A History of Disruption In the Real Estate Industry
Every news report you see includes the buzzword disruptor. The truth is that innovators and entrepreneurs have continually disrupted the industry. Let’s take a walk down memory lane:
October 1977 Disruptor.Merrill Lynch, then the most powerful firm on Wall Street, announces to a private gathering of 50+ of the top independent brokerage firms that it’s entering the residential brokerage business to offer full, one-stop shopping to American consumers. It announces it will do so by acquiring the same residential brokerage firms sitting in the room. Panic ensues.
Fall 1981 Disruptor.Sears announced that would purchase the 80+ percent of shares of Coldwell Banker that it did not already own. Sears says it will also offer one-stop shopping of housing-related financial services to consumers. It opens Coldwell Banker offices in many Sears stores. Sears also later acquires a retail stock brokerage business to complete its consumer financial services. Panic again ensues for residential brokerage firms across the country.
1983 Disruptor. This is the year that Inter community Relocation, one of the nation’s largest networks of independent residential brokerage firms, was acquired by Equitable Relocation Management, then one of the nation’s largest relocation management firms. They formed Equitable Realty Network. The network (and relocation business) was sold again in 1987 to Travelers Insurance, which shortly after that traded these assets to General Electric (GE). GE sold the network back to many of the same independent brokerage firms that had sold it to Equitable just eight or nine years before.
August 1985 Disruptor.Metropolitan Life insurance announced that it would extend its consumer financial services reach by acquiring Century 21 real estate.
August 1989 Disruptor. After spinning off its residential brokerage arm, Merrill Lynch Realty, to a separate entity, Merrill Lynch sells the entity to Prudential to help Pru’s franchise arm achieve its growth plans in residential brokerage, which it could not achieve organically.
1993 Disruptor. Sears announced it would sell Coldwell Banker Residential Real Estate to investment firm Fremont Group, and a group of top executives. Fremont would go on to sell Coldwell Banker to HFS (today’s Realogy) for nearly triple what it had paid Sears just three years before.
1995 Disruptor. Metropolitan Life sold Century 21 to HFS (today’s Realogy).
Think today’s froth of new entries is incredible to watch? Think that the brokerage industry is under attack from outsiders with substantial capital and that’s something new? As these historical events show, this is not the first time it’s happened. And, it won’t be the last.
Today’s Well-Capitalized Entries
Are today’s new well-capitalized entries different? Yes, to some extent, but today’s new competitors have the same goals as those listed above. The goal was the consolidation of a fragmented, under-capitalized industry; to improve the customer experience in buying and selling homes, and to cross-sell related services to American homebuyers and sellers. Oh, and to improve the profitability of the brokerage business in doing so.
Now, substitute Zillow, iBuyers, Compass, eXp, and others for Merrill Lynch, Sears, Metropolitan Life, Realogy, and Berkshire Hathaway HomeServices. Improve the consumer experience in buying and selling homes. Consolidate market share among participants. Raise the profit margins for business enterprise. Sounds familiar, doesn’t it?
We don’t say that today’s entrants are the same as those in the past, or that they will end up in the same position as some of these giants did in the past. Their approaches are different, and these are different times. Clearly, the internet has changed almost everything. But we note again, which we have in these pages before, that the underlying relationships between housing consumer and agent, and the agent and their brokerage, and the brokerage and the consumer have not changed all that much—yet.
Disruption is not new, and sometimes it works out for the disruptor, and sometimes it doesn’t.