For 30 years, falling mortgage interest rates have enabled homeowners to move into ever-larger homes on the promise of ever-cheaper financing. But that party is over, and the impact on existing home sales could be significant.
For 30 years, falling mortgage interest rates have enabled homeowners to move into ever-larger homes on the promise of ever-cheaper financing. But that party is over, and the impact on existing home sales could be significant.
By Erik Sherman
A series of emails about ebook prices between Apple and HarperCollins, including ones written by Steve Jobs, were recently released as part of the Department of Justice price-fixing suit against Apple and a number of major publishers. As the site Quartz pointed out, these offer some great insight into how Jobs negotiated.
However, Zachary Seward at Quartz called it an example of “hard-nosed” negotiation at which Jobs excelled. I’d take a different view. This is not hard-nosed. The emails show how an excellent negotiator used a series of principles to create the best conditions for winning. Let’s look in greater detail at the exchange between Steve Jobs and James Murdoch, son of Rupert Murdoch and the ultimate decision maker, and see how Jobs ultimately got his way.
First, set the stage. Apple and HarperCollins had been discussing bringing the latter’s ebooks into the iTunes store for the launch of the iPad. Apple had presented its standard contract. HarperCollins wanted to address the following issues:
And yet, Jobs ultimately prevailed. Here is how.
1. Understand the importance of the negotiation.
According to one of the emails, Steve Jobs got on the phone with Murdoch right away. Jobs was a busy man, but he knew that some deals are critical. To have a credible showing of ebooks, he needed all the major publishers, including HarperCollins. However, there was another aspect of importance that didn’t pass him by. If he caved on what he thought he really needed with one publisher, others would eventually find out and push back. Not only was the deal important in and of itself, but also in terms of the effect it could have on other deals.
2. Show that you understand the context and why your proposition is better.
Jobs knew, as did everyone in the publishing industry, that Amazon was driving much of the ebook business. Murdoch verified that Amazon paid $13 wholesale for an ebook title and sold it for $9.99–a lost, but Amazon wanted market share. However, buying high and selling low wouldn’t last forever, as Jobs pointed out:
The current business model of companies like Amazon distributing ebooks below cost or without making a reasonable profit isn’t sustainable for long. As ebooks become a larger business, distributors will need to make at least a small profit, and you will want this too so that they invest in the future of the business with infrastructure, marketing, etc.
Furthermore, Jobs argued that the $9 HarperCollins would get per title was actually sustainable and that the only way to pay more, given that in retail a 30 percent margin is relatively modest, would be to raise prices, angering consumers.
3. Show both kinds of value.
Jobs showed two kinds of value in his email exchange. One was positive value–what HarperCollins would get by working with Apple–and the other was negative, or what HarperCollins would lose by not working with Apple. For example, Jobs wrote that “Apple is the only other company currently capable of making a serious impact, and we have four of the six big publishers signed up already.” On one hand, he offers HarperCollins a tool to oppose industry domination by Amazon. On the other, he offers a soft hint that if HarperCollins doesn’t play ball, it may get left behind by its major competitors.
4. Lay out the reality.
The Jobs coup de grâce relates to the first point. When Murdoch shows signs of compromise, while trying, as Jobs did, to show positive and negative benefits to Apple, Jobs lays out a stark reality:
As I see it, HC has the following choices:
1. Throw in with Apple and see if we can all make a go of this to create a real mainstream ebooks market at $12.99 and $14.99.
2. Keep going with Amazon at $9.99. You will make a bit more money in the short term, but in the medium term Amazon will tell you they will be paying you 70% of $9.99. They have shareholders too.
3. Hold back your books from Amazon. Without a way for customers to buy your ebooks, they will steal them. This will be the start of piracy and once started there will be no stopping it. Trust me, I’ve seen this happen with my own eyes.
Maybe I’m missing something, but I don’t see any other alternatives. Do you?
At that point, the gloves are off and Jobs shows that HarperCollins, and the wider industry, face a stark choice, and that he, Jobs, knows it and recognizes that giving in to Murdoch would actually mean putting HarperCollins in a medium-term bind.
5. Play the emotion
One of the biggest mistakes that businesspeople make is to assume that the process is a rational and logical one. But negotiation is almost always an emotional play. People make decisions because of ego, fear, greed, a need to please, and so on. Notice that Jobs shows the benefit and the risks by painting pictures and not enumerating lists. For instance, he mentions the 120 million customer credit card numbers on file. He deliberately left the image of all that potential money in Murdoch’s mind.
You don’t often see an extended example of a negotiation process handled by someone gifted in the field. It is worth reading through the transcript to follow the back and forth and see how skilled Jobs was.
The Foundation for Community Association Research has rolled out a new e-newsletter, Catalyst. More than ever before, the Foundation seeks to be the industry catalyst for needs-driven research that informs and enlightens all community association stakeholders—community association residents, homeowner volunteer leaders, community managers, service providers, legislators, regulators and the media.
The Summer 2013 issue provides links to surveys, information and offers data-based perspectives you can’t get anywhere else. Check out this preview:
State CIC Estimates Published in 2012 Statistical Review
Florida and California account for 27 percent of all common-interest communities (CICs) in the United States, according to 2012 data published by the Foundation. This is the first time we have published state CIC estimates. The estimates are featured in the Foundation’s just-published 2012 Statistical Review.
The six-page review also provides national CIC statistics beginning in 1970, as well as 2012 data on the numbers of association board and committee members, community managers and management companies. There are also national estimates on CIC assessments and spending and summary results from a national survey of CIC residents in 2012.
Snap Survey Addresses Community Manager Contentment
The Foundation’s first-ever “Snap” survey is a mixed bag in terms of how CAI member community managers perceive their profession, reputation and compensation.
Sixty percent of responding managers say community management has improved “a lot” or “slightly” as a career option in recent years, while 24 percent believe it has declined. Almost half of the respondents say they are “adequately compensated”, while 12 percent say they are “very well-compensated.” Most of the remainder say they are “not well-compensated.” “Pay scales and recognition are still not what they should be for the responsibility we carry,” said one respondent.
Managers Urged to Complete Salary Survey
The Foundation has once again retained Industry Insights, Inc., a third-party survey research firm, to produce its Manager Compensation and Benefits Survey. Strict confidentiality is maintained, and neither CAI nor the Foundation will see any individual data. Enter yourself in a drawing to win an iPad Mini by completing the survey by June 28 (it takes less than 10 minutes) and entering your name and contact information at the end of the survey (optional): https://www.iisecure.com/CAI/survey.asp?Type=NEW.
This year’s survey will address:
To get the full issue and subscribe to future issues, e-mail Jake Gold, at email@example.com. CAI Members will automatically receive Catalyst. Visit www.cairf.org to learn more and find out how you can support the Foundation’s mission, common-interest communities and homeowner volunteers and industry professionals who make them preferred places to call home.
U.S. home prices posted year-over-year gains for the fourth consecutive quarter as prices rose 10.2% in the period ending in March, according to the S&P/Case-Shiller national index.
The index posted its highest annual returns since 2007, according David Blitzer, head of S&P’s index division.
But the strong gains over the past year may be a bit of a statistical mirage, according to Robert Shiller, a Yale economist and co-founder of the index. “Foreclosure sales are down, so naturally [price] indexes that include foreclosures are up,” he said.
Foreclosures sell for less than comparable non-foreclosure properties, so with fewer of them selling, home prices will show gains.
Eventually, the percentage of distressed properties being sold will stabilize near their historic norms and will play less of a role in future home price comparisons. When that happens, price gains will flatten out a bit.
There’s another factor arguing against continued price gains, according to Shiller. Home prices are already at what he considers “normal” levels, adjusted for inflation. Even the steep housing downturn only took prices to where they would have been if they hadn’t skyrocketed during the bubble.
Index co-founder Karl Case worries about the low number of housing starts recorded this month. That’s a possible sign that the economic recovery is flagging, which would slow home sales as well.
“New construction is a big deal and starts are the most important number,” he said. “It goes right to the GDP.”
Both economists, however, are still cautiously bullish for two main reasons. First is the fact that near-record low mortgage rates have made home buying more affordable. The second is all the pent-up demand in the housing market after years of sluggish sales.
Phoenix recorded the largest year-over-year price spike, with a 22.5% jump. San Francisco prices rose 22.2% and Las Vegas prices grew 20.6%. New York, at just 2.6%, saw a modest annual increase.
3 bills Florida HOAs should know about – Three new bills were presented to the Florida Legislature that, if passed, will affect the state’s many condo and homeowners associations. Some of the changes up for vote including limiting the term length of association directors and forbidding members delinquent in payments from running for the Board of Directors. Florida: Lexology.com (free registration)
Texas legislature and HOAs: Conflicts and interests – One man’s HOA experience in Pflugerville, Texas highlights how associations, ostensibly created by and for the people in a neighborhood, usually operate more like mini-government agencies. Nowadays, cities and counties often require new developments to create property owners’ associations. In a booming state like Texas outsourcing these services to an HOA management company may be the only option for a cash-strapped municipality. Texas’ a long and colorful history of lopsided special-interest influence has complicated the HOA management industry. Texas: The Texas Tribune
Judge rejects condo’s demand for HOA receivership – Tensions between disgruntled Arizona condo owners and their homeowners association board came to a head Monday in a six-hour hearing to decide whether residents’ allegations of financial misconduct justified placing the HOA into receivership. After the attorneys for several hours questioned and cross-examined experts, board members and residents, Maricopa County Superior Court Judge Michael Gordon ruled there was insufficient evidence to warrant putting the association into receivership. Arizona: AZcentral
Colorado HOA-related legislation – Read about the CAI sponsored legislation that is working its way through the Colorado Legislature. SB126 requires HOAs to accommodate owners who want to install electric car-charging stations in a complex parking lot. It has been signed into law. Lawmakers passed HB1276 to revise the way HOAs collect delinquent dues and fines, and setting specific rules for pursuing foreclosure actions against homeowners passed and awaits consideration by the governor. Headed to the governor, HB1134, would require all HOAs, no matter how large or when they were created, to register with the HOA Information Office and Resource Center. Lawmakers also sent Hickenlooper House Bill 1277 which would require community association managers, management company executives and those who directly supervise managers to be licensed in Colorado. Colorado: The Gazette
By Jeremy Quittner
Construction leads the way, but the recovery is affecting a broader base of businesses, according to a new study.
The construction industry continues to add fire to the economic recovery, according to the March private company index from Sageworks.
While the Sageworks index supports a host of other recent data that point to a housing market recovery, it also indicates economic improvement for a broader segment of private companies.
“Construction is growing sales and growing profitability, which is a good thing for companies in that industry,” says Libby Bierman, an analyst for Sageworks. “But things are pretty positive for [all] private companies, with average sales for the entire sector showing double-digit growth.” Construction is a key indicator to watch because it affects so many other industries, such as the wholesalers and retailers that provide supplies.
Sageworks analyzes 1,000 financial statements from private companies every day. The companies range in size from less than $10 million to over $1 billion. The current data is for the six months ended March 31.
Total sales across all industries increased 10 percent for the last six months, about flat from the same time period a year ago. Meanwhile, profit margins increased significantly: 7.3 percent compared with 4.5 percent in the same time period.
Sales increases in the construction industry jumped to 13.2 percent from 10.4 percent a year ago. Profit margins more than doubled to 4.5 percent.
“The construction industry has grown at a very healthy rate for the past two years, which is encouraging, ” says Brian Hamilton, Sageworks’ chairman, noting that the real estate industry was the worst hit and the last to rebound from the recession. However, that doesn’t mean the pace will continue, bolstering other sectors.
Four years into a recovery, “can we say for the next three years the construction is going to be strong? I don’t know. You are betting against odds on that one.”
The increases in profitability across the board are largely due to companies increasing efficiency, Bierman says.
The picture isn’t entirely rosy, however. Manufacturers’ sales growth increased, but at a slower rate than last year, declining nearly 5 percentage points to 10 percent. Wholesale businesses fared worse, with sales growth slowing by nearly half to 7.7 percent.
Wholesale businesses had been on a tear in 2012, increasing revenues by 13 percent for the year, so they had a much bigger base to improve upon, Bierman says.
The number of days it takes private companies to get paid has also crept up by 8 days, to 46 for the period ending March 31. That could be a worrisome trend in the future, suggesting customers are having cash concerns.
Generally speaking, though, “private companies are growing their top line and bottom line and this bodes well for future investment in companies and hirees, and provides a strategic cushion for business owners to make decisions,” Bierman says.
Jeremy Quittner is a staff writer for Inc. magazine and Inc.com. He previously covered technology for American Banker and entrepreneurship for BusinessWeek.
NBC-CAM is now offering a Community Association Management Smartbrief. The Smartbrief will bring the most important and timely stories directly to your inbox weekly. Sign up, read the latest edition, or browse the archives. See what you missed this week:
In the News
New Jersey homeowners wary of town taking over dune rebuilding project
More than a dozen residents in Toms River, N.J., are refusing to sign easements that would give the town a strip of their land so it can rebuild necessary protective dunes that were destroyed by Hurricane Sandy. The homeowners say they are worried they might be obligated to open their beaches to the public if parts of it now belong to the town. “We know we need to put in dunes. Dunes are definitely a lifeline for any beach community,” says Patricia Suriani, member of the Surf Cottages HOA board. “What we have wanted up to this point is more clarification of giving this easement.” New Jersey Online (1/5)
HOA evicts homeowner for past due fees
A homeowners association foreclosed and evicted a resident from his house in Jacksonville, Fla., after racking up $532 in unpaid fees. Ken Baxley, who owned the home for four years, admitted he refused to pay the HOA for two years. “I didn’t think they were that threatening,” says Baxley. “I basically blew them off. That was my mistake. I blew off the homeowners association.” WTLV/WJXX (1/4)
Should HOAs base fees on a resident’s income?
A blog reader recently raised the issue of association boards who charge fees for certain community services but only against owners who, in the board’s estimation, “can afford it” while discounting or writing off those fees for others. While there is no reasonable debate that such a practice would be contrary to both the shared ownership statutes and most associations’ governing documents, this begs the question just how often volunteer boards engage in the typical exercise of trying to figure out who are the “haves and have nots” in a community. Sun-Sentinel (Fort Lauderdale, Fla.) (12/31)
Retirement community doesn’t want to pay HOA for youth activities
The homeowners association in the age-restricted Sonora community in Rancho Sahuarita has filed a lawsuit saying the community-wide HOA fees are too high in part because they support youth activities. Sonora residents pay their own HOA fees for an exclusive pool, landscaping, clubhouse and other items in addition to paying fees to the larger association. They claim the fees for the larger Rancho Sahuarita Village Program Association have increased at nearly twice the rate of inflation in the past nine years while the Sonora fees have not risen at all. Green Valley News and Sun (Ariz.) (1/2)
It’s time for leaders to get real
Leadership should be about facing up to uncomfortable realities, not about burying your head in the sand, writes George Ambler. Only reality-based leadership can inspire employees or bring long-term strategic success. “Convincing ourselves that things are better or different from reality is never a good idea,” he writes. George Ambler blog (1/4)
7 tips for becoming a better interviewer
If you’re getting ready to interview candidates for a job opening, start by reading over their applications and developing a list of questions, Karen Axelton writes. “Instead of questions that can be answered with ‘yes’ or ‘no,’ ask questions that require an explanation or call on the candidate to elaborate,” she advises. Also, don’t use your computer or engage in any other activity that could distract you during the interview. NetworkSolutions.com (1/3)
Doing Good in the Community
HOA board member on a mission to make neighborhood road a ‘scenic route’
A Lucas Valley Estates Homeowners Association board member is leading an effort to have nine miles of Lucas Valley road deemed an official state scenic route in Marin County, Calif. Liz Dale says if her petition passes, billboards and high-density development will be prohibited. “People who live there come there for the views,” Dale says. “We have a gold mine of scenery.” Marin Independent Journal (San Rafael, Calif.) (1/4)
Professional and Ethical Conduct
Get started on becoming a better leader in 2013
There are plenty of ways to improve your leadership in the new year, writes Daniel McCarthy. A few ideas: Improve your presentation skills, seek out better feedback, pledge to hold yourself more accountable or simply reach out to and thank your mentors. “Don’t
overdo it — just pick one and commit to it,” McCarthy advises. SmartBrief/SmartBlog on Leadership (1/1)
Frank Rathbun, VP of Communications and Marketing at CAI put together an excellent set of guidelines for when you’re contacted by the media. Use these helpful tips:
Have you signed up for Community Association Management SmartBrief yet? A few weeks ago, NBC-CAM launched a free, weekly e-mail newsbrief specifically designed for community association managers. Sign up here.
This complimentary resource is aimed at bringing you a quick, two-minute read that will help you keep up-to-date with the latest news and trends in our profession. SmartBrief will provide short summaries of the news articles that will be of interest to you as a community association manager. We know it will save you time, keep you informed and add to your success. I hope you will subscribe.
Last week’s issue had an interesting article from Inc.com about diffusing complaints: Listening, refusing to engage in a fight and being willing to take a complaint to a higher authority are among the first steps in dealing with an unhappy client, writes Matthew Swyers. Other tips: Put yourself in the person’s place and offer empathy, work to resolve the issue and conclude your actions with a summary e-mail. Sign up here to get the full story.
Ruling spells out limits on HOA superpriority liens
The Nevada Real Estate Division issued an opinion this week that a home-owners association’s superpriority lien is limited to no more than nine months of assessments.
The association’s lien does not include “costs of collecting” as defined by Nevada law, so the superpriority portion of the lien may not include such costs, the Real Estate Division said in the decision released Thursday.
“So basically what they are saying is HOA management and collection companies have been misleading their HOAs the last several years,” said Rutt Premsrirut, who represents investors. “They have been overcharging banks and investors hundreds of millions dollars on superpriority liens for their own benefit.”
Controversy over HOAs pursuing delinquent assessments centered around the practice of turning over debts to collection agencies and including those costs – which in some cases ran into thousands of dollars – in the lien placed against the property.
The advisory opinion clarifies what constitutes a “superpriority lien” and what is not part of the superpriority lien. It provides homeowners associations with a better understanding of the law in order to act in the best interest of members, Real Estate Division spokesman Teri Williams said.
Nevada law makes special provision for recovery of past-due assessments through establishment of a superpriority lien, which is superior to a residential unit’s first security lien.
By giving priority lien status, the law provides extraordinary protection of the HOA’s interest in collection of up to nine months of unpaid assessments. After evaluating each situation, a determination should be made concerning the best course of action, officials said.
“It may not be in the association’s best interest to routinely turn over unpaid assessment accounts to a collection agency since the association may ultimately be responsible for the costs of collecting,” said Gail Anderson, administrator for the Real Estate Division.
HOA management companies sued the state’s Financial Institutions Division after it came out with a declaratory order two years ago. The Nevada Supreme Court ruled FID didn’t have jurisdiction over laws in NRS Chapter 116, which govern homeowners associations. Now that the Real Estate Division has issued a decision, the FID should be able to enforce it, Premsrirut said.
“Bottom line is HOAs are really exposed by millions (of dollars), and it’s the collection companies’ fault for misleading them,” he said.