This growing multicultural market offers untapped business for many Pennsylvania REALTORS®. To help members better understand the traditions and cultures of these diverse clients, PAR is offering its members access to a multicultural information website, the Gonzales Group Experience®.

The association has partnered with the Gonzales Group™, a leading business development agency and multicultural market research firm, to provide members free access to the Basic Level membership to the website for one year. PAR members will receive an individual code via e-mail in order to access this site at no cost.

The website will provide detailed information, research and surveys to help REALTORS® increase their business and better serve these emerging markets.

“I’m excited about the launch of this joint venture with the Gonzales Group. Members will find this website offers useful content about the multicultural markets in Pennsylvania,” said Tony Brown, chair of PAR’s Equal Opportunity and Cultural Diversity Committee. “Ultimately, this will equip us to close more transactions and increase our business’ bottom line.”

The website is part of PAR’s Multicultural Strategic Plan which was developed by PAR’s Equal Opportunity and Cultural Diversity Committee and approved by the board of directors last year. As part of the plan, PAR has conducted focus groups and a statewide survey of REALTORS® to learn more about REALTORS® and multicultural markets.

“PAR is committed to helping its members continue to meet the changing needs of consumers,” said PAR President Don Roth. “Access to this multicultural website will provide invaluable insight into demographic trends throughout the Commonwealth.”

Times have changed.  Currently the conventional wisdom is that housing is hurting the overall economy’s ability to recover from recession. Once housing was a performance leader; now it is a drag on the general economy.  The real estate industry finds itself in a new position compared with where it has stood for the past several decades.

The fundamental reason for the change is the unprecedented decline in house prices since 2005 (which followed the unprecedented rise in prices the decade before) in virtually all housing markets. It is true that some markets have declined more than others (and Pennsylvania has experienced only moderate declines in most markets) but the American housing market had not fallen significantly for consecutive months since the 1930s.

Many commentators warn that if there is additional bad economic news, house prices may react sensitively in the short run. For example, recent poor jobs growth reports have already limited housing’s recovery. Rising unemployment could lead to additional defaults and foreclosures and perhaps to the feared “double dip” recession. On the other hand, positive economic growth can lead to much better expectations about house prices for the future and in turn could stimulate new demand for housing.  Regrettably, few economists are predicting a return to high rates of growth.

Sometimes the absence or costliness of mortgage finance constrains housing demand. Current mortgage interest rates remain at record low levels and inflation is nowhere in sight (at least not yet).  In this case, the availability of housing finance is not really an issue in U.S. housing markets.

Edward Learner, a UCLA business economist, argues that a “tepid economic recovery” is the best we can expect since the housing sector cannot pull the overall economy back to positive growth. In fact, he and others look for a weaker second half of 2010 for housing markets compared to the first half and the expiration of the tax credits. Diane Swonk, chief economist at Mesirow Financial, is quoted as saying, “this is a recession that was induced by housing, and housing is not going to carry us out like it has done in the past.” (realtor.org, June 23, 2010)

So what should we expect? Much depends on the employment picture and its impact on house prices over the next several months. If job growth returns, prices will continue to stabilize and market demand will improve. But without additional jobs and with the anticipated drop after the tax credit expiration, foreclosures may rise during the remainder of the year and into 2011. This will increase the supply of homes on the market and put new downward pressure on prices.  Negative equity already affects up to 40 percent of households in the country. There is also talk of some 4.5 million homes in “shadow inventory,” homes being held off the market as households wait for better news.

Optimists often talk about pent-up demand appearing any month now. My fear is that this illusory demand, if it does appear, will be dominated by a macroeconomic-induced new supply of housing.  NAR President Vicki Cox Golder recently wrote that homeownership remains the American Dream. (www.usatoday.com, June 22, 2010)  I certainly agree but the future continues to remain a challenge for the months ahead.

Ted Janusz

LinkedIn is the “corporate boardroom” of social media sites, according to Ted Janusz, a professional speaker and marketing expert in Ohio.

“Too many people set up a profile on LinkedIn and forget about it but there are tremendous opportunities on LinkedIn,” the owner of Janus Presentations said. “You don’t have to be a computer guru to use the features.”

The professional contact social media site was launched in 2003. It has about 70 million users versus the 500 million on Facebook. Janusz said data shows two-thirds of LinkedIn users are male, four out of five are college graduates and the median age is 41.

REALTORS® should be using the site to get recommendations and make business contacts, Janusz advised. “The number-one marketing mistake people make is that they don’t use testimonies. People want to read what other people are saying about you. No one cares what you say about yourself,” he said.

Janusz offered five areas to maximize the benefits of a LinkedIn account:

• Groups — Join as many relevant groups as you can to network
• Jobs — Using the “Jobs” link, you can either pursue a new job or post a job. LinkedIn jobs receive an average of 30 applicants
• Companies — Enter a company name and search its profile. You may find a second degree contact and you could request an introduction through your direct contact. This may give you the “in” you need to make a connection
• Answers – Establish yourself as an expert and provide valuable real estate information or advice to other LinkedIn users
• People –   Search for LinkedIn members by name, company, location, school attended or job title.

“LinkedIn is 99 percent information and one percent promotion,” Janusz said. “People don’t connect with you because you’re promoting yourself. They connect with you because you’re providing valuable information.”

Jennifer Allan

“Your sphere of influence (SOI) is more than friends and family,” Allan said. “To categorize your friends as to whether they’ll make a referral and to bombard them with sales material is an uncomfortable way to do business.”

Allan defines “sphere of influence” as “everyone who knows you and knows that you sell real estate. That includes people you like, don’t like, people you meet every day, new contacts — whether or not you think they’ll make a referral.”

“Many agents use an SOI business model as an alternative to prospecting strangers,” Allan said. “They ‘warm’ call their friends when it’s clearly a sales call; they send mass mailings to their friends and they spam them with e-mails, all in order to avoid cold-calling strangers.

“Strangers will throw your stuff away but your friends want to be polite but you’ve put them on the spot by over marketing to them. Honestly, it alienates friends more than strangers,” she added. “You have to ask yourself if your method would work on you or does it make you feel uncomfortable?”

The best way to grow a business is to be an excellent REALTOR® and provide superior customer service. “Ninety percent of the people in your sphere of influence aren’t your friends. They’ll become your raving fans if they respect you because you’re a great REALTOR®, you love what you do, you know your market and you take care of your clients,” Allan said.

Prospecting isn’t necessarily a numbers game. “Good leads come in one at a time and you need to take every opportunity to impress that client,” she added.

“This is a complete paradigm shift. REALTORS® need to think about quality over quantity one lead at a time and shift away from believing that marketing to your friends is the way to do business. You need to show that you are worthy of their business,” Allan said.

“Consumers are more independent and they get most of their information from the Internet. They’re not willing to endure a long sales pitch,” she said. “The Internet has changed how you have to relate to your customers.”

Working a sphere of influence business isn’t for everyone. REALTORS® have to be willing and able to meet new people. “That means if you can’t or don’t want to be out in the world reconnecting with friends and making new connections, this may not be the best business model for you,” Allan said.

Seventy-five hours of education is now required for appraiser trainees under new regulations created by the State Board of Certified Real Estate Appraisers.

Dan Bradley, the board’s chair, said before these regulations were enacted there was no way to regulate appraiser trainees.

“Previously these individuals were not regulated in any way and in most cases the board didn’t know who these people were,” Bradley added.

Appraiser trainees have until October 1 to complete their education and according to Bradley, this will raise the bar for the industry and protect the consumer.

“We will be able to bring disciplinary charges against trainees who don’t follow the rules of the profession,” Bradley said. The requirements for the new trainee license are on the PA Bulletin website.

PAR has been hearing from members who are concerned about a portion of the law that outlines ways in which the insurance will be funded, including a tax on the profits from real estate sales.

In talking to representatives from the National Association of REALTORS®, we’ve found that the tax is directed at high-income taxpayers and will have no impact on the vast majority of homebuyers.

The Health Care and Education Reconciliation Act of 2010 levies a 3.8 percent tax on the profits from the sale of real estate, residential or investment. The average taxpayer would not be affected by this tax.

Anyone with an adjusted gross income of less than $200,000 is exempt from the law. The law will apply to married couples who file a joint return if their income is more than $250,000.  (It was estimated that approximately 3 percent of U.S. taxpayers fell into this category in 2009.)

Only the sales of homes that have a “net investment income” would be considered under this tax. The existing home sale capital gains exclusion rule still applies. According to NAR, the new Medicare tax would only apply to a home sale gain realized in excess of the $250,000/$500,000 that pushes the taxpayer’s adjusted gross income over the $200,000/$250,000 income limits.

The Washington Post recently ran an article outlining how the tax would be calculated. Author Benny L. Kass gives several scenarios of how the tax would be calculated for those who fall within the income/profit guidelines.

NAR’s Myth Busters and its FAQs provides REALTORS® with additional information on the tax provisions. For specific details, consult your tax advisor.

The Facts

In 2008, Congress passed (and then-President Bush signed into law) a $7,500 tax credit “to provide an incentive for first-time homebuyers” purchasing a home on or after April 9, 2008 until July 1, 2009.  Then, as part of the American Recovery and Reinvestment Act of 2009 (which President Obama also signed into law), Congress passed the 2009 First-Time Home Buyer Tax Credit.  This bill established an $8,000 tax credit for all virtually all first-time purchasers of real property between January 1, 2009 and December 1, 2009. 

As the end of 2009 approached, it was clear that many buyers would not be able to make the December 2009 date so the Home Buyer Assistance and Improvement Act extended the closing deadline to April 30, 2010. (A $6,500 Repeat Home Buyer Tax Credit was also added for other buyers.)  Very recently, Congress passed the Home Buyer Tax Credit Extension, which enables buyers with pending contracts as of April 30, 2010 to qualify for the credit through September 30, 2010. President Obama signed the bill earlier this month.

It has been estimated that as many as 200,000 buyers would miss the credit without the current extension. It has also been widely reported that some 1,300 prison inmates claimed the credit (costing $9 million) from jail! Despite the fraudulent claims, it is clear that the home buyer tax credit programs are enormously popular. So, let’s look at the politics and the economics of this policy.

The Politics

Led by the National Association of REALTORS® and the National Association of Home Builders, the effort to claim federal support for their industries has been very well received throughout the country. There are many justifications provided for the legislation: to stimulate the US housing market, to assist housing markets in difficult times, to stabilize battered housing markets and take advantage of low-interest rates. But none of these are really needed: in an era of dramatic government spending in trying to stimulate a recession-weary economy, any of these reasons appear to be sufficient. Perhaps the best reason is that housing retains its place as a cornerstone of the American Dream; assistance to enable market participation is almost viewed as an American right of citizenship.

Some have advocated making the tax credits permanent. The reasoning is that additional assistance is needed, especially for first-time buyers who lack capital and experience. The state provides assistance, including subsidies in many other areas such as mortgage financing, so why not induce individuals into home buying?

Put aside the fact that we have just come through a painful period when encouragement of home ownership for many without sufficient income or creditworthiness has not worked out so well.  The politics of home buying tax credits are clear: households purchasing housing like the credit and the industry views the policy as supporting house prices. The credits accelerate the number of offers to purchase to take advantage of the credit.  Thus, tax credits are very popular.

The Economics

It is virtually certain that tax credits have no long-term impact on the market, however, the objective is to support the housing market and real estate industry in the short-term. Endorsing a short-term subsidy is one thing; observing a lasting effect is quite another.

The recent experience of these housing tax credits has become clear in recent weeks. It is widely acknowledged that as much as one-half of all real estate transactions since 2009 have been associated with the first-time tax credit. This is good during a period of significantly fewer transactions. The problem is that some buyers are already over-extended.  More importantly, in what appears to be a market recovery, now with expiration of the credits, normalcy in the market seems to be an illusion,

Existing home sales fell 2 percent in May 2010 but were stronger than they would have been without the credits. But new home sales plunged 33 percent in May to the lowest sales level since 1963 when the Commerce Department began to keep track (CNNMoney.com, June 23, 2010).  “We fear that the appetite to buy a home has disappeared alongside the tax credit,” said Paul Dales, an economist with Capital Economics (YAHOO! Finance, June 23, 2010). “We all knew there would be a housing hangover from the expiration of the tax credit.  But this decline takes your breath away,” noted Mike Larsen of Weiss Research (YAHOO! Finance, June 23, 2010).

NAR’s pending home sales index fell 30 percent as well. “Sales fell off a cliff after the tax credit expired.  It’s the biggest monthly decline ever and the index is at its lowest level since NAR began tracking it in 2001,” concluded Larsen (CNNMoney.com, July 1, 2010).

Conclusion

Getting a direct inflow of government cash feels good if one qualifies or if one’s business is directly affected. Given the pervasiveness of support for homeownership, even now, it is not surprising that tax credits of this type are popular. This does not mean they are effective. Over and over again in a wide range of markets (remember “cash for clunkers”), people respond to incentives by accelerating their purchases during the subsidy period. What happens afterward is also clear: sales fell off a cliff. 

The next few months are particularly risky but the tax credit story has been told.

Technology has changed how companies should market to consumers if they want to be successful, Volpe said. Because consumers have the capability to block out broadcast marketing through DVRs, to screen telephone calls with caller ID, to block e-mail with spam filters, it’s harder to reach consumers with outbound marketing.

“Companies who want to build their businesses use inbound marketing,” he said. “Inbound marketing is designed to bring consumers to your website, not sending outbound mass mailings. People are still buying things; they’re just finding want they’re buying through search engines, blogs and recommendations on social media. Companies have to consider how to attract consumers to them and what they can do to be found in these different areas.”

Volpe said there are a few key steps to drive consumers to your website:

Content: Create interesting and useful content. The articles shouldn’t be about what a great person you are. Fresh content is what search engines and people love. The real estate industry is tough because many brokers have a template site. I recommend using that but also build a separate site that you own and control.  It’s an extra investment but is ultimately worth it and the site stays with you even if you change companies.

Search engines: Optimize your website for search engines. Key words will give your site more exposure. Companies that publish a blog get 55 percent more visitors to their websites; they have 70 percent more followers on Twitter if they publish a blog. A blog can be as simple as writing about what’s going on in your community or a review of a new restaurant that opened. These are all things people consider when they’re looking at a place to live. Blogs make a website more interesting in social media.

Promote through social media: Use Facebook and Twitter accounts to drive people to your website.

Converting traffic :  Consider what people find when they go to your website. What is their next step? Do you ask them subscribe to a newsletter, do you collect their information or sign them up for MLS listings? You need a conversion step. The goal is to get as many people as possible to move to the conversion step. You want to make an attractive offer so people want to give you their information.

“Many REALTORS® have a website that’s like a billboard in the desert,” Volpe said. “Consumers only see them if they know the exact address. To bring in new business, you need to think about how you’re attracting people to the site. Your website should be a magnet that pulls people into your business.”

Volpe said recent case studies have shown businesses have doubled the traffic to their websites in three months just by creating an interesting blog and creating click ads with Google. “Niche businesses have a real need to be blogging,” he added. “You need to be one of the first to blog about certain homes in your geographic location.”

“Real estate as it exists today was built for Baby Boomers,” Ferrara of Matthew Ferrara and Company, Boston, MA, said. “Gen Xs and Gen Ys are not getting married as young. They invest in what’s important to them and it’s not the same as Baby Boomers.

“REALTORS® should be focusing on what their clients’ needs are and how the property meets their lifestyles. I’ve never seen a comparative market analysis (CMA) done on a residential property that shows it’s a great investment,” Ferrara added.

He admitted that this is a shift in the traditional wisdom of the industry and is a change in how REALTORS® have been trained. “The fundamental challenge in this industry is to remember it’s not about us. We need to get into the customers’ shoes and figure out what’s in it for them,” he said.

Research shows that many Gen Xs have already purchased homes and many have lost what they initially invested in their homes, Ferrara noted. “Gen X is a skeptical generation. They may also be seeing parents who have lost their homes and/or their retirement savings. They see selling their ‘real estate investment’ as weak at best,” he added. “Many Gen Xs are too busy and don’t want to mow the grass and paint the house. There’s a reason so many of them lease cars – the maintenance is included in the agreement and they don’t have to worry about it.”

Gen Ys don’t want to be tied down to a home while they’re still changing jobs, traveling and single. “They want to be where the action is. They get their sense of community from their 1,000 Facebook friends, not where their home is located. This generation is the total opposite of the Baby Boomers who got a job and worked there for 40 years until they retired,” Ferrara said.

Today’s REALTORS® should instead focus on events that make people want to buy a property, he advised. What’s going on in their lives – are they getting married, getting divorced, kids going to college, retiring – what are their needs and what property fits those needs.

“Buying and selling homes is closely tied to personal changes in our lives,” Ferrara said. “All of these changes influence how people live and the types of homes they want to live in. No one is thinking about investing in anything anymore.

“Everyone is waiting for the housing market to get back to normal,” Ferrara said. “It’s possible that will never happen. Not because financial conditions won’t improve but because we’re entering a new normal driven by consumer demographics, not products. Home ownership will likely remain an appreciating commodity but it might attract a different investor – perhaps Boomer landlords who offer short-term leasing to Gen Y, not average individuals.”

Military personnel have one more year to take advantage of the federal homebuyer tax credit. Those who were serving overseas between January 2009 and May 2010 are eligible. Lucien Salvant, managing director of public affairs for the National Association of REALTORS® (NAR), said since some service members may be limited by financial reserves, REALTORS® can help by checking clients’ eligibility for a mortgage and  the tax credit before looking at houses. “The tax credit is designed to help those folks meet their down payment and monthly obligations by lessening that financial burden,” Salvant said. Service members have until April 30, 2011 to sign a sales contract and until June 30, 2011 to close on a home. Both the $8000 first-time homebuyer and $6500 move-up tax credits apply.