SEP 12, 2013

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REO Reality

What the Future Will Look Like After the Housing Crisis

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Although the housing crisis is still in the early stages of a recovery, now may be the perfect time to reflect on the last decade to see what we have learned and where the housing industry is headed. 

The past 50 years have seen the housing industry grow, but there have been relatively few game-changing items: the introduction of the Multi-List Systems in 1974, the growth of the internet in the 1990s and the housing crisis of 2007. Each of these events altered the housing industry significantly and in vastly different ways.

The adoption of the MLS brought the real estate sales industry into the modern world. It empowered agents from competing firms to know specific details of other real estate sales in a given market. This process of categorizing standard data points created the knowledge base of housing that serves as the backbone of the real estate industry and is still used today. 

Just as the MLS empowered the Realtor, the advent of the internet empowered the buyer. For the first time, buyers had access to much of the data that was driving the MLS. This allowed the buyer to effectively shop the real estate market from the comfort of home for an enhanced buying experience.

The third game-changer, the housing crisis, wouldn’t normally be viewed as an impactful event for moving housing forward. What made the housing crisis unique is that today, in the aftermath of this implosion, banks are more influential and involved in the purchase and sale of residential real estate than ever before. Banks serve as buyers, sellers, property managers, landlords, short sale negotiators and beyond. They provide purchase financing, sure, but today banks participate in real estate transactions from angles our industry never would have anticipated.

By the very nature of their daily business, banks have influenced changes in the way which many transactions are negotiated and processed. As the full weight of the crisis hit they were forced to develop processes and tools that allowed them to evaluate a high number of transactions, required the ability to measure and monitor each phase of the sale process for audit purposes, as well as craft a standardized process to provide transparency to the public.

The banks have weaned emotion out of real estate sales and invited technology in. Because of institutional involvement, the buyers and sellers of real estate have grown to accept automation and expect transparency.

The last decade has taught us many things about our perspective of housing. The consumer has learned that prices don’t always go up and that they need to fully understand the financing they take on. The industry has learned that consumer behaviors do change; lending programs need to be viable for the borrower long-term, and most importantly we have learned two key items shaping the future. 

First is that technology will play a growing role in the way in which real estate transactions are consummated. The second is that agents will have to improve their technology skills to support activities such as paperless processing, e-signatures, online offer negotiation and communication with customers and vendors.

The large number of institutional sales over the past several years also highlights two new niche industries, the role of the REO agent as a focused seller specialist and the advent of auctions to dispose of large groups of properties.  

The REO agent is a breed who is technologically savvy and used to running business in a decentralized fashion using the Internet as a primary component of business. These agents function with a much lower cost structure than do traditional agents, usually operating remotely and saving the cost of the traditional opulent Realtor office. Where many “discount” or alternative brokers faced difficulty gaining traction on any large scale in the past, most REO properties are listed at less than the traditional 6% commission because the sellers (i.e., banks) control huge housing inventories and have tremendous leverage to reduce commissions in exchange for a steady flow of listings. This may be a turning point for the traditional bastion of a standard 6% commission and fancy/unnecessary offices.

While real estate auctions have been around forever, they have gained considerable traction in recent years and present a seemingly new way to sell properties. Most people associate auctions with distressed sales, but auction companies are quietly gaining acceptance in the traditional sales space by promising a transparent process and increased marketing. Auctions drive additional traffic to a home by instilling a sense of urgency in the buying public and bringing focus to a property that might otherwise be lost in a sea of sameness. Luxury properties are the largest segment that are benefitting from the auction methodology.

These controlled auction sales environments specify the exact day that a property will be sold, enforce the notion that properties are sold “as is” and also charge the successful buyer a premium in addition to collecting a real estate commission from the seller, proving that when a buyer truly wants a specific home he is willing to break from traditional processes to be the chosen buyer.

So while the MLS empowered the Realtor and the internet empowered the buyer, the best practices adopted from distressed sales during the housing crisis will empower the traditional seller as the market normalizes. The buyers and seller in the next era of housing will expect more transparency, instant access to relevant information, electronic transactions, and tech-savvy agents who provide a high level of service for a smaller commission or flat fee.

From crisis comes recovery. Yesterday’s problems have opened the door for housing to evolve once more, and the future looks bright.

Rodney Carey is CEO of Woodward Asset Capital, a technology solution provider in Southfield, Mich., serving the housing industry nationwide.

Comments (1)
Mr. Carey has certainly captured the extent to which our industry has changed. The big expensive brokerage offices are going to have to adjust their strategies in order to survive. Anybody know a good auctioneer?
Posted by Rick Kennedy | Friday, September 13 2013 at 4:34PM ET
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