Matthew Ferrara, Philosopher
 

A Better Report for Home Consumers

As many of you know, we’re not fans of the Case-Shiller housing report. Aside from the relentless media spin about the tiniest blip up or down, the primary problem with the report is that its focus – home prices – is simply an incomplete picture of the housing market. To understand what’s happening in any commodity market – especially housing – much more context is needed. And don’t expect the local REALTOR’s analysis report to be any better: Few are worth the paper they are (still) printed on.

Thank goodness, then, for Hagerty’s Quarterly Housing Report.

Real estate professionals love to say that “all real estate is local.” Yet most real estate analysis contains very little local data. The traditional real estate “comparative market analysis” (CMA) is economically useless: Not only does it rely upon incredibly inaccurate and unverified data entered by agents barely conversant with their software, such reports suffer from the biggest defect possible:

Lack of context.

Real estate agents can tell you how many homes are on the market. They can tell you the trends in new listing volume, sales units and homes that failed to sell on a given day. They can tell you how much a property sold for – even as a percentage of its asking price. And then they can’t tell you almost anything else that would be useful to purchasing and owning a commodity like a home.

Which is why they start talking about nonsense like school systems, parks, subways and other mundania.

Never have you seen a broker’s market report that contains a trend-line for local tax rates – a very important piece of information for owning a commodity that carries an annual “fee” attached to it. Nor do such reports show current rates and trends for other supporting costs, like local cable television, electricity, trash removal or any other “ownership load” related to the future requirements to service (ie., pay for) the home. In fact, it’s amazing that any decisions whatsoever can be drawn from the local real estate agent’s report, when so much contextual decision-making data is left unaccounted for.

Almost any other commodity purchase with an “ownership duration” requires contexts. Take the simplest of such purchases: a new car. don’t simply evaluate features or prices when comparing models. They examine “ownership” costs – like fuel efficiency, average repair costs, and even projected resales value. Their decision to purchase a model is based upon data points within a broader context.

Try to ask your REALTOR for your home’s projected resale value the next time you meet with her. Yeah, right.

Such lack of context and content is no longer acceptable to today’s housing consumer. Generation X is used to seeing the “full story” when it comes to purchasing anything of lasting value – whether it’s a laptop, automobile or home. They want to see the behind-the-scenes costs to construct, acquire, service, maintain and own the commodity. They understand that large purchase decisions don’t exist in a vacuum but a constellation of conditions.

They know how much it costs to run the television, not just purchase it.


Yet when it comes to buying or selling houses, so much contextual data is left unverified, or simply unmentioned, by the advisors to the consumer. That’s why new reports – such as Hagerty’s Quarterly Housing Report by James Hagerty at the Wall Street Journal is such a refreshing improvement. Certainly, it’s just a start. There are many factors left out – such as tax rates, energy costs and local tax impact. But the mere fact that it presents home prices and inventory in the context of unemployment and foreclosure rates – in one simple table – is a step forward in consumer education.

And makes Case-Schiller seem downright silly.

Ironically, real estate agents generally operate from the premise that people buy homes for “other reasons” than price. Countless stories (and industry cliches) claim that choose homes for emotional reasons, like location or how it “feels.” Yet the modern consumer isn’t so fickle, or vacuous, as to simply fall in love with a home, regardless of price. Most certainly not during a recession. Consumers have been schooled to ask for “operating costs” – energy, taxes, water, repairs – and they understand the concept of “trade in” value for the future. They have lots of experience buying expensive items based upon the monthly fee – whether it’s data  plans for expensive smartphones or fuel economy for expensive hybrid automobiles. It is senseless to think such issues do not matter when it comes to purchasing a home, a commodity of far longer lasting value and higher cost.

Hagerty’s Quarterly Housing Report makes a start of positioning homes within contexts – beyond emotional data such as greenery or convenience to shopping. Even after the housing recession, local data on unemployment, tax trends, energy costs and other operating factors will be required reading for and consumers. In a future of windmills and solar panels, maybe even weather patterns may become valuable context for the housing market.

It’s time for better reports for home consumers on what makes for a good decision in housing purchases. Case-Shiller’s focus on volume and price is outdated: It treats homes as if they were pork bellies or cell phone minutes without any other influencing factors. And traditional real estate market analyses must evolve as well. Buyers of the future won’t let their emotions carry them away – at least not so far, any more – especially when the market requires them to put real money down.

But that’s a report for another day.

  • Hi Matthew,
    I couldn’t agree with you more. I have been sharing this report with my KCMers since its inception. Great work.

  • Hi Matthew,
    I couldn’t agree with you more. I have been sharing this report with my KCMers since its inception. Great work.

  • Matthew Ferrara

    Thanks Steve – guess it’s another example of “great minds think alike!” Now, if we can just get “local” CMA reports to contain much more relevant data, we’d really revolutionize things!

  • Matthew Ferrara

    Thanks Steve – guess it’s another example of “great minds think alike!” Now, if we can just get “local” CMA reports to contain much more relevant data, we’d really revolutionize things!

  • Good article Matthew… You open up a whole new avenue of things that would be very interesting to people if they were available to them. Unfortunately, should there be any negatives in an agents area of operation they may be reluctant to post them and create a negative for that community. Something to consider?

    Thanks…
    Jack Doheny
    Assoc. Broker, ePRO
    Bean Group
    Portsmouth, NH

  • Good article Matthew… You open up a whole new avenue of things that would be very interesting to people if they were available to them. Unfortunately, should there be any negatives in an agents area of operation they may be reluctant to post them and create a negative for that community. Something to consider?

    Thanks…
    Jack Doheny
    Assoc. Broker, ePRO
    Bean Group
    Portsmouth, NH

  • Matthew Ferrara

    Jack: Good point. Here’s what I’d say: First, if there are negatives, then NOT telling the consumer is not a very good “fiduciary” job in my opinion. My stock broker OFTEN tells me the negatives of some of the purchases I want to make – and then we discuss and come up with a decision together. Same with my doctor, or lawyer. As for the “community” – there’s no such thing to worry about. If an area has failing school systems, it’s probably all over the news and internet anyway. For the agent NOT to put that into their advice – perhaps affecting the decision and/or amount that a buyer might offer for a home – begs the question of just what knowledge we want from our agents. Only the “good” stuff? Not me! I want the same level of good/bad that I get from Consumer reports: Ruthlessly honest. So I can make the best decisions for me. If towns don’t like their unemployment, energy or crime rates, then it’s up to consumers to TELL THEM SO by not buying there in the first place. That’s the best thing for everyone – buyers AND the trapped sellers in “negative” communities…. just another perspective.

  • Matthew Ferrara

    Jack: Good point. Here’s what I’d say: First, if there are negatives, then NOT telling the consumer is not a very good “fiduciary” job in my opinion. My stock broker OFTEN tells me the negatives of some of the purchases I want to make – and then we discuss and come up with a decision together. Same with my doctor, or lawyer. As for the “community” – there’s no such thing to worry about. If an area has failing school systems, it’s probably all over the news and internet anyway. For the agent NOT to put that into their advice – perhaps affecting the decision and/or amount that a buyer might offer for a home – begs the question of just what knowledge we want from our agents. Only the “good” stuff? Not me! I want the same level of good/bad that I get from Consumer reports: Ruthlessly honest. So I can make the best decisions for me. If towns don’t like their unemployment, energy or crime rates, then it’s up to consumers to TELL THEM SO by not buying there in the first place. That’s the best thing for everyone – buyers AND the trapped sellers in “negative” communities…. just another perspective.

  • Matthew… I agree… I do a lot of Buyer Agency and prefer to present all the facts as known! Better to have a “no thanks” up front rather than an irate buyer after the fact.

  • Matthew… I agree… I do a lot of Buyer Agency and prefer to present all the facts as known! Better to have a “no thanks” up front rather than an irate buyer after the fact.

  • Matt – It looks like an interesting study. Too bad they don’t measure every city in the US. Now we all have work to do to reserach our own local numbers…and that’s just the start of it. Time to make the donuts!

  • Matt – It looks like an interesting study. Too bad they don’t measure every city in the US. Now we all have work to do to reserach our own local numbers…and that’s just the start of it. Time to make the donuts!

  • Matthew Ferrara

    Sean: It would be a big help if the report was for all cities – but I bet it would take about 2 hours for an agent to gather that data for their general marketplace. Unemployment rate, foreclosure numbers, current and 3-year tax trends, water rates, gas rates, current fuel prices, electric etc., all seems like data that should not be too hard to find – even from the agent’s own personal bills, assuming they work in the area they live in. Once established into a basic database, maintenance would be easier.

    Now THAT would have been a database worth $20 Million from NAR, don’t you think? Not their glorified Sears-Catalog-of-American-Homes RPR project……:>

  • Matthew Ferrara

    Sean: It would be a big help if the report was for all cities – but I bet it would take about 2 hours for an agent to gather that data for their general marketplace. Unemployment rate, foreclosure numbers, current and 3-year tax trends, water rates, gas rates, current fuel prices, electric etc., all seems like data that should not be too hard to find – even from the agent’s own personal bills, assuming they work in the area they live in. Once established into a basic database, maintenance would be easier.

    Now THAT would have been a database worth $20 Million from NAR, don’t you think? Not their glorified Sears-Catalog-of-American-Homes RPR project……:>

  • So what you are saying is that Realtors or Agents don’t take enough of a position on the contextual things when it comes to buying a home like: cost of living, quality of life, employment., other trends, etc.

    I thought we were suppose to be objective about these things and stick to the facts? Hmm, taxes always almost go goes up. Energy prices fluxuates.

    Besides, gen x and y breathe the net. They are way too savvy for there own good.

    Yes agreed. People are making smarter buying decisions and buying with their minds more so than with their hearts.

  • So what you are saying is that Realtors or Agents don’t take enough of a position on the contextual things when it comes to buying a home like: cost of living, quality of life, employment., other trends, etc.

    I thought we were suppose to be objective about these things and stick to the facts? Hmm, taxes always almost go goes up. Energy prices fluxuates.

    Besides, gen x and y breathe the net. They are way too savvy for there own good.

    Yes agreed. People are making smarter buying decisions and buying with their minds more so than with their hearts.

  • Matthew Ferrara

    Angie:
    First, who said you were supposed to be objective? I want you to be INFORMED and to give me ADVICE – not just repeat information. As a consumer, I want you to apply your experience to information and help me DECIDE – and that’s not “neutral”. Also, why would offering information about local life, employment, etc. NOT be objective? Such information would be presented as FACTS – and my argument is that it’s NOT PRESENTED AT ALL today.

    As for Gen X and Y breathing the net – and too tech savvy for their own good: Well, I’m not exactly sure that’s the approach/attitude I’d suggest to service providers who are hoping to earn their business (if you catch my meaning).

  • Matthew Ferrara

    Angie:
    First, who said you were supposed to be objective? I want you to be INFORMED and to give me ADVICE – not just repeat information. As a consumer, I want you to apply your experience to information and help me DECIDE – and that’s not “neutral”. Also, why would offering information about local life, employment, etc. NOT be objective? Such information would be presented as FACTS – and my argument is that it’s NOT PRESENTED AT ALL today.

    As for Gen X and Y breathing the net – and too tech savvy for their own good: Well, I’m not exactly sure that’s the approach/attitude I’d suggest to service providers who are hoping to earn their business (if you catch my meaning).

  • If I ever wrote a book on real estate, it would be something titled Death of a Neighborhood Specialist. I am a genXer. When I started the business in 2005, I didn’t need to know anything about the market, the neighborhoods I was selling in or any of the barometers you mentioned above. Consumers were educated prior to meeting me. My job was to get to know the individual, their hopes, dreams and affordability and match that with their wants/needs. When it came time to select a house, my job was to help them evaluate their decision against the barometers they felt were important to them.

    Even today with Google street views /Google Earth, addresses of properties being blasted on the net, Wikipedia, niche town sites, forums, facebook, twitter, LinkedIn, census information being readily available to people, school reports, transportation information, etc. people already know what’s the deal in specific areas. My parents who purchased their first home in 1990 needed a neighborhood specialist.

    Dude, if you think me quoting trends in tax rates, cablevision prices, electricity, and trash removal is going to persuade a person to work with me or even buy a home in a specific neighborhood, then I must be going about my business the wrong way.

    Just being devil’s advocate to present an alternative viewpoint.

    P.S. I believe that people need a neighborhood specialist, just one that is tech savvy and talks in the same manner as genXers and Yers: email, text messages, FB wall post, Tweetbacks, etc.

  • If I ever wrote a book on real estate, it would be something titled Death of a Neighborhood Specialist. I am a genXer. When I started the business in 2005, I didn’t need to know anything about the market, the neighborhoods I was selling in or any of the barometers you mentioned above. Consumers were educated prior to meeting me. My job was to get to know the individual, their hopes, dreams and affordability and match that with their wants/needs. When it came time to select a house, my job was to help them evaluate their decision against the barometers they felt were important to them.

    Even today with Google street views /Google Earth, addresses of properties being blasted on the net, Wikipedia, niche town sites, forums, facebook, twitter, LinkedIn, census information being readily available to people, school reports, transportation information, etc. people already know what’s the deal in specific areas. My parents who purchased their first home in 1990 needed a neighborhood specialist.

    Dude, if you think me quoting trends in tax rates, cablevision prices, electricity, and trash removal is going to persuade a person to work with me or even buy a home in a specific neighborhood, then I must be going about my business the wrong way.

    Just being devil’s advocate to present an alternative viewpoint.

    P.S. I believe that people need a neighborhood specialist, just one that is tech savvy and talks in the same manner as genXers and Yers: email, text messages, FB wall post, Tweetbacks, etc.

  • Matthew Ferrara

    Actually, Angie, I think anyone who writes “Dude” in correspondence is going about business the wrong way. Just being a BIGGER DEVIL as an advocate… :> Have a good day.

  • Matthew Ferrara

    Actually, Angie, I think anyone who writes “Dude” in correspondence is going about business the wrong way. Just being a BIGGER DEVIL as an advocate… :> Have a good day.

  • Matthew,

    Now I know you truly don’t understand the needs of Gen X or Y. I’m not afraid to be myself. People buy people before they buy products and services. I;ve made an abve average income in real estate by being mysef first.

    I agree. The “traditional” CMA should have more context. I don’t think the contectual examples you gave have much weight in a person decision making process.

    Just my two cents!

  • Matthew,

    Now I know you truly don’t understand the needs of Gen X or Y. I’m not afraid to be myself. People buy people before they buy products and services. I;ve made an abve average income in real estate by being mysef first.

    I agree. The “traditional” CMA should have more context. I don’t think the contectual examples you gave have much weight in a person decision making process.

    Just my two cents!

  • Matthew Ferrara

    Angie: You’re right – I didn’t know that you people in your generation were so FUNNY! You mean Gen X’ers want the person who is helping them make one of the MOST IMPORTANT Financial decisions in their life to say “Dude” and OMG and stuff like that? Gnarly! Does that mean we can even make spelling and grammar mistakes? Where does the “be myself” end and the “respected service professional” begin? (That’s rhetorical, of course.)

    But let’s stick to the subject at hand: At least we agree the traditional CMA lacks sufficient information and context to help the modern consumer. As for whether consumers buy the “person” or the “professional” I don’t buy it. While referrals are the largest source of business for agents, it’s also true that most consumers don’t know a thing about the person they are hiring: 60% of them said they simply chose the first agent who paid attention to them (by any communications method) without any background information whatsoever.

    Oh well; who needs research? It’s not like Gen X or Gen Y will really need a job or care about the cost of living anyway, right? As long as they can text their fellow dudes…

    TTYL!

  • Matthew Ferrara

    Angie: You’re right – I didn’t know that you people in your generation were so FUNNY! You mean Gen X’ers want the person who is helping them make one of the MOST IMPORTANT Financial decisions in their life to say “Dude” and OMG and stuff like that? Gnarly! Does that mean we can even make spelling and grammar mistakes? Where does the “be myself” end and the “respected service professional” begin? (That’s rhetorical, of course.)

    But let’s stick to the subject at hand: At least we agree the traditional CMA lacks sufficient information and context to help the modern consumer. As for whether consumers buy the “person” or the “professional” I don’t buy it. While referrals are the largest source of business for agents, it’s also true that most consumers don’t know a thing about the person they are hiring: 60% of them said they simply chose the first agent who paid attention to them (by any communications method) without any background information whatsoever.

    Oh well; who needs research? It’s not like Gen X or Gen Y will really need a job or care about the cost of living anyway, right? As long as they can text their fellow dudes…

    TTYL!

  • LOL, point taken. The comment box says that I can speak my mind and explain what I am thinking. I’ve done that. I’m responding to a blog post not writing a contract or business letter. My grammar sucks and my spelling errors happen. At the end of the day, I still make money because I’m me above all other things, which includes being professional and knowing the business.

    Consumers choose the first agent they meet because they group agents into the same category: someone to let them into house, which is my point from the beginning: Gen Xers and Yers are independent people and unless we give them a reason to care who they choose, they are going to continue to work with the first agent that responds because they have access to everything else they would want to know about an area.

    Whether or not the agent provides the context is irreverent. It would be nice, but it doesn’t sell houses.

    This reminds me of when eneighborhoods wanted to sell me on getting neighborhood reports and I used them for a while. Clients liked them, but it didn’t get me any new clients. In the end, the traditional CMA still rules. Just ask Top Producer who markets Market Snapshot (I’m not affilated with them with any way).

  • LOL, point taken. The comment box says that I can speak my mind and explain what I am thinking. I’ve done that. I’m responding to a blog post not writing a contract or business letter. My grammar sucks and my spelling errors happen. At the end of the day, I still make money because I’m me above all other things, which includes being professional and knowing the business.

    Consumers choose the first agent they meet because they group agents into the same category: someone to let them into house, which is my point from the beginning: Gen Xers and Yers are independent people and unless we give them a reason to care who they choose, they are going to continue to work with the first agent that responds because they have access to everything else they would want to know about an area.

    Whether or not the agent provides the context is irreverent. It would be nice, but it doesn’t sell houses.

    This reminds me of when eneighborhoods wanted to sell me on getting neighborhood reports and I used them for a while. Clients liked them, but it didn’t get me any new clients. In the end, the traditional CMA still rules. Just ask Top Producer who markets Market Snapshot (I’m not affilated with them with any way).

  • Matt,

    I prepare a monthly analysis of the market I serve that includes current inventory levels, changes in inventory levels, number of homes under contract, percentage of under contract homes that are distress sales, number of pending home sales, the number of pending home sales that are distress sales, closed sales, number of closed sales that are distress sales, number of days on market for closed sales, average list price to sales price for closed sales, average seller contributions to closing costs and number of months of inventory for each price range.

    The data are explained so that sellers have an idea of the number of homes they are competing against, how long it is taking, on average, to sell homes in their price range, the average discount off of list price that sellers are making and what incentives sellers are making.

    Insofar as I only represent sellers, is there anything else you could suggest for content?

  • Sounds like a good report, but consider other factors that affect people’s decision to buy in your area:

    Trendline in local taxes – last 5 years
    Trendline in other local fees – last 5 years
    Trendline in local employment, or new employers, or other events that are growing/shrinking the local economy
    Transport, traffic or other developments in local environment
    Important headlines from local news sources: These things affect people’s mood and impression of desirability of an area

    Just a few ideas to go “beyond” housing numbers into the other factors and emotional triggers for a purchase report.

    Thanks for your comments!
    Matthew