Competition Intensifies as Realtors Compete for Listings

There is no doubt that our real estate industry has received an extraordinary number of attacks in the last decade – from the constant pressures to publicize the MLS from the Competition Bureau, to the increasing role of online listing websites such as ForSaleByOwner.ca, pushing customers to negotiate for lower commissions.  Yet again, we have a new wave of websites that are now putting real estate agents in the driver’s seat.

Bidcomhomes.com,  is a website where realtors bid on commissions to homeowners looking to save some money.  Sellers post their homes online for free, and realtors compete against each other to get the listing. Realtors pay $99.95 to bid on 30 homes, and sellers receive emails from realtors and can respond or not.  Several similar websites have begun to pop up since the Canadian Competition Bureau began to probe realtors’ monopoly on MLS information.

To read more on this story, click here.  [Originally published in The Vancouver Sun on July 30, 2012]

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Very Interesting Read…

[Originally published in The Wall Street Journal on August 3, 2011: Click Here]

DIY Guru Gets Broker Help

By Josh Barbanel

A founder of a website dedicated to direct sales of homes by their owners has sold his two-bedroom apartment in Chelsea for $2.15 million—with the help of a real-estate broker and a standard 6% commission.

Colby Sambrotto, a founder and former chief operating officer of ForSalebyOwner.com, a large website for owner sales, spent six months trying to sell his condominium himself through online listings and classified ads, before turning over the listing of the 2,000-square-foot apartment to a broker at Bond New York in November.

The broker, Jesse Buckler, said he told Mr. Sambrotto the apartment in the Lion’s Head building on West 19th Street near Sixth Avenue was priced too low and wasn’t drawing the right buyers.

By May, it went into contract, he said, after attracting multiple offers. It closed in the last few days for $150,000 more than the original asking price.

“At first he wouldn’t let me increase the price,” Mr. Buckler said. “I told him I know what I am doing—the market is picking up.”

The sale is likely to add some fuel to debate over whether direct for-sale-by-owner deals, known as FSBOs in the trade, are workable in the higher end of the Manhattan market, where many brokers try to hold the line on commissions and resist discounting.

There have been a handful of extremely expensive sales that closed in the last few years, without the help of broker. In 2007, Edgar Bronfman Jr., the chief executive of Warner Music Group, sold a townhouse on East 64th Street for $50 million without a broker. Last month, a townhouse on East 69th Street off Fifth Avenue was sold for $48 million, also without a broker commission.

ForSaleByOwner.com was founded in 1999 and sold to Tribune Co. in 2006 in the midst of the real-estate boom. Mr. Sambrotto left the company when it was sold, and in 2007 paid $2 million for a second-floor apartment at the Lion’s Head, a successful condominium conversion where buyers lined up for a chance to buy in 2005.

Mr. Sambrotto confirmed the details of the transaction with Mr. Buckler as the broker. He said he is still active in real estate and still believed in owner sales and discounted commissions.

Looking to move his family to the suburbs, he said he carefully staged his apartment for sale himself, and put it on the market. But after using a mix of websites to publicize his apartment, he said he had only “middling success” and switched to a broker because many buyers were so reliant on brokers.

“The apartment market in Manhattan was tightly controlled by agents,” he said. “So many buyers don’t even bother to do a search online.”

Now Mr. Sambrotto said he plans to use his condo-selling experience with a new sale-by-owner website, USRealty.com, that he plans to launch in a few weeks after a non-compete agreement expires. Owner-sellers on the site will have the option of offering commissions to brokers who bring in buyers.

Matt Brown, director of business development for ForSaleByOwner.com, said selling without a broker “is definitely not for everybody.”

“It is a time-intensive process that can save you a ton of money,” he said. But even so, “In the high-end market the sellers might not have the time to dedicate to selling” their homes themselves, he said.

Bruno Ricciotti, a founder and principal broker at Bond, had a different perspective. “FSBOs are a significant source of leads for us,” he said, since brokers are trained to use the owner listings to sign up new customers.

After looking for houses across the region, Mr. Sambrotto said he and his wife had decided to stay in the city, and to buy a second home on the East End of Long Island.

Everything You Need to Know About the MLS HPI

On February 6th, TREB finally released more information about the widely anticipated MLS HPI (MLS Home Price Index).  TREB, together with CREA and four other major boards across Canada developed this system together to measure home prices and home price growth in a more elaborate way than simple average.  If you’ll recall, our first blog was on Toronto Home Affordability (click here for the article) and it was based on a home price and income growth indices with 1977 as the base year.  The MLS HPI is very similar to this (I should have waited a few months before writing that article to save myself all the work!)

The MLS HPI is similar to the Consumer Price Index (CPI) used to measure Canada’s consumer price inflation. The base month/year is January 2005, where the indices are equal to 100. In January 2012 TREB’s HPI was 143.6, meaning prices grew up 43.6% between January 2005 and January 2012. TREB’s HPI was up 0.28% from December 2011, and up 7.6% year-over-year compared to January 2011.

Here’s how it works, pasted straight from TREB’s news release for simplicity:

Each month, there will be two key outputs published using the MLS® HPI:

1.       A series of price indices – The MLS® HPI price indices work in a similar fashion to the Consumer Price Index (Canada’s measure of consumer price inflation).  The indices have a base month/year of January 2005, where the indices are equal to 100.  In January 2012 TREB’s composite HPI was 143.6.  This means that the composite price index grew by 43.6 per cent between January 2005 and January 2012.  On a month-over-month basis, TREB’s composite HPI was up by 0.28 per cent compared to December 2011 and also up by 7.6 per cent year-over-year in comparison to January 2011.

2.       A series of benchmark home prices – The MLS® HPI has also been used to establish benchmark homes down to TREB’s Community level of geography for major home types including single family (detached and attached), townhouses and apartments.  A benchmark home is composed of a set of attributes typical of homes in the area where it is located, and remains constant over time.  This allows for an apples-to-apples comparison of price over time.

These numbers will be published in TREB’s monthly Market Watch publications in a new section called “Focus on the MLS Home Price Index”.  Below are some charts and graphs as well as some interesting Q&As found in TREB’s news release.

Q: How is the MLS® HPI calculated?

A: The MLS® HPI is calculated using multivariate regression analysis, a commonly used statistical technique.  Using a hybrid modeling approach that merges the Repeat-Sales and Hedonic Price approaches, the MLS® HPI model reflects contributions made by various quantitative and qualitative housing features toward the home price, including:

  • Number of rooms above the basement level
  • Number of bathrooms & half-bathrooms
  • Square footage for main living & basement areas
  • Whether it has a fireplace and/or finished basement
  • Lot size
  • The age of the property
  • Parking
  • How the home is heated
  • Foundation, flooring, siding & roofing types
  • Whether the property has waterfront or panoramic view
  • Whether the property has been sold previously (newly constructed and previously unsold, or repeat sale)
  • Proximity to shopping, schools, hospitals, police stations, churches, sports centres, golf courses, parks, and transportation (including the train station, railways, and airports)

The MLS® HPI can also be used to calculate the price for benchmark homes, whose features are typical of homes sold in a given area.

Q: What is a benchmark home?

A: A “Benchmark home” is one whose attributes are typical of homes traded in the area where it is located, with one benchmark being generated for each supported sub-area and home type.

Benchmark property descriptions are based on median values for quantitative property attributes (e.g. above ground living area in square feet), and the most commonly occurring value (i.e. modal value) for qualitative attributes (e.g. basement is not finished).

The attributes of Benchmark homes remain constant over time, allowing for an apples-to-apples comparison of price over time.

Q: How is the MLS® HPI different from average and median home price calculations?

A: The MLS® HPI is based on the value homebuyers assign to various housing attributes, which tend to evolve gradually over time.

This means that price changes calculated using the MLS® HPI are less volatile than those derived using common measures like average and median, which can swing dramatically in response to the changing mix of home sales over time.  

It is often difficult to determine if average or median price fluctuations really reflect changes in buyers’ willingness to pay for certain housing attributes, or just changes in the volume of very expensive or inexpensive home sales from one time period to the next. The MLS® HPI removes that uncertainty.

Q: How can the MLS® HPI be used with average and median prices?

A: Comparing the MLS® HPI value for a given home type in a given market with the average selling price for the same home type and market can provide useful insights.

For example, if there is a change in the average home price that is well above the change in the MLS® HPI value, it may point to an increase in the proportion of high-end homes sold during a given period.MLS HPI CHART JANUARY 2012

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