In my experience, people love photos when looking for listings. Clear, high quality photos, and maybe some interactive panoramic photos that allow the user to explore a property as if they were standing there. Audio elements, both music and narration, are more likely to turn off a buyer than provide any type of staying power.

Video is actually also more static in presentation in that a user cannot click through the images they want to look more closely at. In a flash or thumbnail type photo navigation, the user can do just that, get a glimpse of the pic in the thumbnail and click to see the full size version.

Real estate videos basically come in two formats, the first simply involves using photos and putting them into a movie application which slowly zooms in, out, or pans across the image. It is essentially looking at photos in a video. The other format is a walk-through type video where the agent or home owner, with camera in hand, walks through the house while narrating and pointing out all the great features. This format carries a very high risk of coming across as just plain dorky or outright annoying. The ones which are shot by professional videographers can be quite good, but these are typically more beneficial to the luxury home market (over $1 million in price).

The vast majority of listings will benefit from using digital photos shot with a DSLR and to focus on the quality rather than the number of images to use.

In terms of the real estate market, 2009 represented the perfect combination of extreme governmental measures to jump start sales along with already drastically reduced home prices. The result was an incredible surge of home buying, especially in the first time buyer price range below $250,000. The inventory of active listings that we have at Homefront LLC is at its lowest level since 2001. The March through October (so far) time period has been the strongest market I have seen since the irrational exuberance of 2003-2005.

The big question now is whether this buying momentum can continue or if we have simply taken away from future demand by
over incentivizing the first time buyer. There is no question that the stimulus that went into the real estate market worked. With foreclosures overwhelming the market and the prospect of a prolonged cycle of lower prices and more foreclosures, the government
acted, first, to stem the foreclosures by underwriting a loan modification program, and then focused on incentives to spur home buyers to reduce the flood of foreclosed homes in the market.

The incentives were very simple. They implemented the $8000 tax credit and then made a rule that it could be counted as part of a down payment for those loans bought by Fannie Mae or Freddie Mac. This was huge. The primary obstacle to first time home buyers is scrapping together the down payment.

Secondly, the Treasury department, for the first time, became a player in the bond market and began purchasing U.S. government bond notes in an effort to reduce even further the interest rates on mortgages. While Ben Bernake and the Federal Reserve had already lowered the discount and federal funds rates about as far as they could go, those are not the rates upon which mortgages are set. By entering the bond market and printing money to directly purchase a trillion dollars worth of bonds, the Treasury department created an extreme and artificially low return on bonds which in turn caused extreme and artificially low mortgage rates.

What effect will all this stimulus have on the future of real estate?

Great question. As of this writing in mid-October the Treasury department is buying the last of its bonds with the trillion dollars it printed for this purpose. The tax credit is scheduled to expire at the end of November, although the realtor associations are lobbying hard for an extension. When the artificial incentives are no longer in place, there is a chance that the market will be slower than what we have seen so far this year. A “cash for clunkers” type hangover. While the cash for clunkers program was also a huge success, the car dealers were quieter than ever as soon as it ended.

If the macro economic picture improves, and the unemployment rate starts to come down, we should be able to maintain at least a stable market without the tax credit and the artificially low interest rates. If the macro economy does not improve measurably than I think there is a clear risk that the real estate market will deteriorate further in the absence of the governmental incentives.

The listing contract is between the seller and the broker. The listing broker will then in turn offer a co-broke commission to all MLS participants in order to induce them to use their efforts to effect a sale by presenting the listed property to their buyer clients. The listing broker is acting as a contractual bridge between the seller and the entire realtor community. The listing agreement is a bilateral contract in which the seller agrees to pay a commission and the listing broker agrees to perform certain marketing functions. The offer of the commission in MLS represents a unilateral offer from the listing broker to all MLS participating brokers. A participating broker may form a contract with the listing broker by performing the terms of the unilateral offer, i.e. by finding a buyer ready, willing, and able to buy according to the sellers criteria.

As a seller, it is important to have information regarding local market commission trends to understand what represents a competitive co-broke commission rate. In Milwaukee county and all of metro Milwaukee, 2.4% is, by far, the most common co-broke commission rate offered within MLS. The chart below demonstrates the popularity of the 2.4% co-broke. 249 of the 271 active single family home listings in Wauwatosa as of 07/27/09 contained a co-broke commission of 2.4%. There were a few below and a few above the 2.4% rate.

The combination of the very low interest rates, the first time buyer tax credit of $8000, and historically low prices, has created a
wave of pending home sales in  Wisconsin.

The trend of low interest rates, however, appears to be reversing. The U.S. Treasury Department announced several months ago that they would use (some would say “print”) 1 trillion dollars to purchase US treasury bonds in an effort to keep rates low (some would say artificially low). This effort appears to have been very successful in the short term as rates have been very low so far in 2009. The problem with the feds plan is that at some point they can no longer keep propping up the bond market and they must then rely on purchases of U.S. debt by foreign governments.

Although U.S. debt is considered among the safest in the world, foreign governments may view the feds action as increasing the risk of a decreasing return on their investments in U.S. bonds. When the feds print money they dilute the value of all dollar denominated assets, including, of course, all U.S. debt obligations.

The yield on the 10 yr treasury, which is closely correlated to movements in the mortgage market, has hit a high for the year on May 7th. As you can see on the chart below, rates are still low relative to last year but that they are definitely now trending higher.
The big question is whether the higher rates will impede the current housing market recovery or if the economy is gaining enough strength to overcome the higher rates.

FSBO
“For Sale By Owner” is a marketing method, which, as you may have guessed, involves marketing and selling on your own without the assistance of a real estate agent. The main advantage of this type of marketing is the potential for huge commission savings. In southeast Wisconsin it is very common for a traditional broker to charge a 6% commission for a successful sale. On a $300,000 sale that would equal $18,000.

The main disadvantage of FSBO marketing is the potential lost opportunity of selling to a qualified and motivated buyer who is working with a realtor. The FSBO “buyer pool” is relatively small compared to the overall buyer pool which includes the majority of buyers who have an agent working on their behalf. As the vast majority of home buyers have an agent, those buyers tend to search the websites where MLS listings are displayed, most likely starting with the brokerage website of their agent, or other MLS affiliated websites like Realtor.com. For many, if not most, buyers, the FSBO properties are off their radar screen. In my experience the FSBO market works best in the middle range of home prices. Buyers who are comfortable with the process of buying a home and who are savvy and knowledgeable about the potential cost savings of buying a FSBO, tend to have some degree of experience in the market. The first time buyer as well as the upper end buyer have a strong tendency to use a realtor in the home buying process. For more info on the “for sale by owner” option see this article in U.S. News.

Tradtional Broker
A traditional brokerage listing is still the most common marketing method used by home sellers. In this type of relationship the home seller signs a listing contract with a broker for a typical listing term of 6 months and a commission which is often 6% in south central Wisconsin. The commission is generally payable regardless of how the buyer is “procured”. The main component of the marketing plan usually consists of listing the property in MLS. There may be other bells and whistles, brochures, open houses, etc.

One of the most important parts of any MLS listing is the offer of compensation to other MLS participants. This is sometimes called the “split” or “co-broke” commission. This is the commission earned by the broker who brings the buyer. In the metro Milwaukeearea this offer of compensation is very (and I mean very) commonly 2.4%. The term “split” is a misnomer because the broker is free to offer whatever they want in terms of a co-broke commission. The offer of the commission in MLS is a unilateral offer from the listing broker to all MLS participating brokers. It is worth noting that it is not between the home seller and the MLS participants.

A relatively new addition to the realtor code of ethics is the requirement that brokers inform their seller client what they will offer in MLS as cooperative compensation. If you had a listing contract with a broker charging a 6% commission, the broker could offer, say, 2% in MLS. This could put your listing at a disadvantage on a commission basis. Also, if you listed your home with a broker who was charging only 5% but was offering 3% in MLS, you would not be at a disadvantage in terms of the MLS offer of compensation. The two points to remember are that you first need to know what the competitive cooperative commission is in your area. This can vary substantially from region to region. In metro Milwaukee it is typically 2.4%, while in Madison (South Central Wisconsin MLS) the offer is commonly 3%, in Chicago 2.5%, and in Rockford 3.5%.
Secondly, make sure your broker is offering the locally competitve commission rate and that it is noted in the listing contract.

In a traditional brokerage relationship, the agent will take all calls from other agents regarding showings, will negotiate and follow through on all offers & counter-offers, hold earnest money in their trust account, and arrange the title work and closing. The advantage of this type of marketing method are that it is essentially a “hands free” service to the seller. They do not need to talk to other agents or potential buyers, they allow their agent to represent them and handle enitrely the marketing and sale process. The disadvantage is the cost and typical lack of options or choices available to the seller. In a slow or declining market, a 6% commission can cause an exponential dent in homeowner equity or create a situation where the homeowner is pricing the property out of the current market to compensate for the commission.

Flat Fee MLS
Flat fee MLS services come in a variety of packages with different options, features, and experience levels of the brokers providing the service. For the purposes of this article I will stick to the service that we offer at Homefront LLC and which is detailed on our services page.

Our flat fee MLS service is a hybrid service that offers the potential huge commission savings of a FSBO along with all the exposure
of MLS to the many buyers who utilize an agent to assist them in their home purchase. For a flat fee of $295 we list our clients property in the metro Milwaukee MLS for a 6 month term (free to cancel at anytime) and offer a “co-broke” commission of their choosing. We recommend a 2.4% commission for all of southeast Wisconsin but we will offer another amount if our client so chooses. It is also worth noting that the commisison amount offered in MLS can be changed during the listing term. In addition to the MLS, our service features a post yard sign which is customized to display the owners phone number, as well as up to 25 photos to use with the listing. We also offer the option to add additional services at anytime they are needed. Homefront LLC will negotiate on the sellers behalf, review offers with the seller and prepare counter-offers, hold earnest money, and order title work, for a commission of 0.5%. If our client sells to a buyer procured by them without realtor involvement then there would be no co-broke commission payable. If sold by a realtor then the only commssion payable would be the 2.4% co-broke, unless, of course the client wishes to use our additional representation service for the additional 0.5%.

The advantages of this type of service are the unique combination of the benefits of a FSBO along with all the marketing exposure of MLS, commission savings, and options. The disadvantage is that the flat fee is an upfront payment. For this reason you want to minimize the amount of the flat fee you are charged and maximize the marketing tools and exposure you receive.

Summary
I first started the Homefront LLC marketing service in 1998. Since then there has been a seismic shift in the real estate industry driven by the wide availability of listing information on the internet. In the pre internet days the agent would tell the buyer what was available and the buyer would follow their lead. Today the roles have been reversed with the buyer finding properites online and telling the agent what they are interested in seeing. The agent is now following the buyers lead. The agent can still play a valuable role in the process but it is a role based more on personal service and skill rather than exclusive access to listing information.

Newer listings tend to get all the attention from realtors as well as buyers. Realtors can enter their buyer clients criteria into the MLS system and create a buyer profile. When new listings come into MLS that hit on the buyers criteria the listing can be emailed automatically to that buyer. A new listing is an unknown to the marketplace and will generate immediate attention as realtors and buyers try to discern if the listing is offering a lot of value of if it is destined to sit quietly in MLS gathering dust.

When buyers and realtors see a listing which they know has been on the market a long time, the underlying assumption, in my opinion, is that if the listing represented such a great value, it would have sold within a reasonable period of time. Even if the seller has cut the price substantially you may still have a buyer who thinks “I wonder what’s wrong with it” when they see from the MLS number or the “market time” field in MLS that the listing has been around for a long time.

For our clients who are unable to sell within the 6 month listing period, we advise letting the listing expire and then relisting with a new MLS number. I think a break from the market of 2 or 3 weeks before relisting may also be helpful. There are some seasonal considerations at play in this strategy that I can discuss with you if it comes time for a relisting.
We do relistings for a substantially reduced fee.

The value proposition (I, myself, am mildly dorky so I am comfortable using the phrase) is made up of three components.

1. The Price
2. The property description
3. Images of the property, -static photos, virtual tours, or video

Buyers today do the bulk of their searching, and more importantly, their excluding, of properties on the internet. Our goal is to not get excluded.
If there are 25 properties in a certain area that meet the basic criteria of a buyer,  it is likely that they will narrow that list down to maybe half a dozen that they will actually go and visit. The buyer is including or excluding properties from their list based upon their perceptions of the value proposition of each property as presented in the listing.

We will leave price determination for another article but you may want to refer to this posting for some things to consider.

The key in pricing is to be in the right range. Lets say you have a general idea that your house should be priced in the upper $200k area.
Buyers tend to search in fairly wide price ranges, like $250k to $300K. Within their chosen price range they may view properties at the edges of the range with a certain amount of skepticism. A home at $299,900 may be viewed as either overpriced or as too much of a reach for the buyer.  A home priced at $250,000 may be viewed with caution, with buyers saying to themselves “I wonder whats wrong with it?”, or simply thinking, “We can afford something a little nicer”.  The middle of their range is where buyers feel the most comfortable and they may gravitate toward the homes, in our example, priced between say $257,000 to $293,000.

Now comes the sales pitch.   The combination of the description and the photos is where we create our value proposition relative to the price.  We are not only going to relate in words what our wonderful home has to offer but we are going to prove it through our beautiful photos.  The Milwaukee MLS allows for 400 total characters in the description of the property. This is not much text and must therefore be used wisely.  I write almost all of the descriptions for the properties listed with our flat fee mls service (that’s over 1800 descriptions) and have become accustomed to prioritizing the appealing features of a home.  We focus on the things that not listed elsewhere in the listing. We do not want to say “3 bdrm, 2 ba, 2 story” as that information is available in the details of the listing,  and likely already known by the buyer before they read the description.  

The buyer wants to know where the value is in this property and we need to get straight to the answer.  For example, “Super charming 1940’s Bungalow stylishly updated for modern living with bright, open, living spaces and on beautiful corner lot in ideal east side neighborhood with easy access to UWM and downtown.”  That’s a good answer.  We can then expound on the features mentioned in this single sentence and give more details as to the updates, the yard, and the location. 

Now we need to back up all our fancy talk with some good pictures.  I always recommend that the main exterior photo of the front of the house be “seasonally appropriate”.  We can inadvertently send a negative message by having a “snow photo’ in a listing that is being viewed by a buyer in mid-June.  The knee-jerk reaction is “how long has this been for sale?”  For the other photos it is not as important. If you do in fact have a beautful yard there is nothing wrong with having a summer photo included with a listing you are starting in January.  All photos should be bright and clear.  Sometimes a room will simply not lend itself to a good photo due to dark flooring and walls, or outdated furnishings and interior design.  If the photo is not backing up what we have said in the description then we should not use it. 

Static photos are still the best way to back up your marketing message. Over the years we seen various alternatives get attention and then fade away.  360 degree virtual tours shot with a fisheye lens were a novelty but caused too much distortion.  Video has repeatly threatened to become a force in real estate marketing but has not yet gained traction. Most buyers do not need or want movement in the images.

Create a powerful value proposition and keep in mind that the value offered in your listing is dynamic and relative to the other properties that are currently for sale in your area and price range.  Whatever marketing “vehicle” you choose be sure to keep the listing fresh with updated exterior photos if you happen to shift from move season to the next without a sale.

Please comment or email with any questions or if I can be of service.