Sweat the Details: Cooperation, HOAs, and Chicken Sandwiches

Sweat the Details Podcast by Nest Realty cooperation

MLS Clear Cooperation Policy, life in a homeowners association, and Popeye’s chicken sandwiches. Jonathan, Keith, and Jim discuss all three topics this week.

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Highlights of our Conversation

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We hope you’ll join us for the next episode of Sweat the Details. View the full transcript below.


Transcript

Keith Davis: Hey everybody, we are here for Sweat the Details. I’m with Jonathan and Jim and we are going to be just the three of us today chatting about a couple things that each of us is looking at the market and finding interesting. And hopefully we’ll be able to hit on a couple topics today in the next few minutes and we’ll see where it goes. Jim, anything you wanted to chat about?

Jim Duncan: I think that I want to talk about HOAs, homeowners associations and how delightful they are.

Keith: And all three of us currently, all three of us do live in HOAs right now, so we do have to start with that disclaimer, but Jonathan, what’s on your plate?

Jonathan Kauffmann: I want to talk about the Popeye’s chicken sandwich. I’ll just leave it at that.

Keith: Fantastic. I want to talk about what every realtor is talking about in America right now, which is…

Jim: Which they should be.

Keith: NAR has passed a new rule this past week at the NAR national convention, The Clear Cooperation Policy and I kind of want to get everybody’s take on where that’s going to take our industry and if it’s going to change anything at all.

Jim: It sounds like a plan.

Jonathan: Let’s start there.

Keith: With the clear cooperation?

Jonathan: Yeah.

Keith: Just for listeners who either may not have heard it or may be outside our industry, the National Association of Realtors this past week met for their national convention and passed a rule that is going to, in essence state any listing that any realtor takes anywhere in the country, must, by realtor rules, be in an MLS within one business day of the first public marketing of that product. Of that home. If you take a listing, you can still have time to prepare the marketing brochures, have time to get a staging done, get repairs done to houses, get it prepared for showings.

Keith: But as soon as you contact agents outside of your office and put that in any form on a digital, broadcast, email, bulk emails out, we’re going to have to have that in an MLS. Which is really an attempt to try and do away with pocket listings and try to do away with this exclusivity and closed marketing that’s going on right now in the U.S.

Jim: I mean I think it’s a way to try to address the fragmentation of the MLS. ‘Cause right now you have, I’ve got a search setup for my Gmail that looks for coming soon’s from other firms. Zillow, Trulia, all these websites, that we have various homes for sale in various formats. But if it works, I think it’s a good way to consolidate the MLS. Because for my entire career, the MLS has been fracturing and fragmenting and this is a way to, for the NAR, to try to reassert themselves if he will.

Jonathan: It’s a benefit. I mean, there’s things that I like and things I don’t like about it. One thing about it is it’s definitely a power play for the MLS is to kind of stick their flag in the ground and say: “We are the platform that transactions need to kind of go through.”

Keith: Yeah. But I mean I think the real, I mean the stated reason, when you go back and when you look at it, the Department of Justice right now is breathing down the neck of the NAR. The NAR is trying to find a way to say: “We are very much a cooperative industry in that we’re not going to be, take it, keeping things so close to the chest,” and this is their first step at ‘What can we change?’. But if you look at the, over the last few years as inventory has become tighter, realtors are increasingly using different techniques of marketing that maintain a sense of exclusivity to their listings. And that is, has changed the availability of homes to the general consumer marketplace. And so, we have been here at nest very positively affirmative of the best marketing is the broadest marketing. That if you expose your home to the widest possible market, that is the best way to garner the most eyeballs, to borrow the best views in person, and to reap the best return for investment by the seller. I mean this supports where we’ve been operating for the last decade already.

Jonathan: Correct. One other thing to note about this is it states, this Clear Cooperation Policy states that the property needs to be listed in the MLS. It doesn’t state that it has to be syndicated across all platforms. Whether it be websites, real estate brokers websites, Zillow, all those, you have to put it in the MLS but you don’t have to syndicate it out there. I wanted to make that note.

Jim: You also don’t have to allow showings, immediately. ‘Cause I think that one of the questions I’ve seen is that if it has put in the MLS and we’re not 100% ready for showings [crosstalk 00:04:39]

Keith: You can still have a coming soon but it cannot be available for some people to show and other people not to show.

Jim: Correct.

Keith: If it’s available to one, it’s available to all.

Jim: Correct. Which I think is the best practice on a whole lot of levels.

Keith: Right. What’s the argument than against us? Why is this even a discussion of within the marketplace?

Jim: I mean I think for me, I think that there are multiple, but the two that come to mind are going to be the brokerages that want to build their own internal platforms, if you will, and consolidate market share because they say: “We have all the exclusives and the smaller brokerages don’t,” I think is the one way for them to build their market share. And I think there’s another, also you have some sellers, they don’t necessarily want to go full market, but they want their agent to reach out to the top 17 agents in that market band. I think that’s one where there can be an argument for, “I don’t want the entire market to know that I’m wanting to know them for sale, but I want you to reach out to the best ones who know my product and market it that way.”

Jonathan: Yeah, I’d agree with both of those points. I think the concept of a platform and exclusive listings is something that some brokerages, and I’ll generalize and say maybe some larger, large and larger brokerages are trying to do is have these exclusivity of basically, “Come to us and we have this inventory that nobody else has and that’s going to draw eyeballs to the website. It’s going to draw calls to realtors, it’s going to generate email lists that they can get in touch with people.” There is an aspect of cornering the market in terms of specific listings. And so I think that’s one thing. The other part of it, geez, I’m drawing a blank. What was your second point?

Jim: Well, the sellers who want targeted.

Jonathan: That’s right. Yeah. That’s the other, the other part is that sellers are basically in this case potentially taking the control out of the seller or taking the conversation with the realtor and the seller and mandating certain things that have to be done. Typically, when you sit down with a seller, and the vast majority of cases you’re going to recommend, “Hey, this is what we need to do. We need to take your listing and expose it to the broadest audience. And if we expose to the broadest audience we’re most likely are going to get fair market value for your property.”

Jim: Right.

Jonathan: And so, but that even though that conversation happens most of the time in this case, there’s a rule being set that takes that conversation out. The realtor can no longer have that conversation of saying, “How should we expose your property?” And the seller can’t really say “I want to list with you and I don’t want you to expose it to the broad realtor.”

Keith: But I’m trying to imagine a world in which a wealthy art collector is looking to sell a piece and goes to Sotheby’s and says, “I want you to put this in your auction. I only want you allow half of the people into the auction to bid on it.” It doesn’t make any sense at all and that’s the exact same situation that we’re doing here. We’re trying to create an efficient marketplace and yet we’re doing so, we have been doing so at least in some pockets of this industry we’ve been doing so in a way in which we limit the who the available buyers are, who the available agents are, who can look at it. I think there is a question, some of the, there have been a few statements of the fair housing question and just availability of every home to every buyer and I think this is a strong attempt to try and correct that.

Jim: Yeah. Again, I think it’s commuting to see how this plays out. I think we’re looking at May for the implementation right now. We’ve got a few weeks and months to figure out what it’s actually going to look like.

Keith: Well, I think the other piece just to throw it as is that every association is going to be required to implement this policy. However, how they implement it is going to be up to the association. Bright MLS that handles much of Virginia, Delaware, Maryland, Pennsylvania, has already said that they’re fine for every instance of failure to comply with policies, we have $5000 fine. That says nothing more than we are going to take this very, very seriously. Associations on the other side could implement this as a $50 fine, in which case they’re saying it’s a cost of doing business if you don’t want to participate. And I think that’s going to be a huge discussion in the spring as we watch how different MLS’ play out across the U.S, and I think that’s going to be what we want to look at and see how seriously the individual associations take it.

Jim: I think we revisit this in January and see what it looks like.

Jonathan: Yeah.

Keith: Want to, Jim, do you want to tackle your HOA question at this point? [inaudible 00:09:16]

Jim: I’ll step into the HOA conversation. The HOA is, became prominent in, at least in our area and probably nationwide, in the late seventies. It seems that almost every neighborhood that I see in our market that’s been, that was built after ’75, ’78, ’80 whatever has an HOA of some sort, which is a set of guidelines that buyers subscribed to or they agree to live by when they purchase house. And I think that of all the hundreds of transaction I’ve done in HOA’s, maybe three of my clients have read all the rules. But I think it’s something that generally the way I describe a buyer who’s going to be living in an HOA, don’t be a butt head.

Jim: It’s because I think that the rules are there and they get implemented only if you are living outside the rules. There’s one neighborhood and probably a lot of neighbors in our market that say in the guidelines, no toys can be left in the front yard overnight. You leave a bicycle for a day or two, fine, you leave nine and they rust and then a big wheel and a trampoline, you’re going to get, someone’s going to call you on that. So I think that it really is, I think that you live reasonably be nice and you’re generally fine.

Keith: I will say, I mean I’ve lived in an HOA now for the last five years. For the first 45 years of my life, I never once.

Jim: Has it been five years?

Keith: Yeah. It’s been almost five years that we’ve been there. But before that I never lived in an HOA, never experienced it, and I never had a neighbor with whom I had these concerns that I just wanted to call the neighborhood police officer and say, “Please pass them a note because I don’t want to be the one to say something about them parking in my front yard.” I mean, this isn’t, like you said, if you’re a neighbor and you actually have civility, there’s no need for that HOA. They’ve become an issue now because there are so many things like storm water management and other water filtration systems that are neighborhood controlled, that have reserves that are needed,

Jonathan: Roads.

Keith: Roads. Many times private alleyways behind neighborhoods, behind the garages. Those things that have to be managed longterm, that owners just don’t want to get a bill for $10 000 when it’s time to repave. Right.

Jim: Some have capital expenditure that are looking at a quarter million dollars, half a million dollars of our 25 year lifespan.

Jonathan: Right, right.

Jim: So you’re raising, I mean that’s a significant budget for people to have to manage on a daily, weekly, monthly basis.

Keith: Yeah. I mean I can think of at least one neighbor in Charlottesville that has an HOA purely for the purpose of collecting for a bio filter that was required by the city to be installed. It has, there are no rules and regulations for living in the neighborhood. There’s no architectural review board. It’s purely for the bio filter reserve fund.

Jim: But I think it also, for a lot of my clients, I see it sort of counter to the American way of life of, “But I want to paint my house pink” or “I want to cut down that tree that’s more than three inches in caliber.”

Jonathan: Which is a real, I mean, these are real examples and I think the getting anybody, Jim, what you said earlier is when you get into an HOA, you need to know what you’re getting into.

Jim: Right. Right.

Jonathan: You have to read those documents and I mean, no one reads the documents. I shouldn’t say no one, very few people do.

Jim: There are hundreds of pages.

Jonathan: Can we create like a cliff notes for those docs, which kind of outline the key points. Maybe that’s probably a different discussion.

Keith: Haven’t you gotten calls from buyers who say: “I can’t look in an HOA because I have an RV.” There is this, there are certain things I have, there are HOA’s out there that regulate what type of breed of dog you’re allowed to have and association or condos absolutely regulate the number of pets you can have.

Jim: Condo’s are different animal though.

Keith: Right.

Jim: You like that?

Keith: Yeah. But I mean I think there are people who are aware that HOA’s may infringe upon their enjoyment of the property. The question’s though, how do we get every buyer to read those documents to understand this is a voluntary downgrading of your zoning rights. There are things you’re giving up by being in an HOA.

Jonathan: There are. There’s things you’re giving up and you talk about, you can’t leave toys in the yard. Yes, that’s rule. And I think those are the small rules. I think when you get into the value of HOA’s comes in with the bigger things. And Keith, you’re right. You can’t control what your neighbor does. And I’ve got a couple of examples that have popped in the news in the last 12 months. There’s a house just North of Austin, Texas in Pflugerville, which is a, like I said, a little North of Austin and the owner, this is not an HOA, the owner decided he wanted to paint his house, Pepto Bismol pink.

Keith: Roof as well.

Jonathan: The roof, everything, everything is pink, right? It’s his right. He’s not in an HOA, but his neighbors are furious. They’re furious and they’re threatening lawsuits and this and that. And that’s something that an HOA could, would likely prevent. Right. Those type of bigger things. There’s also a situation in San Francisco area where somebody built a Flintstones house that has dinosaurs and signs and everything in the yard, and it’s not an HOA and the neighbors are upset. So those are the type of bigger things that an HOA could prevent you from. I’m not advocating one way or the other, it’s purely a personal choice. Those are the things that you have to think about. Do I want to live in an association that has these rules and there’s pros and cons to those rules and am I willing to live with those pros and cons?

Jim: I shared a house last week, that had, it was a townhouse community that oddly did not have an HOA and the neighbor next door was in complete disrepair and there’s nothing, there’s really nothing you can do. And I know of another neighborhood in Charlottesville that does, it’s a mixed townhouse and single family community. There was one house that the guy didn’t, one, didn’t pay his dues and two, let his house go into disrepair. After years of effort, the HOA sent contractors over, fixed his house, levy to lien against his house. And that’s the value of an HOA is that you have a house where they choose to let it fall, basically fall down to protect property values and enjoyment of the neighborhood. The HOA has that authority to do so.

Keith: But here’s, but I want to talk though about the things that are being limited that people don’t think about when they buy the house but have real intrinsic cost to them. If I have a house that’s not in an HOA, I can put deed restrictions on the property that run with the house even after I sell it. I can stop future people from utilizing the property in a certain manner. You can never run a business out of this house and that would have a limit to the number of people who buy it. If I live near the university, I can place a deed restriction on my house that says this home can never be used for short term leases, for Airbnb purposes. If I did that and I tried to sell that house, it would have a significant reduction in the number of people who would be willing to consider it as a potential property. Maybe they don’t want to do it as an Airbnb, but they don’t know who’s going to want to use it down the road.

Keith: HOA’s, almost exclusively today, ban the use of short term rentals as part of [inaudible 00:16:15] property. But that is entirely a downgrading of your zoning rights. That is within the area, you may well have another right to use a short term lease, but within the HOA we say we’re not going to allow it at all and so suddenly the entire neighborhood is voluntarily adopting what, no one in there. [crosstalk 00:16:31].

Jim: I think if you don’t like that, get on the board.

Keith: You can’t change it as long as the declarant is still in control of the HOA. [crosstalk 00:16:39].

Jim: Once the declarant’s out though, you get on the board, you exercise your voice and you lobby your neighbors…

Jonathan: Try to change it.

Jim: You change it.

Keith: Yeah.

Jim: It’s a tiny dictator driven, no tiny little government. And that’s what I think about HOA’s.

Keith: Are they good?

Jim: They can be, it depends on the dictator.

Keith: Well, I mean I think, especially with the short term lease, I act like this is something you would never agree to. The reality is you would love for your neighbor to institute that policy. And so that’s really what the HOA is doing is it’s trying to add value by protecting you against the people you can’t control.

Jim: The last thing I’ll say on this is, I think it has a potential, and I’ve seen it where it makes people, it gives them license to be less neighborly. Because if I don’t like what you’re doing in your yard, I instead of going to, “Hey Keith, would you mind cutting your grass?” Instead of going to next door, which is now…

Keith: We’ll talk about next door.

Jim: That’s a whole other conversation, you go to the HOA management, say, “Hey, would you send this guy a nasty letter?”

Keith: Right. it becomes anonymous, sort of anonymous. We’ll leave next door for the next round.

Jim: Once we collected a fair amount of best of next door vignettes, which are spectacular.

Keith: Yeah. We’re getting chicken sandwiches.

Jonathan: Let’s talk chicken sandwiches. I kind of wrap this up. Third topic. So real quick background for those that haven’t been paying attention in the last couple of months. Popeye’s, the restaurant, came out in early August with a new chicken sandwich. It sold out in two weeks. So popular, it sold out in two weeks. Some of the restaurants, the stats that I’ve read and that I’ve heard is that their restaurants during this two week period, were selling an average of 1000 chicken sandwiches a day at a price of about four bucks, four bucks a pop. These chicken sandwiches were accounting for 30% of sales for Popeye’s. And it really became a phenomenon. So much of a phenomenon that there was a story that came out recently that an employee in a Los Angeles Popeye’s chicken restaurant was taking the chicken sandwiches and selling them, basically on the black market. There was reports of a sandwich a couple months ago that went on eBay for $7000 and so it’s this giant…

Keith: Willpower tool.

Jonathan: Yeah, capitalism, right? It’s this giant phenomenon. They’ve come out again, they were sold out for five weeks. They came back again in early November and they’ve been even more popular. One quick stat that I read is that foot traffic to Popeye’s restaurants soared on the most recent opening day by 299% above baseline, above their basics. So this is, I’ll call it an innovation, a product innovation that Popeye’s had worked on for two years. They worked on this for two years, came out with a new product innovation, and really has just completely transformed their business within a very short period of time. I mean from August 12th until…

Keith: November 3rd when they relaunch.

Jonathan: Until November 3rd when they relaunch, some of the studies out there said they were getting, they had $65 million in advertising value just from social media posts, from online articles, things like that. Now, they’ve had this product innovation and the question is, we don’t need to talk all about chicken sandwiches, but what is the Popeye’s chicken sandwich for the real estate industry or for other businesses? There’s product innovation that really can transform your business almost, arguably overnight.

Keith: Let me ask one question before we even get to that. Is there indication at this point as to whether this entire shortage of chicken sandwiches was entirely intentional, whether this was thought out long before the launch started, or is this all still speculation as to how Popeye’s went with it?

Jonathan: I don’t know. I’m not an industry expert. They forecasted, when they first came out with a chicken sandwich, they had enough chicken sandwiches nationally to get them through the end of September. And they didn’t, they sold out in two weeks. Whether there was under produced on purpose or whether as a ploy, if it was, genius.

Keith: It’s one of the greatest mistakes ever made.

Jonathan: So, yeah, we don’t know that.

Keith: Does it matter? I mean…

Jonathan: No.

Keith: Okay.

Jonathan: I don’t think it does.

Jim: I mean, I think it matters to a certain degree from the side. Well, from the violence you’re seeing in the Popeye’s, I mean, I think that matters.

Jonathan: You’re seeing people who are standing [crosstalk 00:21:22] because of a fricking chicken sandwich.

Keith: No. And for, well, fortunately, unfortunately in Charlottesville, the Popeye’s is located on the busiest road in town and it literally has cars backed out onto the main road…

Jim: Which is lovely.

Keith: Trying to get into the drive through. So it causes disruptions at the very least right now that’s based on hype.

Jim: It’s on hype. And there’s, I mean, I think I saw at one point Popeye’s were saying, “We’ll sell you a chicken sandwich if you bring your own bun.” I mean, yeah, I saw that. I’ll Google it for you.

Keith: That makes no sense.

Jim: But is there a silver bullet in real estate? I don’t know. I’ve been doing this for almost 20 years. There’s not, I don’t see that there is one.

Jonathan: I think, what we don’t know is this sustainable for Popeye’s as it just kind of like somebody just said hype and there’s been a lot of hype with other brands and businesses and technology products in our industry that have come out recently. And in some cases they’ve fizzled. In other cases, they haven’t.

Jim: I think the key differences is with Popeye’s that silver bullet is a chicken sandwich. It’s one thing. Where in real estate, there are so many components of what a realtor does, communication, knowledge, professionalism, psychology. There are so many things that go into what we do, marketing, that there’s no one thing that’s going to change the paradigm or the dynamic of practicing real estate.

Jonathan: Right.

Jim: Except for $1995, per month, for the next 18 months, I’ll sell you the silver bullet.

Jonathan: Yeah.

Jim: But no, I don’t think there is a one thing that’s going to change how real estate is practiced.

Jonathan: Do you consider this chicken sandwich to be similar to the online lead gen craze of the what? Early 2000’s? Early to mid 2000’s, I should say maybe mid to late.

Jim: Yeah. I mean I think conceptually, yeah, because that was sold as, the online lead gen was sold as this is going to transform your business. But it didn’t for most people.

Jonathan: It did for a while.

Jim: It did for some, for the ones who practiced it.

Jonathan: For years, you could buy leads on Zillow and be a very successful realtor almost. I mean we’ve got stories…

Jim: Sure.

Jonathan: Which we won’t get into specifics here, but I remember one of the stories you told me was about a realtor that you knew who basically just bought leads, sold them houses and her response was you said, “Well how do you stay in touch with them?” And she said, “It doesn’t matter. I don’t, I can’t. I’m just basically churning people through.” And maybe that’s not a sustainable business. But for a while it was, if you spent the money…

Keith: You got the leads.

Jonathan: You got the leads and these were good leads.

Keith: Well, it really depended on how well you managed the conversion process.

Jonathan: Right.

Keith: It wasn’t just the quality of leads because, and that has changed.

Jonathan: But lead gen as a system, it’s not just getting an email, it’s getting an email responding.

Keith: Lead gen is the first step of a big system.

Jonathan: Right.

Keith: If it’s not in place, it doesn’t work.

Jonathan: You have to respond.

Jim: Right.

Jonathan: You have to follow this.

Jim: This is a sandwich. I mean, the one thing, when you were talking about how they ran out, I mean, was it, if it was deliberate? Genius, sort of. But was it just they didn’t think about the supply chain, do they think: “We’re going to sell 10 million chicken sandwiches but we can generate only 5 million chickens,”?

Jonathan: Yeah.

Jim: I think with lead gen it’s…

Keith: The big question is do they still think they’re going to do 3000 per store per day moving forward? How many are they producing? It’s obviously the current fad of it, if you will, the craze of it certainly has to die down to a certain degree. Is it enough to generate longterm growth for the company? Is it able to create a need, a desire for more stores opening is it, will same stores sales continue to skyrocket into the first quarter, second quarter. Who knows?

Jim: But have they had the, I mean what’s another, unicorn if you will, like this? Popeye’s…

Keith: Somehow the chicken Chalupa that’s wrapped in a chicken doesn’t…

Jim: The worst thing I’ve ever heard of. And that’s real.

Keith: It’s not the same?

Jim: That’s real.

Keith: It is real. But it’s out there.

Jim: You can buy it, you won’t eat it.

Jonathan: I think that’s a good point, right? You talk about in the food service…

Keith: That is product innovation.

Jonathan: It’s product innovation and Popeye’s came out with a very simple product, a chicken sandwich with pickles and some sort of mayonnaise on a bun.

Keith: Right.

Jonathan: And you’ve got other competitors that are trying to come up with either crazy concepts, impossible burgers, like all these new concepts.

Keith: Sure.

Jonathan: This could be an argument of back to the basics, let’s just do a really good chicken sandwich.

Keith: Yeah.

Jonathan: And look, there’s nothing wrong with that. We talk about that all the time. How do we do what we do better? And if we can do what we do better, the core of what we do better then let’s just focus on, almost keep it simple, stupid. Let’s not come up with crazy new concepts. Let’s just do what we do really, really, really well.

Jim: Done.

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