends.com 101 Trend 3 The Cloud: Bandwidth's Ubiquity use mobile devices for collaboration; wireless subscribers consumed more world into a world of “newness;” to share content, information and than 230 MB of data per month in evolving into anywhere, anytime experiences with their communities. the first half of 2010; a 50% increase media moguls. With the popularity of “Social paradigms are Smartphones and mobile converging with email, data plans for laptops and Within the next decade, people will use their computers instant messaging, Voice tablet computing devices completely differently than how they do today. All of their over Internet Protocol ´ like the iPad, mobile files, correspondence, contacts, pictures, and videos will (VoIP) and presence, data traffic continues be stored or backed-up in the network cloud and they creating new collaboration to explode. Coda will access them from wherever they happen to be on styles,” said Monica Basso, Research Consultancy whatever device they happen to hold. Research Vice President at (codaresearch.co.uk) SAM SEBASTIAN Gartner. Director, Local &µ B2B Markets, Google, Inc. anticipates that data traffic from mobile handsets in Cisco (cisco.com) estimates that in consumption in just six months. the U.S. will surge to 327 petabytes broadband monthly usage in the U.S. That's like watching one-three minute (that’s 327 million gigabytes, or stated (19.2 Gigabits per user) is second only YouTube (youtube.com) video every otherwise, as a song that would last to South Korea (40.7 Gigabits per day for a month. nearly 10,500 years) per month by user). This is largely due to the fact 2015; a compound growth rate of that South Korea was the first nation With Wi-Fi and an abundance of 117% over five years. ABI Research to widely deploy a fiber optic network smart mobile devices, consumers (abiresearch.com) estimates by that and 3G mobile. Of this total, U.S. have transformed the semantic web date, Smartphones and connected

By the Numbers

InternationalIP Traffic per Broadband Internet User (Avg. Gigabits per user Comparison per month)

40.7

19.3 19.2 19.2

16.0

12.1 11.5 11.9 10.8

7.9 8.0 8.0 5.6

2.9 2.6 2.4 2.6 2.4 1.9 1.7 0.8

Source: Cisco VNI; ITU

102 www.RETrends.com ©2010 RealSure, Inc. Swanepoel TRENDS Report 2011 computing devices will contribute to • Kindle (2007) with an estimated 3 DID YOU KNOW an incredible 87% of all U.S. mobile million sold. IMPORTANCE OF network data traffic. Tablet devices • Nook (2009) with more than 1 and Smartphones will increasingly BROADBAND million sold. seek to accomplish more and more We often do not realize the true tasks and fuel the rise in mobile data • iPad (2010) with more than 10 impact new technology can have on consumption. million sold. the economy. • Kobo (2010) with more than 2 Today more than three out of four For example, increasing our broadband million sold. Smartphone users are unsatisfied with deployment can have a significant impact on not only productivity but cellular coverage and are interested • Libre (2010) with under 1 million also economic growth. in using Wi-Fi to improve it. sold. Furthermore, more than 90% of those In a new study by LECG (lecg.com) able to connect to Wi-Fi use it weekly; To understand the success of these and commissioned by Nokia, research nearly 50% connect daily. Consider eReaders, and what influenced found that given the right skills and infrastructure, broadband would the amount of data that is uploaded, the production delay, consider the increase productivity by up to 15%. stored and downloaded in the real following: estate industry every minute. The Furthermore, this increase in 1. The Printed Book: Many experts industry is becoming more “mobile productivity will increase the GNP in the field – from publishers intensive” every day as consumers without increasing resources used in to booksellers to writers – extol production. continue to use these tools to take the book’s virtue as an excellent more control over the real estate platform. Printed books are Beyond that, with an increase of transaction, and everyone in the 10 more broadband lines per 100 portable, cheap, and easy to industry including title companies, individuals, the U.S. could increase reproduce, ship and sell. Best of lenders, brokers and service providers its GDP by over $100 billion. all, books don't require electricity. scramble to remain competitive. To compete, eReaders have to carrying several books certainly recreate the experience of reading This need for greater access is growing qualifies. With an eBook you have the book without all of the obvious as we move closer to the time when hundreds of digital books for the problems such as size and weight. almost everything in our lives will weight of just one printed book. be lived online. Entire industries are 2. Storage: Until recently, eReaders 2. Price: eBooks don't require grappling with adapting and remaining were limited by the capacity to printing and as such, most not only competitive, but relevant. store information because storage are cheaper than their print was expensive. In 1980, the cost counterparts. eBooks Go Mobile per megabyte averaged $200, falling to to $10 (1999), to $0.02 3. Delivery: With eBooks there The digital revolution has taken (2000) and then to $0.0008 is no shipping cost, no delay in hold of one of the most traditional (2010). In comparison, the hard delivery and the vendors are industries; publishing. During drive space on a 64 GB eBook already available online. All you the last two years, eReaders have today costs roughly $5.25, whereas have to do is place the order and gone mainstream with millions of a decade ago it would have cost download. Americans now able to read electronic $1,280. books. The current batch of e-reading Amazon (amazon.com) reported in devices include: Reasons for success: 2010 that the third quarter growth rate of eBooks compared to hard • Sony Reader (2006) with more 1. Convenience: Travelers abhor cover books was up with 180 eBooks than 1 million sold. carrying unnecessary items and

©2010 RealSure, Inc. www.RETrends.com 103 Trend 3 The Cloud: Bandwidth's Ubiquity selling per 100 hard covers. It is everything the web has to offer Lives are going to become “device- predicted that by 2020 fewer than including images, video, tweets, status agnostic” as access to data, applications 25% of all books sold will be print updates, Google maps results, blogs, and various forms of content such as versions. This shift in digital-only and press releases. files, contacts, pictures and videos will versions is not just affecting all be location insensitive. hard cover books, magazine The cloud will change the way and newspaper publishers are Five years ago, we thought of the Web as a we undertake our personal also turning to digital eReader ńew medium, not a new economy. lives as countries follow in the versions. Although the shift CLEMENT MOK steps of France and Finland in President emeritus of AIGA, andµ CEO of CMCD of news going to eReaders is making access to the Internet still in its infancy, it is enough a “basic human right.” for The New York Times to consider It is still about communication. “printing” the next edition of the Broadband and the cloud are just Books, magazines and newspapers are Oxford English Dictionary as a thing increasing the array of options beginning the migration to eReaders of the past; opting for a digital version of how Realtors® can and should and digital only sources of information, only. This affirms the projection in the communicate with their clients. paving the way for a fundamental previous Swanepoel TRENDS Report of Traditionally, real estate agents have shift in information access. With the shift away from printed the media been communicating with their device storage increasing rapidly and toward the mobile digital medium. customers largely in the way they the prices dropping, mobile devices prefer rather than how the consumer will become more robust, allowing Application in Real Estate prefers. This has got to change and — for an increase in data consumption. with Social Media, mobile media and Megabytes and Gigabytes of data will For the last decade search now bandwidth, all reaching critical give way to Terabytes and Petabytes engines, and specifically Google, mass — change needs to occur soon. as the availability of accessing have come to dominate web traffic in information “on-the-go” consumes general, and real estate in particular. Kinney says that the conversion users. Usually it has been for the categorizing of leads to appointments has and searching of web sites, but with risen dramatically because of the The Internet has evolved from a bandwidth becoming ubiquitous willingness to communicate in other stark message board to an interactive, various other sources of information than traditional ways. For example, collaborative medium over the past 10 are finding their way to the top of they separated their leads and sent one years, and so too will the frameworks search results pages, including videos group just emails and the other group of cloud computing, broadband, and photos. Facebook and Linkedin messages - the digital readers and Internet capable latter had 67% more responses. mobile devices.

Cloud computing will be as Summary ´inﬂuential as e-business. The Internet is constantly GARTNER µ reinventing itself and evolving as a result of the unlimited amount According to Ben Kinney, a Real of information that can be shared Estate Team Owner with Keller quickly (broadband), anywhere Williams Realty, he is already seeing (mobile devices) and inexpensively changes in real estate search results (the cloud). taking place. He believes that future real estate professionals will be those who understand how to optimize

ɤɕȨȽȐɕɕ4ɄȇȐȵɕInnovative, Different or the Same? Swanepoel TRENDS Report 2011

Overview market is heading and has packaged • Your Auction Division a concept to take advantage of a So it is with great anticipation that During the last two decades the perceived opportunity. Some are we will track and report back on the Real Estate Confronts series and more outside the box while others are a new companies profiled in this section in recently the Swanepoel TRENDS Report twist on a current model. future reports… good luck to all. have explored the ongoing evolution of new models and approaches to serve It still has to be seen whether or not consumers in the buying and selling of any of these companies will turn out homes. Innovative companies created to be successful, really change the a generation ago predominately paradigm and/or ultimately become focused on compensation and their a market leader. It is, however, relationships with agents. Good encouraging to see new innovations examples are companies such as: forge ahead the same way previous innovators had such as: Dick Laughlin • Keller Williams Realty (introduced franchising with • RE/MAX International Century21), Dave Liniger (reshaped agent compensation structures with • EXIT Realty RE/MAX) and Gary Keller (redefined Newer innovative companies created cooperation between brokers and during the previous “dotcom” agents with Keller Williams Realty). boom (1997 – 2000) focused more on technology and enhancing These four primary drivers — relationships with consumers. compensation, agent relationships, Examples include: technology and consumers — still remain the key forces behind the • Redfin creation of new business models. As • ZipRealty we have said before, it is not that important whether your business • Soma Living model is different or unique or In this year’s edition we decided to whether you are first or not. The single review innovative approaches that most influential factor is success in the were launched during the last decade implementation. (2000 – 2010). We wanted to see who in the industry has come along Business Models we review this year with ideas that advance technology include: even further, have found better • @properties ways of communicating or building relationships and are expanding • Allison James on the changing characteristics of • Connect Realty tomorrow’s homebuyers and sellers. • eXp Realty After looking at a variety of • Nextage companies we selected a cross-section of innovations that seek to address • Pedal to Properties changing the paradigm. Each one • Professional One has explored where they believe the

Founded: 2000

Thaddeus Wong, Founders: Michael Golden

Number of Ofﬁces: 7

Number of Agents: Approx. 1,000

Locations/States: Chicago, Illinois

Website: www.atproperties.com

Approach Unique Features Why Included

@Properties is not a “new” model, The @Properties “listing book” @Properties (listed on the Inc. per say, but rather a variation that is a comprehensive and expensive 5000 in 2006-2010) is included for operates contrary to a general trend. presentation in a “box,” which their approach toward creating an Co-founder Thad Wong describes contains approximately 100 pages infrastructure to eliminate the time- it as “not changing the mold but spelling out in detail what the consuming information gathering changing the tentacles.” Their listing customer receives. All the and packaging of extensive property approach was to put a structure in information is “hyper local” in order details. place to address the average agent's to provide the agent a competitive complaint that time with the client advantage over the major brands The centerpiece [of @properties], is limited and is largely taken up whose material is generally across is the method of relating the 'time educating them about the listing a broader market. ćonsuming' proceeses to the client... process. this allows agents to accelerate The system also utilizes the listing the dicussion process by building a The centerpiece, according to Wong, book as a tool for acquiring expired relationship. is their method of relating the “time listings. Each day their staff pulls consuming” listing process to the all expired listings and breaks THADDEUS WONG µ Co-Founder, @properties client. Their model addresses the them down by neighborhood, amount of time an agent expends in separating rentals and REOs. That preparing for and delivering the listing information is married with the tax With a focused micro-solution they presentation by providing the client a roll and mortgage data, which is all have significantly multiplied their complete package of information on then sent to the agent. agents’ face-to-face time with the their individual property and market client and improved conversion rates. conditions in advance of the pre- Four hours later a check is made to @Properties is an excellent example listing appointment, thereby reducing see if the property has been re-listed of a company that has examined their the time it takes the agent to acquire and, if not, the listing book is sent to market and “re-engineered” itself for the listing. the homeowner with a letter from the the future by using technology to solve agent. Wong says that this approach existing marketing and information In the area of “short sales” the has greatly improved their agents’ challenges in a smarter and more company has created an entity to conversion rates by getting a lot of efficient way. maintain the communication link “work” off their shoulders allowing with the bank, the consumer and the them to accelerate the discussion agent. This takes the burden off of the process and focus on building a agent having to fully deal with all the relationship with the client. issues and the process.

Founded: 2008

Founder: James A. Crumbaugh III

Number of Ofﬁces: One corporate, no regional.

Number of Agents: 350

AZ, CA, D.C., FL, IL, IA, ML, Locations/States: MA, NH, NV, NC, SC, TX, VA, WA Website: www.allisonjamesinc.com

Approach made and the agent is transferred disbursement order is automatically to Plan A. Should a commission executed for all concerned parties, This wholly - owned “non- be earned that is less than $1,000 by the system. In order to meet the franchise” approach establishes brokers a 10% transaction fee will be required scalability of this model the in each state that are compensated charged. company had to align with a phone for managing the agents in those company to provide for the huge All plans include an optional three states. They receive a monthly salary bandwidth needs required. Through month free trial Point2 website. and a 3% override on their agents’ regular webinars the agents receive The motivation behind this 100% production. This effectively allows general training as well as training on virtual model was the elimination of the broker to build a business as if it compliance related issues provided by the costly overhead associated with was independently owned as it can be legal counsel. brokers maintaining a brick and retained or sold back to the company mortar operation. To accommodate after seven years. Upon recruiting Why Included the interaction of their agents the 30 agents Allison James pays for the company has an agreement with broker’s E&O and local, state and Significant debate and opinion Regus Executive Suites to provide national Realtor® Associations fees. has been had in various online facilities where and when needed. blogs regarding the need or value Agents have three option plans to of office space. Time will tell where Unique Features choose from and are incentivized by the magical balance of having “too receiving 20% of the gross for any much” or “too little” office space The three important goals for agents they refer into the company: will be found. Meanwhile, Allison Allison James are: 1) create an James is an excellent example of a • Plan A - One-time annual fee operating model that is very scalable; virtual brokerage company with no of $2,950; $395 annual E&O 2) overcome costly overhead; and 3) office space. Over the past two years (waived the first year); 100% create a model that allows brokers the company has come a long way in commission. and agents to effectively build a establishing the back office platform, business for themselves. The largest • Plan B - Monthly fee of $295; infrastructure and online support to challenge according to founder, James $395 annual E&O (waived the serve a large number of agents in a Crumbaugh was the creation of a total first year); 100% commission. virtual environment. If the virtual back office system that any agent could solution becomes an effective solution • Plan C - Monthly fee of $35; use from their home office. The office for real estate brokerages then Allison transaction fee of $260; E&O platform allows each agent to upload James is one of the companies to fee of $35. If there is a single every document involved in the watch. transaction where the commission transaction in order for the broker to exceeds $20,000 a single payment review and sign-off where required. At of $2,950 plus yearly E&O is the conclusion of the transaction the

Founded: 2008

Founder: David Boatner

Number of Ofﬁces: One in each state or region

Number of Agents: Approx. 1,300

AZ, CA, FL, IA, IL, MN, NM, Locations/States: NV, NC, OR, PA, SC, TX, UT, WA, WS

Website: www.connectrealty.com

Approach Connect Realty provides oversight Agents have no start-up costs and with a broker of record in each pay a small monthly fee for the The company focuses on the state that is compensated by fee and Agent Services Package and Agent agents as the company’s customers override on agent production. Marketing Program that includes: (no different to many existing agent website, email, unlimited Boatner says the model uses financial traditional models) with an added virtual tours, Realtor.com, Homes. incentives to overcome the recruiting technology platform to assist them in com, online training, IDX integration and retention issues and the virtual better serving homebuyers and sellers. and an iPhone App for searching any platform to overcome the absence of According to CEO David Boatner, listing on over 100 MLS systems. bricks and mortar that agents don’t the company’s business model has four want. Continuity and compliance are dimensions: Boatner feels that by using the addressed by the mandatory company latest web-based marketing and 1. Software as a Service (SaaS) transaction management system at no communication tools they are able to technology; cost to the agents. sufficiently support the virtual level. 2. Virtual ; In so doing they are saving expensive Unique Features operational costs that the company in 3. Compensation; and turn is able to pass along to the agents In addition to a very robust 4. Recruiting. by offering attractive commission technology platform and back office, splits and revenue sharing. The company began as a 100% virtual the company offers an attractive 70/30 model, but was later modified to split until five transactions, 80/20 Why Included until $25,000 income to the company and then Connect Realty (received the 95%. By using the latest web-based Inman Top 10 Innovator Award marketing and communication tools, for 2010) and was included for ´[we] are able to sufficiently support In addition, it offers a demonstrating that a virtual company the virtual level. revenue sharing plan that can be scalable. goes down three levels µ DAVUD BOATNER based on a 5% override. While not revolutionary or new in Founder, Connect Realty The plan is totally its service offering, this model does visible in the transaction provide an interesting alternative for provide for those agents that desired management system, which auto more traditional-type brokerages that a physical location to meet by adding populates all revenue levels for each are struggling to remain profitable due a (non-mandatory) Connect Café in agent. to a large overhead. locations where there are 80 or more agents.

Founded: 2009

Founder(s): Glenn Sanford

Number of Ofﬁces: One. Agents are virtual.

Number of Agents: Approx. 200

AZ, AK, CA, FL, IN, MA, NV, Locations/States: NH, NJ, NC, OR, SC, TX, WA

Website: www.exprealty.com

Approach to ask questions, provide input and The company also maintains for the interact on a real-time basis with benefit of its agents an integrated The Company was founded on the the presenters and other attendees. web solution/SEO team that manages belief that the Internet, along with Overhead and operating costs are highly ranked real estate websites in consumer behavior, would eventually extremely low and according to the major metropolitan areas. build to a shift in the way that agents, company are currently only $26,000 companies and real estate firms per month for operations in 14 states. Why Included interact. Unique Features eXp was included for creating According to CEO Glenn Sanford, one of the most interesting virtual “Because of the collaborative/ eXp has developed eXponential collaborative environments in the immersive nature of the web we Share, a residual income program real estate industry. When you enter believe that the real estate company to help its agents build a long-term their world it almost feels as if you should focus its growth on its most business revenue stream. The plan are on the bridge of the Starship important assets, its clients.” automatically enrolls every licensed Enterprise, ready to leave for the next agent with the company and provides mission. Their approach is to maximize that revenue sharing potential to the effort through what they refer to as 7th level based on the number of the “Web 3.0 Real Estate Revolution;” agents recruited. Because of the collaborative/ viral, transparent, collaborative immersive nature of the web we and supportive with an emphasis on For the agent a $50 per month ´believe that the real estate company relationship building and personal technology fee provides a full should focus its growth on its most service. He acknowledges that the feature CRM platform, personal important assets, its clients. challenge is in getting agents “hooked inbound fax line, Google Apps, GLEN SANFORD up” and moving to incorporate the online file management, web Founder,µ eXp Realty client as an active part of their virtual conferencing, blog hosting and world. online demand coaching in areas such as Social Media. Many previous attempts by companies Through its technology platform, eXp to go virtual have stumbled, but if is striving to increase their agents’ Other costs include a $25 transaction Sanford is successful in implementing productivity by providing access to fee and $420 per year tuition for eXp what eXp’s platform is claimed to be live webinars and programs that can University (taken out of first sale). capable of, this may be a model that be attended virtually. As the agent’s This program sits under a standard will be copied by many others in the own “avatar” enters online training 80/20 split with a cap of $16,000 per future. rooms they have the full capability annum.

Founded: 2009

Founders: Frank Cluck; Dave Wild

Number of Ofﬁces: 56 franchises

Number of Agents: Approx. 1,800

AZ, CA, CO, FL, GA, IL, LA, Locations/States: MA, NC, NE, NJ, NV, NY, OH,PA, SC, TX

Website: www.nextagerealty.com

Approach distribution of the sales commission. BY THE NUMBERS Nextage Realty is a franchise –––––––––––––––––––– Why Included company that believes the future of the industry is a culture focused Nextage was included as they are on the agents building up their own 14.5% one of only a few “new” franchises business. According to Dave Wild, potential payout from in the country. They also have an Nextage President, the company has the net commission. interesting compensation structure –––––––––––––––––––– built their model around moving from that is based on revenue share as the “I” world to the “we” world; their compared to others that are usually “team concept.” to profit share or commission share. 7.5 0.25% Time will affirm whether there is payout range from The company utilizes technology in level one to level six. sufficient revenue to make this new supporting its franchises but Wild model operate successfully. does not see their real estate offices becoming entirely virtual. Unique Features They believe that the office is a place NEWS FLASH for the agents to meet with their The focal point of the franchise –––––––––––––––––––– fellow agents and consumers or for operation is a multi-level profit As we go to print we received training but not for work. sharing plan that allows an agent to an update that Nextage Realty participate in revenue down six levels. International is absorbing the Casa The goal of the company’s revenue Latino Franchise into their fold. sharing plan is to provide agents more The company, out of its share, pays out We first mentioned Casa Latino in stability and longevity, resulting in a potential total of 14.5% of the net the 2008 edition of the Swanepoel loyalty to the company. Wild believes commission; from 7.5% at level one to TRENDS Report in the chapter that a well-established and “deep” 0.25% at level six. This bonus system “Shattered Glass” in which we revenue plan is the answer to high is applied to any agents brought into detailed the growing power of the agent turnover caused by the search the company, anywhere in the system. youth, women and the Hispanic for higher splits and lower desk fees. market. Nextage has developed a proprietary Robb Heering, the founder and CEO The answer is a business built on more software program to track all of Casa Latino, is to become the new than just what the agent makes and bonuses within the organization and VP of diverse markets development that, by definition, means recruiting issue payments on a weekly basis. for Nextage. This is a surprising and becomes a team effort. The franchisee is responsible for exciting move.

Founded: 2007

Founder: Matt Kolb

Number of Ofﬁces: 3

Number of Agents: Under 50

Locations/States: CA, CO, MA

Website: www.pedaltoproperties.com

Approach the fact that so often customers are communication. When customers rushed from one home to another come through the door they easily Pedal to Properties founder Matt when in fact a huge part of the enter into a conversation about Kolb started this model because of he decision is based upon local details our bikes and how we use them. It’s loves bikes. However, what was a fun that can’t be captured from a car. something to talk about other than way of doing business has developed real estate and from that point on the into a unique marketing tool: Viewing In some instances where the home conversation just continues to open the community on a bicycle. may be a distance away from the up.” central ofﬁce, the agents use bike racks It doesn't only foster a healthy and drive to the location. Once they Why Included outdoor lifestyle, it also appeals to arrive at the community, everyone folks that are drawn to “greening” the switches to “pedal power.” This very unique approach environment and can think “outside warranted inclusion even if this the car.” Unique Features concept is not for everyone.

The company’s mission as a full service To ensure that there are always Clearly it won’t work in every type real estate brokerage is to provide its plenty of bikes the Company of location but other highly focused first-of-a-kind service in a way that is manufactures 200 of their own or niche companies have proven that responsible to the community and the “cruiser” model every year, employs the market can be large enough if environment. a fulltime bike mechanic and has you know how to tap into it. Kolb is a stable of 50 bikes for the projecting 20 offices by 2011 and 200 Boulder office and 40 more for by 2015. The number one thing our concept use by local hotels. ´does is break down the barriers to According to sources, the next state meaningful communication. The bikes placed in local hotels to start using bicycles is Hawaii, MATT KOLB are supported by relocation specifically Maui. Perfect year-round Founder, Pedal to Properties µ packages and information on warm weather fits the concept. local bike trails and routes. To that end they believe that in Franchisees take 10 to 12 custom With a maturing Gen Y becoming order to find the “right” home you bikes as part of their operation and the largest percentage of the home need to truly see and experience the order more as needed. buying population this more “green” neighborhood. approach may just work. According to Kolb: “The number One of the problems that Kolb one thing our concept does is break addresses with Pedal to Properties is down the barriers to meaningful

Founded: 2003

Founder: Michael McClure

Number of Ofﬁces: 2

Number of Agents: Under 50.

Locations/States: CO, MI

Website: www.professionalone.com

Approach consulting and advisory role in order is going to be won or lost in that arena. to address the customers’ needs. This That commitment is a key part of the According to founder Michael means working on a per client basis company’s “Raise The Bar” initiative McClure, “It’s our goal to offer and being compensated, therefore, on to create a distinctive brand. exceptional professional services by an hourly basis instead of a percentage requiring all agents to either have based on the sales price. Why Included a college degree or five years as a fulltime agent with a clean record, According to McClure: “This is a Professional One was included for pass a character assessment and paradigm shift that the industry as its bold dedication to professionalism interviews with three Professional a whole is resisting. The majority of in a time when many in the industry One Realtors®. agents are not ready, willing and able are scaling back their training to do that.” departments. At the same time the company focuses very aggressively on utilizing Social Unique Features Media — especially Twitter and This is a paradigm shift that the Facebook — to build the brand, reach The company operates as a industry as a whole is resisting. The out to new customers and maintain traditional 80/20 franchise model but ´ majority of agents are not ready, ongoing relationships. is focused on a “small box” concept willing and able to do that. for its franchisees rather than the MICHAEL MCCLURE In developing the concept McClure more traditional large office model. Founder, Professionalµ One leaned on his years with Price A predetermined monthly overhead Waterhouse where a professional supported by a specific number of service experience was the foundation agents is geared to yield a six-figure Their drive toward Raising The of a “uniform service delivery.” He says income for the broker. Bar (also the name of his weekly that his personal research validates interview program Blog Talk Radio) that for the customer it’s not about Furthermore, a strong feature is the is very admirable. On the one hand, the company brand but the individual integration of Social Media into their McClure acknowledges it will be relationship. business model by making it a core difficult to carve out a niche and will focus of the company. This is more take some time to develop. On the It is his belief that the industry has not than just talk as McClure has already other hand, his impressive efforts in progressed beyond minimal service at a been recognized by Inman News as one utilizing Social Media may just prove level that falls far short of the standards of Real Estate’s 50 Most Influential to be the vehicle needed. found in many other professions. He Online. He has made Social Media believes that the industry paradigm is a foundational piece of Professional going to require agents to move into a One as he believes that “Business 3.0”

Founded: 2008

Founder: Larry Makowski

Number of Ofﬁces: 8

Number of Agents: Approx. 100

D.C., DE, GA, HI, IL, PA, TX, Locations/States: VA

Website: www.expressauctioneers.com

Approach for the office REAA Team Leader The brokerage company is paid 6.75% who coordinates all auctions via the of the 10% premium paid by the buyer; According to a 2008 NAR study company’s Express Auction Seller i.e., $20,750 on a $300,000 sale. For “the future of the real estate auction Information and Electronic Reporting the seller the agreement provides business may be heading toward one System (EASIER). a “critical checkpoint” system that in every three properties being sold or tracks over 40 items pertaining to influenced using an auction listing.” Unique Features the auction and automatically keeps parties current via email. The seller What founder Makowski and his team Your Auction Division has has final approval of the sale price. set out to do is provide brokers with an been designed as a supplement to a option for selling their client’s property brokerage company’s normal sales As 2010 came to a close, Express in addition to the normal listing/sale program. The seller can enter into Auction Division was on track to process. To effectively accomplish this an agreement with the broker and open and manage over 200 divisions it was determined early on that the the auction company (replacing the all across the country in 2011 with an program would need to be integrated standard listing), which provides for additional 100 to 150 REEAs that are into existing brokerage operations. a 30-day auction; online, online/live not associated with a real estate office. In taking that approach, the entire hybrid or live. program was packaged for delivery as According to Buettner, the Company’s a complete unit including all material, expectation for 2011 is to complete training, marketing and support at no BY THE NUMBERS 500 sales per month via online and additional cost to the broker. –––––––––––––––––––– live Express Auctions.

According to the company’s National Why Included Marketing Director, Dennis Buettner, 6.75% the percentage the brokerage is paid of in order for the program to operate Express Auction Division was the 10% premium paid by the buyer. effectively it requires a detailed –––––––––––––––––––– included as it is one of the only training and support program for companies that provide an “auction agents within the ofﬁce, which led to division” to brokerage companies the development of the Real Estate 500 Auction Agent (REEA) course. The is the expectted sales per Furthermore, the company is rolling course is delivered virtually via the month via online and out a national designation for real company’s new multi-media HD Express Auctions in 2011. estate agents that want to add television studio. auctioneering to their skill set.

In addition, training is provided

Summary the emerging generation of consumers (Gen Y), the rapid advancement of As the economy regains momentum technology and wireless broadband the country will find itself on a and the dramatic expansion of social different playing field. The Internet, media and social networking. Social Media and Smartphones have altered the way we will serve. Developing a business model that will not only address issues like these, but A generation of professionals is utilize them in providing a profitable rapidly approaching retirement and answer in today’s economy is a tall the youth have dissimilar and diverse challenge. ideas of how we should act. New financial oversight and regulations Any innovative company is to be are changing the way we “view” and commended and respected for taking “do.” Make no mistake, it will not be on the challenge and not sitting back business as usual. to wait and see where the industry, the economy and the world is heading. The American consumer is now and will be, for some time to come, America has always admired faced with more uncertainty about entrepreneurs, those who will step out the future of housing than in the pre- and take the bull by the horns, betting bubble years and you start to realize on his or her abilities to find the path why the real estate industry needs to to success. If the real estate industry is rethink the business paradigms it is the bellwether mark to signal that we going to use to meet these new market are moving out of recession, it will be challenges. companies like these out in front.

Out of every challenge comes solutions. In this section we touched on just a few companies that are attempting to develop some of those solutions. Their challenge is a complex one incorporating multiple elements that are themselves changing and evolving in the process.

Furthermore, existing players are not going to be standing still. They will also continue to evolve, often undermining innovation.

Some of the moving pieces that brokerage companies need to consider include: Economic uncertainty, the collaborative and immersive nature of the Internet, the needs/desires of

The AmericanɄȹȐɄɬȽȐɑɕȣȨɉ Dream Under Siege Swanepoel TRENDS Report 2011

Overview building household wealth.” This growing uncertainty was highlighted in a survey conducted for the • The NAHB: “Homeownership The economy continues to NAR in 2010 that revealed more than is by far the single largest creator struggle, unemployment remains half of the respondents believe the of wealth for Americans. And, high, homeowners are mired in a market has slowed, down from 67% over the long term, real estate has bogged down real estate market and in 2007. It also revealed that only consistently appreciated, even now homeownership and the mort- 77% thought that buying a home was through periodic adjustments gage interest deduction are coming a good financial decision; down from in response to economic condi- under attack. As always, there are dif- 87%. tions.” (Bob Jones, ferent sides and opinions: Chairman, National • Time Magazine: “Homeowner- Association of Home You can’t blame the crash for something that’s ship has let us down” … “The Builders) ´been in place for a long, long time. The biggest dark side of homeownership is driver of the deficit is entitlement programs like In light of this growing now all too apparent: foreclosures Social Security. controversy we find our- and walkaways, neighborhoods LAWRENCE YUN selves having to look for Chief Economist, NAR plagued by abandoned properties µ answers beyond our cur- and plummeting home values” rent circumstances: the … “For the better part of a cen- economy, unemployment, increased Government Intervention tury, politics, industry and culture mortgage qualifications, higher down- aligned to create a fetish of the payments, etc. What is behind this A great deal of the uncertainty idea of buying a house.” (The Case falling level of confidence? This Trend in the real estate market is the direct Against Homeownership; Time, explores several of the reasons and result of a plethora of government November 11, 2010) also what is threatening the future of programs that have been created in • The Government: “There is this homeownership. an attempt to control it. These pro- notion that being housed well is grams varied in their objectives from synonymous with being a hom- The government has been operating trying to jump start sales to aiding eowner. That narrative has got to on the economy in general and the participants in the process. A num- change.” (Raphael Bostic, Deputy real estate market in particular, much ber of these programs are discussed in Housing Secretary at HUD) like an inexperienced mechanic un- more detail in this year’s Economic Overview section. Consider HAFA • The NAR: “For the real estate in- der the hood of your car. He keeps try- (Home Affordable Foreclosure Al- dustry, any changes in incentives ing one thing after another in hopes ternatives Program) as one example. around home ownership, which that something will work. Sometimes Typical of a government program it is have been around for generations, it does but more often than not it overly complex and is constantly be- would raise considerable concern doesn’t. Growing lack of confidence ing altered and changed. According because of the core role of home- in the government's ability to fix the to a report by the NAR, Wells Fargo ownership in fostering commu- real estate market has resulted in frus- (wellsfargo.com) estimates that 90% nities and social stability, and in tration and an uncertain market. of HAFA applicants are unable to

HOW DO YOU SEE THE MARKET?

Sept June Sept Oct 2010 2009 2008 2007

Slowed Down 51% 58% 70% 67% Increased 13% 11% 9% 13% Stayed The Same 31% 26% 18% 17% Don’t Know/Refused 4% 4% 3% 3% 6RXUFH$PHULFDQ6WUDWHJLHVDQG0\HUV5HVHDUFK 6WUDWHJLF6HUYLFHVIRUWKH1$5

© 2010 RealSure, Inc. www.RETrends.com 75 Trend 5 Homeownership: The American Dream Under Siege complete a HAFA short sale because • The Federal Reserve’s (federalre- encourage buyers to get off the the property, the loan or the borrower serve.gov) purchase of $1.25 tril- sidelines. While “Foreclosure-gate” do not qualify. Fortunately, for the lion in mortgage-backed securi- and the “robo-signer” issue caused only market, most lenders now have their ties (MBS). a temporary halt in the foreclosure own short sale programs, which are • The tightening of the FHA’s (hud. process it will ultimately result in working better than in the past; for gov) lending requirements. the most part. significant cost to the lenders to correct. • Higher loan limits at Fannie Mae (fannie- More importantly, it slowed home Although most Americans believe that home mae.com) and Freddie sales in the short run and going for- prices have bottomed, they are adopting a much Mac (freddiemac.com) ward there is now uncertainty in the ´ market concerning the lender’s right more cautious approach toward buying as they • The $75 billion are less confident in the long-term outlook for Home Affordability and to foreclose if they do not possess both the original deed of trust and promis- housing. Stability Plan that still sory note. This is also impacting title DOUG DUNCAN continues to perform µ Chief Economist, Fannie Mae well below expecta- companies as they deal with the is- tions. sue of insuring the title on foreclosed properties; insurance policies the title The over-arching concern, however, companies may not be willing to issue Another area of concern is the Dodd- is that while the Dodd-Frank Act Frank Wall Street Reform and Con- without concurrent warranties from seems to try and police the entire fi- the lenders. sumer Protection Act (July 21, 2010) nancial system it unfortunately let off that holds the potential risk of “over- two major components; Fannie and In October Old Republic National regulation,” which will lead to in- Freddie. creased cost for mortgages and other Title Insurance (oldrepublictitle.com) financial products under the guise of reported that it would no longer write protecting consumers. Bills like this Playing With Foreclosures new policies for homes foreclosed create tremendous consumer uncer- upon by J.P. Morgan Chase and Ally tainty along with higher costs, espe- The failure of major lenders Financial’s GMAC Mortgage Unit cially when they are passed without such as the Bank of America (ally.com). Toward the end of 2010 definitive regulation. Other programs (bankofamerica.com), JPMorgan the American Land Title Association (alta.org) was working closely with of- muddying the water included: Chase (jpmorganchase.com) and ficials at FHA, Fannie Mae, Freddie others to properly follow their • The extension of the First-time Mac and major lenders like Bank of Home Buyer Tax Credit. own foreclosure guidelines did not America to secure the warranties nec-

IS BUYING A HOME A GOOD DECISION?

Oct Sept June Sept 2007 2008 2009 2010

Good Decision 87% 85% 83% 77% Strongly 80% 78% 75% 68% Not So Strongly 7% 7% 8% 10% Not A Good Decision 10% 11% 13% 16% Strongly 6% 7% 8% 11% Not So Strongly 4% 4% 5% 5% Don’t Know/Refused 3% 4% 3% 6%

6RXUFH$PHULFDQ6WUDWHJLHVDQG0\HUV5HVHDUFK 6WUDWHJLF6HUYLFHVIRUWKH1$5

76 www.RETrends.com ©2010 RealSure, Inc. Swanepoel TRENDS Report 2011 essary to overcome the problem. 1996) and that rising interest rates will ally bring significantly more buyers limit refinancing, there is yet another into the market? It’s clear the market is responding with element lumped into the equation. greater caution as potential buyers for The real estate market is still the cen- REOs are moving more slowly. They Adding to all of the current uncer- terpiece of the economy’s troubles and are concerned about the legal issues of tainty is the policy of all of the massive amounts of govern- the Federal Reserve to ment aid poured into it have not pro- apply a solution to the vided a solution. While, for the most The longer the government relies on entities recession in the form part, the industry believes that the like Fannie and Freddie to implement the recovery, ´ of “quantitative easing” market is “stuck” where it is there are the harder it is to get rid of them. (QE), which is nothing others like Clear Capital (clearcapi- THOMAS LAWLER tal.com) that are concerned about the President, Lawler Housing and Economic Consulting more than increasing µ 5.9% drop in home prices during Sep- the supply of money by increasing the excess tember and October 2010. They point reserves of the banking out that this is a significant drop in taking ownership, which further de- system (i.e. inflation). When the bank prices in advance of the typical win- presses sales at a time when distressed interest rate, discount rate or inter- ter housing market slowdowns, which properties accounted for 34% of all bank interest rate is near or at zero the paints an ominous picture that will transactions. The NAR addressed Fed injects money into banks by buy- likely show up in home data indices this in its letter to the Department of ing Treasuries with money it “prints.” in 2011. the Treasury in October: “The hous- The dilemma is that often there is no ing recovery, which even in the Na- positive result. The Fed first applied tion’s stronger markets is still fragile, QE early in 2009 with a printing of could be derailed if potential home- $1.7 trillion, which garnered little buyers and investors are discouraged success and now we have QE2 and the from buying because of the turmoil, BY THE NUMBERS real threat of inflation. –––––––––––––––––––– even if the property is not affected by any possible foreclosure processing er- On the day after the mid-term elec- rors. Already, our members are report- tions the Fed announced that it will ing that sales have been cancelled or purchase about $600 billion more in $0.6 delayed indefinitely, to the detriment long-term Treasuries by the end of the trillion amount the Fed plans to purchase of homebuyers and others involved in second quarter of 2011 in an effort to the transaction, as well as the neigh- in long term Treasuries by the further prop up the U.S. economy. It end of Q2 2011 in an effort borhood and the community. Lenders will also continue its existing policy of must assess the situation and correct to prop up the economy. reinvesting principal payments from –––––––––––––––––––– any problems they identify, as soon as its current securities holdings. possible, to restore confidence in the system.” For the real estate industry this could result in driving down long term in- $1.25 Unfortunately to date most of the terest rates into the 3% range, which trillion government’s intervention only post- the Fed hopes will lower the default amount of purchased in Mortgage- poned the real market reaction that is rate and, in turn, encourage banks to Backed Securities in 2010. required to solve the problem. lend. The best result for the real es- –––––––––––––––––––– tate industry would be an increase in QE2 Sets Sail housing prices that would induce buyers to enter the market, which would $1.7 With the Mortgage Bankers increase values and ultimately begin trillion Association’s (mbaa.org) prediction reducing inventory. On the other amount of money printed in early 2009 when QE was first applied. that home lending in 2011 will be hand, will lower interest rates coupled with more stringent requirements re- $1 trillion (the lowest it’s been since

No one knows, of course, whether The underlying issue with these GSEs Even though these two entities had QE2 will have any impact on the real is that their business model is conflict- their shares delisted from the New estate market either positive or York Stock Exchange in June negative; just don’t expect any 2010 they still continue to pro- immediate benefits. One thing The government’s footprint in the housing vide 75% of the funding in the is however certain; it won’t fix mortgage market and currently market needs to be smaller than it is today. two of the biggest broken parts. ´ own $5.7 trillion of the out- SHAUN DONOVAN standing $11 trillion in mort- HUD Secretaryµ The Tail of Two GSEs gages; a result of receiving over $148 billion in taxpayer funding. ed due to its combination of govern- On top of that, the government has On September 8, 2008 the Federal ment mission and private enterprise; agreed to provide “unlimited” funding Housing Finance Authority (fhfa.gov) government gets the benefits and pri- in the future with no exit strategy on placed the two Government Sponsored vate enterprise (the taxpayers) gets the table. Enterprises (GSE), Fannie Mae and the losses. Perhaps of equal concern Freddie Mac, under conservatorship. is the fact that Congress directs these Unfortunately, while the great bailout These two entities, it can be argued, two “off budget” enterprises and re- is coming to an end for the banks, for were partly responsible for fueling the ceives benefits in the form of political these two — the central players in cre- housing bubble and bringing about its support – crony capitalism. By back- ating the housing bubble — the flow ultimate collapse by providing easy ing Fannie and Freddie the federal of funds from Washington continues. credit to unqualified buyers at levels government let them dominate mort- The problem is compounded by the gage underwriting and, in turn, they fact that neither the Obama admin- that were clearly unsustainable as did returned some of the profits to politi- istration nor Congress seems able to other lenders outside the GSEs. cians in the form of political contribu- find a solution to the problem. tions.

Homeownership Countries with high homeownership rates. ICELAND 83%

SPAIN U.S. 85% 67% JAPAN 61%

CHILE ISRAEL 73% 71% SINGAPORE 89%

AUSTRALIA 70%

Source: Hearing on "Comparison of International Housing Finance Systems"

It has become clear that a solution will Potential Solutions agency for maintaining the sec- probably not involve the government ondary mortgage market. The takeover of Fannie and Freddie as it It is widely accepted that there are challenge with this scenario is does not want them on the federal four possible scenarios for Fannie and that it would involve the usual books as recommended by the Con- Freddie to come out of conservator- suspects; government inefficiency gressional Budget Office (cbo.gov). It, ship: 1) nationalization as public enti- and reluctance to change. This however, remains irresponsible for the ties, 2) reorganization as public utili- would also incorporate the move- administration to grant these GSEs a ties, 3) revert back to GSE status or 4) ment of the new entity onto the blank check without offering a solid privatization. government’s books with inclu- strategy to reform them. sion into a federal budget that 1. Nationalization – This option already shows a very deep deficit, would involve merging the two potentially requiring infusions of entities into one governmental

COMPARATIVE HOMEOWNERSHIP RATES

Rank Country Ownership Rate Source 1. Singapore 89% Statistics Singapore (2009) 2. Spain 85% European Mortgage Federation (2008) 3. Iceland 83% Statistics Iceland; HES Survey (2005) 4. Belgium 78% European Mortgage Federation (2007) 5. Norway 77% UN Economic Commission for Europe (2001) 6. Portugal 76% European Mortgage Federation (2007) 7. Luxembourg 75% European Mortgage Federation (2008) 8. Ireland 75% European Mortgage Federation (2009) 9. Chile 73% UN Housing Policy (2002) 10. Italy 72% INSEE and Eurostat (2007) 11. Israel 71% UN Economic Commission for Europe (2004) 12. Australia 70% Australian Bureau of Statistics (2006) 13. England 68% Building Societies Association (2010) 14. Canada 68% Statistics Canada (2006) 15. Sweden 68% European Mortgage Federation (2008) 16. New Zealand 68% Statistics New Zealand (2001) 17. United States 67% US Census Bureau (2009) 18. Japan 61% Japan Statistical Yearbook (2011) 19. Finland 59% Statistics Finland (2008) 20. Czech Republic 59% European Morgage Federation (2007) Source: Hearing on "Comparison of International Housing Finance Systems"

taxpayer money in response to remain unresolved private compa- • Sensible underwriting standards congressional largess. nies are incapable of performing a for loans purchased and securi- 2. Public Utility – This option public mission as the two are in- tized based on affordability, veri- would create one or more entities compatible with diametrically op- fied income and assets. that would be owned by banks or posed goals. One must seek a prof- • Retain and re-invest all excess private shareholders that would it while the other is committed to revenue to accumulate capital in function like a public utility un- the public mission; the public mis- strong markets. sion coming out on the short end every time. • The primary portfolio focus would be to support operations in the For all the generous subsidies afforded to 4. Privatization single and multi-family housing housing and mortgage markets, we’re not getting – What is prob- markets. ´ ably the most sen- our money’s worth. • Loan products would be based on MARK ZANDI sible approach is µChief Economist, Moody’s Economy.com the most unlikely risk. option. A private • Establish transparency and verifi- and competitive ability for loans with the MBSs der federal regulation. Borrow- market would not necessitate tax- that are purchased or securitized. ing would be backed by private payer bailout as mortgages would • Purchase and guarantee only enterprise but there would most be competitively priced, based on transparent and verifiable mort- likely still be some government risk. The privatization would en- gage loans. support because its rates would be able a competitive, low cost mar- regulated. Problematic under this ket without the taxpayers on the Any new secondary mortgage market structure is the fact that Congress hook for poor performance. But, model will necessarily include some would still have a strong influence as the government continues to level of government participation but on the rates set by their regulator. prove, private banks always seem it should protect the taxpayer while Failure to have a profit motive to be bailed out in times of crisis. ensuring access to mortgage capital for would eventually lead to fees that There is, however, a barrier to this credit worthy consumers. are too low when balanced against option in that, as of yet, there is the risk and insolvency resulting no substitute for the securitiza- Reality Check in taxpayers picking up the tab. tion system and banks, without a 3. GSE Status – Restoration to GSE secondary market, can’t sell their Unfortunately, most experts don’t status would once again place loans. Removing Fannie and believe that the U.S. government their operation under the auspices Freddie (the makers of 97% of all can, or will, back away from Fannie or of Congress without any mean- loans), would stymie the market Freddie bonds and MBS. The stakes ingful oversight. It would allow as no one would make a loan in are too important and the market Congress to continue establishing this economy without a govern- is too large, not to mention the fact spending based upon its desired ment guarantee. that foreign governments like China, purposes without public reporting. Another Option – A government- currently hold billions in MBS. The Restoring Fannie and Freddie to chartered structure, unlike a federal Obama administration has said that GSE status would simply reopen agency, could be established as a po- it will unveil a detailed proposal in the door to the same practices litically independent and self-sustain- January, which, it is anticipated will that got us where we are today. ing organization free of appropriations be some form of continued, if limited, Unfortunately, this is the most and interference from Congress (the government mortgage guarantee. Un- likely outcome as neither the adoption being recommended by the fortunately what this all adds up to is ministration nor Congress is pre- NAR). This structure would remove the message that Fannie and Freddie disposed to act until the hous- any uncertainty regarding the govern- are likely to remain wards of the state ing financial market stabilizes, ment’s participation in the secondary for years to come. at which time returning to GSE mortgage market by adhering to sound status will be the course of least market standards such as: It will be in interesting to see what the resistance. The basic problem will

80 www.RETrends.com ©2010 RealSure, Inc. Swanepoel TRENDS Report 2011 government’s footprint looks like there are a number of unresolved in 2013. The tax is directed at un- after the administration’s plan is tax issues that have the potential earned income from real estate and revealed in January. Mortgage un- of impacting the real estate indus- while it may not affect every ho- derwriting standards could improve try. Fortunately, one of the largest meowner there are two that most with limits on the kinds of mort- threats was averted when Congress likely will. gages Fannie and Freddie will enable. It is also anticipated that the focus could Doing away with the mortgage interest rate deduction for homeowners would result shift to low-income housing, in a 15 percent hit to home values and massive wealth destruction — as much as $2 away from loans on bigger ´ to $3 trillion — for property owners. homes and with housing LAWRENCE YUN Chief Economist, NAR subsidies including renters µ as well as homeowners. The NAR maintains that Fannie and Freddie have gone too far in was able to come to a consensus on Interest and Tax Deductions tightening their standards and the the Bush Tax Cuts and agreed to organization has actively lobbied extend them for two years. While The deductions for mortgage against the FHA’s proposals to raise this provides a short-term relief for interest and property taxes have its minimum downpayment to 5%. all taxpayers, there are many busi- always been perceived as a right of However, according to the NAR’s ness owners that believe two years homeownership and, of course, as chief lobbyist Jerry Giovaniello: is not enough time in which to a huge benefit. However, there are “The NAR has made it very clear commit to capital expenditures and some inside and outside the federal that it supports very tough FHA re- expand operations; i.e. hiring more government that consider them form.” employees. The issue is certain to “federal subsidies” that benefit a se- become a heated topic once again lect group of people and want them Whatever the plan is, the GSEs during the 2012 election cycle. removed. As such, there is grow- need to be stabilized so they can be ing pressure to eliminate or modify effectively used to rebuild the home their deductibility based upon two Increased Taxes mortgage market – one that is based broad justifications: one “financial” on sound lending and securitization and one “social.” practices with better regulation and There are other important tax oversight. With the results of No- considerations and potential tax Those in Favor of Removal vember’s election the heat is going changes that will continue to affect to be turned up. the industry. One of these is the The financial justification, earned income tax that was hidden according to The Urban Brookings The message from the electorate in the Health Care and Education Tax Policy Center (taxpolicycenter. was loud and clear that it wants the Reconciliation Act of 2010; Sec- org), is that in 2012 the mortgage government out of the mortgage tion 1402, the Unearned Income interest deduction (MID) will cost business and the place to start the Medicare Contribution. The plan the federal Treasury an estimated process is with Fannie and Freddie. incorporates a 3.8% tax on any $131.2 billion in lost revenue. Ad- However, it should not be ignored profit on the sale of real estate (resi- ditional revenue will be lost as the that in the “perfect economic dential or investment) for some result of the capital gains exclusion storm,” in which we find ourselves, high-income taxpayers. Individual ($49.6 billion) and state and local Fannie and Freddie are not the only taxpayers whose adjusted gross property taxes ($30.6 billion). The items on the administration’s plate. income is less than $200,000 — recommendation to eliminate these $250,000 filing jointly — are not deductions was made in November Threats on the Horizon impacted. The formula to calculate by the President’s National Com- the tax is a complex one and will mission on Fiscal Responsibility As the political winds continue most certainly have accountants and Reform that he established by to blow throughout the country sharpening their pencils beginning executive order in February.

tions. The study further revealed that, ing up for this debate by developing The social justification is that the according to the IRS, the two most a communication plan to reach the deductions are of no benefit to those common tax deductions claimed by public. For example, in August it re- who do not itemize their deductions taxpayers are the MID and real estate leased a paper entitled Social Benefits on their income tax returns and those tax deductions. Their conclusion was of Homeownership and Stable Housing: who are renters. Proponents of elimi- that housing-related tax deductions “Research has consistently shown the nating the MID suggest that only high strongly benefit younger households importance of the housing sector on income homeowners are able to take who tend to be recent homebuy- the economy and the long-term social advantage of the deduction. They ers with larger mortgage debt. Any and financial benefits to individual say this undercuts the claims that changes to these deductions would homeowners. The housing sector di- the MID promotes homeownership have a serious affect on the market, rectly accounted for approximately 14 even though 91% of all MID is tak- particularly with respect to first-time percent of total economic activity in en by people with incomes less than homebuyers. 2009. Household real estate holdings $200,000. Further they say that the totaled $16.5 trillion in the first quar- MID encourages homebuyers to bor- In a September 2010 survey by Pub- ter of 2010. After subtracting mort- row rather than save. Others submit lic Opinion Strategies for the NAHB gage liabilities, net real estate house- that the government has no business (nahb.org) 81% of respondents indi- hold equity totaled $6.3 trillion. In subsidizing homeownership because cated that it is important to keep the addition to tangible financial benefits, the deduction does not encourage ho- deduction of mortgage interest on a homeownership brings substantial so- meownership. They believe that those primary home, ranking it in a virtual cial benefits for families, communities, with high incomes would probably tie with medical expenses (82%); 76% and the country as a whole. Because buy a house without the deduction cited the importance of keeping the of these societal benefits, policy mak- and, therefore, the subsidy is going to deduction for state and local taxes, ers have promoted homeownership them rather than lower income house- including property taxes. In addition, through a number of channels. Ho- holds, punishing those who don’t take 82% of renters favor providing tax in- meownership has been an essential out large loans. centives to promote homeownership. element of the American Dream for The consensus cuts across party lines decades and continues to be so even with 76% of Republicans, 75% of In- today.” Those Opposed to Removal dependents and 68% of Democrats op- posing elimination of the deduction. The NAR has maintained a strong Those within the industry, voice in Washington on behalf of the however, view the potential loss of industry in this discussion and along these deductions as having a direct Who Will Pay? with the NAHB, will continue to re- impact on the real estate market and sist any moves that will negatively af- homeownership. Cutting or eliminat- In the midst of the current fect homeownership. ing the MID alone will not only make housing crisis and political climate it it difficult for qualified buyers to en- would seem unlikely that Congress ter the housing market, it will have a will eliminate MID. However, do not Summary devastating impact on existing hom- be surprised if the administration at- eowners, not to mention the building tempts to begin the process by placing Homeownership has been one of industry and, ultimately, the economy. a very high limit on the amount of the the bulwarks of the U.S. since its A study by Housing and Economics deduction for high bracket taxpayers founding and continues to be the Policy (housingeconomics.com) re- with an eye toward expanding it in the “American Dream” for the major- viewed the argument that as individu- future to lower tax brackets. ity of Americans. Unfortunately, over als age the benefits of the MID decline, the past decade that goal has turned supporting the fact that the deduction In the midst of all this uncertainty it into a nightmare for many homeown- is most beneficial for younger house- has been refreshing that the NAR has ers. What is now needed is for hom- holds. Their study shows that tax- continued to bring reason to the table, eownership to lead both the real estate payers between the ages of 34 and 55 even if it often appears that those in industry and the economy out of the make up the majority (51%) of those Congress are not listening. The Asso- recession. filing tax returns with itemized deduc- ciation has been very active in gear-

All parties agree that the process ing the old regulations. The real of turning the market around is a estate industry and homeownership complex one and that there is no will be the losers. single silver bullet available that will get the job done. It will take Then there is the manipulation by a concerted effort by the govern- the Federal Reserve with QE2 and ment (federal, state and local) in the very real risk that the move to conjunction with the financial and curtail “deflation” will cause “infla- real estate industries to accomplish tion” and prompt the kind of cheap the task. However, if the process debt that caused the financial crisis doesn’t truly fix what was broken, in 2008. Mortgage rates have al- but instead opts for a quick and easy ready been pushed to all time lows solution, it will penalize homeown- and yet the industry and the econ- ers in the process as well as the in- omy are not recovering. Pushing dustry and all those involved will more reserves to banks that have find themselves once again facing been reluctant to increase lending the same problems down the road. because of the market’s poor health may not get the job done. Don’t meddle with the mortgage interest ´deduction or other tax incentives that support In the face of it all, homeownership. the real estate in- BOB JONES dustry has to remain µ Chairman, NAHB vigilant and protect the benefits of ho- As we have discussed in this Trend, meownership like capital gains, the two culprits that were used by mortgage interest and property tax both those pushing to increase ho- deductions. There will be growing meownership and those who de- pressure in the months ahead to sired homeownership, but were not use the money saved by eliminat- qualified, cannot be left as they are. ing these tax benefits to reduce Fannie and Freddie have a faulty the cost of other government pro- structure that works against itself. grams. Unfortunately, Congress has You cannot mix a public mission played this game many times before with a private enterprise. These two and the “cost cutting” never seems GSEs proved that the result was to get accomplished as the “new” virtually an unregulated structure money finds its way into yet other that provided profits to the public “new” government programs. mission (Congress) and losses to the private enterprise (Taxpayers). What makes this time around more urgent is the state of the U.S. econ- The end result has become a very omy and the ballooning federal def- costly conservatorship, which the icits that are strangling the real es- government talks about changing tate market. Organizations like the but little has happened. Waiting for NAR and the NAHB will be proac- the market to stabilize will probably tive in fighting issues like these but result in Fannie and Freddie both it will take the support of everyone being re-established to their origi- in the industry to get us back on our nal status with perhaps a new coat feet without forever damaging the of paint — new regulations regulat- American Dream.

Overview which improved communication cell phone) rather than opting to call allowing for the mainstream use of him or her at a place (i.e. work or Cellular phones and mobile 2G networks. This allowed for a shift home). This has enabled us to be more communication have had a major away from “brick” phones to a more spontaneous when making plans as impact on our lives and during the portable and advanced phone-to- you rarely get a busy signal and unlike last decade changed the way we network connection. By December a landline, someone is almost always perform almost every single activity. 1992, the now infamous SMS (short “in.” On the other hand, many users It all started in 1982 when Motorola messaging system) was ushered in over seem to have adopted the attitude introduced the first commercial cell the Vodafone GSM network in the that appointment times are not set in phone; the 28 ounce, 13 inch high United Kingdom with its first message: stone and conveniently use their cell colossal DynaTAC 800x that carried Merry Christmas. Appropriately, phones to renegotiate arrival times. a staggering price of $3,995. Adoption these new gifts — a better network was slow during the first few years and and functionality — skyrocketed the Realtors® are certainly no strangers to by 1985 less than .01% of the U.S. demand for cell phones. the world of mobile technology and population was using cell phones the expansion of this technology has according to CTIA (www.ctia.org). It was not long before demand on been a great boost for them. Now However, evolutionary change over the 2G Network outgrew capacity. they can search and send emails to the following 15 years rocketed the Almost like clockwork, ten years their clients “on the go” every day, later in late 2001, NTT at anytime and from anywhere. This DoCoMo in Japan was highlighted in a recent survey The impact of Smartphones on the real estate launched the 3G (Third by Inman News that reported that ´world is profound. You would be hard pressed to Generation) Network. With the introduction find an active agent today not using one. DID YOU KNOW CLAREITY CONSULTING of 3G came application µ services that included FIRST NETWORK wide-area wireless voice The first commercially automated number to a staggering 91% by 2010, telephone, Internet access, video cellular network (the 1G generation) making it the #1 technology device calls and TV – all for the first time was launched in Japan by NTT owned by individuals according to in a mobile environment. Compared (Nippon Telegraph and Telephone) Forrester (forrester.com). to 2G, this generation brought about in 1979, initially in the metropolitan the highly desired simultaneous use area of Tokyo. The initial mobile devices were of speech and data services. In fact, Within five years the network had accompanied with the early recent 3G upgrades (3.5G and 3.75G) been expanded to cover the whole commercially automated cellular provide mobile broadband access to population of Japan and became the network, which didn’t offer much laptop computers and Smartphones. first nationwide 1G Network. more than simple phone dialing; With an increased capability for faster This was followed in 1981 by the 1G (First Generation) Network. It data transfer, mobile devices opened simultaneous launch of the Nordic took nearly ten years of evolution a floodgate for high frequency and Mobile Telephone (NMT) system before we – in 1991 – saw a jump volume users onto the Internet. in Denmark, Finland, Norway and to the next generation of mobile Sweden. NMT was the first mobile phones and the emergence of a With the addition of web usage, phone network featuring international roaming. commercial 2G (Second Generation) calendars, email, MLS, etc. to mobile Network with the launch of the devices the way that people interact The first 1G network launched in the GSM standard in Finland by with each other has forever changed. U.S. was Chicago-based Ameritech in Radiolinja. Conversations on these Today, when we call someone, we 1983 using the Motorola DynaTAC new phones were digitally encrypted focus on calling a person directly (i.e. mobile phone.

By the Numbers 1000000 Mobile Phones Worldwide Top 10 Countries 842.0 800000 In 2010, the world surpassed more than 5 billion in mobile phone ownership. 687.7 The top 10 countries account for 56% of mobile 600000 device ownership in the worldwide.

The United States at third place, has 91% of the 400000 population owning a mobile phone. 285.6 213.9 194.4 200000 168.3 109.5 107.5 107.0 103.7

Source: Wikipedia

to them. It’s more Smartphones for. The top four Mobile phones have become a personal about being overly activities were: dependent on your statement and usage has become a reflection • 57.3% - Access to MLS listings >of how individuals wish to be perceived. @ cell phone and being reluctant to part from • 54.5% - Social media applications it. approximately 50% of Realtors® use • 41.8% - Weather a Smartphone more than three hours 3. Sense of security relates to • 37.6% - Contact management per day for work-related purposes, the fact that the mobile phone and that 40% had six or more work- reduces uncertainty and provides Given the fact that nearly 60% of related applications installed on their a feeling of safety for its user. Realtors® use Smartphones to access mobile devices. Studies have shown that one of listings it is no surprise that there has the primary reasons people acquire been an incredible increase in the Since we begin the second decade a cell phone is their concern for number of real estate apps hitting of the 21st Century with more than personal security. the market. (Note that the top three nine out of every ten Americans using These characterizations are also use some form of location-based mobile phones as a part of daily life, interesting as they are reshaping the service.) it is important to examine how our environment in which we desire to attitudes towards mobile phones have use our phones, be it at work, airports, Real Estate Mobile Applications changed over the last few years. meetings and luncheons. The impact is far more reaching than just By year end 2010, Apple’s (apple. Me, My Cell Phone and I wireless communication. It is a total com) App Store was the largest redefinition of hundreds of activities mobile phone application repository Mobile phones have become a and structures. with over 300,000 applications, personal statement and usage has comfortably outpacing the Droid become a reflection of how individuals Mobile Real Estate (android.com) and Blackberry wish to be perceived. Peking University and the China Academy Every 18 months the Center for of Telecom Research, provide three Realtor® Technology (crt.realtors.org) dimensions that characterize our BY THE NUMBERS extends an email survey invitation attitudes towards mobile phones: ® to 45,000 Realtors®. In 2007, 28% The percentage of Realtors that use 1. Sense of self-character is the idea of all Realtors® stated that they were a Smartphone. –––––––––––––––––––– that mobile phones are not just Smartphone users. By the end of 2008 devices for communication but that number increased to 50% and by they also extend our sense of self. 2010, it was up to 90%. This is another People change the background confirmation that the real estate 28% in 2007. images and put special ring tones industry is often not a “first mover” –––––––––––––––––––– on their cell phones precisely but when it does, the adoption rate because they want their phones to is usually fast and extensive. Contrast reflect their unique identity and that penetration with Nielsen’s 50% character. (nielsen.com) report that the number in 2008. of Smartphone users in the U.S. at the 2. Sense of dependence is the –––––––––––––––––––– end of 2009 was only about 20%. notion that some people develop a proclivity for always keeping The NAR survey also explored their cell phones on and feeling 90% what Realtors® actually used their in 2010. lost when they don’t have access

(blackberry.com) marketplaces. As on mobile phones). Information Zillow Real Estate Search a result, we decided to examine the regarding basic functionalities has Company: Zillow dominate repository, Apple. been listed and apps ranked in size Website: zillow.com using the number of reviews. (No Description: This app gives users It is important to note that Apple’s other data was consistently available an estimated value of all homes in App Store, much like those of its for all apps.) its database; not just those for sale. competitors, does not offer Users can also filter results, a separate real estate section save searches and get alerts for its over 740 real estate Nobody, when they’re looking for a house, does when a new listing they may apps. However, Apple does ónly one thing. They will look on the computer, talk be interested in pops up. It divide all applications into to an agent and go out and use a mobile device. also lets users share listings categories and for real estate via e-mail and incorporates DAVE BORILLO the following six categories Chief Technical Officer, DoApp µ rental search. presented the most results: Rating: 3 out of 5 stars Utilities, Lifestyle, Finance, Business, Education and Reference. Trulia Real Estate Search Company: Trulia These are general categories for Apple As is always the case, different Website: trulia.com and therefore related services are not services offer different functionalities Description: This app allows users to grouped in similar fashion, as they and levels of sophistication. Below search for homes for sale using their would be in the brokerage industry. is a snapshot of the best real estate mobile Web browser. It offers large After reviewing, we decided to create applications available based on the property photos, map navigation a more meaningful “Top 10” table of afore mentioned criteria. The two and expanded home-search criteria. real estate apps, focusing on those that applications that impressed us the Users can search for the most popular emphasize real estate searches (the most were Zillow and Redfin. properties and those that have been number one activity for real estate reduced in price recently. Layar’s

TOP 10 REAL ESTATE SEARCH APPS

Search GPS New Sold Rank Name Reviews Listings Search Listings Listings 1. Zillow Real Estate Search 48,366 X X X 2. Trulia Real Estate Search 16,861 X X 3. Homes.com Real Estate 13,012 X X 4. Realtor.com Real Estate 12,389 X X 5. Redﬁn Real Estate 11,519 X X X 6. forrent.com 10,253 X X 7. ZipRealty Real Estate 7,860 X X X 8. Home Finder Real Estate 7,460 X X 9. Apartmentguide.com 3,355 X X 10. ApartmentFinder 3,355 X X Source: RealSure, Inc 2010

66 www.RETrends.com ©2010 RealSure, Inc. Swanepoel TRENDS Report 2011 augmented reality (layar.com) taps create an application for into Trulia's data to let users see real- yourself as a Realtor®. The lighting pace of mobile App innovation and time information overlaid on their Real estate agents ádoption has captured the attention of real estate video screens as they pan from home creating their own consumers and professionals, who are accessing to home. application according to deep information about real estate in coffee Rating: 3 out of 5 stars Ben Kinney will have shops, cars and everywhere between. limited to no results, and INMAN NEWS Homes.com Real Estate we agree. It is unlikely µ Company: Homes.com that consumers will take Website: homes.com the time to download applications of Utilities and Finance Apps Description: This app was the first real an individual agent or even a small estate app to be available in all mobile local firm. Although not as popular, apps formats by just entering the Homes. in this grouping provide substantial com URL to find nearby homes or However, the power of a national benefit to Realtors® and consumers. rentals, bookmark homes, share franchise could leverage their network The following is a breakdown of the top properties or connect with the real and brand and create a very successful real estate finance/utility applications estate agent. application if done correctly. based on reviews and ratings: Rating: 2.5 out of 5 stars While the majority of consumers and BHG RE Home Selection Assistant Realtor.com Real Estate homebuyers focus on the real estate Company: Better Homes and Gardens Company: National Association of search applications that are commonly Website: bhg.com Realtors® found in the Business and Lifestyle Description: This app allows users to Website: realtor.com categories, there is also a collection of take pictures of the properties they see, Description: This app lets users find valuable real estate utility and finance organize them in albums, view them homes for sale or open houses within a applications available. on a map, rank them and send them certain radius of their current position to family and friends via Facebook using GPS. Consumers can rate and comment on listings for their own TOP 10 REAL ESTATE UTILITY APPS personal reference and quickly contact a Realtor® to ask a question or request Rank Name Reviews Ratings a showing. 1. Better Homes and Gardens 3,165 2.5 Rating: 3.5 out of 5 stars 2. Mortgage Calculator Pro! 591 3.5 Redfin Real Estate 3. Mortgage Loan Place 351 2.5 Company: Redfin Website: redfin.com 4. iFinance 322 3 Description: This app operates as 5. Home Buying Power 319 3 mobile MLS that allows consumers to search for homes. It allows for home 6. 10BII Calc Financial Calculator 284 4 search and open house search using 7. powerOne Financial Calculator 256 3.5 your location. Additional features include photo uploads and notes. 8. Home Buy- Mortgage Calculator 168 2.5 Rating: 3.5 out of 5 stars 9. RECalc - Real Estate Mortgage 137 3 With all the excitement don't think 10. Mortgage Loan Payment Calculator 130 3 that you should just jump in and Source: RealSure, Inc 2010

©2010 RealSure, Inc. www.RETrends.com 67 Mobile The Center of Your Universe or email and find a Realtor®. They Description: This app is a financial browsers only requires a plug-in. can also learn about neighborhood tool kit and calculator that provides Having the ability to custom tailor a essential financial software website to individuals visiting from a for users to analyze their mobile device provides ease of use and Location-based mobile applications are not the financial investments. increased functionality. With mobile future, but the present. ´ It is a financial app adoption at an all time high there is MATT GALLIGAN µ CEO of SimpleGeo designed to answer a shift in the restructuring of websites ninety percent of most to provide a user-friendly interface for financial questions with their mobile visitors. When websites information including data on local a user interface requiring only a few were first designed no one would have schools, nearby restaurants and shops keystrokes to obtain a comprehensive thought to cater to cell phones. Now a and comparable home prices. loan amortization function. decade and a half after the availability Rating: 2.5 out of 5 stars Rating: 3 out of 5 stars of the first websites, going “Mobile Friendly” is something to consider. A Mortgage Calculator Pro! Home Buying Power few of the websites in Real Estate that Company: DPsoftware Company: apptism cater well to those “on-the-go” are Website: mc.dpsoftware.org Website: apptism.com Kw.com, Remax.com, Trulia.com and Description: This app is available Description: This app is a mortgage Zillow.com. for Blackberry, Android, Microsoft payment calculator with a "Detail" Mobile, Symbian and Bada. It is a view that includes fields for the quick and easy to use calculator for property's MLS # and address and Noteworthy brokers, Realtors® and homebuyers. provides an estimate of the amount Non-Real Estate It quickly calculates the monthly due at closing. It also includes a payment for a mortgage, car payment, Applications notes page for adding comments of a credit card or other types of fixed rate property that can be easily emailed to loans. It also lets the user add different While the applications discussed in your client. this section were strictly made with adjustments such as insurance, Rating: 3 out of 5 stars the real estate professional in mind, property tax and monthly fees such as there are several applications that are HOA to see how they would affect the available that provide benefit to real Website Optimization monthly payment. estate professionals: Rating: 3.5 out of 5 stars Although applications have Dropbox (dropbox.com): With the become a key component of mobile growing trend toward automatic Mortgage Loan Place Mortgage interaction, apps by no means replace synchronization among devices, Calculator Dropbox has become one of the websites. Often businesses do not Company: MortgageLoanPlace leading “cloud-computing” software realize that many consumers opt to use Website: mortgageloanplace.com providers (see Trend #3). Install mobile web browsers to visit websites Dropbox on your mobile device as Description: This app utilizes the rather than using an app. It’s about well as on your computer and in turn slider technology to allow users the convenience and the accessibility you will be able to share, access and to dynamically edit inputs such as edit files between devices. of information, and depending on the loan amount, monthly payment and platform you’re using, getting your interest rate, allowing Realtors® to Place Tags (itunes.apple.com): This website mobile friendly may be more application incorporates Google maps “play with the numbers” in real time. important than creating an app. with a note taking system that is very Rating: 2.5 out of 5 stars easy to use. It allows individuals to drop placeholders on certain locations For websites built with Wordpress iFinance on their maps and then assign certain (wordpress.org), optimizing your Company: OpenStack Inc. notes to these locations. site for mobile devices and mobile Website: openstack.com

In real estate, most large franchise more interactive and video focused networks all have different initiatives real estate applications. and mobile apps. The most recent major announcement was by Realty Executives. During the 2010 NAR annual conference, they launched their new Technology Initiative that addresses Internet, listings, agent trafﬁic, a TagManager Console powered by Microsoft, their Executive and Broker Web platforms and a revamped website.

Real estate franchises barely address one new innovation and another comes along, some small, others big. Mobile is going to be big.

Summary

Mobile technology has enjoyed rapid evolution since its inception nearly 30 years ago. It has jumped from simple phone-dialing services to modern Smartphones with the ability to serve as small but powerful, portable computers. With the increasing prevalence of location-based services, applications are rapidly and dramatically developing both inside and outside the real estate industry.

While there have been dramatic increases in search and utility applications since the introduction of mobile applications in 2007, an opportunity still exists for newer and more powerful applications as mobile technology continues to advance at an astronomical pace. Every day new applications become available for Realtors® and with the introduction of the upcoming 4G networks and the extensions in bandwidth capability (see Trend #3: The Cloud, in Book II) we will see a whole new group of

Introduction languages. currencies to U.S. Dollars according to the exchange rate quoted, but have Every year we received hundreds Although, for the report we probably also provided information regarding of requests to expand the scope of only need to work with about two the local currency. the Swanepoel TRENDS Report. As a dozen or so languages… but still, 10 result we previously added permanent times more of everything. Global Snapshot sections in our annual Report to include: Its is also worth noting that the If property prices differ from National Association of Realtors® house to house, and we all know • The Economy maintains formal relationships with they do, then appreciate that a global • The Commercial Market 81 associations outside of the U.S., umbrella statement does not carry representing 60 countries. with it any specific relevance. It is • Social Media merely to provide the “big” picture as This year we reach further as we go The Review we see it. mobile and outside the borders of the U.S. with two new sections: So, the following is our first 2010 was much better than 2009. In Global Real Estate Trends Overview. most countries, a modest recovery was • Global Real Estate It covers the largest economies around in order with a stronger momentum • Mobile Media the world - with at least one country seen the first half of 2010 compared included per continent. to the latter half. Countries showing As the world is shrinking through the impact of technology, transportation We have endeavored to keep it short and global economics, we are being in a summary format, providing the GLOBAL PROFILE drawn into and more deeply impacted same type of information for each by international real estate markets country so one can make comparisons Buyers from 53 different countries than ever before. As no one else that as far as possible. around the world bought residential we are aware of researches and reports property in the U.S last year. The about residential real estate across all leading sources of buyers were Canada, As this Report has always focused on the continents, we thought we would Mexico, the U.K. China, Germany the residential real estate brokerage take on the challenge. and France. industry in the U.S., we continue with that as our guideline. We have Wow... what a challenge it is. NAR’s 2010 Profile of International included some general country and/or Remember that it is already an Home Buying Activity cites the economic information so as to frame strength of the dollar, value and enormous undertaking to try and get each country before providing details desirability of U.S. real estate as the your hands around the U.S. market. about the real estate markets. chief factors. It’s huge, constantly shifting, and it has many sub parts, many participants Remember that although we always Between April 2009 and April 2010, and even more opinions. try and verify all information, and do $66 billion of residential property, amounting to seven percent of the so by providing references for just this Globally it is about 10 times more total U.S. residential market, was sold section, note that if we do not supply of everything. In all, you have to to foreign nationals, recent immigrants a reference it means that we were account for: the added complexity of and temporary visa holders. unable to verify the information. As non-uniformity in the selling process, always, readers are recommended to ® the understanding of terms, the More than a quarter of Realtors – verify all data before acting thereon. 28% – reported working with at least varying currencies, the lack organized one international client in the past real estate as we know it in the U.S., We have for consistency converted all year, up from 23% in 2008. and the magnitude of over 6,800

©2010 RealSure, Inc. www.RETrends.com 45 Global Trends Around the World the strongest growth were Australia, supply and the financial ability to fund China and Canada with the countries all of the needs struggling to keep up. reflecting weaker results being Opportunities, however, are abundant South Africa, Italy and Japan. Some as there are always markets going up countries such as Germany were the while others are going down. The key same as the U.S., fairly flat. is to know which one is which. Here are the countries covered in the this Many real estate companies, year's Report. economists and political leaders point • Argentina to a better 2011. Although there will be many markets that show positive • Australia growth, it does not appear that it • Canada will be widely spread or strong. Too many factors still hamper confidence, • China with the most common being high • France unemployment and financial debt. • Germany In most first world countries new • Italy construction is generally down, putting more pressure on supply. This • Japan is being countered by a decrease • South Africa in demand as those countries face an aging and decreasing population • United Kingdom base. In many developing countries demand continues to surge, with

LEADING RESIDENTIAL REAL ESTATE BRANDS EXPANDING GLOBALLY

Orginating From U.S. Orginating From Europe Orginating From Australia RE/MAX Savills Ray White Century 21 Knight Frank LJ Hooker ERA Engel & Völkers Harcourts

Notes 1. This list is based on residential brokerage activities and excludes commercial, property management, investing companies, etc. Where numbers are combined, we have endeavoured to do an allocation or estimate for all the residential activities. 2. Different groups count their expansions to countries differently. For example, some count the islands in the Carribean separately, while others count it as a single location. We have taken both local and global office counts into consideration. 3. Global reach is convoluted. Some groups include countries intended for future expansion rather than current physical presence, while other groups include affiliate arrangements with local companies even though they don't maintain actual offices. 4. Century 21 and ERA are separete real estate brands, but both are a part of holding company Realogy Franchise Group (which also includes Coldwell Banker and Sotheby's). 5. Savills is a large global real estate conglomerate listed on the London Stock Exchange and operates several extensive divisions.

Population 40.5 million; 2010. [EN1]

Pop. Growth 1.0%; 2010 est. [EN2] Argentina Currency Argentinean Peso (ARS) Exch. Rate (US) $1.00 USD = 3.97 ARS; Dec 2010. Overview Economy / Real Estate GDP per Capita $8,663 USD; nominal, 2010. [EN1]

Argentina benefits from rich In general, the global Unemployment 7.5%; Q3 2010. [EN3] natural resources, a highly literate financial crises did not Spanish (official), Italian and population, an export-oriented impact many of the larger Language English. agricultural sector, and a diversified economies in South America industrial base. But the country has like Argentina, Brazil and suffered during the last century due Chile as much as many European approximately 3,000 square feet with to recurring economic crises, financial countries. The architecture defining three bedrooms, two bathrooms, a debt and deficits, high inflation properties in Argentina is eclectic. large kitchen, sitting room, dining and capital flight, the most recent Older buildings in Buenos Aires that room and maids’ quarters. The per-foot challenge was the severe economic would be well at home in any European cost of these apartments is one-third crisis in 2001-02 that led to violent city sit alongside plain high rises built to one-tenth that of a similar property public protests and the successive in the 60s, 70s and 80s while newer in Europe. For example, a 1,000 sqft resignations of several presidents. and less offensive modern structures apartment will cost approximately share the landscape. Older apartments $175,000 to $200,000 ($175 to $250 in Buenos Aires are much bigger per sqft). Housing cost ranges from than their European counterparts; $65 to $93 per sqft. The real estate agency and both the buyer and seller Homeownership 74.9%; 2009. [EN4] are bound by a listing agreement and a promise to purchase. When making Households 11.6 million; 2010 est. offers buyers are expected to make a Annual Transactions 40,297; 2010 est. [EN5] security deposit.

Yes. In Buenos Aires agents need to get a license from the Forecast Licensing Required Inspection Board of Justice. Elsewhere licenses are obtained from the Chamber of Commerce. Argentina saw falling housing The Argentina Chamber of Horizontal Properties and Real sales but stable house prices in 2009; Estate Activities and the Argentine Tax Authority (AFIP). there was slight growth in 2010. The Real Estate Bodies As of August 1, 2010 registered agents must report all resurgence of exports and a pick up in transactions to the AFIP online within 10 days. tourism are expected to push the real estate market to continue improving Freely negotiated by interested parties. Seller and buyer are Commission Structure through 2011/12. In 2010, 7.5 million usually charged 3% separately. square meters was put under building Beibo Propiedades, C&W Real Estate, RE/MAX, Reynolds permit and that amount is expected Large Real Estate Firms Propiedades, Sotheby’s and Van Ditmar Propiedades. reach 8 million in 2011; 86 million square feet. Demand for housing is ABN AMRO Bank Argentina, Banco de Galicia y Buenos expected to continue growing in 2011 Aires, Banco de la Nacion Argentina, Banco Patagonia, Financial Institutions with real estate developers predicting Banque National de Paris – Argentina, Banco Rio de la Plata that the value of housing will grow by S.A. and BBV Banco Frances. 20%. 23% to 26% – After the banking crash in 2001 most Mortgage Rates properties are now purchased with cash.

Population 22.5 million; 2010. [EN6]

Pop. Growth 1.8%; Q1 2010. [EN6] Australia Currency Australian Dollar (AUD) Exch. Rate (US) $1.00 USD = 1.01 AUD; Dec 2010. Overview suburban neighborhoods. GDP per Capita 57,792 AUD; 2010. [EN7] Renting apartments and Australia has taken advantage condominiums is not the Unemployment 5.3%; Nov 2010. [EN6] of its natural resources and has common practice even Language English. developed agriculture and mining though housing in the into an internationally competitive, major cities will generally advanced market economy. cost more when compared to living a $9.9 billion (USD) stimulus plan in out in the province and farmlands. 2009 that included cash payments Economy / Real Estate People can choose from single room to pensioners and low and middle- apartments to small houses with yard income earners. The stimulus also Australia has some of the least space to huge areas or condominiums included a $3.9 billion (USD) bank expensive cities in the world as downtown. bailout and an increase in the ﬁrst- land is abundant and most citizens time homebuyer grant from $6,976 are able to buy their own house in The Australian government instituted USD to $20,930 USD. The economy recovered quickly during 2009 and 2010 with growth mainly driven by Homeownership 70%; 2006. [EN6] strong domestic demand. Households 8.4 million; June 2010. [EN6] Forecast Median Home Price $453,498 USD; Feb 2010. [EN9]

Annual Transactions 300,000; 2010 est. [EN11] Australia had the most significant increase in house prices of Housing Vacancy Rates 1.5% Mar 2008. [EN6] all the countries we tracked in 2010. Yes, licenses are obtained from the Office of Fair Trading in The country experienced inflation- each province such as The Real Estate and Business Agents adjusted home prices increasing Licensing Required Supervisory Board (REBA) in Western Australia. In most 9.4% year-over-year in Q3 2010; low provinces agents are salaried. [EN8] unemployment was a key driver.

Licensed Estate Agents 75,000; 2010 est. [EN8] Consecutive interest rate increases Real Estate Institute of Australia (REIA) and its equivalent by the Reserve Bank of Australia Real Estate Associations in each province such as Real Estate Institute of Western together with the expiration of Australia (REIWA). the enhanced First Home Owners Grant in January 2010 are, however, Commission Structure 2% to 4%, most agents are salaried. slowing the market. With a growing Harcourts International, First National, L.J. Hookers, concern that housing is overvalued, Large Real Estate Firms McGrath, Professionals Real Estate Group, Raine & Horne most predictions seem to indicate and Ray White Group. a softening in the market for 2011. There is, however, no indication that Dominated by four major banks: Commonwealth Banking of there will be a bust. Financial Institutions Australia, Westpac Banking Corp., National Australia Bank and ANZ (Australia and New Zealand Banking Group).

6.6% - 8.6%; 2010. The Reserve Bank has raised rates on Mortgage Rates seven occasions since January 2010. [EN10]

Population 34.1 million; 2010. [EN1]

Pop. Growth 0.8%; 2010 est. [EN2] Canada Currency Canadian Dollar (CAD) Exch. Rate (US) $1.00 USD = 0.98 CAD; Dec 2010. Overview Economy / Real Estate GDP per Capita $45,887 USD; nominal 2010. [EN1]

As an affluent, high-tech Canada enjoyed solid Unemployment 7.6%; 2010. [EN12] industrial society Canada resembles economic growth from 1993 Language English and French. the U.S. in its market-oriented through 2007. Impacted by economic system, pattern of the global economic crisis, production and high living standards. Canada’s economy dropped into a nonresident investors on Canada’s sharp recession in the ﬁnal months east coast and in some rural areas. The impressive growth of the of 2008. The major banks, however, Compared to the U.S., Canada’s manufacturing, mining and service emerged from the crisis as among the housing market has suffered very sectors has transformed the nation into strongest in the world, owing to the little over the past two years; the the ninth largest economy and one of country's tradition of conservative western part of the country has been the wealthiest nations in the world. lending practices and strong particularly strong. Canada has vast natural resources and capitalization. international trade makes up a large Forecast part of the Canadian economy. There are minor restrictions on foreign ownership of real estate for New mortgage policies implemented in April 2010 have Homeownership 68.4%; 2010. [EN13] made it more difﬁcult for borrowers to qualify for mortgages with loan terms Households 12.4 million; 2010. [EN13] of four years or less. As a result, the Median Home Price $344,268 USD; Nov 2010. [EN13] housing market slowed in the second half of 2010; house price gains slowed Annual Transactions 495,001; 2009. [EN13] to around 1.6% in 2010 after moving Housing Vacancy Rates 2.6% Dec 2010. [EN15] up 5.5% in 2009.

Licensing Required Yes; specific licensing requirements in each province. Resale prices are expected to rise 1.6% Each province has a licensing body such as the Real Estate in 2011 with only moderate gains in Licensing Authorities Council in Alberta (RECA). all provinces. The anticipated federal, provincial and local stimulus for 2011 Licensed Estate Agents 106,606 licensees and 9,593 companies. [EN13] in the form of continued infrastructure Real Estate Association Canadian Real Estate Association (CREA). spending and capital projects will be a big plus for economic stability and Commission Structure 7% on first $100,000 and 3% on the balance. [EN16] employment; providing consumers Century 21, Coldwell Banker, Keller Williams Realty, the confidence to move forward with Large Real Estate Firms MacDonald Realty, RE/MAX, Royal LePage and Sutton real estate purchases. Group. Interest rates will remain at historically Canada’s Big Five banks: Royal Bank of Canada, Toronto- low levels with the Bank of Canada Financial Institutions Dominion Bank, Bank of Nova Scotia, Bank of Montreal and deferring any further rate hikes until Canadian Imperial Bank of Commerce. late 2011. Qualifying rate of 5.19% for 5-year variable rate of 2.25%. Mortgage Rates 7.85% for 25 - year fixed; Dec 2010. [EN14]

Population 1.3 billion; 2010. [EN1]

Pop. Growth 0.5%; 2010 est. [EN2] China Currency Yuan (CNY) Exch. Rate (US) $1.00 USD = 0.75 CNY; Dec 2010. Overview 2002 and 2006, reaching a GDP per Capita $4,283 USD; nominal 2010. [EN1] high of 13% in 2007. Inﬂows China's economy during the past of foreign direct investment Unemployment 4.1%; 2010 est. [EN13] 30 years has changed from a centrally have risen to over $108 Mandarin and Cantonese with a planned system that was largely closed billion annually since 2008. Language push to use English in business. to international trade to a more In 2009 China stood as the market-oriented economy that has a second-largest economy in rapidly growing private sector and is the world after the U.S., although Approximately 200 million rural a major player in the global economy. in per capita terms the country is laborers and their dependents have still lower middle-income. Economic relocated to urban areas to ﬁnd work. Economy / Real Estate development has been more rapid in Between 1996 and 2005 the urban coastal provinces than in the interior. population increased by over 50% China is the world’s fastest One of the key factors underpinning from 373 million to just over 562 growing economy with a GDP growth China’s demand for housing has million; growing by 15 million people rate that averaged 10.2% between been the secular urbanization trend. annually.

Yes. Only long-term land leases are available (70 years). Forecast Homeownership Foreign ownership is restricted to resident foreigners who have worked, studied or lived in China for at least one year. In 2008 the government announced Households 525 million; 2010 est. [EN11] a $585 billion USD stimulus package with allocations for housing and In 2009, the average cost of a 968 sqft ﬂat in Beijing was Median Home Price as a result residential property $236,000 USD. prices increased. Property prices in Annual Transactions 10 million; 2010 est. [EN11] Shanghai in April 2010 were up by an average of 9.8% over the previous 20% to 25% - the rates are high as many properties are held as Housing Vacancy Rates year and prices in 70 cities rose 12.8% investments. [EN16] during the same period. Housing Licensing Required No. prices could rise by as much as 20% to 25% in 2011. However, China’s 25,000 real estate brokerage agencies employing Estate Agents banking regulator believes that it sees approximately 1 million agents. [EN17] growing credit risks in the real-estate China Real Estate Association, the China Institute of Real industry and has warned of increasing Real Estate Association Estate Appraisers and Agents (CIREA) and the Society of pressure from non-performing loans. Hong Kong Real Estate Agents (SHKREAL). Following that lead there are some economists that see a different future Commission Structure 1% to 2%. and believe the “bubble” in China’s Beijing Lianjia, Century21, RE/MAX, Shanghai Housing property market is going to burst with Large Real Estate Firms Exchange, and Shanghai Xingy (Coldwell Banker). prices estimated to fall as much as 20% in 2011/12. Going up or down China’s big four are: People’s Bank of China, China will be determined, in great part by, Financial Institutions Construction Bank, Industrial and Commercial Bank of what China’s government does or China and the Agricultural Bank of China (all state owned). doesn’t do. Mortgage Rates 3.5% to 4.0%.

Population 64.7 million; 2010. [EN18]

Pop. Growth 0.5%; 2010 est. [EN2] France Currency Euro (EUR) Exch. Rate (US) $1.00 USD = 0.75 EUR; Dec 2010. Overview large companies, banks and GDP per Capita $40,591 USD; nominal, 2010. [EN1] insurers and has ceded stakes France is one of the most modern in such leading firms as Air Unemployment 9.8%; 2010. [EN1] countries in the world and as a leader France and France Telecom. Language French (official) and English. among European nations. It has In February 2009 it passed proven to be central to the economic a $35 billion USD stimulus integration of Europe, including the plan centered on investment in 80% of owner-occupied buildings are introduction of the common exchange infrastructure and tax breaks for small mortgaged. currency, the Euro (EUR). businesses. Forecast Economy / Real Estate The residential real estate market through Q3 2010 was generally stable Although the effects of the France is in the midst of with the average inflation-adjusted debilitating strikes in response to transition from a well-to-do prices up by 6.8% year-over-year. In pension reform and other belt- modern economy that has featured Paris, however, the average apartment tightening measures are also expected extensive government ownership and price surged in Q3 2010 by 9.7% to have a negative impact on property intervention to one that relies more on reflecting the strong shift in housing prices, the French market remains market mechanisms. The government demand from the countryside to the strong and resale prices should has partially or fully privatized many capital and low mortgage rates; over continue their recovery in 2011.

Homeownership 58%; 2010. Helped by a 60-year low in interest rates, property transactions are Households 24 million; 2010. [EN11] anticipated to surge another 10% Median Home Price $266,485 USD; Q1 2010. to around 750,000. On the new construction front, housing starts for Annual Transactions 695,000; 2009. [EN19] 2011 are also expected to be up as Real Estate Commission 5.0% to 5.5% much as 17% from 2010.

Taxes per Transaction 7%. France, especially the coastal south, Housing Vacancy Rates 6%; 2009. remains one of the most favored places for the European and especially, Licensing Required Yes. Sales are also handled by Notaires (French Ofﬁcials). the British property-buying public. Estate Agents 58,000. [EN19] This could have a positive affect on the French housing market as the Federation Nationale de I’Immobilier (FNAIM); Syndicat increasing retirement age throughout Real Estate Associations National des professionneles Immobiliers (SNPI) and Union Northern European could spike Naitonale de la Porpriete Immobiliere. investment into second (or retirement Century 21, Engel & Völkers, ERA Real Estate, John Taylor, homes) in France. With both positive Large Real Estate Firms RE/MAX and Winkworth. and negative views bandied about, the outlook for 2011 is cautiously There are three major banks in the mortgage market: Crédit Financial Institutions optimistic. Agricole, Crédit Mutuel and Credit Foncier.

Mortgage Rates 3.6% (2009) for 15-year ﬁxed. [EN19]

Global Snapshot Interesting snippets from around the globe. UNITED KINGDOM 925,000 annual transactions

JAPAN 300,000 annual transactions FRANCE 24 million households CANADA 495,000 annual transactions CHINA 525 million households

ITALY ARGENTINA 2-3% Commission GERMANY 74.9% homeownership 43% Homeownership

AUSTRALIA SOUTH AFRICA 75,000 Licensed Agents Our World has changed; we now operate 47,000 Licensed Agents in a global marketplace. Globalization of the ´real estate market is inevitable. MIKE GREEN Managing Director, Harcourtsµ International

The past ﬁve years have been an extraordinary time for property Global Snapshot markets. I’d love to report that the global market is emerging, Interesting snippets from around the globe. ´en masse, from the long, dark tunnel, but that would be a bit UNITED KINGDOM optimistic. 925,000 annual transactions ALAN TENNANT µ Chair, International Consortium of Real Estate Associations

JAPAN 300,000 annual transactions FRANCE 24 million households CANADA 495,000 annual transactions CHINA 525 million households

ITALY ARGENTINA 2-3% Commission GERMANY 74.9% homeownership 43% Homeownership

AUSTRALIA SOUTH AFRICA 75,000 Licensed Agents 47,000 Licensed Agents

The U.S. continues to be a top destination for international buyers from all over the world. ´ RON PHIPPS µ President, NAR 2011

Population 82.3 million; 2010. [EN1]

Pop. Growth Zero to a slight decline. [EN2] Germany Currency Euro (EUR) Exch. Rate (US) $1.00 USD = 0.75 EUR; Dec 2010. Overview 50,000 persons per year since GDP per Capita $40,511 USD; nominal, 2010. [EN1] 2001. Germany is one of the world’s Unemployment 7.5%; 2010. [EN19] most progressive countries and Like its western European Language German. economic powerhouses — the fifth neighbors, Germany faces largest economy in the world and significant demographic Europe's largest. It is known for its challenges to sustained long-term over the previous year, but still lower efficiency, high standards and more growth: Low fertility rates, an than the three previous months. recently, successful fiscal policies aging population and declining net that have seen the economy steadily immigration are putting increasing Forecast improve. Germany is recognized as pressure on the country's social a scientific and technological leader welfare system, necessitating major With the lowest level of especially in motor vehicles, medical structural reforms. unemployment in Europe (7.5% engineering and plant manufacturing. compared to an average of 10% in Germany started creeping out of Europe) it appears that when the Economy / Real Estate recession towards the end of 2009 final numbers are in for 2010, the largely in response to rebounding German economy is expected to Germany has far more foreign manufacturing orders and exports — have recovered with 1.5% growth. nationals living in it that any other primarily outside the Euro Zone — and Economists say that this could be European country; 7.3 million relatively steady consumer demand. the beginning of Germany’s property compared to the next highest country, During 2010 Germany’s housing growth cycle. For now, however, it Spain, at 4 million. However, the market enjoyed continued rising seems that most sellers are choosing country also has a population that house prices for nine consecutive to stay put until the situation becomes has been shrinking by an average of months through September; up 4.5% clearer.

Homeownership 43%; 2010. [EN19] As German home values have always been considered more-or-less assured, Households 38 million; 2010 est. [EN11] homebuyers are expected to continue Median Home Price $232,100 USD; Nov 2010. [EN20] moving toward the more afﬂuent suburbs near larger city centers where Annual Transactions 900,000; 2010 est. [EN11] there is good infrastructure. Licensing Required No. The large problem of the aging and Estate Agents 40,000; 2010 est. [EN11] shrinking population remains. Add Real Estate Association Immobilienverband Deutschland (IVD). this to the fact that Germany already has, at 43%, one of the lowest home- Commission Structure 5% to 7%. ownerships rates of developed ﬁrst Dahler & Company, Engel & Völkers, Knight Frank, RE/ world countries and the long-term Large Real Estate Firms MAX, and von Poll Immobilien. future is not rosy.

Major banks are the Deutsche Bank, Commerzbank, Financial Institutions Postbank, Dresdnerbank, Volksbank and Sparkasse.

Mortgage Rates 3.73% for 10 to 15-year ﬁxed mortgage. [EN19]

Population 60.3 million; 2010. [EN21]

Pop. Growth Zero to a slight decline. [EN2] Italy Currency Euro (EUR) Exch. Rate (US) $1.00 USD = 0.75 EUR; Dec 2010. Overview by private companies and GDP per Capita $33,829 USD; 2010. [EN1] a less developed, welfare- Italy has been at the forefront dependent agricultural south Unemployment 8.7%; May 2010. [EN22] of European economic and political with high unemployment. Italian (official), German and French unification, joining the Economic and Language in certain areas. Monetary Union in 1999. The economy is driven in large part by the manufacture However, it has been plagued with of high-quality consumer goods that began in mid-2007 bottomed out persistent problems including illegal produced by small and medium- for Italy during the first half of 2009. immigration, organized crime, sized enterprises, many of them corruption, high unemployment, family owned. Italy also has a sizable The market has remained relatively sluggish economic growth and the underground economy, which by stable since the 2.8% price decline in low incomes and technical standards some estimates accounts for as much 2010. It's interesting that the market of southern Italy compared with the as 15% of GDP; most common within is experiencing more and more people prosperous north. the agriculture, construction and moving away from buying and into service sectors. renting with 96% of 20 year olds still Economy / Real Estate living with their parents, the highest Italy’s housing market was relatively rate in Europe. Italy has a diversified industrial shielded from the global credit crunch economy that is divided into a and prices did not decline that much. Forecast developed industrial north, dominated The global economic real estate crisis Growing concerns that italy Homeownership 72%; 2007. [EN23] could be the next European country to collapse – similar to Spain and Households 20 million; 2010 est. [EN11] Greece – is of course not good for the Annual Transactions 600,000; 2010 est. [EN11] housing market.

Licensing Required Yes. Average house prices fell in Italy Licensing Authority Chamber of Commerce, Industry, Trade and Agriculture. during 2010, but currently it's holding steady. Most predictons estimate a Estate Agents 20,000; 2010 est. [EN11] slight uptick of under 2% in house Real Estate Association Italian Federation of Real Estate Agents (FIAP) prices during 2011.

Commission Structure 2% to 3% Overall demand for homes remains Engel & Völkers, ERA Real Estate, Gabetti Property weak as a result of a supply that Large Real Estate Firms Solutions Agency, John Taylor, Pirelli Real Estate, RE/MAX, still largely exceeds demand. Lesser Sant'Andrea and Toscano. appealing locations have a nearly non-existent demand, while demand Five major banks in Italy: Unione di Banche Italiane SpA, for quality properties remains high. Financial Institutions UniCredit SpA, Intesa Sanpaolo SpA, Monte Paschi and Banco Popolare SC.

4.1% to 6.3%. 34% of homes purchased in 2009 were without Mortgage Rates a mortgage.

Population 127.5 million; 2009. [EN24]

Pop. Growth Zero to a slight decline. [EN2] Japan Currency Japanese Yen (JPY) Exch. Rate (US) $1.00 USD = 84.06 JPY; Dec 2010. Overview economy in the world after GDP per Capita $42,325 USD; nominal, 2010. [EN1] the U.S. and China. Two In the years following World War notable characteristics Unemployment 5.1%; 2010. [EN1] II, government-industry cooperation, of the post-war economy Language Japanese. a strong work ethic, mastery of high were the close interlocking technology and a comparatively small structures of manufacturers, defense allocation helped the 3,000 suppliers and distributors, known as throughout 2010. The performance islands that form Japan to become a keiretsu, and the guarantee of lifetime of residential urban land prices, technologically advanced economy. employment for a substantial portion the benchmark for Japan’s housing of the urban labor force. Both features market, was disappointing; falling Economy / Real Estate are now eroding under the dual 2.8% year-over-year in Q3 2010. Over pressures of global competition and the same period the index for six Following three decades of domestic demographic change. major cities was lower by 4.7%; down unprecedented growth, Japan's by 3.9% for other areas. economy experienced a major In the face of political and economic slowdown starting in the 90s, but uncertainty, Japan’s housing Forecast the country remains the third-largest market continued to be very fragile Japanese banks continue to be very Homeownership 61.1%. [EN25] cautious about granting new loans and foreign buyers suffer through a long Households 57.6 million; 2010 est. [EN25] credit approval process; permanent Annual Transactions 300,000 (est). residency and a Japanese guarantor are required to obtain a loan. Land prices Licensing Required Yes. are used as a measure of residential Licensing Authority Minister of Land, Infrastructure, Transport and Tourism. property values partly because Japan is earthquake-prone, making the Estate Agents Not available. value of land more signiﬁcant than All Japan Real Estate Association (AJREA), Japan Real the houses built on it. Estate Institute, The Real Estate Companies Association Real Estate Associations of Japan (RECAJ); National Federation of Real Estate The real estate sector continues Transaction Associations (NFRETA) and The Association of to struggle to rebound from its Real Estate Agents of Japan (FRK). two-decade long property slump, largely driven by market excess and Commission Structure 3% unwise lending practices. Focus ERA Real Estate, Century 21 Sky Realty, Coldwell Banker, on conservative mortgage lending, Large Real Estate Firms Maeda Real Estate, MKC Partners and Sumitomo Real Estate interest rate stability, landlord- Sales. friendly rental terms and the infusion of government stimulus monies could Leading mortgage lenders in Japan are: Jukeikai Co. Ltd., The help a turnaround. At this stage there Mortgage Corporation of Japan, Ltd., Daiwa Estate Company, Financial Institutions is, however, little prospect for any Limited, Royal Home Center, Company, Limited and Osaka sustainable growth in the real estate Marubira, Company, Limited. market in 2011. Mortgage Rates 2.2% to 3.2% with 5-year to 15-year ﬁxed rate. [EN26]

Population 50.0 million; Nov 2010. [EN30]

Pop. Growth Between 1% and 2% South Africa Currency South Africa Rand (ZAR) Exch. Rate (US) $1.00 USD = 6.8 ZAR; Dec 2010. Overview and a global commodities GDP per Capita $7,100 USD; nominal, 2010. [EN1] boom. However, it began South Africa is a middle-income, to slow in the second half Unemployment 25.2%; May 2010. [EN28] emerging market with an abundant of 2008 due to the global 11 official languages: Zulu (23.8%), supply of natural resources and financial crisis' impact Xhosa (17.6%) and Afrikaans well-developed financial, legal, on commodity prices and Language (13.3%) are the most commonly communications, and energy sectors. demand; GDP fell nearly 2% spoken. English is the dominant Their stock exchange is the 18th in 2009. business language. largest in the world and there are pockets of modern infrastructure Unemployment remains supporting a wide distribution of goods high leading to a significant constrain to major urban centers throughout on growth. Daunting economic Interesting real estate licensing the region. problems remain, especially poverty, changes are expected in South Africa lack of economic empowerment in 2011 as mandatory training (NQF Economy / Real Estate among the disadvantaged groups and 5) for estate agency principals comes a shortage of public transportation into effect. This is expected to reduce Growth was robust from 2004 that hinders growth. More than one- the number of licenses significantly, to 2008 as South Africa reaped the quarter of South Africa's population maybe as much as 30%. benefits of macro-economic stability currently receives social grants. Forecast Homeownership 56.0%; 2009. [EN29] After a “mini-recovery” from 2009 Households 13.4 million; 2009. [EN29] to early 2010 the South African Annual Transactions 200,000; 2010 est. residential property market is showing signs of weakening. Commission 5% to 8%; 2010. [EN30]

Yes; newly reinstated. Certiﬁcate in Real Estate (obtained With an average time on market prior Licensing Required after one year internship at an estate agency ﬁrm) followed by to a sale approaching four months, passing a Professional Designation Examination. many are predicting a decrease in house prices in 2011. This is despite Estate Agents 47,000 [EN30] mortgage rates that are at a 30- Licensing Authority Estate Agency Affairs Board (EEAB) year low, and mainly as a result of the inability and unwillingness of Real Estate Association Institute of Estate Agents of South Africa (IEASA) consumers to get further into debt. Aida, ERA Real Estate, Harcourts International, Jauvitz Large Real Estate Firms Properties, Pam Golding Properties, RE/MAX and Seeff A further challenge is the Properties. exceptionally high unemployment that continues to pose a major The mortgage market is dominated by four private, problem for the country. commercial banks that originate more than 95% of all Financial Institutions mortgages. They are: ABSA (Amalgamated Banks of South Africa), Standard Bank, First National Bank and Nedbank.

Mortgage Rates 9.0%; Nov 2010. [EN27]

Population 61.8 million; 2010. [EN31]

Pop. Growth 0.5%; 2010 est. [EN2] United Kingdom Currency British Pound Sterling (GBP) Exch. Rate (US) $1.00 USD = 0.64 GBP; Dec 2010. Overview public ownership and GDP per Capita $36,298; USD nominal, 2010. [EN1] contained the growth of The United Kingdom (UK or social welfare programs. Unemployment 7.7%; Nov 2010. [EN32] Britain) is made up of England, Wales, Services, particularly banking, Language English. Scotland and Northern Ireland. insurance and business services (Ireleand, which is often called the account, by far, for the largest Irish Republic, is an independant proportion of GDP. state.) Since emerging from recession but the market was steady through in the early 1990’s, Britain's economy In 2008, the global financial crisis most of 2010 with the average price enjoyed the longest period of hit the economy particularly hard around $256,000 USD. Most property expansion on record during which due to the importance of its financial in the UK is bought with traditional its growth outpaced most of Western sector. Sharply declining home prices, loans, usually over 25 years, from Europe. Today, the UK is the sixth high consumer debt and the global banks and other lenders. Approvals in largest economy in the world and economic slowdown compounded October (47,200) were 5% lower than one of the quintet of trillion dollar Britain's economic problems, pushing those at the beginning of the year. economies of Western Europe (UK, the economy into recession. France, Italy, Germany and Spain). Forecast Since the downturn there has been Economy / Real Estate a large decline in the number of new The United Kingdom housing houses being built; the lowest levels market faired better than most Over the past two decades the since the second World War. House European countries in 2010. The government has greatly reduced prices fell 20% in 2008 and 7% in 2009 abolition of the Home Information Packs in May increased supply and the market weakened in the latter half of Homeownership 68%; 2010. [EN23] 2010. The new government coalition Households 26.3 million; Aug 2010 [EN31] seems to be working, but there are still some problems as the number of home Median Home Price $256,000 USD; Feb 2010. [EN33] sales continues to slide in light of the Annual Transactions 925,000; 2010 est. banks tougher mortgage requirements and poor consumer confidence. Licensing Required No

Estate Agents 50,000 practicing of which 10,000 are members of NAEA Experts are completely divided whether house prices will fall or rise National Association of Estate Agents (NAEA). In in 2011. The general opinion seems to Real Estate Association November 2010 the NAEA introduced licensing requirements be stable or stagnant. for its membership.

Century 21, Foxtons, Hamptons, Knight Frank, Savills and Large Real Estate Firms Winkworth.

The top three mortgage lenders control more than half of the Financial Institutions market: Lloyds Banking Group, Santander and Nationwide BS.

Mortgage Rates 4.3% to 4.9%. Historically low levels.

Summary 12,000 agents worldwide have agents. earned ICREA’s Transnational There are two dominant global Referral Certified (TRC) professional In November 2010, the National real estate organizations in the real designation. Association of Realtors®, decided to estate industry. The first, FIABCI (the withdraw as an affiliated member of International Real Estate Federation), Their multilingual global website, ICREEA, the organization they helped was formed in France in 1945 as World Properties (worldproperties. create a decade ago. It appears that the French National Federation of com), was recently re-launched in NAR is pursuing a more autonomous Property Managers. Today, FIABCI association with international MLS route as a part of its international is a business club of real estate and global referral network, Proxio plans. professionals in 60 countries. FIABCI (proxio.com). The system is a business is also a special consultant with and referral platform, customized Simultaneously, the NAR has added NGO status to the Economic and to each local agent’s needs. ICREA a renewed push in their International Social Council of the United Nations CEO Thijs Stoffer stresses that the Division by landing Global Business Organization (ECOSOC). networking and MLS functions for Canals with their local Realtor® agents are easily applicable for local Associations. Realtor.com, the NAR’s Recently FIABCI joined forces with use. He also reports that some ICREA official website, also announced that ICREA, the International Consortium associations are developing sub-portal it is extending it's services to not of Real Estate Associations. ICREA platforms that will effectively become only add translation services, but to was formed in 2001 to develop and national MLSs and/or property listing increase its presence in international maintain international transaction sites for consumer use. The system markets. Currently more than 575,000 standards and provide a safe forum is fully translated, communication consumers from non-U.S. destinations for the practitioners of member can take place in any language and visit Realtor.com every month. associations to conduct international at any level—from local to national business. Currently ICREA serves 55 to international. World Properties Global is the new local. member associations in helping them allows agents distinguish themselves meet the global needs of their agent in their local market while assisting members. Since 2006, more than clients through referrals to qualified

GLOBAL VIEWPOINT by Alan Tennant, chair, International Consortium of Real Estate Associations

Market reports from around the world are, overall, positive. According to ICREA’s member associations, the global housing market is beginning to experience some recovery as a result of recorded positive growth through mid-2010 and data that suggests that the recovery is continuing to spread. That same growth will eventually mean new job creation which, in turn, will stimulate the commercial markets.

With the perspective that comes with time, analysts suggest this was not the catastrophe ﬁrst predicted and that some market adjustment was needed. Government interventions and lower interest rates have made an impact and I periodically hear of a broker reporting “this is the best year I’ve ever had.”

Admittedly this isn’t the case for all and there are serious risks ahead, but one thing is clear, the new market reality is that the world isn’t moving in one direction. Some markets are moving up, others are ﬂat and, yes, some are still experiencing downward movement. This global disorder is the new normal and agents must learn how to work effectively in this market.

Introduction innovations such as Location-based you to share anything on the web to Services (LBS), Augmented Reality your Social Sphere. As integration Back in June 2006 independently and Social Reviews began to blur with mobile devices increases, Social owned YouTube (youtube.com) had the line between what is considered Media is becoming the natural 100 million video views per month, ofﬂine and online. Innovations at the sweet spot since those devices are Facebook (facebook.com) was a forefront of Social Media in 2011 will already at the center of how people closed network for college and high further blur that line as the new wave communicate. school students, and Twitter (twitter. seeks to integrate and internalize com) didn’t exist. A short four years Social Media, revitalize Social Information Streaming later and monthly online video Searching and offer up new ways to streams surpassed the ten billion take your ofﬂine shopping experience Introduced as one of the key to the next level. trends for Social Media in the 2010 Despite the almost unlimited nature of what you can Swanepoel TRENDS Report, Mobile do on the web, 40 % of U.S. online time is spent on just Social Media has Media has found exponential ´three activities – social networking, playing games and become such an growth with the rapid advancement emailing. increasingly vital of the Smartphone. Features such part of our lives as Location-based Services (LBS),

DAVE MARTIN that according to Augmented Reality, Social Reviews, µ Nielsen Analyst Forrester Research etc. are increasing the demand placed (forrester.com), on the Internet by mobile devices, mark according to Nielsen (nielsen. within 15 years CEOs will need to completely reshaping the approaches com) with the average American know the ins and outs of new media, to understanding the power of Social consumer spending more than three social network technologies and social Media. According to International hours a month streaming video. communities before they get the job. Data Corporation (idc.com), by 2013 Facebook surpassed more than half Furthermore, Social Media Energy nearly one in seven people (one a billion users — nearly one out of (socialmediaenergy.com) reports that billion) will be accessing the Internet every fourteen people on the planet 35% of the global workforce will be on a mobile device. This is up from — while the new kid on the block mobile by 2013, most of which will 450 million in 2009 and represents (Twitter) shot past 200 million users be active Social Media users. This is a huge increase in demand and the becoming a powerful tool for political not a far stretch as the 230 million necessity for advances in mobile movements, unfiltered news and U.S. Internet users now spend 10% business. of their time every month (41.1 million minutes) on Facebook alone, BY THE NUMBERS Access to Social Media networking according to comScore (comScore. sites like Facebook and Twitter com), as compared to 40 million increased through the availability minutes on all of Google’s websites of social sharing widgets. The combined. 35% formerly separate messaging and of the global workforce social networking spaces have Social networking sites are slowly will be mobile by 2013. begun a redefining process in terms becoming the most popular method –––––––––––––––––––– of how we search for and interact by which users search for information, socially online. Although Social music, news and now homes. Its Media grew significantly in terms integration has become nearly 41.1 of reach and functionality during universal through sharing services million minutes the last decade it wasn’t until the such as “Share This” (sharethis.com) users now spend online transition to mobile devices that or “Meebo” (meebo.com)that allow on Facebook every month.

© 2010 RealSure, Inc. www.RETrends.com 35 Social The New Media computing and network operations innovations are the focus of the 2011 of more than 8% from a year ago such as the deployment of LTE (Long Social Media update and include: according to ComScore. The number Term Evolution), WiMax and of Smartphone users 4G. connecting to Facebook Social media is a natural sweet spot for the mobile through a mobile browser environment since those devices are at the center of These innovations focus ´ grew 112% over the same how people communicate with their circle of friends, on the organization of period while Twitter whether by phone, text, email, or increasingly, accessing information between experienced a 347% social networking sites via a mobile browser. various platforms, including jump. According to Mark networking and non- MARK DONOVAN Donovan, Senior VP of Senior VP of Mobile,µ ComScore networking sites, desktop mobile at ComScore, computers and mobile "Social networking remains devices. Implementation of sharing Integration and Internalization, one of the most popular and fastest- features on a massive scale such Social Q & A, Group Shopping and growing behaviors on both the PC- as “Like” or “Recommend” — a Location-based Shopping. based Internet and the mobile Web. location, a review, a post, each other, Social media is a natural sweet spot conversations, etc. — shows that Integration for the mobile environment since the formerly separate messaging those devices are at the center of and social networking spaces are One in three Smartphone users how people communicate with their redeﬁning how we search for and access social networks with their circle of friends, whether by phone, interact socially online. These Smartphones, which is an increase text, email, or increasingly, accessing

Source: Foresight Analytics

36 www.RETrends.com ©2010 RealSure, Inc. Swanepoel TRENDS Report 2011 social networking sites via a mobile places) is a mobile app that lets average of 7.5 million questions browser." users "check in" to a location so per day. friends know where they are and • Quora (quora.com) is an Multimedia features found in mobile what they are doing, including online collection of questions devices are becoming the centerpiece its “Places” feature that allows and answers with an estimated of social networking. Functions such users to find deals from nearby 600,000+ visits per month. as location-based check-ins, social businesses. Launched in 2009 it focuses reviews/ratings, etc. are increasingly As a result of the integration between on questions from small being used to upload new information offline and online, the use of the communities as users can import directly to the user’s social networking web and mobile applications are their social circle from Facebook profile. Add to this the capability of becoming more personalized. As or Twitter. transmitting the latest information Dennis Crowley, the • Aardvark (vark.com) was CEO and Co-founder launched in 2007 as the first of Foursquare stresses: Every check-in should mean something. Social Search engine searching “Every check-in should Foursquare should get smarter every time you for people that have “answers” ´ mean something. check in. and not web pages. Each question Foursquare should get DENNIS CROWLEY asked is given a personal response µ CEO and Co-founder, Foursquare smarter every time that within five minutes. It was you continue to check acquired by Google in February in. We should be able 2010. while “on the go” through a broad to offer special deals that you may be range of social networking options interested in and we should be able to • LinkedIn Answers (linkedin. and the result is that mobile device offer recommendations for the type of com/answers) is a feature users are increasingly integrating things you should do next.” launched in 2007 within what is considered offline and online. LinkedIn that serves as a Social Q&A knowledge market for LinkedIn’s • Foursquare (foursquare.com) is 80 million members in over 200 a mobile application that makes Social Searching isn’t new to countries. cities easier to use and more Social Media per say, but rather it's interesting to explore. It is a now being structured formally as friend-finder, a social city guide Social Q&A; using a semantic way that lets users "check in" to a to search for information via “word CHANGING place when they're there, tell meanings” rather than the typical friends where they are and track RELATIONSHIPS keyword search methods used by the history of where they've been companies like Google (google. For real estate professionals, the and who they've been there with. com) and Yahoo (yahoo.com). Social way they develop relationships is • Google Latitude (google.com/ Searching functions are at their best changing. latitude) is a location-aware when implemented within a large Consider just one recent example mobile app that allows users to user base like those found with the in the real estate industry offered by enable certain people to track following key players: Midwest Real Estate Data in which a their location as they “check in” social/web marketing application — • Formspring (formspring.me) is using their Google Account; the Share My Listings Widget (SMLW) — an online community launched is being utilized by Realtors® to view user's cell phone location is then in 2009 that provided more than their listings on popular consumer mapped on Google Maps. one billion answers by the end sites like Facebook and Twitter among others. • Facebook Places (facebook.com/ of 2010. It claims to answer an

Other examples include: The attraction to business of this new flavor of search is that as users • Fluther (fluther.com) ´pose and answer questions, they'll reveal more data about themselves and create discussion threads against which ever more targeted advertising • Yahoo! Answers (answers. can be sold. yahoo.com) µ BUSINESS WEEK • ASK (ask.com) Week (businessweek.com): “The which means that the gaming • Chacha (chacha.com) attraction to business of this new environment changes relative to flavor of search is that as users pose a player's real-world location. Focusing on the way we seek and and answer questions, they'll reveal • Scvngr (scvngr.com) is a social consume information, Facebook has more data about themselves and location-based mobile gaming also joined Social Q&A by creating create discussion threads against platform for mobile phones that renewed interest with Facebook which ever more targeted advertising layers the game on top of the Questions. With a core focus of can be sold.” For Realtors® this form of world. By Q4 2010 over 650 understanding the “fundamental social interaction can be an excellent institutions had participated in social interactions” between method of engaging new leads on creating challenges to in-game individuals, adapting Facebook sites like Facebook and LinkedIn. locations. to include Q&A was a natural progression. According to Business Geo-Location at Every Turn • Socialight (socialight.com) is a location-based Social Media There are numerous social media platform that lets people and DID YOU KNOW websites that offer location-based editorial publishers create Top 15 services. These sites, also known as and scale local content and Location-Based Services “geo-social networking” websites, community apps combining user- allow users to interact relative to created and branded location- 1. GPS / Maps location and time; allowing social based content at the hyper-local networks to connect and coordinate level. 2. Google them with local people or events 3. Yelp that match their interests. Web- With the rapid increase in demand 4. Facebook mapping services with geo-coding for LBS even the largest social media 5. Foursquare data for places (streets, buildings, websites have incorporated geo- parks, etc.) are now used with location services. In 2010, Facebook 6. Weather geo-tagged information (meetups, rolled out its long-awaited location 7. Around Me concert events, nightclubs or application — Facebook Places — 8. Wi-Fi Finder restaurant reviews) to match users that also allows users to "check in" 9. Restaurant Finder with a place, event or local group for on their mobile device. 10. Yahoo! social purposes. Some of the most well known sites making use of this 11. Urban Spoon technology are: Group Shopping 12. Twitter 13. Where Group Shopping is the latest • Gbanga (gbanga.com) is a mixed installment in the evolving 14. Poynt reality, social gaming platform Social Media paradigm. This new 15. TripAdvisor for mobile phones developed by phenomena has been popularized Zurich-based startup, Millform by Groupon (groupon.com) where Source: JiWire; Q2 2010 AG. The platform runs on consumers gang up on daily deals on real-time locative media,

38 www.RETrends.com ©2010 RealSure, Inc. Swanepoel TRENDS Report 2011 things to do, see, eat and buy in their advanced by the use of location-based app (if the customer has activated city. The premise is simple; if enough services. The rise was affirmed by the app). people are interested in a deal, then security software company Webroot everyone benefits. Fail to meet the (webroot.com) in late 2010 reporting Other more general location-based minimum amount of interested that 39% of social network users who apps like Foursquare, Gowalla people and the deal disappears. You own a mobile Internet device use (gowalla.com) and Loopt (loopt. can’t wait though as most deals are LBS for layering, restaurant searches, com) also function as virtual loyalty only available for 48 hours. You will home searches, etc. cards. Initial audience reluctance to probably be surprised to learn that use check-in services due to privacy Groupon claims that 98% of offers Up to now the use of location- concerns appear to be overrated as met the minimum number of signups. based services has only offered companies such as Foursquare with the identification of a customer’s 2 million users and 100 million According to Forbes (forbes.com), presence after a purchase has already monthly check-ins surge ahead. Groupon has 13 million subscribers been made. According to the New While the most popular activity in and was on track to pass $500 million York Times (nytimes.com), start- LBS is still currently letting friends in revenue for 2010. The success up company Shopkick (shopkick. know where friends are, a survey of their Group Social Shopping com) changed the paradigm by using by mobile media company JiWire approach has brought in over 35,000 Smartphones to register a customer (jiwire.com) revealed that 19.2% companies fighting to offer products when they enter the store and before of respondents reported that they and services. Hundreds of copycat making a purchase. check-in at locations at least daily. In shopping sites have already sprung up addition, more than 50% indicated including LivingSocial (livingsocial. The premise: Smartphones now are that location-specific advertising like me), RedBeacon (redbeacon.com) able to offer rewards or discounts mobile coupons is a more appealing and HelpHive (helphive.com). based on where you are and what incentive than check-ins. Fascination with the concept has you could be doing. Given enough already gone international with information, rewards can also be However, wide spread implementation another 500 sites overseas; 100 of catered to match your preferences of location-based shopping apps will which are in China alone. based upon your purchase history. still take time as there are various Best Buy (bestbuy.com), one of the challenges to widespread adoption; Service providers like Groupon are launching partners of Shopkick, privacy concerns, scaling issues and different than traditional websites already has more than 250 of its stores check-in integrity among them. and estores in that they are not in their “digital loyalty” program, delivering “eyeballs” or “clicks” but which rewards customers that walk Realtor® Adoption rather actual customers that are in and automatically check-in via ready and willing to purchase goods the Shopkick iPhone app or the According to a survey by the and services in bulk quantities. upcoming Android app. Shopkick’s National Association of Realtors®, This new approach will most likely integration process is powered by 33% of Realtors® used Social Media be implemented by many existing small, physical speakers that emit in 2009 and by 2010 that number had websites and estores in some form or inaudible sounds near the entrances grown to 84%. With the growth of another. of participating stores that mobile Social Media in real estate, Realtors® phone microphones are designed to are urgently seeking creative ways Location-based Shopping pick up. The signal, which contains to use it to improve lead generation a store-specific code, provides and customer acquisition. Initial The previous edition of the advertising information and rewards popularity by Realtors® that have Swanepoel TRENDS Report detailed that are synchronized with the found some success in generating how Mobile Media was being customer’s phone via the Shopkick leads online include utilizing:

2007 Kindle 2008 Real Estate V 2006 , ActiveRain, Redfin iPhone 2007 (1995-2010) Zillow witter T 2006 ube ouT 2005 2005 Y 2004 Facebook Real Estate Blogs eb Highlights eb 2.0 2003 LinkedIn W 1998 URL Craze Real Estate .com, Inman 1996 2001 Realtor Wikipedia ed. Dotcom Crash, b We 1999 Real Estate W Blackberry 2000 1998 1995 1995 ext Messaging T osoft Releases IE 1.0 Real Estate Goes Google Domain Register eb 1.0 Micr W

• Twitter (twitter.com) with each other. are established and information consolidated. The process is now • Facebook (facebook.com) Just as new technologies such as about refinement – how to improve • YouTube (youtube.com) fax machines, computers, and the efficacy of the software, the mobile phones were introduced capabilities of the hardware, etc. By • Flickr (flickr.com) and mastered in the past, Social 2013, 35% of the global workforce • Meetup (meetup.com) Media is now undergoing its mastery will be mobile, and features like phase. Part of this refinement process location-based shopping, group • LinkedIn (linkedin.com) includes features like location-based shopping, reviews and Q&A will shopping, group shopping, and Social become more commonplace as one In addition, Mashable (mashable. Q&A. in seven will be using the Internet com) reports that Realtors® are “on-the-go.” increasingly utilizing real estate This refining of services and specific platforms like: relationships, much like that of diamonds, takes time and requires • Trulia (trulia.com) constant and diligent attention. • Zillow (zillow.com) According to Gartner (gartner. com) analyst, Nick Ingelbrecht: • WellcomeMat (wellcomemat. “Companies attempting to use com) social networks should develop • Architizer (architizer.com). relationships with key customers over a period of time and progressively Although the use of most social refine the social network profiles of networking sites are free, Borrell those individuals.” By refining and Associates (borrellassociates.com) mastering Social Media, as with estimates that Social Media budgets previous technologies, not only are are set to grow to $104 billion by 2015 services refined, but also so is the with 37% being spent on advertising. process of creating leads and finding the right consumers. Summary In this way the most suitable The first half of the last individuals can be targeted with decade saw the birth of the major the right information, products and players in Social Media. At that promotions in the most cost-effective time, it was nothing more than a way. social experiment that offered users the ability to make connections, The first half of the last decade rekindle friendships and build new saw the birth and the initial rise of relationships. At the time, businesses Social Media – the toddler. It was all labeled it as a fad and left it to high about discovery and sharing, and in school kids and college students. many ways those things are and will continually flourish as we innately Since then, Social Media has seek more information. exploded to include hundreds of millions of users worldwide with sites Social Media, however, progresses such as Facebook and Twitter that into the teen years where frameworks are redefining how we communicate

Introduction banks. “free money” they can get in anticipation of the time when they are go- In the 2009 edition of the As noted in last year’s Report, there is ing to have to face the reality of the Swanepoel TRENDS Report the com- no one single cause of the problems market. All the while they are sitting mercial real estate (CRE) market was in the commercial sector. Similar on “shaky” loans, which may be com- referred to as The Impact of the Tick- to residential real estate, loans were pletely upside down and they don’t ing Time Bomb; a bomb that the gov- made at the height of the bubble want to foreclose, take the resulting ernment, the regulators, the financial amidst hugely inflated values that losses and be forced to write down institutions and the market did not simply can’t be maintained. One their portfolios as their liquidity will would have expected be drastically impacted. So they, like that this sophisticat- the government regulators, continue Over the next few years, a wave of commercial ed market had more to look the other way and play the ´real estate loan failures could threaten America’s prudent professionals game while cash-strapped borrowers already-weakened financial system. but clearly greed got hold their breath. In Washington the CONGRESSIONAL OVERSIGHTµ PANEL the better of them as PR machine spins the tale that the well. The result is banks are strong but just not lend- commercial defaults ing while at the same time the Fed- want to acknowledge existed. This on the rise with the full force expect- eral Deposit Insurance Corporation was especially evident in the lending ed to be felt over the next three years. (FDIC; fdic.gov) continues to pick arena where, according to Deutsche up one failed bank after another; an Bank (db.com), banks held some On the investment side, funds were FDIC that is quickly running out of $1.7 trillion of CRE loans, many of formed in 2009 to buy distressed money. which will mature between 2010 and properties on the assumption that 2012 with an expectation that 60% the lenders were poised to foreclose Current State of Affairs of those loans will be un-financeable on troubled properties. At the end of without an infusion of capital. 2010 they were still sitting and wait- There was some cautious ing. The amount of debt continues optimism concerning 2011 being So what has happened in the last 12? to mature, values have not improved spread around the International and the anticipated wave of commer- Council of Shopping Centers' (ICSC; In sampling the entire spectrum of cial foreclosures has not appeared. icsc.org) conference in New York, opinions, responses range from “the Everyone from the top on down just with talk of new development within sky is falling” to “the worst part is continues to hold their collective 24 months. However, the consensus over” and everything in between. breath while hoping that they can was that good December retail sales Some analysts note that well priced buy some more time until things im- would most likely be followed by a deals are picking up while others sug- prove. They continue gest that there are deals in the mar- to dance around the is- ketplace but none of them are “good sue in anticipation that Community banks are essential to the economy, deals.” On the lending side there are the “extend and pre- but many of them are experiencing acute credit some that are beginning to get seri- tend” road will even- ´ distress. ous about dealing with their commer- tually lead somewhere SHELIA BAIR cial portfolios, at least in the Com- positive. µ Chairwoman, FDIC mercial Mortgage Backed Securities (CMBS) arena where $23.9 billion CRE continues to sink under the slowdown in the first half of 2011. were moved to special handling early weight of overleveraged owners who This sentiment seems to capture in 2010; three times more than at the overpaid and are now facing the the general mood in the commercial same time last year. However, there consequences of a hot market gone market — hopeful but anticipating a are still some $1.1 trillion in CRE south. The Federal Reserve (federal- 2011 that will look much like 2010. loans sitting in the hands of the top reserve.gov) continues to keep inter- The unanswered question still con- 100 banks; a problem that is even est rates artificially low to prop up the tinues to dominate the market: What more critical for small and mid-sized banks and the banks take in all the about jobs?

The Lending Sector and threaten their solvency. This is category. On the other hand, even expected to be a significant issue in though the majority of CMBS loans The first quarter of 2010 saw 2011 and beyond, which could result are non-recourse (not personally noncurrent CRE loans rising at a fast- in bank losses in the range of $200 to guaranteed) the borrowers still face er rate than any other loan category; $300 billion. It should come as no major tax consequences as a result of an increase of 8.8% or $3.7 billion surprise that the banking sector saw electing the foreclosure or “deed in according to AM Best (ambest.com). the closing of 157 banks by the FDIC lieu of” options. In the banking sector, CRE markets through mid-Decem- currently absorb $3.4 trillion in debt, ber 2010 making a A “grand re-pricing” must occur across the total of 325 since Oc- which is 6.5% of the total outstand- commercial real estate market. ing credit market debt. tober 2007; it has over ´ KEITH YANG 775 troubled banks on President,µ AuctionPoint.com Compounding this issue in 2010 were its watch list. those upside-down loans in 2009 that were simply extended, raising the On the Commercial Mortgage 2010 percentage considerably above Backed Securities side, Fitch Rat- The Market Sector the 36% figure (reflected in the ta- ings (fitchratings.com) reported that ble). Coincidental with the increased delinquencies had reached 4.7% by On the property value front, number of CRE loans coming due in the end of 2009 and were expected to Foresight reports that CRE values 2011 through 2014 is the percentage reach 12% by 2012. The good news remain approximately 42% below of those underwater that is expected is that the number of loan modifica- their October 2007 peak. According to rise dramatically. In addition, ac- tions continued to increase during to Moody’s (moodys.com) Managing cording to Foresight Analytics (fore- the year and it is estimated that the Director, Nick Levidy: “We expect sightanalytics.com), approximately final number for 2010 will triple from commercial real estate prices to re- $770 billion in CRE loans will be in 2009, potentially reaching $90 bil- main choppy in the coming months negative equity between 2010 and lion to $100 billion for the year ac- but the positive news of increasing 2014, reaching a peak of 63% in cording to Trepp (trepp.com). prices over the past two months is 2012. The result will eventually be tempered by low transaction vol- a very heavy write-down on many of The primary reason behind this in- umes, forecasts for slowing macroeco- those loans. crease in CMBS moving into “special nomic growth and the rising risk of a Many banks, and in particular the servicing” is in response to the wave double-dip recession.” smaller ones, continue to carry high- of maturing loans for which the mar- ly overvalued CRE loans on their ket is simply not willing to provide books as they cannot afford to sell replacement financing. The benefit One of the more encouraging sec- at the current low market prices, for the market is that resolved loans tors is multi-family where most of which would impact their net worth are removed from the delinquency the leading U.S. apartment markets

PERCENTAGE OF MATURING MORTGAGES UNDERWATER (BILLIONS)

Commercial Held by Held by Ins Maturity Maturing % Underwater Amount Mortgage Backed Other Banks Companies Securities (CMBS) 2010 $270 36% $ 96 $153 $46 $18 $53 2011 $296 49% $144 $166 $56 $18 $57 2012 $306 63% $193 $172 $55 $19 $60 2013 $303 61% $184 $163 $64 $20 $57 2014 $266 57% $152 $130 $67 $19 $50 Total $1,441 $769 $784 $288 $94 $277 Source: Foresight Analytics

28 www.RETrends.com ©2010 RealSure, Inc. Swanepoel TRENDS Report 2011 showed growth in leasing during the for foreign money investing in the the banking industry also needs to first half of 2010. This is primarily a U.S. due to its withholding and dis- get involved, but that is problem- result of the vacancies being created closure requirements. In June 2010 atic with depressed prices. Troubled by the foreclosures in the residen- the House passed legislation (HR banks know that if they begin large tial sector and the formation of new 5901) that eased some of the existing scale foreclosures on bad commercial households that cannot afford to buy. impediments of FIRPTA such as in- loans they risk facing insolvency. As With homeownership falling from creasing a foreign investor’s allowable a result they are ignoring the problem just under 70% to just under 67% of ownership interest in a publicly trad- and scrambling to shore up their cap- households over the last few years we ed REIT from 5% to 10% with hold- ital position, which keeps money out have seen more of the market than 3.5 million that is needed households tran- Even borrowers who own profitable properties may be unable to refinance to fuel a mean- sition from sin- ´their loans as they face tightened underwriting standards, increased demands for ingful recovery. gle-family own- additional investment by borrowers and restricted credit. It’s the smaller ership into the USATODAY banks that have rental market. µ the highest ex- According to CoStar (costar.com) ings above this level subject to the posure with CRE in excess of three the rental market is also benefiting tax and administration provisions of times Tier 1 (core) capital; the very from echo boomers that are confident FIRPTA. The bill was passed to the same banks that supply upwards of enough in the future to move out Senate where many hope its scope 40% of small business loans. The on their own; a term analysts have will be expanded. The Real Estate withdrawal of small business loans, coined “decoupling.” Roundtable (rer.org) has included because of excessive CRE loans, has FIRPTA among its priorities. created a situation that suppresses There are some high-end transactions economic growth. Fewer loans means being closed but they are primarily Caution Is The Watchword less expansion that results in higher limited to the more durable markets vacancy rates and lower cash flows for like San Francisco, New York and The usual suspects continue to CRE, not to mention fueling unem- Washington D.C., but there are far hound this sector of the market: high ployment. fewer prime properties available with unemployment, foreclosures and lack which investors can actually make a of investor confidence and motiva- Healthy banks shoring up cash are profit. As a result, on the one hand tion. The private sector is still short also more inclined to use their funds those hitting the market are enjoying on hiring and continues to focus on to acquire marketshare by absorbing increased value and multiple bids. off-shore contractors that don’t get troubled banks instead of making On the other hand, investors who benefits and don’t use space. At the more loans. At the same time the are led by cash rich Real Estate In- same time the office and retail mar- FDIC, because it is running out of vestment Trusts (REITs) — and are kets continue to fall below the line cash, is encouraging the larger banks placing bets on tomorrow’s cash flow and it appears that this trend will to take action by often agreeing to assumptions — are also getting back continue through most, if not all, absorb up to 80% of the losses. This into the market. of 2011. Remember that creating concern was echoed by the Congres- 100,000 jobs per month just merely sional Oversight Panel (COP) in its Interest in the commercial market treads water. A level approaching February 2010 report, which said: from outside the U.S. has also been 200,000 per month for the next de- “Commercial loan losses could jeop- growing as foreign capital looks for cade will be required to return the ardize the stability of many banks, investment opportunities, especially economy to the employment levels particularly the nation’s mid-size in the U.S. as the dollar grows weak- of a decade ago when 73% of the and smaller banks, and as the dam- er. One thing that may increase that population between 18 and 69 was age spreads beyond individual banks interest is the relaxation of FIRPTA employed (that figure stood at 63% it will contribute to prolonged weak- (Federal Investment in Real Property at the end of 2009). ness throughout the economy.” With Tax Act), which has, for the past 35 respect to the Troubled Asset Relief years, been a major stumbling block In order to get America back to work Program (TARP) the panel further

© 2010 RealSure, Inc. www.RETrends.com 29 Commercial The Time Bomb Just Keeps on Ticking stated: “There is a commercial real are treated as long term capital gain. wants to take the losses and so it has estate crisis on the horizon, and there The Act would change the tax rate become sort of a state of suspended are no easy solutions to the risks com- from 15% up to as high as 35%. The animation. mercial real estate may pose to the fi- Institute of Real Estate Management nancial system and the public. The (IREM; irem.org) in a recent legisla- Feelings Are Mixed COP is concerned that until Treasury tive report said that the loss of capital and bank supervisors take coordinat- gains treatment for real estate invest- According to a Special Research ed action to address forthrightly and ment partnerships “would undermine Report — Third-Quarter 2010 Real transparently the state of the com- job creation and have a negative Estate Investment Outlook — by Na- mercial real estate markets — and impact on CRE as approximately $1 tional Real Estate Investor (NREI; the potential impact that a break- trillion of commercial and residential nreionline.com) and Marcus & Mil- down in those markets could have on properties are held by partnerships.” lichap (marcusmillichap.com): “It local communities, small businesses Passing some form of carried interest may be too soon to pop the cham- and individuals — the financial crisis legislation may be challenging but it pagne corks, but investor sentiment will not end.” bears watching. is improving as economic news turns positive and a bottom nears for com- Another area to watch is what the Reality is setting in and the regula- mercial real estate markets. Sixty- government will do with the Ameri- tors, banks, special servicers and bor- one percent of survey respondents can Jobs and Closing Tax Loopholes rowers are going to have to realize indicated they plan to increase their Act of 2010 (HR4213) that would the losses. The problem, however, commercial real estate holdings over more than double the taxes on “car- is that the sheer volume of loans to the next year: 55% favor apartments; ried interest.” Carried interest is in- be written-down is monumental and 32% retail; 29% undeveloped land; come carried by general partners who will need to be accomplished over 26% hotel and mixed use; and 24% are usually compensated with fees several years to keep from tipping the office and industrial.” and a share of the partnership, which financial system on its back. It has are usually “carried” until the part- to be done in order to put the mar- The report’s investor sentiment in- nership property is sold when they ket back on an even keel, but no one

It may be too soon to pop the champagne corks, but investor By the Numbers sentiment is improving as economic news turns positive and Investor Sentiment Index a bottom nears for commercial real estate markets.

148

137

127 119 113

103 2008 2009 100=Baseline

2004 2005 2006 2007 89 91 Q1 2010 Q3 2010 Source: National Real Estate Investor; Marcus & Millichap Source: Natinal Real Estate Investor; Marcus & Millichap 30 www.RETrends.com ©2010 RealSure, Inc. Swanepoel TRENDS Report 2011 dex reﬂects certain about the that investor future of CRE is confidence As much as the regulators would like to press the banks even harder and force that the impact will took a major ´everyone to clean up their balance sheets and move on, they recognize that if they be huge and felt for step forward did they would create much bigger losses in the near term and exacerbate the a number of years in 2010. whole capital problem — or lack of capital — for banks. to come. The clo-

Part of the MATHEW ANDERSON sure of 157 banks reason there µ Partner, Foresight Analytics in 2010 (4% of the is some posi- nation’s banks) is tive talk in up of capital occurring with a pent not helping to fos- the marketplace is the fact that in- up demand to get back into the mar- ter growth in the market and neither stitutions have not abandoned CRE. ket. But it will not be a “gold rush” as is the rising cloud of potential tax In fact, the conversation today is be- there are still major concerns about increases across the board over the coming more about biting the bullet lending guidelines, unemployment, next decade to cover all of the heated and moving forward; a much needed inflation and the fact that continuing spending that has come out of Wash- first step. weak CRE fundamentals have not ington. gone away. The NREI report reflects that 70% In spite of this caution there are a of their respondents indicated that Summary growing number of investors out there “now” is the time to buy apart- that hold to the conventional wis- ments, contrasted with significantly There is a building belief that dom that we are going to go through lower percentages for the other sec- 2011 may be the bottom for CRE and another cycle and things will begin to tors. However, all of the sectors have that any climb back out of the abyss turn around. As rents rise prices will made gains the last 12 months. Part is going to be a slow and gradual one; follow and the money will begin to of the reason is an increasing num- most likely occurring in 2012 and be- flow once again. That may not be a ber of large institutional buyers that yond. During 2011 financial institu- very realistic approach as it does not believe higher end properties will tions will be pressured to address their appear that CRE is going back to the have higher prices and lower capi- large toxic commercial loans portfo- good old days anytime soon. talization rates while anticipating a lios and as assets get “re-priced” rents further decline in value for lower tier will be reset to more competitive lev- There is, however, one thing that you properties; declines they believe will els, which will have a negative im- can take to the bank, one thing that not be as serious as in previous years. pact on fundamentals. The following has held true in every other recession This attitude only accentuates the table reflects the NAR’s projections and will most likely hold true in this growing competition for higher end concerning property fundamentals in one. Cash is king. There is a lot of projects in first tier locations where its Commercial Real Estate Outlook. it sitting on the sidelines, unused and there is currently a shortage of good ready to get into the game. Add to properties. As a result, there is build At the end of the day the only thing that the capital that has been watch-

CRE FUNDAMENTALS 2010-2011

Vacancy Rent Absorption (Million Sq.Ft.) Market Q1-10 Q1-11 Q1-10 Q1-11 Q1-10 Q1-11 Ofﬁce +17.3% +17.4% -7.2% -4.5% -27.5 +24.7 Industrial +14.6% +14.5% -9.6% -7.9% -93.5 +134.2 Retail +12.7% +12.7% -2.4% +0.1% -3.4 +8.8 Multifamily +7.0% +6.1% -3.4% +0.2% +114,992 units +173,272 units

Source: National Association of Realtors®

BY THE NUMBERS –––––––––––––––––––– 157 the number of banks closed in 2010. –––––––––––––––––––– 775 troubled banks on the watchlist. ing the dollar weaken overseas, looking for “any” sign that a recovery is underway and you have a potent mix that surely fuel any interest in a turnaround.

Whether your glass is half-full or half- empty, the turnaround in this market is critically dependent upon a major change in perspective — the time for extending and pretending is long past. Betting that the economy will rebound enough to create a new demand for offices, hotels, condos and other properties that need refinancing is today’s pipe dream for those holding toxic CRE loans. For those that have been watching and building up capital there is always a way to make a profit on the way back up … no matter how long it takes.

Introduction the economy needs to prime the potential output, which represents housing market are not yet on the a loss of almost $1 trillion per year. 2010 was the year everyone horizon. In the interim we have At the end of the third quarter the continued peering through the millions of homeowners caught in Commerce Department (commerce. keyhole in an attempt to see where the limbo, continuing to live in a house gov) revised its mid-year growth rate economy and the real estate market they no longer want, have no equity estimate from 2.0% to 2.5%, a rate will be heading. Unfortunately, the in and can't afford anymore. Millions that is still much slower than the view was much as it was at the end are wondering what the lender will 3.7% rate achieved during the ﬁrst of 2009 — cloudy, scattered rain and do; a lender that most likely doesn’t quarter. Putting that in perspective, have the answer it takes a 3% annual growth rate just either. to keep pace with population growth No meaningful change in the national price of and keep the unemployment rate ´home values is expected over the next two years. The past few years from increasing. Home sales are expexcted to be choppy climbing have been difﬁcult in from 4.8 million in 2010 to 5.2 million in 2011. just about every corner The economy lost approximately

DR. YAWERENCE YUN of the economy and it 8.4 million jobs from December Chief Economist, National Association of Realtorsµ® would appear that the 2007 through December 2009. That medicine taken so far shortfall is still climbing and was areas of thunderstorms. Those who has not helped; it has only prolonged expected to reach 11 million by the favor government intervention got the recovery. In this overview we’ll end of 2010; under normal conditions a second look at the impact — or take a look at where we are and the economy must produce over lack thereof — through the first time attempt to draw a line in the sand. 100,000 new jobs per month just to homebuyer tax credit extension and a The key to success is to know where keep up with growth in the labor force. plethora of new government programs. we are, accept the facts for what they But with the current deficit most The critics of the government’s loan are and focus on finding a way to take economists are predicting that it will modification programs saw plenty of advantage of the situation. take three to five years to catch up; indicators supporting their concern unemployment numbers will remain about the lack of meaningful results. Let’s see where we should draw the relatively high for an extended period. Unemployment not only continued line. As we stated in the 2010 Report, to plague the economy in its effort to joblessness is the most important recover, it also became the number The Economy driver of the foreclosure crisis and one drag on the housing market with ultimately the housing story is an the jobless rate remaining between To no one’s surprise the housing employment story. So, only a strong 9.5% and 9.8% for the majority of industry that usually leads a recovery, and sustained rise in employment the year. is in trouble. Consumers across will succeed in increasing sales and the board lack confidence and are decreasing delinquencies, defaults As we brought the decade to a trying to save and reduce personal and foreclosures. close little has been accomplished debt. Banks continue to hold to overcome the fallout of arguably tightly to their purse strings and the There are also renewed concerns the worst recession of the century. government (federal, state and local) about a double-dip recession with Household incomes are lower than is faced with huge budget difficulties. reports from sources like Yale they were at the beginning of the The Gross Domestic Product (GDP) University’s Robert Shiller (S&P/ decade and household debt grew from continued to fall from its pre- Case-Shiller Home Price Index; $3.4 trillion in 2000 to $9.1 trillion recession high. According to the standardandpoors.com) who believes in 2010. In the face of the looming Congressional Budget Office (cbo. that there is a 50% chance that federal budget deficit the resources gov) it is still 6.5% below its full the National Bureau of Economic

Did You Know Economy at a Glance

Comsumer Confidence: Present Conditions 200

150

100

0 1987 - Jul 1980 - Jan 1995 - Jan 2002 - Jul 2010 - Jan 1983 - Oct 1998 - Oct 1991 - Apr 2006 - Apr

Total Payroll Jobs in the U.S. 140 (in thousands added monthly)

135

130

125

Source: National Association of Realtors® Source: National Association of Realtors®

Research (nber.org) may tag the from under unaffordable mortgage government programs are really third or fourth quarter of 2010 as the payments and get on with their lives. little more than a “stop-gap” and beginning of the second dip of the Of the 1.5 million offers made through without addressing the underlying recession. Schiller believes that the the third quarter of 2010, 45% have unemployment and debt problems U.S. economy is “teetering on the already washed out of the program. they are just a bandage. “Cash for By July only 24,577 new clunkers” spiked automobile sales but trial modifications were after the program expired automobile Outlook remains unusually uncertain. reported and it is unlikely sales once again declined. The same BEN BERNANKE that the program will thing happened in real estate. Home ´ Federal Reserve Chairmanµ ever help the millions of sales went up coincident with the borrowers it was intended tax credit as it merely stole future brink of deflation” and that home for. The Treasury Department demand and fell dramatically when it prices could decline for another five (ustreas.gov) estimates that at the ended. On the bright side, however, years; in some cases with another end of the day 65% of HAMP loans the program did foster growth in 20%. will wind up re-defaulting. The first-time buyers and there was a underlying reason for the high re- significant increase in affordability. Is Anything Working? default rate is that HAMP does little if anything to solve the rest of the The Market Last year we raised concerns borrowers’ debt problems. about the federal government’s The housing market found itself stimulus package and, unfortunately, Home Affordable Refinancing Program at the end of 2010 where it spent the few successes were achieved. As (HARP) majority of the year: anticipated, the homebuyer tax credit • Sales of existing homes at the program resulted in an unnatural This program allows qualified end of October sat at a seasonally and consolidated blip in sales that borrowers (loans purchased or adjusted annual rate of 4.43 only postponed the inevitable drop. guaranteed by Fannie Mae or Freddie million units; 25.9% below the The market is still asking the same Mac) to refinance into lower interest- 5.98 million pace for the same question: “What good is a 4.0% rate or fixed-rate loans for up to period in 2009. mortgage if I can’t qualify because I 125% of the home value. The don’t have a job?” The government’s program has been extended smorgasbord of programs to try and through June 30, 2011 but as Too rapid money creation results in jump start housing has, for all intents of the second quarter of 2010 eventually high inflation. and purposes, failed. Here is a quick HARP had only completed ´ THOMAS HOEING review of two of its key programs: 380,000 re-financings since its President, Federalµ Reserve of Kansas inception in 2009; only 1% of Home Affordable Modification Program those loans went to borrowers that • The national median existing- (HAMP) owed 105% or more of their home’s home price for all types was value. Part of the challenge is that $170,500; down 0.9% from 2009. The government’s flagship mortgage the program isn’t free; borrowers with • October reflected purchases by relief program originally allocated low credit scores or high debt loads first-time homebuyers (32%; $75 billion to sustain mortgage have to pay an up-front fee, usually down 50% from 2009), investors modifications for an estimated three between 1% and 2% of the loan (19%) and repeat buyers (49%); to four million homeowners by 2012. because they're considered bigger all cash sales represented 29% It is a direct bailout program paid for risks. (up 20% from 2009). by the U.S. taxpayers whose only real benefit is to let borrowers get out The overall concern is that • A key statistic to note was that

6.5

5.0

3.5

2.0 1998 - 2010 - 1989 - 2001 - 2007 - 1980 - 1983 - 1986 - 1992 - 1995 - 2004 -

Existing Home Sales 7.5 (monthly closings in millions, 2000-2010)

6.5

5.5

4.5

3.5 2002 - Jul 2007 - Jul 2000 - Jan 2005 - Jan 2010 - Jan 2003 - Oct 2008 - Oct 2001 - Apr 2006 - Apr

Source:Source: National National Association Association of Realtors® of Realtors®

34% of all October sales were A Band of Troubles the end of Q1 2010. According to distressed properties. RealtyTrac (realtytrac.com), as of In the first half of 2010 more the third quarter of 2010 less than The NAR chief economist Lawrence than 1.6 million U.S. properties one-third of repossessed homes were Yun estimates that when the final filed for foreclosure, including on the market and at the same time numbers are in for 2010 the number bank repossessions, default notices the NAR reported that the national of sales will be near the 4.82 million and auction notices, up 8% from median house price dropped 26% mark; a 6.6% drop from 2009. 2009, which was a terrible year for (October 2005 to March 2010); Looking ahead to 2011 he stated: foreclosures. During July one in many individual markets dropped “Based on current and improving every 397 housing units received 40% to 50%. job market conditions and from a foreclosure filing; the 17th consecutive month While subprime mortgages were with foreclosure driving foreclosures in 2008 and … It is particularly difficult to know how the activity exceeding 2009, the wave in 2010 came from économy will evolve given recent and forthcoming 300,000. It is homeowners who lost their job or policy changes. Because of this uncertainty, estimated that by those who were employed but debated downside risks are trumping upside potential. the time the final

DOUG DUNCAN numbers are released Chief Economist, Fannie Maeµ there will have been some three BY THE NUMBERS attractive affordability conditions, million foreclosure filings for 2010, –––––––––––––––––––– sales should steadily improve to levels including more than 1 million bank of above five million by spring 2011.” repossessions. In their forecast, Macromarkets 4.43 (macromarkets.com) and Robert Lender Processing Services (LPS; million Shiller predict a normal increase in lpsvcs.com) reported in August annualized number of existing housing prices over the next three 2010 that 13% of all mortgages homes sold at end of October. years; between 1% and 3% per year. were delinquent (7.1 million out –––––––––––––––––––– of 53.5 million). The transition Sales on the “new home” front are of seriously delinquent loans into even more discouraging. The National foreclosure continues to accelerate $170,500 national median existing home price Association of Homebuilders (nahb. and foreclosure inventories are for all types in 2010. org) reported that the number of growing as a result. With their report –––––––––––––––––––– “new homes up for sale” at the end of delinquent mortgages, and the of October was only 202,000 (8.6 news that Fannie Mae (fanniemae. month supply); the lowest level in com) will begin fining loan servicers 34% 40 years. As every new home built that take too long to complete of home sales were distressed creates an average of three jobs and foreclosures, you have a rapidly properties in October. $90,000 in new taxes the impact on growing “shadow inventory” that will –––––––––––––––––––– the economy is significant. In the impact the market for many months , three decades before the housing if not years. bubble came to an end in 2007 there 1.6 were an average of 600,000 new First American Core Logic million homes built each year representing (corelogic.com) estimated that properties filed for foreclosures 1.8 million jobs and roughly $0.5 falling home prices had left 11.2 in the first half of 2010. trillion in added tax revenue. million homeowners underwater at

20 www.RETrends.com ©2010 RealSure, Inc. Swanepoel TRENDS Report 2011 whether to keep paying the mortgage houses potentially hitting the market, shadow inventory is expected to grow. because they were so far underwater. which would be added to the 11.2 Thousands of pages of legislation Management consulting firm Oliver million homeowners that are already have been signed into law but the Wyman (oliverwyman.com) reported underwater and/or those approaching rules and regulations that determine that 19% of those who defaulted in the end of their resources. The result how they are going to be administered 2009 and remained so at the end of is millions of homeowners finding are still being written. As a result the year could have afforded to keep themselves trapped in a Catch 22; it’s impossible to determine what to paying their mortgage. Strategic living in houses but no longer making expect. Businesses and consumers foreclosure is becoming a more their mortgage payment and waiting are sitting tight, waiting to see which mainstream option. to see if someone will help them way the wind will blow. out — or throw them out. Defaults, Despite a much higher level of serious delinquencies and foreclosures — At the close of 2010 the focus of the delinquencies and foreclosures when you add them all up and factor country’s economic concerns was on among subprime loans, the relative threats of the majority of problem We’re already seeing payback for the credits in the form of deficits and inflation. mortgages are now declining home sales, and this trend will push up inventory levels With the falling level “prime” loans. The ´ of inflation there is and exert downward pressure on home values … We’re in for an Mortgage Bankers L-shaped recovery that will likely keep annualized home value now more emphasis Association (MBA; appreciation very low for the next three to five years. on the potential for mbaa.org) reported that deflation where money STAN HUMPHRIES during the first quarter of Zillowµ Chief Economist becomes more valuable, 2010 delinquent prime but people have far less loans had reached 5.1% of severely in deficits, inflation and deflation, the interest in spending it. Deflation delinquent loans. Yet, many lenders real estate industry has some major results in wages being held down, continue to move very slowly hoping hurdles to overcome. which puts more downward pressure that the government will eventually on prices resulting in consumers step in and cover their losses or that The Future saving their cash or reducing their borrowers will catch up on their debt; fueling a downward spiral of delinquent payments. In November One of the greatest concerns spending and growth. LPS revealed that foreclosure times going forward is the country’s were still rising with the average uncertainty about where the economy There are also many analysts that number of days from delinquency to is headed and what the government suggest the country is heading foreclosure at 484; up 38% from 2009. will do or be able to do to change it. into a long period of stagnation Analysts expect that more than half because of high unemployment and The inventory of houses just keeps on the HAMP loan modifications will an extension of debt (now 70% of growing. Zillow (zillow.com) puts that end up re-defaulting. Unemployment GDP) that will continue to curtail number between 11 and 30 million is expected to stay near 10% and the consumer spending; specifically in the

PROPERTIES WITH A MORTGAGE OUTSTANDING (NE = NEGATIVE EQUITY)

Total Mortgages NE Mtgs. NE Share *Near NE Mtgs. Near NE Share 47.8 million 10.9 million 23.0% 2.4 million 4.9% Source: CoreLogic (*Mortgages within 5% of being in negative equity)

© 2010 RealSure, Inc. www.RETrends.com 21 Economy Is Anything Working? housing market. A report from Zillow home. Commenting on the study, equity. Household wealth ended revealed that 33% of all homeowners Trulia Chief Executive Officer Pete the decade showing little gain while still think the housing market has yet Flint offered: “Renters converting household mortgage debt exploded to hit bottom and nearly the same into buyers are crucial to turning from less than $6 trillion to more amount believe the worst is than $10 trillion in inflation- yet to come. Rock-bottom adjusted dollars. Freddie Mac mortgage rates have spurned We think the market will be flat in nominal terms for (freddiemac.com) reported a wave of refinancing but three to five years. We are not going to hit bottom and that in 2009 real home equity ´see a V-shaped recovery. have done little to boost had been refinanced down STAN HUMPHRIES sales. Even potential buyers µ Zillow Chief Economist by 25%; standing below $80 with jobs are still finding billion for the first time since lending requirements difficult to around the housing slump, but the 2000. meet, leaving them in limbo. current economic crisis is causing In light of the current conditions people to become very hesitant to That's the Bad News! both the MBA and the NAR have get off the fence and buy a home.” not been overly positive in their Among the factors affecting this But not every leaf turned over projections of unemployment and sentiment: Renters are unable to save reveals only bad news. If one were GDP. The only place in the country for a down payment, they are waiting to step back and take a deep breath where there is low unemployment to get a new job, or they are waiting there are a number of positive signs (4.5%) and a good housing market is for mortgage rates to go even lower. to focus on: Washington. D.C.; the government • MBA economists do not foresee is still hiring. The Center for Economic and Policy mortgage rates ticking up at Research (CEPR; cepr.net) began any significant pace until 2012. According to a Harris Interactive warning as early as 2008 that housing Coinciding with that is their (harrisinteractive.com) survey prices were falling at an accelerating prediction that purchase money conducted for Trulia (trulia.com), level and destroying wealth at an mortgage originations will grow of the renters who plan to become increasing rate. From 2007 to 2009 in 2011 to $797 billion; hitting homeowners, 68% now say they the percent change in net housing $923 billion in 2012. aren’t planning to make their move wealth was -57.8%; corresponding in the next two years and 27% say to a -29.1% loss in net worth. The • The Federal Reserve is they will never be able to buy a market is simply running out of home determined to prevent the

MBA MORTGAGE FINANCE FORECAST

2009 2010 2011 2012 Existing Home Sales 5,150 5,197 5,641 5,984 Median Price ($1,000) $172.7 $170.9 $173.2 $186.5 New Home Sales ($1,000) $372.0 $387.0 $527.0 $689.0 Median Price ($1,000) $214.5 $216.5 $217.8 $228.1 Purchase Mtg (billions) $738.0 $717.0 $797.0 $923.0 Reﬁnance Mtg (billions) $1.4 $656.0 $382.0 $477.0 Source: Mortgage Bankers Association

economy from slipping into BY THE NUMBERS Summary a cycle of falling prices, even –––––––––––––––––––– though it believes growth will Number of existing Yes, the real estate market has continue at a modest pace. It is home sales in far too many foreclosures and the purchasing additional longer- economy is still unstable and lacking term debt adding to its already in confidence to see a turnaround in substantial holdings. 2010 2011. Prices will generally remain at current levels as will interest rates. As • There is discussion underway to similar to banks continue working through the convert Fannie Mae and Freddie foreclosure process with an eye on the Mac into entities somewhere REO impact on the market we should between privatization and 1999 hopefully begin to work through the nationalization in order to subject high “shadow inventory.” them to tighter regulations on product, profitability and • In its State of the Nation’s Housing Probably the one overreaching practices. The NAR is pushing 2010 report, Harvard University’s uncertainty is what the government for nationalization as there is Joint Center for Housing Studies is going to do or not do and what the not enough private capital to (jchs.harvard.edu) projects impact of either will be. The potential privatize them. household growth between 2010 for new regulations, programs and and 2020 to be 12.5 million. • Banks are slowly stepping up taxation will greatly impact any Furthermore, household growth their foreclosures, holding the future of the real estate industry. is impacted by the emerging inventory to avoid shocking the In turn, all of that has kept — and 80.8 million strong “echo- market. may continue to artificially keep — boom” generation (1986-2005), the real estate market from hitting • The number of new purchase which according to the Census bottom. While these programs have contracts is slowly increasing Bureau (cenus.gov) is expected helped to sell some houses they have according to both the MBA and to swell to 92.9 million by 2025. not resolved the market’s problems; the NAR. Mortgage insurance In addition, immigration could they have only extended them. company PMI (pmi-us.com) raise household growth to 14.8

forecasts sales of existing homes million, which — when coupled As we move into the next decade to climb from under 5 million with the echo-boomers — will there will be a move of more seniors to 5.5 million in 2011 and 5.67 greatly impact starter homes living with their children as families million in 2012. They also while the baby boomers move pool together their resources in estimate that new-home sales into senior housing. dealing with a stagnant economy. will rise from under 350,000 in • The extension of the “Bush Tax As homebuyers consider the future 2010 to 485,000 and 590,000 in Cuts” was an attempt to put some they will be looking at ways to cut 2011 and 2012. certainty back into the economy commuting and monthly housing • The affordability index is close and it will be an early indicator costs, resulting in more interest in to record highs; above 70% of how the consumers are going living closer to work. With the for six consecutive quarters. to respond in 2011. anticipated addition to the U.S. The continued availability of population of more than 30 million As we step into the next decade the favorable interest rates and low people over the next decade there tools for a recovery are getting put in home prices should drive housing will be continued “household” place; home sales, affordable funding, demand, and investors are growth, but with the emergence of more new construction and a growing coming back into the residential Gen Y that may very well mean an potential buyer market. We just need market. even stronger apartment market. to put them to work.

We all need to take a deep breath and let the bottom ﬁrm up without further government intervention. There is an old axiom that says when the train ﬁnally begins to pull out of the station all those that know where they’re going will be onboard. Just a thought … the investors are already boarding.