REAL Trending Episode 60
iBuyer Trends, M&A Activity, Housing Markets
From REAL Trends, the trusted source for real estate industry news this is REAL Trending, episode 60.
We’re breaking down the trends of the week and showing how they impact brokers and agents. I’m Steve Murray, President of Real Trends and today we’re discussing the expansion of the iBuyer trend, merger and acquisition activity picking up strongly, and where do housing markets go from here?
The iBuyer craze, if that’s what we want to call it took another big quantum step this week with the announcement by Realogy of a new program they labeled RealSure, which will initially be rolled out in a few markets but ultimately will be expanded nationally through all six brands of Realogy including Corcoran, Better Homes and Gardens, ERA, Century 21, Coldwell Banker and Sotheby’s. It will be national in scope.
It will be all markets with a particular focus on homes priced from $100,000 to $500,000. According to sources at Realogy, there may be some variation in those prices from market to market. So now we have the largest real estate organization in the US, Realogy, joined by the largest portal in the US, Zillow, together with companies already well-known, Offerpad, Opendoor and many others that are offering to purchase homes for people. Or from people. Or in the case of Knock and/or Ribbon, they’ll buy your next home for you in advance of you having to sell your home.
This enormous flood of liquidity into the housing market begs the question, “are we all nuts?” Does anybody really expect that housing markets go on forever with these kind of services and products? We’ll deal with that in our third topic, but it is enormously interesting and should be to all agents and all brokerage companies that Keller Williams, Redfin, Realogy and certainly others will be offering these kinds of programs through their agents to buyers and sellers.
It’s enormous how fast it’s expanded and with Realogy jumping in it’s really going to grow rapidly. We expect that’ll make it tougher for everybody in the space to compete if sellers now have two to five different companies, they can get bids from. For those who are actually in the business of wanting to buy these homes, that means price competition forces prices down, which typically is better for consumers.
So a couple of years ago when these first appeared we said, “We think this is a great service.” We also think it’s very positive that they are four to six companies now that are offering this service. It means more competition. It means real good services and prices for homeowners and home buyers. It’s a very positive development.
Merger and Acquisition Activity
In a second topic, at REAL Trends being a leader in merger acquisition evaluation we can report that the prices and terms for brokerage companies in all segments of the marketplace appear to be stabilizing, if not even strengthening a little bit from just three months ago. While most of the activity is taking place at the local level between regional brokers there is a sense that for those companies with good balance sheets and good management teams this is a great time for roll-ins and acquisitions of firms that are perhaps not in as good of shape, or owned by people who just say, “You know what? It’s been a fun 30 to 40 years, but I don’t want to own brokerage companies anymore and I’d rather have someone else take my company forward.”
We’re seeing this uptick across the board regardless of brand, regardless of region, and regardless of business model. For instance, there are a number of strong buyers now buying what we would consider flat fee brokerages. Those who might look like Realty ONE Group, or HomeSmart, or Fathom, or United Real Estate. We’re suddenly seeing a strong increased interest in the investment in, and acquisition of, some of those companies that are more local by those that have more national aspirations. It’s a very positive development for these kind of firms. This also goes for whether it’s a 100% commission concept like RE/MAX or capped company dollar like Keller Williams. We see an increased appetite for the investment in and acquisition of brokerage companies.
One new trend in this area is several of these participants, these investors or acquirers, are not so interested in having to buy a 100% of another brokerage company but are at least investigating whether they should invest in 50, or 60, or 70, or 80% of the brokerage companies as opposed to the whole company. It has been long known that there is a little bit of risk when you take a founding entrepreneur out of an ownership of a brokerage and they become an employee whether they have the same drive and the same motivations to continue to push their brokerage forward or do they have the same incentives to do so? So this is very positive for brokerage companies.
We also see some strengthening of interest in well organized and well-run teams. We’re doing a good number of evaluations each month. Above 15 per month and orders appear to be increasing. This is very positive for the brokerage industry of course, but it also indicates some renewed faith in the future of the brokerage industry.
Lastly, topic number three is where does the housing market go from here? We talked about the iBuyer phenomenon earlier, but now we’re looking at capital flooding into companies like Zillow, and Redfin, and Compass of course, eXp. We’re also talking about people buying homes to help people get in homes on a rent to own basis. People like Divvy.
There are new entrants into the game, like Flyhomes, a full-service, vertically integrated brokerage firm that puts mortgage, title & escrow, and home services under the same roof to make the homebuying process as simple as possible. They are the only service enabling buyers to make an all-cash offer on a home in hot markets like San Francisco and Seattle..“The bottom line is, there seems to be an absolute commitment of billions, and billions, and billions of dollars of capital to the housing market almost 10 years now after the recovery started. And one wonders with all of the attention, all of the money flowing into the housing market are we going to get caught in a déjà vu moment? Do we really think that housing prices only have one way to go?
Now, understandably, the demand for housing, whether it’s multi-family, rental, or single family for sale is scarce compared to the demand and there appears to be no short-term cure for that problem. One would say record low mortgage rates, alternative mortgage supplies are increasing, FICO scores are coming down a bit that we’re setting ourselves up for the same thing that happened back in ’06 and ’07. However, opposing that view would be the traditional lending market is still keeping a tight rein on underwriting. FHA is even tightening up at this point and there is a tremendous scarcity of housing versus the households being formed.
Given all those factors how could housing have a downturn? The fact is we know in many markets in this country, especially higher-end markets which have been impacted by the 2017 Tax Act, the upper end is struggling in many markets and unit sales are down and prices are softening. While it’s unlikely that will happen in the entry-level part of the market. One does wonder if the party is about to end.
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