How low can it go?

[mthomas1]

Interesting and IMO pretty scary read on the fundementals of the housing market in high appreciation areas (May, 2007).

Probably a lot more of this on the way.

[Les]

We have been living this market for the past 18 months. When 60% of the inspectors on a national level were gaining or holding level, we are losing ground every month.

I have been in the real estate market since 1972 when mortgage rates were 22% and 50% of the sales were land contract type transactions. The current conditions are much more volitile and will impact all real estate service providers.

Both of your provided links are pretty good reading and mostly valid. It has been my experience that most home inspectors do not really understand the real estate market nor the process. So most inspectors view the current market as a downturn in sales only and not a fundamental deterioration of the entire process; lenders, agents, brokers, appraisers, inspectors, big box stores, employment, etc. Inspectors will survive if they really understand their role in a "new" process that is coming down the road.

It can go lower, Michigan has been lower and continues to slide every day.

[randynavarro]

Inspectors will survive if they really understand their role in a "new" process that is coming down the road.

Les, what do you think the "new" process is? I'm ready to jump on that bandwagon!

[Les]

Randy,

I am a little short on time today, but wanted to respond with a couple of talking points about the role of a home inspector:

• Inspectors should begin to think and act like professionals. It will not change over-night.
• Inspectors must become better educated.
• Inspectors, at a national level, must establish an identity; OSHA definition, vocation code, etc.
• Inspectors must learn to be inclusive/understand the real estate sales process.
• Inspectors must lobby, at a national level, for limits of liability and stop with the complaining about their exposure(s).
• Inspectors must be better educated about the legal process; everything from consumer protection to torts.

In short: There are gonna be a whole bunch fewer inspectors when the down-turn hits your town. First off there will be more, then it will get real skinny and the smart inspector will have to tighten their belt and get better educated.;

more later.

[hausdok]

Les,

I fixed your post. When you want to make a list, you need to place your bullets between the beginning and ending asterisks and when you run out of bullets make more beginning and ending asterisks. Clicking on the list button will place the code on the page but you still have to put the bullets within the coding.

OT - OF!!!

M.

[Tim H]

Les,

When you get the time, I am especially interested in having you elaborate on these two statements:

Inspectors must learn to be inclusive/understand the real estate sales process.

Inspectors must be better educated about the legal process; everything from consumer protection to torts.

I can easily see the truth and benefit in your other points, but I am not sure I understand exactly what you mean about being more inclusive (understanding the process is someting I am working on now).

While becoming better educated about almost anything is good, what will a more in depth understanding of the legal process do for my business that having an attorney won't (I have three semester long classes of undergraduate business law and I know just enough about contracts, the ICC, torts, insurance law etc., to render me dangerous to myself)?

Thanks,

Tim

[Les]

Hi Tim,

It is my opinion that many inspectors believe they are in an adversarial position with real estate sales people and home sellers. I do not mean inspectors should be a lackey for real estate sales people, rather they should not have a chip on their shoulder. We all know they are in the business of selling houses, but not all are crooks. Take a minute and look at our business through their eyes. Many inspectors are not qualified, rude, and notoriously poor communicators. Many men inspectors suffer from the "hero" complex and many have a Walter Mitty personality. Why can't inspectors market effectively and objectively to real estate sales people? Because they do not have a consistent message and there are no recognized standards of performance. I have many friends in this business that are a member of Dennis R's coalition and start their day fighting a battle that does not have to be fought - inspector vs agent. An inspectors problems are not the fault of the sales person.

The legal comments are based on my education committee work and my own personal background. Each year nearly all the national orgs have a presentation regarding liability. That is good, but how about our "rights"? How about the multitude of ways we are restrained? How many of us can really just plain give our opinion based on our experience? Some of us get paid quite well for our opinions, but usually those opinions are 99% based on demonstrable facts. I'll guess that 75% of the inspectors on this board do not have an atty. How many on this board have worked on standard real estate forms, rules of disclosure, standards of conduct, etc?? Every market is different, but in many ways they are the same, yet inspector seem to think they can remain isolated.

more later - hope that begins to clear up my comments!

[kurt]

Les is exactly right about a new paradigm, but I'm not sure the one's he describes are the one's that are coming.

I did my first few inspections (which, I might add, were really, really poor quality) in those years of 15-18% interest rates. I went full time in the recession of the mid 80's.

The worse the market, the more people care about quality inspections. There is a growing distaste and distrust for realtors, at least in my market. Everyone recognizes how little they bring to the equation. All my young customers (those internet savvy folks we read about) all wonder why in hell they have to deal w/realtors @ all.

The market does not leverage the power of the internet one iota; it's still run on a pre-internet market model.

What do those observations/prognostications mean to folks?

[sepefrio]

Les,

I hear what your saying and agree on many points. Maybe my military training ingrained in me to not just do something, but do it completely and do it right. I didn't start a thing until my attorney approved of it all. Like I have told others who think it's a waste of time and money, I'm not afraid of screwing up, I'm afraid of Murphy and his stupid laws. Sometimes things just happen, and if it does I want the comfort to know my wife and kids won't lose their house in the process. I would take this same approach if I was selling apples roadside or doing home inspections. To me thats just good business practice.

I remember almost every place I went, including some responses on this board, there is this "Realtor is the Devil" mentality. Although I understand the reasons behind this, I'd like to think I'm bigger than that (not slamming anyone). Just like bad HI's there will be bad Realtors. But I know there has to be enough out there to do the job right.

One thing I have learned so far is that HI's are NOT united. ASHI hates NAHI. NAHI hates ASHI. Everyone hates Nachi etc. Rivalries and pettiness does exist. So far I have not joined an organization because I don't see a real benefit to it. Everything that I can see that one of these organization provides, I can get myself. I feel more like I would be choosing sides. As I learn more and meet more people, this very well could change, but that is how I view it for now.

This divisiveness I think is really hurting the industry. All of the organizations, are also separate businesses. And just like the computer standards wars (remember the battle for sound cards), until they either unite, adopt a similar format or engage in war until only one survives, it will remain this way.

For now, I will continue as planned. I will embrace every opportunity to be employed without lowering my standards. I am confident that, although it may be slow for the first year or two, I will rise to be a named quality in my area. I'm not going to worry about which organization is the best, or worse join them all so I can use the logo.

I would like to hear more about our rights and how we are restrained. Again being new, I may have seen this and thought it was the norm. Heck, I'd even drive out to meet you and buy you breakfast, lunch and dinner plus refreshments (if it takes that long) just to talk about stuff like this. I know doing an inspection is at most only 50% of the business and if I really want to do this, I need to do it completely and do it right.

[randynavarro]

I'm with Kurt.

Perhaps the new paradigm doesn't have much, really, to do with the real estate community at all.

Something very interesting I've been noticing big time lately in our area: lots of independent brokerage real estate signs -- more than I 've ever seen before. Seems like most agents are starting their own shops and not joining the big dinosaurs - Windermere, John L. Scott, Coldwell Banker Bain, et al.

I haven't looked in to it, but I strongly suspect their business model and commission structures depart radically from the norm.

And, yes, our image needs to rise a few notches for sure.

[mthomas1]

Seems to me that the Real Estate business is likely headed into a phase a lot like retail stock brokerage was a few years back.

When the equities market was going up 8-10-12% a year many people were not pay attention to front loads or holding costs - it was only the combination of the dot.com crash, the encroachment of inexpensive online brokerage and the wider availability of unbiased information and commentary that put paid to that over the course about five years - now it's generally understood that if you are paying 4.00% front loads or 3.2% a year in holding costs, you are a chump.

Similarly , when housing "values" were going up 10-20-30% a year, most people did not pay a lot of attention to real estate sales commissions...

[kurt]

None of it will change unless the Justice Dept's. case against the NAR is successful.

If the NAR can maintain exclusivity of listings to only those that charge full price commission, the existing model will continue to screw the consumer. If the JD prevails, exclusivity goes away, a listing is a listing, and the big boys can't hold information.

All they got is information. If they have to share it, the current commission structure collapses.

[kurt]

Originally posted by randynavarro

I'm with Kurt.

Perhaps the new paradigm doesn't have much, really, to do with the real estate community at all.

Not that, but an altered real estate community. I believe brokerage is absolutely necessary, largely due to my belief that the average individual is too immature to negotiate their own deal.

But, in a world where we are expected to know the intracacies of 401K's, divining price/earnings ratios of corporations, figure out our own health care, and manage the IRS suppository experience, folks will figure out real estate reasonably well. I mean, think about the morons that handle it now.

I tend to disagree w/Sepefrio about whether realtors are evil or not. It's not the realtors; it's the structure of the NAR hegemony that's evil. Folks don't understand the NAR is it's own multi-billion dollar industry unto itself.

[mthomas1]

BTW, interesting series of blog posts re: the mechanics of mortgage fraud at the retail level:

Mortgage Fraud - Everything you wanted to know

[sepefrio]

Kurt, real quick I didn't say they are the devil, I said I get the impression others think that way. I do agree with you that it is an organization based thing. Just like many business or organizations that dominate a sector, if members don't play ball then they can't play. I certainly admit I don't know a lot about this side of the business yet, but I'm paying attention and I'll get there.

[kurt]

We're cool. No atagonism from my end, just observations.

I like you. You seem to have a good head for this biz. Hope it works for you. Hope it works for all of us.

[sepefrio]

No probs, just making sure we are on the same page as the internet can't convey sarcasm or other emotions very well. The same sentence can have two completely different meanings to two different people in two different moods. lol

I would like to ask this question though. As I see it now, NAR is the king dog organization for Realtors. Many moons ago, were they split into many groups like ASHI, NAHI, NACHI etc? Is this where we are heading? Is it a good thing or bad?

[davidlord]

I don't ever see inspector associations reaching NAR level. I think it will be just the opposite.

IMHO the myriad of associations muddys the waters.

I can't remember the last time someone asked if I was a member of XYZ. I am currently a member of ASHI, FABI, and ICC. I will be obtaining all of the ICC residential certs this year and that will probably end my membership in any other association.

[mthomas1]

Originally posted by davidlord

I don't ever see inspector associations reaching NAR level.

The NAR's political and public relations machine is powered by the cash flow that derives from extracting 5-6% of the purchase price from every brokered real estate transaction. In my area home inspection billings are 2-3% of that.

[hausdok]

Originally posted by mthomas1

Originally posted by davidlord

I don't ever see inspector associations reaching NAR level.

The NAR's political and public relations machine is powered by the cash flow that derives from extracting 5-6% of the purchase price from every brokered real estate transaction. In my area home inspection billings are 2-3% of that.

I don't agree. The NAR doesn't get a dime of real estate commissions. It gets it's cash from membership numbers only. It's a simple fact that there are more realtors than there are home inspectors. In my state alone, as of September there were 37,394 licensed real estate agents and brokers.

Agents don't have to belong to NAR if they don't want to but many do join. Any association having an equal number of members as the NAR, and charging the same for annual membership, would have the same revenue, even if the business of it's members was delivering newspapers door-to-door for minimum wage. If you think about it, teachers unions and construction associations have as much power in many states.

In Washington State, Washington Realtors, with a claimed membership of 25,000 is dwarfed by the Building Industry Association of Washington, which is the most powerful lobby in this state with a claimed membership of over 12,500 companies representing more than 375,000 employees. WashingtonRealtors are powerful but if BIAW opposes them on something they have a really hard row to hoe.

Like the agents, not all inspectors choose to join associations - in fact, I think the majority of home inspectors in parts of the country where it's not required by law still don't belong to any. Though some states have required membership in one of these associations, others have formed their own state associations. Many inspectors have eschewed the national the associations in favor of their state associations, because they see the state associations filling their needs, whereas the three national associations, cash strapped, are more interested in fighting each other to try and woo a limited number of inspectors to their ranks, just to survive, than they are in anything else.

It's my guess that the only major national player that isn't struggling is interNACHI, because it's not a real association, it's a public relations firm and it's "members" are simply clients. It's owner will be able to survive as long as there are inspectors willing to pay him money for his marketing prowess, because he gets to decide how much to spend or not to spend on pushing his clients. Hell, if the entire profession, included his "members" folded tomorrow for lack of work, leaving everyone bankrupt, it's my guess that he'll be left sitting pretty with plenty of revenue left over to be able to move onto the next best thing.

I think we'll see a lot of home inspectors fall by the wayside, but those numbers will be replenished by the new "inspectors" that are quickly spawned by the layoffs taking place in the construction sector. Being new and expecting things to be tough, these new inspectors won't realize that they're getting into a business that's in the crapper right now. Those who can, will hang on, those who can't will go the way of the 80% of newbies who fail in the good times anyway. The only difference is going to be that, in addition to that regular 80% of newbie failures, there will be long-established companies that fail in this downturn. When they leave, they're going to take their experience with them and we experienced inspectors left behind are probably going to find our numbers greatly outnumbered by new inspectors who are hungry and desperate to get business, by any means possible, in order to put food on the table. That may ultimately be bad news for the consumer and benefit the 'zoids and will probably set our progress toward an actual discipline back another 10 years.

It's the price we pay for having a profession populated mostly by old farts like me backing into it from another career. Had we established real uniform standards and requirements, including college courses and internship requirements years ago, by now we'd have a profession populated primarily by those who were not only well trained and experienced, but capable of running their businesses and focused on the long-term future of the profession, instead of one populated by those who're only halfway invested in the profession while they constantly contemplate when will be the best time to pull the plug.

ONE TEAM - ONE FIGHT!!!

Mike

[mthomas1]

All that RE cash flow supports dues from around 1.3 million Realtors, and brokers have to pay the membership fee for every non-member salesperson in their office. That's a lot money, around 162 million dollars last year, and around 37 million of that was spent on lobbying.

That said, I to agree with a lot of your other points.

[randynavarro]

This might be too much digression - if so, disregard.

I read the first few paragraphs of a story on the front page of the Seattle Times. In short, it might be possible that the money the NAR dumps in to lobbying may actually translate to line item "earmark" funds that areawarded to the entity the lobbyist represents.

That means our tax dollars may be supporting the NAR (and multiple other companies around the country).

I was flabbergasted and disgusted all at once.