New realtor-real estate rules
I’ve read and listened to lots of explanations about what the recent legal decision about real estate and realtor compensation means, and I can’t say I still quite understand what it all means to me as a builder, me as a real estate broker. What I do know is that any decision that peels back the monopolistic and anti-competitive aspects of buying and selling a home is fine with me - it literally makes no economic sense that every agency in the country charges 6% - that makes no sense that compensation percentage doesn’t vary region to region or brokerage to brokerage. No other service or product has a sticky, shared price for their services, be it legal, cleaning, trucking, book-keeping and every other product in the world.
(converting my 2 car garage into a big recreation room and then building a new garage to house the vehicles. I've been farting around with my house and property since I bought it in 2018, when we moved to Milford for the school district).
Clearly there is little reason that Hudson Valley realtor made 6% when house prices were at $525k and now that that same house is $850k, they are still charging 6%. Clearly there is no more work being done, advertising costs the same, ‘keeping the lights on’ isn’t that much more expensive, and since all the agents are self-employed contractors, the costs of insurance, payroll, and benefits haven’t played a part.
It’s just a weird industry with upside down incentives, charging way too much for what they do and offer. And the idea that someone with 20 years of experience and hundreds of deals under their belt charges the same as someone’s first deal is nonsensical.
I guess the legal ruling has something to do with the buyer’s side of things, where the seller of a house is no longer forced to pay the compensation for the person buying the home and their realtor representation. That creates problems since when the seller was paying, then the buyer could wrap the whole thing up in their mortgage, but now they will need to come with extra funds, outside of their mortgage, to pay their representation.
All in all, letting the free market work with most likely create all sorts of new arrangements, fee schedules, and representation strategies. Probably will drive a few people out of the industry, which will create more business for those that remain. Who knows, maybe it will drive a bunch of people out of the industry.
I know for me, and how hard we work and the real effort we put into creating a successful project, to see someone want to take $50k or $60k just because someone happened to call their brokerage and wanted to see our home which then sold itself, the value proposition was always ass backwards and without economic logic - the definition of a monopoly.
Not quite sure how it’s going to play out, but for has the potential to shake up the real estate industry for sure.
Ancillary Projects
We do a lot of neat things without a lot of fanfare. Just the course of doing business.
Our new mailboxes at my little subdivision in Phoenixville PA -4 single family rentals. That was a heavy lift for sure, but got it done and now have an attractive monthly recurring revenue stream.
I'm starting a modular swimming pool company with pools made out of shipping containers, shipped whole, then dropped into place. Catskill Modular Pools. The one attached is their largest model - 12x40' with a window.
Was in the City, staying at the Smythe Hotel in Tribeca. Took a walk and stumbled upon a part of ChinaTown I'd never seen before - sort of like the first street.
And found myself at the 5 Points -
Was glad I got into the City early Friday and didn't have to deal with the dreaded Friday gridlock, which has only gotten worse in the last few years.
Been an active summer, with Sunday baseball, lots of road and mountain biking, and now a lot of pickelball.
I guess it's age, because other than starving myself, there seems to be no surefire way to shed a few pounds, regardless of exercise, alcohol reduction, etc... Although, when you add it up, there might be a case that my sweet tooth calls more often then I care to admit.
Our Homes, Your Land
Sometimes I even amaze myself at the prescience of strategic thought I give birth to - here is a story where some production builders have launched a program focused on augmenting their offerings with a ‘build on your lot’ initiative …
Like our “Our Homes, Your Land”. I’m sure we all started and ended at the same place - where did all the land go, and how to get a project started quickly - in the Catskills, when families couldn’t find homes they wanted in the 2020-2022 era, some bought land thinking they would ‘just build’. However, to ‘just build’ is actually a very complex, time-consuming and risk-fraught exercise with lots of moving parts that are interdependent of each other but completely dependent on each other,
It takes to get a project off the ground and having an expert by your side connecting the dots, and synergizing and coordinating the surveyor, engineer, architect, building departments, banks, highway departments, board of healths, neighbors, etc….can turn an impossible task into a concierge level tango of efficiency.
We have seen a decrease in that type of business, for reasons I’m still contemplating around, but for a while there - I think it was 2022 and 2023 - it made up nearly 50% of our business, up from zero in 2020, to $4m in 2023. Saugerties, Stone Ridge, North Branch - all over we built our homes on their land. It was a boon to both parties.
The impact on the cash flow bottom line couldn’t be overstated - instead of putting out millions of borrowed dollars on contracted spec homes, the same number of contracted spec homes were paid in large part by the cash flow profits from the “Our homes your land” projects. In terms of just per net worth gain, this pivot from debt finance to cash flow finance to now cash finance has propelled us into the big leagues of sustainability.
It’s an interesting article because while these guys might be playing in a different sized pond, the idea just makes sense, and I got there first.
In terms of my relationship with debt, it’s been a evolving for decades. For 22 years, I carried as much liability as assets on my balance sheet as the profits thrown off by the company paid for a reasonable lifestyle, fully funded retirement, college savings, health insurance and employee benefits, but after that, there weren’t a lot of retained earnings. I didn’t mind the 4% interest rates on my commercial paper, and a lot of times I’d pay $80k-$150k a year in interest on my business activity, and when I went to sell a house, would more or less receive my profits back at closings, and maybe some of my own money, but most went to the bank to pay for the cost of the construction and land and improvements. I remember reading the bank’s quarterly earnings or yearly earnings in the local newspaper, and since it is a small bank, I could literally calculate my payments to them and its impact on their reported earnings.
In 2022, just months before things got really hairy with interest rates, I carried more debt on homes I was building than ever before by a large margin, because we had scaled to meet the Covid NYC outflow and were building a lot of homes. Most if not all the homes were in contract, with deposits paid, so while the risk was still real, as long as we finished the homes, the monetary goal was close at hand.
But lots of things could have went sideways - municipal, interest rates, deals going sideways, labor problems, supply chain problems, remote/hybrid work restrictions/reduction. 24 homes going at a time with me and two young women in the office. I remembering reading an article in 2022 about 'back to office' initiatives in NYC and I said to myself 'NOT YET PLEASE'.
Anyways, the moral of the story is that we exited that period with strong earnings, and then that was complimented by this ‘our homes, your land’ cash flow enhancement. And then prices kept rising on our spec home side of things, and all of sudden you look back at a harrowing period of your business life, and you’re rich. Head down so long, daily operational warfare daily you forget your building real wealth but one day the cash flow settles and the work flow slows and the constant hamster wheel of reinvestment wanes, and you’ve built true generational wealth - diversified and at work.
Anyways, back to debt. I used to be leveraged up to my eyeballs, and the bank, our local bank Jeff Bank, didn’t seem to mind since I literally have never been late once on a monthly bill and they kept a close eye on my sales and my prospects and as long as I kept selling, they kept lending. Same thing back in 2009 when banks pulling the rug out from under their clients was all the rage, this bank stayed by my side and helped me meet the moment. They did it again in 2020-2024.
I don’t mind debt, but now I’m debt averse. With my assets and cashflow, if I would leverage like I used to - at a 5 to 1, 10 to 1, 20 to 1 ratio - If I’d do that now I’d be buying buildings in Manhattan. But alas, that’s not for me. I use cash now, and wait to buy until the cash permits, or borrow very short-term as bridge lending as we await a sale. Maybe the next generation will leverage and parlay this gold nugget into the 9 digits, but for me, I think I left it all out of the field enough for one lifetime.
Sitting at The Roxy in Tribeca, waiting for happy hour to begin. I’m dying for a martini. Going to finish This Side of Paradise in this lobby - seems period-correct, as Fitzgerald was big fan of cutting loose in these very streets. I feel like I've been following him recently - NYC and Antibes - two of his haunts.
Money Migration
Not a perfectly edited or thought out post, but it's been sitting around a bit so I'm publishing, blemish and all -
Pattern for Progress, a mid-Hudson think tank whose focus to some degree is housing, and other related community development, released into my inbox what looked at first glance to be an interesting study on the Covid-related impacts on the Hudson Valley housing and economic front. And, that is what is was, but left me wanting significantly, and searched my inbox for part 2 and 3 that would cover more territory. Maybe I’m missing something.
Called Money Migration, it’s based on 5 years of data published by the IRS which collects data on people (families) moving into and out of areas, and their adjusted gross incomes (AGI) county to county and state to state. (this is being lifted mostly word for word from their white paper).
“Incomes, Migration, and Gentrification in the Hudson Valley during the Covid-19 Pandemic” - so don’t blame me for having high hopes for this document - that’s a great subtitle by any measure, especially for someone right smack dab in the center of the hurricane, both reeling from and benefiting from the era.
Interestingly, lumber prices have dropped significantly, and anyone who experienced the jump - literally a tripling or more in 2020, 2021 and 2022 - will never forget the day in day out anxiety of this lumber creep, or in many situations, this lumber price explosion accompanied by true scarcity. There was a time when you didn’t know what next would next be unavailable. At times it became very close to vital and non-interchangeable components. Some examples of product that just disappeared and became unavailable was wood siding, hence our overnight transition to HardyPlank, once considered a mighty upgrade but with the increase in wood prices actually become on par with wood siding (if available, which it wasn’t).
They seem to use a 2x4 fir as a baseline board foot measurement and in 2022 it was $630 per 1000 board feet, and in June 2024 it was $346 per board foot. So to reduce it to something we’d all understand, in 2022 board foot was $.63 and in 2024 it is $.34. To make it even more meaningful, turn it into a 2x4x8 - a piece of wood many people have familiarity with - and it was $.63 x 8 or $5.04 in 2022 and $2.72 in 2024. Truth be told, I think the $5.04 in 2022 understates the case, due to regional differences or something - I remember it being higher.
More shocking yet was plywood and plywood sheathing (OSB), which you use tons of over the course of framing a house - OSB was so cheap we’d use it for walkways over mud, and then it turned into gold that people were stealing like they used to do with cooper.
Crazy time to live through for sure and our industry was in the center of the storm.
And on the hybrid/remote work front - according to the Office Building Index from location intelligence software company Placer.ai, which found the national average for office attendance was down only 29.4% compared to June 2019. I guess what they are saying is it looks like the reinvented workplace will accomodate a 30% work from home environment. Because it's national, and across all industries, probably - like a lot of statistics - very misleading regionally, and among certain white collar professions. I know a ton of people that still work from home partially and or mostly. I think the workplace has been reinvented into a more flexible situation even among 'full time office people' that the definition of full time in office has changed.
