Buyers' and sellers' worst enemy? Themselves

Original Post: http://realestate.msn.com/article.aspx?cp-documentid=28135904
By Ryan Sager of SmartMoney


Your brain may react to many things in a real-estate deal, including the attractiveness of the real-estate agent and a house's wall color. Your brain may betray you.

If you have hunted for a house, you probably got a sense that real-estate purchases don't represent consumers at their most rational. Did you like a house or apartment more or less depending on whether you saw it on a sunny day? Chances are, you did.

Buying a house isn't the same as buying a stock, an air conditioner or even a car. It's not just a product with pluses and minuses — good school system versus a small kitchen, a new roof versus a longer commute. A house represents the kind of life you want to live. And given its cost, a house and the value it gains or loses represent concretely the life you could live.

Thus, it can be disturbing — though perhaps not surprising — to realize that people's judgment about real estate is susceptible to many of the foolish forces that affect so many other consumer decisions. In some ways, it may be affected even more.


Research by Michael Seiler, a professor at Old Dominion University in Norfolk, Va., has found that men and women — particularly men — are susceptible to the attractiveness of a female real-estate agent. The more attractive the agent, the more the buyer is willing to pay.


Superficial things such as a room painted an ugly color can make people less likely to buy a house, even though fixing that problem is as cheap as a couple of cans of paint.

What's more troublesome, though, is how attached our minds get to the perceived value of our house. In one study, economists David Genesove and Christopher Mayer looked at the spectacular bust in condominium prices in the early 1990s in Boston. When a market goes south, as the housing market did recently, standard economics tell us that sellers should recalibrate their expectations and behavior, knowing they must sell for less.


Of course, this isn't how our brains work. Instead, we're susceptible to loss aversion, the mental quirk by which we feel losses much more sharply than we feel gains. Instead of setting the price of our property by what the market will bear, we set it by what we paid and what we think we "have to" get.


People who bought at or near the peak of the Boston condo boom listed their properties for around 35% more than others. Consequently, those overpriced properties sat on the market; fewer than 30% sold after 180 days. Another wrinkle: Owners who lived in the units showed about twice as much loss aversion as people who had bought them as investment properties. A home, it seems, makes us more irrational than a house.

It doesn't take a boom or bust to trigger this phenomenon: A more recent study says that homeowners consistently overestimate the value of their homes by 5% to 10%. The only cure for this seems to be buying a home during a slump; these buyers may underestimate their home's value.


Buyers getting in now, then, may be at a cognitive advantage for years to come. Boom buyers, meanwhile, must come to terms not only with economic losses but also psychological losses and regret.

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Renting: The New American Dream

How To Sell An $18 Million Home In A Week

Original Post: http://blogs.forbes.com/morganbrennan/2011/04/25/how-to-sell-an-18-million-home-in-a-week/
Apr. 25 2011 - 10:31 am Morgan Brennan Closing Table for Forbes.com

Image by via @daylife

Founder and Chief Executive Officer of SBE Sam Nazarian

Many homeowners are struggling to sell off their properties right now, including the wealthy. In many of America’s most expensive zip codes, rich homeowners have hunkered down to wait as much as a year and in many cases even longer to find a buyer for their digs. One multi-million dollar estate in Greenwich, Conn. for example has been on the market for more than 1,100 days!

Despite this fact, a Hollywood Hills home has managed to go from sale block to contract in one week. And it set a sales record for price per square foot.

The Los Angeles, Calif. property was listed on the market for $17.995 million in early February with luxury real estate broker to the stars, Jade Mills of Coldwell Banker Previews International. The Oriole House as it’s called, would be a familiar sight to “Entourage” fans who remember the cushy pad that serves as Vincent Chase’s home in the hit HBO series.

So how did this “bird streets” abode manage field offers so fast? For starters, it was priced right. But it got some help from an outrageous and unique amenity: a built-in concierge service. The property belonged to Sam Nazarian, founder and chief executive of sbe, a Los Angeles, Calif.-based hospitality company. Sbe is known for nightlife hot spots like Hyde night club and the hip SLS Hotels. All of the business experience in providing people with luxe accommodations got Nazarian and his staff at sbe thinking it would be a good idea to offer hospitality perks, like what’s available in high-end hotels, to single-family homeowners.

The company rolled out sbe Reserve and tacked it onto the sale of the Oriole House as part of the sales price. With the service, the home buyer gets “exclusive access to the entire sbe Hospitality Platform, including all of our award-winning hotel, restaurant and nightlife destinations,” explains Behzad Souferian, vice president of real estate at sbe. “That includes preferential reservations, exclusive access to our Global Concierge and VIP Services Team and access to guest-only privileges at our hotels, including the pool and spa services.”

So if the new owner of the Oriole House with sbe Reserve wants to throw a huge house warming party but do none of the work, sbe will bring a crew in to handle it. If said owner wants last minute concert tickets, sbe can hunt them down. But the service takes the real estate angle a step further. If the owner wants to remodel their kitchen or redecorate the place, sbe can arrange that process too — and make sure it’s being done in a way that will increase the property’s market value.

The estate went up for sale in early February. A week later, Stan Bharti, founder and executive chairman of Forbes & Manhattan, a Toronto, Ontario-based merchant bank, put an accepted offer on the table. He just closed on the property and according to Souferian, has plans to take full advantage of the service with the large events he will host at the home.

I should also mention the Oriole House didn’t list the traditional way, but rather stayed off of the MLS. Mills marketed the home privately to a teensy pool of qualified buyers. She issued the buyers and their brokers exclusive personalized access cards that contained secret passcodes that alone would allow access to the listing’s guarded details.

Given the success of Nazarian’s property, sbe Reserve will become a permanent part of the hospitality company’s business model. Souferian says there are plans to purchase and sell more high-end residential estates; plans to roll out the service in multi-family housing developments; and plans to bring the service to all of the major metros — Los Angeles, Las Vegas, Miami, Houston and New York — where sbe already has a presence.

Blackstone Earnings Leap 58% on Real Estate Gains

Original Post: http://dealbook.nytimes.com/2011/04/21/blackstones-profit-rises-58/
By MICHAEL J. DE LA MERCED

Chester Higgins Jr./The New York Times

Stephen A. Schwarzman, the Blackstone Group’s chairman and chief executive

For the Blackstone Group, the first three months of the year were something of a blast from the past.

On Thursday, the investment giant reported its strongest earnings since it went public nearly four years ago. Its quarterly profit rose 58 percent as the company continued to reap benefits from improving real estate markets.

Blackstone said that it earned $568.1 million in the quarter on $1.2 billion in revenue. Its assets under management swelled 43 percent, to $150 billion. (The profit was reported as economic net income after taxes because it excludes charges tied to the company’s initial public offering of stock. On a generally accepted accounting principles basis, the company earned $43 million, a big swing from a $121 million loss in the period a year earlier.)

“Blackstone’s first-quarter results further demonstrated our ability to generate outstanding returns for our investors and attract new capital,” Stephen A. Schwarzman, Blackstone’s chairman and chief executive, said Thursday in a conference call with analysts.

The results again show how private equity firms have rebounded from the financial crisis. As the stock and credit markets have risen, the value of buyout shops’ holdings has risen, and their ability to strike deals for a variety of assets has improved as cheap financing remains readily available.

These firms have also benefited from their ability to sell their portfolio companies through initial public offerings, allowing them to realize profits.

Blackstone has seized upon these opportunities to bolster its businesses. It has held stock offerings for holdings like Nielsen, and it plans to hold more for other companies, like Vanguard Health, Freescale Semiconductor and Kosmos Energy.

And the company has struck a few deals, notably its $9.4 billion purchase of the American malls of the Centro Properties Group, its biggest purchase since its $25 billion deal for Hilton Hotels nearly four years ago.

The Centro deal was struck through Blackstone’s huge real estate arm, which propelled the firm’s quarterly profit. The division nearly quadrupled its revenue, to $555.6 million, thanks to an improvement in real estate values, especially for hotels and commercial office buildings. That has helped bolster performance fees.

Blackstone’s best-known division, its private equity unit, reported a small decline in revenue, to $273.7 million, and disclosed a drop in investment income. The value of its holdings rose about 5 percent in the quarter, and the average paper value of those assets was marked at 1.5 times their original investments.

Hamilton E. James, Blackstone’s president, suggested in a conference call with reporters that traditional leveraged buyout deals might be out of fashion for now. With corporations embarking on a buying spree, using their piles of cash and able to pay more because of greater cost savings, buyout firms are at a competitive disadvantage.

“There’s a lot of corporate competition that has come out of the woodwork,” he said. “That has made the plain vanilla buyout pricey.”

But Blackstone is seeking other investment opportunities, he added, including some in the energy industry and in emerging markets.

Blackstone still has plenty of money to invest, with $25.5 billion in uninvested capital between its private equity and real estate units. It has finished raising capital for its sixth buyout fund and is raising money for its seventh real estate fund.

Shares in Blackstone rose 1.6 percent on Thursday, to $19.31. They remain well below the firm’s initial offering price of $31.

Discounters down, but not out

Full-service brokerage model going strong in downturn
By Matt Carter, Thursday, April 21, 2011.Inman News™

The full-service real estate brokerage model has emerged from the downturn largely intact, defying expectations that traditional companies would face stiff competition from brokerages offering commission rebates and discounts or a menu of fee-based services.

When information about property listings and housing markets once available only to Realtors started to become accessible over the Internet more than a decade ago, many predicted that innovation and competition among brokerages would drive down commissions paid by consumers.

If homeowners could market their properties online, the thinking went, more sellers would list with limited service brokers offering a menu of services including "MLS only" listings. And if buyers could go online to find their ideal home, why pay a Realtor full commission to chauffeur them around town?

Internet-based brokerages sprang up offering commission rebates to buyers willing to do some of their own legwork.

Flat-fee and limited service brokers offered sellers a menu of services on an a la carte basis, including "MLS only" listing packages, so that clients could choose to pay only for the services they wanted.

During the housing boom, discount and limited-service brokers attracted the notice of the news media and consumers alike. Statistics show the companies also grew their market share, and commission rates charged by traditional full-service brokers declined.

Redfin expanded out of its home base of Seattle, ruffling feathers in the industry by plugging its commission rebates and discounts in high-profile forums like "60 Minutes."

ZipRealty Inc., a full-service brokerage that rebates part of its sales commission to buyers and offers reduced commissions on listings, made an initial public offering in 2004, five years after launch, and climbed into the ranks of the nation's top 10 brokers.

Although the percentage-based commission rates charged by real estate brokers declined during the boom, they didn't come down as fast as home prices went up -- meaning the total commission revenue generated by each sale still increased sharply.

From 2002-06, the average commission rate earned by brokerages owned and operated by Realogy Corp. subsidiary NRT, the nation's largest brokerage, fell from 2.63 percent to 2.48 percent per transaction side, according to the company's annual reports to investors.

During the same period, the average home-sale price in transactions involving NRT brokerages climbed more than 56 percent, to $492,669.

As a result, the average commission revenue generated by each transaction side involving NRT brokerages climbed nearly 49 percent from 2002-06, to $12,691 per transaction side, even as the average commission rate declined by nearly 6 percent.

After adjusting for inflation, the increase in average commission revenue per transaction side at NRT brokerages from 2002 to 2006 was nearly 33 percent.

(A "transaction side" refers to each instance in which a brokerage represents either a buyer or seller in a sale. The total commission rate on a sale is equal to twice the commission rate per transaction side, if the brokers representing the buyer and seller split the commission paid by the seller equally.)

NRT has 750 offices in 35 markets, staffed by 44,000 sales associates operating under the Coldwell Banker, ERA, Corcoran Group and Sotheby's International Realty brands.

Although NRT brokerages tend to represent high-end properties, median commission fees for the industry as a whole grew an inflation-adjusted 20 percent from 2002-06, to an average of $12,458 per transaction, according to the U.S. Department of Justice's "Competition and Real Estate" website.

"Unless broker costs were also rising sharply during this period of time, competition among brokers should have held commissions in check even as home prices were rising," the DOJ observed.

Representatives for Realogy and NRT declined to be interviewed for this story. Before it was taken private by private equity firm Apollo Management in 2007, NRT parent company Realogy was publicly traded, and Realogy continues to file detailed reports to investors that provide valuable insight into commission practices.

Realogy also provides franchise services to independently owned brokerages operating under the Century 21, Coldwell Banker, ERA, Sotheby's International Realty, Coldwell Banker Commercial and Better Homes and Gardens Real Estate brand names.

Industry leaders maintain that competition between real estate brokers is intense -- ZipRealty, citing figures compiled by Real Trends, noted in its most recent annual report to investors that in 2009 the 10 largest brokerage firms handled less than 6 percent of residential real estate transactions.

There's evidence that average commission revenue is cyclical, dropping off in a downturn. John C. Weicher, Director of the Hudson Institute's Center for Housing and Financial Markets, concluded in a 2006 paper that inflation-adjusted commission fees per home sale declined by approximately 7 percent from 1991-98.

But Weicher, who served as assistant secretary for housing in the Bush administration from 2001-05, also noted the widespread perception that commission rates are "sticky" on the way down -- even though technology has supposedly reduced brokers' costs. Much of his paper addressed the difficulty of ascertaining the truth of such perceptions.

Economist Chang-Tai Hsieh has theorized that during a boom, rising home prices and commissions attracts more people to the industry, but that increased competition between agents doesn't benefit consumers or individual agents.

The most recent real estate boom nearly doubled NAR membership, from 700,000 in 1996 to a peak of 1.37 million in October 2006 (NAR membership has since declined to 1 million and falling).

Instead of offering reduced commission rates, Hsieh's research suggests agents in competitive markets spend more time prospecting for clients, and close fewer deals. Hsieh concludes that in high-priced markets with intense competition between agents, consumers end up paying higher commissions but individual agents are no better off.

While discount and limited-service brokers made inroads during the boom, some of the downward pressure on commission rates was undoubtedly due to rising home prices.

Realtors often say that all commissions are negotiable. Sellers are aware of the fact that rising home prices meant bigger commission checks for Realtors.

There was a widespread belief during the boom that, with loans easy to come by based on market conditions -- just about any home could essentially "sell itself," even without the marketing expertise of a skilled, experienced agent.

A 2008 survey by Consumer Reports, based on responses from 3,753 readers who sold or tried to sell a home, 4,029 who bought one, and 7,368 who did both within the past few years, found that about 46 percent of sellers attempted to negotiate for a lower commission rate, with a 71 percent success rate among those who tried.

"Sellers who paid commission rates 3 percent or lower were just as satisfied with their brokers' performance as those who paid 6 percent or more, suggesting that haggling can't hurt," and there were no statistically meaningful differences among the report's rated companies in customer satisfaction, Consumer Reports found.

The Consumer Reports survey also revealed that "paying an agent a lower commission rarely had any effect on the sales price."

When the bottom fell out of home prices, median commission fees came tumbling back down, to $9,733 per transaction in 2009 -- about where they'd been a decade ago, according to DOJ figures.

But as home prices dived, commission rates rebounded, demonstrating brokerages' resolve to stanch the bleed in commission revenue -- and a willingness on the behalf of sellers to pay full commissions to agents with proven marketing abilities.

At Realogy's NRT brokerages, the commission rate bounced back 3 basis points, to 2.51 percent per side in 2009, before retreating to 2.48 percent in 2010. Independently owned brokerages affiliated with Realogy's franchise brands boosted commission rates from 2.47 percent in 2006 to 2.54 percent in 2010.

But because home prices were falling, the average gross commission income per side at NRT brokerages dropped 24 percent from an all-time high of $13,806 in 2007 to $10,519 in 2009. During that time, the average home-sale price in transactions involving NRT brokerages dropped nearly 27 percent, from $534,056 in 2007 to $390,688 in 2009.

While commission rates at NRT brokerages slipped in 2010, gross commission per side increased to $11,571, boosted by a rise in the average home-sale price to $435,500.

Franchisor Keller Williams Realty's studies also show overall commission rates rebounded from 5.09 percent in 2007 to 5.59 percent in 2009, before softening slightly to 5.42 percent in 2010.

"Right now, the consumer is having to really value the agent," said Mary Tennant, Keller Williams' president and CEO. "(Consumers) can't achieve the results without the agent."

Austin, Texas-based Keller Williams is one of the largest franchisors in the U.S. Brokerages affiliated with the company operate 700 offices with 80,000 agents in the U.S. and Canada.

"In 2005, some of our agents may have elected to be more flexible than they are in 2011," Tennant said. "Fees are not one-size-fits-all -- we teach our agents to be responsive to their market."

If full-service brokerages were more willing to negotiate commission rates during the boom because rising home prices more than offset any concessions they made, they also faced growing competition from limited-service and discount brokers.

An analysis by Keller Williams revealed that the share of listings represented by limited-service brokers surged by 7 percent in 2006. After that, limited-service and discount brokers saw their market share plummet by 34 percent in 2007 and 18 percent in 2008.

The analysis looked at the top five limited-service and the top five full-service brokers in each of several markets.

"I don't think 'worry' is the best way to describe our mindset," Tennant said of the inroads made by limited-service brokers during the boom. "We were very aware of the dynamics coming our way."

When housing markets cooled, many brokerages and franchises -- traditional and discount alike -- found the going tough.

One of the earliest and most prominent casualties among discount brokerage was Foxtons, which operated in New Jersey, New York and Connecticut before filing for bankruptcy in the fall of 2007. Foxtons made waves by offering to list homes for a total commission of 3 percent, and offering only one-third of that to agents representing buyers.

In fall 2008, the Help-U-Sell Real Estate franchise company filed a petition for Chapter 11 bankruptcy, with company officials blaming the housing downturn. Although Help-U-Sell lives on under another owner, Infinium Realty Group Inc., the flat-fee brokerages affiliated with the franchisor now operate 117 offices, down from nearly 820 in 2006.

ZipRealty charged into 16 new markets in 2006 and 2007, only to post a $13.3 million loss in 2008 -- even as the company's 2,800 agents handled 17,156 transaction sides, a 23 percent increase from 2007.

With losses continuing to mount -- the brokerage posted a $15.5 million loss in 2010 -- ZipRealty kicked off 2011 by announcing in January it was closing offices in 11 markets. That move reduced the agent count in the company's remaining 23 markets to 2,500, down from 3,403 at year-end.

In fall 2008, Redfin announced it was laying off 20 percent of its workforce. CEO Glenn Kelman said at the time that the downsizing, which left the company with 75 to 80 employees, had more to do with the downturn in housing markets than the company's business model.

The following month, the company announced a new pricing structure that provided more services but reduced buyer rebates and discounts on listing fees.

In his 2008 book, "SHIFT: How Top Real Estate Agents Tackle Tough Times," Keller Williams co-founder and chairman Gary Keller predicted that agents who mastered markets like short sales, foreclosures and bank-owned homes would prosper. The book detailed techniques for agents to overcome buyer reluctance, manage expenses, generate leads, and utilize creative financing.

Short sales and real-estate owned REO properties have accounted for more than half of sales in many distressed markets in California, Florida, Nevada and Arizona.

"We felt that if our agents were the best educated going into this, they would stand the best odds of prevailing" during the downturn, Tennant said.

Derek Eisenberg, broker-owner of Hackensack, N.J.-based limited-service brokerage Continental Real Estate Group Inc., said that listing with a flat-fee service provider can help sellers recoup equity they've lost in their home.

And while large lenders and their asset managers don't seem to have realized it yet, "If anything, REO (listings are) the best situation to be using an a la carte broker," Eisenberg said. Cleanout services can ready REO properties for sale, and asset managers can handle negotiations for the seller, he said.

"I'm not seeing it with the Chases and the Bank of Americas, but I'm definitely seeing it with small, midsize lenders," Eisenberg said. "Most of them are putting combination lockboxes on the door and letting people go unaccompanied to see the house."

Tennant said Keller Williams looked at a la carte pricing models nearly 20 years ago.

"We don't inhibit our agents in any way. They can operate in any way they choose," Tennant said, adding, "We believe the market validates our view that more people are looking for full-service agents who are knowledgeable about the entire process. Right now that's what we're hanging our hat on."

Keller Williams' studies show the market share of listings claimed by top limited-service brokers rebounded by 16 percent in 2010, but those brokers still represented less than 3 percent of for-sale listings. The top limited-service brokers in markets analyzed by Keller Williams included Assist-to-Sell, Housepad.com, ZipRealty, Help-U-Sell, and SellSmart.

The latest trends

In a recent Inman News survey conducted in February and March 2011, 1,054 agents, brokers and sales managers shed light on the commission and compensation practices at their firms.

Although 94.3 percent of agents and brokers surveyed said they charge clients a percentage-based commission, 12.3 percent said they offer services on a flat-fee basis, indicating some overlap between the two models.

In addition, 6.5 percent of those surveyed said they offer cash rebates or other rebate incentives, and 4.4 percent provide services based on a fixed hourly rate.

One Oregon broker-owner who's a sole practitioner reported charging clients $125 an hour, up to a maximum of 4.5 percent of a home's sale price.

A broker in Nevada reported typically charging a percentage-based commission of 6 to 6.5 percent, but also offers consulting service packages that include a choice of hourly or task-based compensation.

A brokerage in New Hampshire reportedly offers clients different marketing plans, with commissions ranging from 6 to 10 percent. Most choose the marketing plan with a 6 percent commission, but about one in five sellers choose plans with commissions of 7 to 8 percent, reported an agent who works for the brokerage.

Most of those surveyed -- 58.7 percent -- said sellers were not more likely to negotiate commissions in 2010 than they were in 2009. But 45.6 percent said they believed sellers are more likely to negotiate commissions this year than they were in 2010.

Nevertheless, only 5.4 percent said seller negotiations related to compensation had the biggest impact on their income in 2010. An even smaller number -- 3.4 percent -- said competition from low-cost brokers had the most impact.

An earlier Inman News survey, released in September 2006 and based on responses from more than 1,000 real estate professionals, revealed that 20.3 percent of respondents reported that seller negotiations related to commission had the most impact to their bottom line. In that 2006 survey, about 27 percent of respondents said their broker limits their freedom to negotiate listing commissions.

The latest Inman News compensation survey, conducted this year, found that Local and national economic conditions (44 percent), distressed properties (17 percent) and business from past clients (13.1 percent) were identified most often as the factors having the biggest impact on income.

When asked to identify typical compensation per transaction side for listing agents in their market area, 85 percent gave responses in the range of 2.5 to 3 percent. Nearly 91 percent put typical compensation for buyer's agents in their market in the 2.5 to 3 percent range.

Half of those surveyed said their broker required a minimum total commission in order to list a home. Most often, the minimum total commission was between 5 and 6 percent (20.2 percent of responses), followed by 2 to 3 percent minimum commission (11.2 percent of responses), 6 to 7 percent minimum commission (7 percent of responses), and 4 to 5 percent minimum commission (6.3 percent).

Fewer than 1 percent said their minimum commission was either less than 2 percent or more than 7 percent.

"Normally we get 6 percent, but this market has taken us to some 5 percent listings," said one Oregon-based broker associate. "They state in our manuals: 7 percent."

"We work to have a 7 percent commission on listings under $300,000 and a sliding scale above that but nothing is set in stone," reported an agent in Indianapolis, Ind.

An agent in Pennsylvania said that for listings under $60,000, the minimum commission charted is $4,00(about 6.7 percent or higher). The minimum commission for homes priced above $60,000 is 6 percent, while commissions can be as low as 5 percent for homes priced over $500,000.

"Anything under $1 million is listed at 6 percent" commission, said a New York broker associate.

"Below 5 percent, you need to discuss with (the) broker," said a Florida agent.

"We start at 7 percent and settle for no less than 5 percent," said an agent based in Las Vegas.

The percentage of agents and brokers who responded that percentage-based commissions would become more popular in the next five years (43.6 percent) exceeded the percentage of agents who responded that flat-fee services would be more widely embraced (35.8 percent).

About 13.1 percent of those surveyed responded that cash rebates and other rebate incentives would become more popular in the next five years.

Twitter Wants More

Twitter is making a concerted effort to educate its users about what, exactly, it is. WSJ's Amir Efrati explains why to Stacey Delo.

Zillow Files For $51.75M IPO

Original Post: http://blogs.forbes.com/tomiogeron/2011/04/18/zillow-files-for-51m-ipo/
Apr. 18 2011 - 2:48 pm by Tomio Geron for Forbes.com

Online real estate company Zillow filed for an IPO today, with an estimated total offering of $51.75 million.

The company generated $30.5 million in revenue in 2010, up 74% from $17.5 million in 2009. Zillow made $10.6 million in 2009.

However, the company had a net loss of $6.8 million in 2010, cutting its loss from $12.9 million in 2009 and $21.2 million in 2008.

A lack of profitability seems to be something Wall Street can overlook–see Zipcar’s offering last week–if there’s a strong growth story. Zillow has 100 million homes now listed on its website. And as of March, it had 19.4 million unique users on its website and mobile apps, which is 90% year-over-year growth.

The company makes money from real estate professionals, who subscribe to its services, as well as mortgage brokers and advertisers.

Last week Zillow acquired real estate listings company Postlets.

Citi is the lead underwriter on the deal. Allen & Co., Needham & Co. LLC, ThinkEquity LLC and First Washington Corp. are also part of the offering.

Venture investors in Zillow who stand to cash in include Benchmark Capital, which owns 19%, Technology Crossover Ventures, which owns 29.9%, and Par Investment Partners, which owns 11.1%.

Real estate: It's time to buy again

Original Post: http://finance.fortune.cnn.com/2011/03/28/real-estate-its-time-to-buy-again/
Posted by Shawn Tully, senior editor-at-large March 28, 2011 5:00 am

Forget stocks. Don't bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing.

A home under construction in Austin. The number of new homes in the pipeline nationwide is quite low

From his wide-rimmed cowboy hat to his roper boots, Mike Castleman fits moviedom's image of the lanky Texas rancher. On a recent March evening, Castleman is feeding cattle biscuits to his two pet longhorn steers, Big Buddy and Little Buddy, on his 460-acre Bar Ten Creek Ranch in Dripping Springs, a hamlet outside Austin in the Texas Hill Country. The spread is a medley of meandering streams, craggy cliffs, and centuries-old oaks. But even in this pastoral setting, his mind keeps returning to a subject he knows as well as any expert around: the housing market. "I'm a dirt-road economist who sees what's happening on the ground, and in 35 years I've never seen a shortage of new construction like the one I'm seeing today," declares Castleman, 70, now offering a biscuit to his miniature donkey Thumper. "The talking heads who are down on real estate will hate to hear this, but America needs to build a lot more houses. And in most markets the price of new homes is fixin' to rise, not fall."

Castleman is in a unique position to know. As the founder and CEO of a company called Metrostudy, he's spent more than three decades tracking real-time data on the country's inventory of new homes. Each quarter he dispatches 500 inspectors to literally drive through 45,000 subdivisions from Baltimore to Sacramento. The inspectors examine 5 million finished lots, one at a time, and record whether they contain a house that's under construction, one that's finished and for sale, or a home that's sold. Metrostudy covers 19 states, or around 65% of the U.S. housing market, including all the ones hardest hit by the crash: Florida, California, Arizona, and Nevada. The company's client list includes virtually every major homebuilder and bank -- from Pulte (PHM) and KB Home (KBH) to Bank of America (BAC) and Wells Fargo (WFC).

The key figures that Metrostudy collects, and that those clients prize, are the number of homes that are vacant and for sale in each city, and the number of months it takes to sell all of them. Together those figures measure inventory -- the key metric in determining whether a market has a surplus or a shortage of new housing.

Today Castleman is witnessing an extraordinary reversal of the new-home glut that helped sink prices just a few years ago. In the 41 cities Metrostudy covers, a total of 78,000 houses are now either vacant and for sale, or under construction. That's less than one-fourth of the 343,000 units in those two categories at the peak of the frenzy in mid-2006, and well below the level of a decade ago. "If we had anything like normal levels of buying, those houses would sell in 2½ months," says Castleman. "We'd see an incredible shortage. And that's where we're heading."

If all the noise you're hearing about housing has you totally confused, join the crowd. One day you'll read that owning a home has never been more affordable. The next day you'll see news that housing starts have plunged to nearly their lowest level in half a century, as headlines announced in March. After four years of falling prices and surging foreclosures, it's hard to know what to think. Even Robert Shiller and Karl Case can't agree. The two economists, who together created the widely followed S&P/Case-Shiller Home Price indices, are right now offering sharply contrasting views of housing's future. Shiller recently warned that the chances were high for a further double-digit drop in U.S. home prices. But in an interview with Fortune, Case took a far brighter view: "The lack of new home building is a huge help that a lot of people are ignoring," says Case. "People think I'm crazy to be optimistic, but housing is looking like the little engine that could."

To see where real estate is truly headed, it's critical to keep your eye firmly on the fundamentals that, over time, always determine the course of prices and construction. During the last decade's historic run-up in prices, Fortune repeatedly warned that things were moving too fast. In a cover story titled "Is the Housing Boom Over?," this writer's analysis found that the basic forces that govern the market -- the cost of owning vs. renting and the level of new construction -- were in bubble territory. Eventually reality set in, and prices plummeted. Our current view focuses on those same fundamentals -- only now they're pointing in the opposite direction.

So let's state it simply and forcibly: Housing is back.

Two basic factors are laying the foundation for dramatic recovery in residential real estate. The first is the historic drop in new construction that so amazes Castleman. The second is a steep decline in prices, on the order of 30% nationwide since 2006, and as much as 55% in the hardest-hit markets. The story of this downturn has been an astonishing flight from the traditional American approach of buying new houses to an embrace of renting. But the new affordability will gradually lure Americans back to buying homes. And the return of the homeowner will start raising prices in many markets this year.

Drumming up sales

Of course, home prices are low and home construction is weak for a reason: incredibly low demand. For our scenario to play out, America will need a decent economy, with job creation and consumer confidence continuing to claw their way back to normal.

One big fear is that today's tight credit standards will chill the market. But we're really returning to the standards that prevailed before the craze, and those requirements didn't stop prices and homebuilding from rising in a good economy. "The credit standards are now at about historical levels, excluding the bubble period," says Mark Zandi, chief economist for Moody's Analytics. "We saw prices rising with fundamentals in those periods, and it will happen again."

To see why, let's examine the remarkable shift in home affordability. A new study by Deutsche Bank measures affordability in two ways: first, the share of income Americans are paying to own a home. And second, the cost of owning vs. renting. On the first metric, the analysis finds that homeowners now pay just 9.8% of their income in after-tax mortgage, tax, and insurance payments. That's down from 17.2% at the bubble's peak in 2007, and by far the lowest number in the Deutsche Bank database, going back to 1999. The second measure, the cost of owning compared with renting, should also inspire potential buyers. In 28 out of 54 major markets, it's now cheaper to pay a mortgage and other major costs than to rent the same house. What's most compelling is that in all of the distressed markets, owning now wins by a wide margin -- a stunning reversal from four years ago. It now costs 34% less than renting in Atlanta. In Miami the average rent is now $1,031 a month, vs. the $856 it costs to carry a ranch house or stucco cottage as an owner. (For more, see The top 10 cities for home buyers)

Not all markets will bounce back equally, of course. Housing resembles the weather: The exact conditions are different in every city. But in general the big U.S. markets fall into two different climate zones right now. We'll call them the "nondistressed markets" and the "foreclosure markets." A more detailed look shows why the forecast for both is favorable.

Nondistressed markets: Ready for launch

No cities went untouched by the collapse in prices over the past few years. But markets such as Northern Virginia, Indianapolis, Minneapolis, San Diego, the San Francisco suburbs, and virtually all of Texas held up reasonably well. In those areas prices spiked far less than in bubble cities -- the foreclosure markets we'll get to shortly -- chiefly because they didn't get nearly as many speculators who thought they could flip the homes or rent them to snowbirds.

The nondistressed markets will be able to get prices rising and construction growing far faster than the harder-hit areas for a simple reason: Although some of these markets are still suffering from foreclosures, they don't need to work through the big overhang haunting a Las Vegas or a Phoenix. The number of new homes for sale or in the pipeline is extraordinarily low in nondistressed markets. San Diego is typical. It has just 921 freestanding homes for sale or under construction, compared with 4,425 in late 2005. The challenge for these cities is to generate enough demand to reduce inventories of existing, or resale, homes. In the entire country the resale supply stands at 3.5 million houses and condos. That's a fairly high number, since it would take more than eight months to sell those properties; seven months or below is the threshold for a strong market.

But in the nondistressed cities, the existing home inventory is lower, closer to seven months on average. So a modest increase in demand will translate into strong gains in both prices and new construction. That should happen quickly, because most of those markets -- including Silicon Valley, Northern Virginia, and Texas -- are now showing good job growth.

Zandi of Moody's Analytics expects that prices will rise three to four points faster than inflation for the next few years in virtually all of the nondistressed markets. His view is that prices will increase in line with rents, which are now growing briskly because apartments are in short supply. Those higher rents will encourage buyers to cross the street from an apartment to a home of their own.

In Northern Virginia, Chris Bratz, an engineer, and his wife, Amy DiElsi, a publicist, are planning to leave their rental apartment and become homeowners for the first time. The main reason? Buying has simply become a far better deal than renting. "The market got completely inflated, then it crashed, so prices are coming back to where they should be," says Chris. As the couple have watched prices fall, they have also watched the rent on their apartment spiral upward, reaching $2,700 a month. They calculate that they should be able to purchase a townhouse for between $400,000 and $500,000 and pay less per month for a mortgage.

The nondistressed markets will also lead the way in construction. Zandi predicts that for the nation as a whole, single-family housing "starts" -- measured when a builder pours a foundation for a new home -- will rise from 470,000 in 2010 to as much as 700,000 this year. A large portion of that activity will happen in nondistressed markets where a tightening supply of resale houses will start making new homes look like a good deal. "Our main competition is from resales," says Jeff Mezger, CEO of KB Home. "The prices of those homes have stayed so low, because of low demand, that it's hampered the ability of builders to sell new houses."

But many would-be buyers simply prefer a brand-new house. Eventually they'll move from renters to buyers, and the trend will accelerate now that prices are no longer dropping. In Minneapolis, Yuan Qu and her husband, Xiang Chen, a researcher at the University of Minnesota, just moved from a two-bedroom rental to a new light-blue four-bedroom ranch with a chocolate-colored roof on a spacious corner lot. They paid $400,000, a bargain price compared with a few years ago. The couple, both in their early thirties, moved to Minnesota from China six years ago. "We wanted to buy a house, and we've been waiting and waiting and waiting," says Qu. "The prices went down for so long, we finally thought they couldn't keep falling." For Qu the only choice was new construction. "We're not very handy people," she admits.

Foreclosure markets: The outlook is brightening

A home off the market in Mesa, Ariz

The true disaster areas for housing since the bubble burst have been Sunbelt cities such as Las Vegas, Phoenix, and Miami -- places that boasted great job and population growth in the mid-2000s, only to suffer a housing crash that swamped them with empty homes and condos and crushed their economies. But people always want to live in those sunny locales, and their job markets are starting to recover, albeit slowly. In foreclosure markets the inventory problem is far greater because it includes not just traditional resale homes but millions of distressed properties. Fortunately those houses are now such a screaming deal that investors, including lots of mom-and-pop buyers, are purchasing them at a rapid pace. To be sure, some foreclosure markets won't rebound for years because they're both vastly overbuilt and far from big job centers; a prime example is California's Inland Empire, a real estate disaster zone 80 miles east of Los Angeles.

But the outlook is brightening for Phoenix, Las Vegas, Miami, and parts of Northern California. A big positive is the tiny supply of new homes entering the market. Phoenix, for example, has a total of just 8,100 new homes that are either for sale or under construction, down from 53,000 in mid-2006. The big test in these cities is absorbing the steady stream of distressed properties. The foreclosures put downward pressure on the market far out of proportion to their numbers because of markdown pricing. "We had levels of inventory even higher than this in 1990 and 1991," says MIT economist William Wheaton. "But they were traditional listings, not foreclosures, so they didn't create the big discounts you get with foreclosures."

Wheaton reckons that we'll see a flow of around 1 million foreclosures a year, at a fairly even pace, from now through 2013. That figure is frequently cited as evidence that the market is doomed for years in most foreclosure markets. Not so. The reason is that the vast bulk of those units, probably over 600,000, according to Gleb Nechayev, an economist with real estate firm CB Richard Ellis (CBG), are being converted to rentals either by investors or their current owners. Those properties are finding plenty of renters, since the rental market is still extremely strong across the country. Remember, the millions who lost their homes to foreclosure still need somewhere to live.

A typical investor is Alex Barbalat, a Russian immigrant who's purchased seven homes east of San Francisco in the towns of Bay Point, Antioch, and Pittsburg. His average purchase price is around $100,000 for homes that once sold for between $300,000 and $500,000. But he has no trouble finding renters, since his tenants can commute to jobs in San Francisco on the BART transit system. Barbalat is pocketing rental yields on the prices he paid of around 12%, and he's in no hurry to sell. "I'm holding them until prices drastically rise," he says.

Investment funds are also entering the game. Dotan Y. Melech looks for bargains in Las Vegas for UnitedAMS, a firm he co-founded that manages apartments and other real estate investments. The firm has raised more than $20 million from outside investors to purchase distressed properties. So far, Melech has bought around 300 houses and plans to purchase another 200 this year. He has no trouble renting the houses he buys, since, he estimates, occupancy rates in Las Vegas are touching 95%. The "cap rate," or return on investment after all expenses, is between 8% and 10% -- twice the rate on 10-year Treasuries. Melech rents to people who lost their homes but are reliable renters. "A lot of people can't be buyers because their credit got hurt," he says.

Even with investors jumping in, buying activity in foreclosure markets hasn't yet increased enough to bring inventories down. It will soon. Zandi thinks prices will fall a couple of percentage points lower in the distressed markets in the short run. "But that will be overshooting," he says. "It's like an elastic band. If prices do drop this year, they will need to bounce back because they'll be far too low compared with rents and replacement cost." Renters will come off the sidelines to purchase homes in the years ahead, precisely the opposite trend of the past few years.

Consider the example of Michael Dynda, a retired Air Force avionics technician who now works for a government contractor in Las Vegas. Dynda, 49, is a first-time buyer who put off purchasing for years, in part because prices were falling so rapidly in Las Vegas, with no bottom in sight. But last year the combination of bargain prices and low mortgage rates became too good to resist. He ended up purchasing a 2,300-square-foot stucco home for $240,000, or about half what it would have fetched in 2007. Dynda got a 4.38% home loan, and pays the same amount on his mortgage as on the rent on the house he left to become a homeowner. "The timing was about as good as it could get," says Dynda.

Mike Castleman's company tracks the inventory of new homes in 19 states across the country. He sees supply getting tight. "Home prices are fixin' to rise," he says

Back on the ranch, Mike Castleman is lounging in his creek-front mansion, built from "a hundred tons of fine central Texas limestone." As he shows off his collection of custom-made guitars, including one crafted to resemble the skin of a rattlesnake, the homespun housing guru once again returns to his favorite topic.

Castleman claims that this recovery will look like all the others: It will bring a severe shortage of housing. He invokes the livestock business to explain. "It takes three years between the time a bull mates with a cow and when you get a calf ready for market," he says. "That's how it is in housing too. We'll get a big surge in demand and the drywall companies will take a long time to ramp up, and it will take years to get new lots approved. Buyers will show up looking for a house in a subdivision, and all the houses will be sold. The builders will tell them it will take six months to deliver a house." But those folks, says Castleman, will be set on buying a place. "And they'll want it so bad they'll bid the prices up!" In other words: Beat the crowd.

It's a Great Time to Buy a House

Mike Castleman, the Texan with the best realtime view of housing in the U.S., tells editor-atlarge Shawn Tully that the naysayers are about to get a big surprise: rising prices for new homes.

--Reporter associates: Anne VanderMey and Christopher Tkaczyk

Buying a Home? There's an App for That

If you're in the market to buy a home, a slew of new smartphone apps aim to make the job easier and save you time. MarketWatch's Amy Hoak reports.

Apple To Dominate Tablet Market Through 2015, Google Takes Smartphones

Original Post: http://blogs.forbes.com/afontevecchia/2011/04/11/apple-to-dominate-tablet-market-google-takes-smartphones/

Agustino Fontevecchia for Forbes.com Apr. 11 2011 - 12:14 pm

Steve Jobs and his iPad - Wikipedia

Apple will remain firmly in control of the tablet market through 2015, according to market research by Gartner, which also shows Google’s Android will take the baton from Nokia’s Symbian to dominate the smartphone market through the same time period. Experts agree, though, that it will be strong ecosystems, allowing for tablets and smartphones to deliver a combined experience, which will take the day, possibly weakening Research in Motion’s capacity to deliver in a new environment.


Media tablet sales are growing exponentially, according to Gartner’s figures, with approximately 70 million units to be sold in 2011, about 300% more than in 2010. By 2015, Gartner expects tablet sales to almost hit 300 million. The big winner here is Apple, with a clear hold on the market. From the report:

Apple iPad did to the tablet PC market what the iPhone did to the smartphone market: re-invented it. A media tablet is not just a different form factor to perform the same tasks that can be done on a PC. Tablets deliver a richer experience around content consumption, thanks to the ecosystem they support. The richer the ecosystem, the stronger the pull for consumers.

Software over hardware is the simple axiom presented by analysts at Gartner. Platform flexibility and an extensive ecosystem of applications will be the key to market share. That is precisely why Apple, with its iPads, has managed to hold 83.9% of the market in 2010 and will still keep 69% of the market while growing its sales more than three-fold to 48 million by the end of 2011. As the market consolidates, Apple will see its share gradually fall to 47% by 2015, selling a total of 139 million units that year.

Apple’s competition, though, hasn’t gotten the game right, Gartner’s Carolina Milanesi explained. “Many [tablet makers] are making the same mistake that was made in the first response wave to the iPhone, as they are prioritizing hardware features over applications, services and overall user experience. Tablets will be much more dependent on the latter than smartphones have been, and the sooner vendors realize that the better chance they have to compete head-to-head with Apple,” noted Milanesi.

Google’s Android and Research in Motion’s QNX will be the other two big players in the media tablet market, according to Gartner’s data. Android will grow its market share from about 20% in 2011 to 39% in 2015, leveraging its decision to not open up its Honeycomb tablet operating system, preventing market fragmentation and slowing the price decline of Android-based devices. “The new licensing model Google has introduced with Honeycomb enables Google to drive more control, allowing only optimal tablet implementations that don’t compromise quality of experience,” said Gartner’s Cozza. (Read Meet The Google For High Frequency Trading Machines” Selerity).

Research in Motion will take its tablet market share to 10% by 2015, as it moves its devices onto their new QNX ecosystem in 2012. RIM is set to release its PlayBook tablet, which will run on the same operating system, in its attempt to gain ground in the tablet market. While this will provide a “consistent experience across its whole product portfolio and create a single developer community,” the company will struggle attract developers, which is the game changer for Gartner’s experts. (Read RIM Stock Tanks As CEO Balsillie Plays Down Q1 Worries).

It’s not all about tablets, though, as smartphones will play their part in the upcoming device wars. As the interaction between smartphones and tablets increases, with matching operating systems and the capacity of sharing applications and data across platforms, consumers will begin to focus on OS rather than on brand.


That is where Google will be able to leverage its position. Being an open OS in the smartphone environment, Android devices will come to dominate the market by the end of 2011 and increase its share in 2012. As Nokia retires its Symbian OS to introduce devices powered by Microsoft’s Windows Mobile OS, Android devices will go on to make up 38.5% of the market by the end of 2011 and grow to 49.2% of the market by 2012. From the report:

“As vendors delivering Android-based devices continue to fight for market share, price will decrease to further benefit consumers”, Ms. Cozza said. “Android’s position at the high end of the market will remain strong, but its greatest volume opportunity in the longer term will be in the mid- to low-cost smartphones, above all in emerging markets.”

Apple’s iOS will end 2011 with about 19.4% of the market, as the company looks maintain margins rather than pursue market share. Keeping prices high, Apple iPhones will see their market share gradually fall to 17.2% by 2015. Apple will still lag in the mid to low-cost segment, failing to garner strength outside of mature markets such as the U.S. and Western Europe.

Interestingly, Nokia and Microsoft will perform well in the period, taking their share from 5.6% in 2011 to 19.5% by 2015, outpacing both Apple and RIM. BlackBerry phones will progressively lose market share as competition eats into their business and consumer segments. RIM devices will go from dominating 16% of the market in 2010 to 11.1% by 2015.

Ranch House Revitalized

New Reality: ‘O.C. Housewife’ Selling Home.

Original Post: http://blogs.wsj.com/developments/2011/04/04/new-reality-o-c-housewife-selling-home/
April 4, 2011 By Dawn Wotapka for WSJ.com

Doyle Terry

“Real Housewives of Orange County” cast member Vicki Gunvalson has listed her house.

Developments readers know that the “Real Housewives of Orange County” have serious housing issues: The women are no strangers to loan modifications, short sales and foreclosures.

But here’s a dose of drama-free reality: Cast member Vicki Gunvalson has listed her Coto de Caza, Calif., house for sale the old-fashioned way, TMZ reports.

Donn Gunvalson, Vicki’s husband, confirmed the listing, but did not comment further. (Take a virtual tour of the home.) The couple is asking $2.695 million for the five-bedroom, six-bathroom home brimming with upscale features including a dramatic master suite and a “resort style palm tree studded pool featuring a huge rock slide as well as a 5-seat swim up bar,” according to the listing.


That the house is up for grabs isn’t a surprise: Vicki Gunvalson, a hard-working insurance executive who was profiled in the Washington Post, discussed selling the spacious home in a recent episode. Big spaces come with big costs, she pointed out, and her two children are grown.


Laura Simmons, the Weichert agent with the listing, said she’s hoping for quick sale. That could be tough. While Coto is an exclusive gated community favored by professional athletes and doctors, it has felt the effects of the downturn. Prices have fallen some 30% from the peak, Simmons said, and sales have slowed, sending even high-end homes into foreclosure.


Doyle TerryThis house, however, has the advantage of being featured on a popular cable-television reality show. “It adds cachet,” she says.


We’ll watch to see if the sale becomes part of future episodes.

Doyle Terry

Follow Dawn on Twitter @dwotapka

Real Housewives of Orange County, Vicki Gunvalson, Weichert

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The $100 Million Mansion

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