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Trends in Valuations and Mergers & Acquisitions

by: Toni Lapp

Trends in Valuations and Mergers & Acquisitions

Experts Dispense Advice at REAL Trends’ DealMAKERS Conference.
The real estate market is softening, and home sellers who were accustomed to being in a strong negotiating position are seeing their advantage slip away. As go homes sales, so go brokerage sales, said Scott Wright, vice president of REAL Trends at the DealMAKERS conference, a precursor to the annual Gathering of Eagles meeting. In 2017, REAL Trends hosted the first DealMAKERS conference, which was designed to answer the most critical questions brokerage leaders have about how to value their companies and teams. That year, the seller's market was peaking. What a difference two years make, said Wright, adding that some brokerages that were once candidates to sell may now be deciding to buy instead. Since valuations have come down, they may look to merge with or acquire another firm rather than try to wait for another upturn to improve their acquisition deal. In a panel presentation called “Valuation and Deal Terms,” Wright was joined by Alicia Vivian, the chief financial officer of REAL Trends, who works with Wright to determine the valuation of brokerages as part of REAL Trends’ consulting work. The panel was rounded out with two executives from franchises that have been actively acquiring brokerages: Chrissy Oliver of Compass and Alex Seavall of HomeServices of America. The most significant change for brokerage acquisitions is that the transactions are commanding less up-front cash, much to the chagrin of sellers, noted Wright. "We see an environment with margin compression at the top," said Wright. "Valuations are determined by the last 12 months of activity, which hasn't been as strong." Brokerages, said Wright, do not get to cherry-pick their best year from several, "it's 'what have you done for me lately,'  "he quipped. The key to preparing for a potential transaction, said Vivian, is to ensure the proverbial house is in order with regards to financial statements, contracts, and agent productivity. “It makes the process much easier when you have clean and organized data available at your fingertips,” she said. “Someone in the organization who can speak to the financials should be prepared to do so.” Another factor in the M&A environment is that Realogy Holdings, which had been busily acquiring brokerages, announced in January 2019 that it was going to suspend acquisitions. That’s taken some pressure off buyers to act, the panelists agreed. It’s worth noting that HomeServices of America recently displaced Realogy’s NRT from the REAL Trends Five Hundred ranking of brokerages, although NRT still beats HomeServices when it comes to the total dollar volume.

Will this have any bearing on future acquisitions?

Seavall of HSA said “our formula has evolved,” adding that the organization looks for brokerages with strong leadership who are demonstrating growth despite the declining market. “We believe in the local ability of management to make the best decisions,” something they had “learned the hard way.” Acquisitions have helped Compass quickly grow from its launch in 2012, said Oliver, who oversees strategy and growth for the New York-based tech brokerage. Oliver noted that Compass is now focused on its 22 markets and gaining market share in those areas. She said that 2018 was an expansion year, in which the franchise opened in 11 new markets. In a session that followed, “Legal and Tax Issues,” attorneys Jim Thomas and Barbara Wells of Minor & Brown law firm discussed how the 2017 Federal Tax Act would impact the business. It's paramount to choose the most favorable corporate structure as you consider an M&A down the road, they noted, reviewing the differences between S Corporations, C Corporations, and partnerships. Acquiring stock to buy a brokerage is too risky, they said and does not confer tax advantages. It's risky because the buyer is "acquiring every skeleton in the closet," said Thomas.

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Relationships (Not Technology) Matter Most

by: Tracey Velt

Relationships (Not Technology) Matter Most

2019 REAL Trends Gathering of Eagles
Missed the event of the year? No worries, we’ve got the top takeaways from the conference ready for you. This year's Gathering of Eagles brought together leaders from all models of real estate brokerages to hear from industry icons, technology gurus, advertising experts and more. Missed the event? No worries, we cherry-picked the most pertinent tips and quotes from the event. The overarching theme: Technology only serves to help agents facilitate relationships. While the focus has been on technology, the truth is success in real estate has always been—and will always be—all about the relationships.
  1. Facebook has the power. Well, not really, but Ken Auletta, keynote speaker and author of the book, “Frenemies,” regaled GOE attendees with an insider view of the advertising world. Included in that analysis was the fact that social media is manipulating your decision to take action, buy something or sign up for a service. Of course, we all know that, but we’re still getting sucked in. Something to think about when you’re developing your next Facebook ad: no one likes being manipulated, so consider transparency and reaching out instead of gimmick ads.
  2. One-stop shops are the future. Robert Reffkin of Compass talked about making his company the “Amazon of real estate.” He thinks that along with the already-in-place Compass Concierge, which allows his agents to be full-service advisors, along with mortgage, title, and insurance components will offer the perfect way to fight the culture of the discounters. He also announced that listings agents always get the lead, even if they’re not with Compass. “On the Compass website, if you’re the listing agent, you get the lead, no matter what. It creates transparency, and creates the foundation for various ways to partner,” he says.
  3. If you can’t beat them; join them. The GOE iBuyer panel (by the way, they hate the term iBuyer), wants to make the transaction more straightforward for the home seller, so you have something in common with them. One tip: During your listing presentation, give prospective sellers all of their options, so you don't get left out of the transaction.
  4. Tech is great. but... Sure, Keller Williams is rebranding itself as a technology company, but their leaders are smart enough to know that technology is about making the transaction more efficient for the buyers and sellers. It won't take the place of great relationships. Coach Tom Ferry posed the thought that "Agents don't care about technology. They care about whether their kid is smoking pot, how they're going to lose weight, and when they'll get their next listings." In response, Keller Williams CEO Josh Team said, "I agree they don’t care about disruption on a macro level, but when it hits their bottom line, they care a whole lot. Agents do care about technology because to stay relevant, they need to compete with disruption." Ferry also mentioned that brokers should not give their managers an office. "Managers should be out on the floor getting to know the agents."
  5. Go back to basics. Ninja Selling's Founder Larry Kendall discussed the relationship-building basics that brokers and agents should get back to ASAP. “Focus on productive activities, and the sales will take care of themselves. We call these activities FLOW. Have your sales associates keep a weekly log of their flow activities (handwritten notes, live interviews, real estate reviews, mailings, etc.) If they are in a slump, your first question is, “Can I see your activity log?” Sure enough, you will notice a drop off in their activities about 45 to 90 days before their production slump. Activities predict production. Do a pattern interrupt! Get them back into the flow again and logging their activities.
  6. It’s time to tell your story. Author and Coach Mike Staver says to increase productivity, you have to reduce the noise (internal and external). To retain agents, he says you must be willing to tell your story. "Telling people why you’ll go to battle to get them over the hill will do more for you than promising them money. Most agents will tell you it's not about the money. The higher the percentage of people who leave you for the money; the more likely you will resign yourself that you can't compete against money," he says. So, get good at getting to know your agents and telling your story.
Telling people why you'll go to battle to get them over the hill will do more for you than promising them money. - Mike Staver

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Hotspots Around The World

by: Peter Gilmour

Hotspots Around the World

Transportation and new developments drive global hotspots.
Global residential hotspots continue to emerge, ranging from emerging technology centers to areas of significant new developments and those transformed by new faster transport links. We have seen many of these areas in North America. Delray Beach, Florida, situated close to two airports and recently serviced by the new billion Brightline train, is a good example. Detached family homes around 3,500 square feet with a pool start at around million with similar-sized townhouses starting at million. Boston's Seaport District, near the Financial District, is popular with young professionals and older residents alike. With over 11,000 residents, the area is well serviced by cinemas, restaurants, and bars, serving local fare. Two-bedroom apartments start at about ,800 per square foot with developments commanding the best views close around ,000 per square foot. Knight Frank, in their 2019 Wealth Report, has also identified several global hotspots—areas that are predicted to outperform the rest this year.

Lucca, Italy

Lucca, Italy is a scenic, walled city in Tuscany. The historic center comprised cobbled streets, shaded piazzas, art galleries, restaurants and many churches situated within the old city walls. Lucca offers a great lifestyle and sense of community close to the town of Pisa and the Mediterranean coast. It provides an alternative to the more tourist-filled, and a renovated three-bedroom apartment starts at 0,000 with larger apartments starting at .6 million.

Kowloon, Hong Kong

Kowloon in Hong Kong is in the Hung Hom area situated close to the exit of The Cross Harbour tunnel from Hong Kong Island. The city has traditionally been home to blue- and white-collared workers, but now has a large, new metro station to add to the road and ferry links to Hong Kong Island. The impact of the massive rail link is being felt in the nearby real estate with prices rising steadily. Two- and three-bedroom apartments are now priced between ,300 and ,500 per square foot. Hung Hom is also an area of delicious, authentic Chinese food.

Geneva, Switzerland

The third hotspot that Knight Frank lists in Geneva, Switzerland, a sophisticated lake city that I also visited recently. Steady development and price growth are happening in the Trois Chênes area, east of the city, which has been transformed into a new transport hub. A new rail link with the French Alps will provide fast connections to Evian and other cities in France as well to the Geneva Airport. Freehold two-bedroom apartments in Trois Chênes start at 0,000 while four-bedroom homes are selling for .6 million and upwards. Other hotspots in the Knight Frank report are the Wynyard Quarter, Auckland; Chelsea, London; St. Kilda Road Precinct, Melbourne; Applecross. Perth and the Pasadena area of Los Angeles, California, among others. These areas are all demonstrating strong price appreciation and are likely to attract savvy home buyers and investors in 2019.

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Humans Are The Value Wedge!

by: Larry Kendall

Humans Are The Value Wedge!

Your brokerage's unique personality and knowledge are what give you the edge.
Have you observed that money flows to value? Our value proposition typically answers three basic questions:
  1. How do I solve a client's problem? (pain)
  2. How do I make them feel good? (pleasure)
  3. How am I different from competitors? (value wedge)
The third question involves our value wedge, as shown in the diagram below.

value wedge

Value Parity is what nearly all sales associates and companies provide, including competitors.  Examples for a seller include a yard sign, multiple listing service (MLS), and home brochure.  Nearly everyone offers these services, so they are not differentiating. The seller wants to know what we do that is different and valuable. This is the Value Wedge. What is the most significant component of the value wedge? In my observation, it is the human factor–the unique personality, caring, knowledge, rapport, and skills of the person delivering the service. Take the human element out, and you come close to having a commodity. Commodities have a reduced value.

Are We Improving Service?

In our efforts to improve technology, are we enhancing our service or commoditizing it? Here's an example from the mortgage industry. After five days with 116 top-producing mortgage loan officers, they all agreed on one thing: Their companies’ efforts to improve technology had commoditized certain parts of their business, making it harder for them to build relationships, counsel borrowers, and create a value wedge. Buyers jump on the various prequalification apps to find the best rate. What buyers need is to find the best loan for their situation.  This comes with counseling. For example, if the buyers have limited cash, the best loan for them may be one that takes less cash but has a slightly higher rate.  The opportunity for the loan officer to counsel the borrower to find the best loan may never happen. In many cases, the value wedge and the human factor are being eliminated in the prequalification process. By the time the loan officer sees the computerized prequal and follows up on it, the buyers are confused. Has this process improved the borrower’s experience? According to the loan officers, it has increased confusion and lowered conversion rates from prequal to application. What about the real estate brokerage industry? Will the current tech race and infatuation with ibuyers commoditize the brokerage transaction? Is technology making it better consumers?  Is this effort consumer driven or industry driven? Where should you place your bets? Jeff Colvin, in his book, Humans Are Underrated, What High Achievers Know that Brilliant Machines Never Will, says the soft skills of Empathy, Creativity, Communication, Collaboration, and Relationship are the critical 21st Century Skills. He believes the human factor will be more critical than ever. Humans are the value wedge.

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Trends Come to Fruition

by: Steve Murray

Trends Come to Fruition

Future trends shared at the Gathering of Eagles over ten years ago are now business as usual.
Many years ago, we had the pleasure of having Rich Barton, then and now CEO of Zillow, and Channing Dawson, co-founder of HGTV, present to our guests at the Gathering of Eagles. We thought so much of what they shared, that we had them back two years later. Among the many insights, Barton shared was that “information wants to be free to all, accessible and available.” He said that those who attempt to stand in the way of this trend were fated to be left behind. He didn’t share this with arrogance but rather with a sense of inevitability. Dawson shared two key points that, on the one hand, left everyone scratching their heads and on the other, laughing about their own experiences. In the first instance, he said there was an entirely new world headed our way. He said that there would be a new universe where people lived, worked, shared, and commented—where people’s attention would be drawn beyond anything we had seen before. He shared that one such firm, Facebook, was one to watch but that it could be them or others—or multiple others. Dawson also shared that, while it was important that brokerage firms should have young marketing and technology talent around them to interpret these new trends, it was just as important that someone with gray hair also be the loop—to keep an eye on the youngsters. I also recall that at a dinner with Rich and Channing with five brokerage CEOs, it was clear that while Rich and Channing felt strongly about what was coming, those of us with longtime ties to brokerage didn’t fully understand its implications. We’re starting to now.

THE AGE OF THE INTELLIGENT BROKERAGE AND AGENT

We had the opportunity this spring to hear about the plans of each of the largest national real estate organizations as to their current and future technology and data investments and plans. In some cases, we reviewed the presentation of what was already built and what will be coming. We’ve also looked into non-brokerage firms, such as with Zillow and Realtor.com, Lone Wolf and CoreLogic and the direction of their technology and data developments both from public statements, deployed services and personal interviews.

IMAGINE ANY QUESTIONS

A brokerage or agent could ask, and we are entering a time where the convergence of data and AI can search and find answers. These systems tend to get better and smarter the more they are in use.

OUR VIEW

Call it the age of the intelligent brokerage and the knowledgeable agent. As with Moneyball, how big data and the application of intelligence arising from the data, changed sports at all levels forever. Systems will combine not only listing and sales data, but community data into one platform—one aggregated site. This includes all closing and tax data; social media interaction, whether through actual social sites or through other internet searches—and not just about housing; real estate education sources, demographic data about households, spending patterns, and habits and how those relate to other data, such as equity in a home; other societal and demographic data, such as age of children, vacation plans etc., and hundreds of other data points; and information collected and from such devices as Siri, Alexa and Google Home. Now, apply artificial intelligence (AI), or learning systems that access all of this data to discern patterns of consumer behavior as to housing, mortgage nance, investment decisions, etc. Imagine the questions one might ask such a system and the answers it could derive.
  • Who are my best candidates for purchase or sale in the next 3-6-12 months? (An easy one)
  • What are the pricing patterns expect- ed in the next 12-24-36 months in the neighborhoods where my clients live?
  • Which agents on my roster are most likely to increase their business over the next 12 months based on what their database looks like, how they’re connected to those clients and customers (based on the frequency of interactions), and what the potential turnover looks like in that database? What does this mean for potential income for the agent and the firm?
  • Who are the agents who might fit best with my brokerage? What is the profile of new people taking the real estate test and getting a real estate license, and how do I focus on those who t best with my firm?
  • Based on the database of clients and customers, and the retention of data from internet searches, what does the next year look like for our agents and our firm?
  • What are the most effective ways to add to our databases of clients and the best ways to reach and stay in touch with them?
  • What messaging is most useful to reach sellers? Or buyers?
Imagine any questions a brokerage or agent could ask, and we are entering a time where the convergence of data and AI can search and find answers. These systems tend to get better and smarter the more they are in use. Is it three years, five years or more before this all becomes a reality?

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What's Impacting the Value of Your Firm?

by: Steve Murray

What's Impacting the Value of Your Firm?

Key factors to consider when evaluating the value of your brokerages.
REAL Trends performed between 200 and 250 formal valuations in the past year—about equal to the year before that, and 50 percent more than in years before that. While some of these are for the sale or purchase of a brokerage firm, just as often they may be for the purchase or sale of interests in a brokerage, divorce within families, life insurance, estate gifting, and other general purposes. We hear from brokerage leaders often on this topic and read other sources from time to time as to what factors, other than the actual financial results, are examined when doing a valuation.  Here we review and few of the more critical factors that affect the ultimate value of a brokerage firm, regardless of the reason for the valuation assignment.

Location

The valuation of residential brokerage firms (and related entities such as mortgage, title insurance, escrow, and property management) is often affected by the size of the market where the client is located. Larger markets generally bring higher valuation results. This is because there are likely more purchasers or investors both inside and outside of the market that would have an interest and because the upside opportunity to grow an acquired business is higher in a larger market than one that is smaller. Many acquirers are seeking to build a scalable firm, and that is far easier in larger markets. There are, of course, exceptions. A large, market share­ leading brokerage, in a smaller market, may be valued as high as a sizeable non-market share leading firm in a larger market. Again, location comes into play as that large market share leading firm in a small market still needs to have some proximity to a larger market to attain an equivalent valuation.

Corporate Structure

The vast majority of brokerage firms (and related entities) are some form of a pass-through legal entity such as a partnership, an LLC, or an S corporation. A brokerage firm with this kind of structure generally will see no adjustments, positive or negative, in their valuation. For those few that are organized as C corporations, the situation is different, and most of the time, it harms valuation. Why? Most buyers (in fact virtually all) desire to purchase the assets of a brokerage firm, and not it's stock. This is for both liability and tax reasons, and it has been the case for the past 25 years at least. However, a seller of assets in a C corporation generally faces ruinous double taxation on the proceeds from the sale of assets out of a C corporation as they first have to pay capital gains taxes on the internal gain, then pay personal taxes to extract monies from the C corporation as salary, bonus or dividends. Thus, purchasers do not want to buy shares in a brokerage, and sellers do not want to sell assets from a C corporation. The standoff results typically in the purchaser agreeing to purchase the shares of the seller (rather than the assets) but at a discount which leaves the purchaser no worse off from an after-tax point of view.

Compatible Cultures and Commission Plans

There is a multitude of types of residential brokerage firms today with far more diversity in commission plans and service delivery than in years past. This is neither good nor bad for the industry, but it does affect valuation. In the past, the largest brokerage firms would be generally considered traditional, full-service with some form of graduated commission plans.  The Gross Margins (Company Revenue) of these incumbents were usually within a specific range of each other. Competition generally kept a lid on a brokerage firm having a significantly higher Gross Margin than their chief competitors. Today, many large firms have entirely different types of plans, many are lower cost, with less infrastructure, less managerial overhead, lower levels of office space, etc. The number and size of these kinds of firms have grown substantially over the years in many different markets. The challenge for them is that there aren’t many in each market and the larger national and regional firms that are the major investors in residential brokerage firms can’t mix the plans they have in that market with such a firm. Nor are there yet large national firms with war chests to acquire such firms (although there are at least three we are aware of raising funds to do just that). A firm with a flat monthly and transaction fee plan, with a Gross Margin of 11 percent is not going to be compatible with an acquirer with a Gross Margin of 20 percent. Our experience is that such an acquirer, although desirous of the market share that the lower Gross Margin firm may have, will look elsewhere for growth given the incompatibility between the firms. Further, given the lack of capital (thus far) among the brokerage firms with lower Gross Margins, there is lower liquidity (and hence lower valuations) for these kinds of firms. As we comment, we do believe this is changing as several firms of this kind are raising capital to expand. Likewise, a brokerage firm that has a measurably higher Gross Margin than the investors or purchasers in a particular market may have the same problem as the lower-cost brokerages.  Where most of the purchasers in a given market have average Gross Margins of 20 percent and a seller is at 28 percent for example, the purchaser will be leery of trying to both pay for the higher Gross Margin firm and then figure out to how to keep it there when their other local operations are at 20 percent. Of course, this is not as much of a factor when the purchaser has no local operations. However, even in this case, purchasers are now wondering not only how the higher Gross Margin brokerage accomplished it, but how much longer it can be maintained in the market of 2019-2020. In addition to compensation plan factors, other cultural factors that come into play. These include the level of support service differences between two firms, the history of support for core services, branding (national branding or local brand name), office structure, per person productivity and other such factors.

The Importance of Leaders

Among the most important cultural factors is that of the continuation of the leadership of a potential seller. Our experience has shown that this is the single most crucial factor.  Most leading brokerage firms, regardless of type, location, or compensation plan, has a leader or leaders who built the company. Future success is highly predicated on the retention of these leaders. We won't belabor this point here, but the ultimate value of a brokerage firm is highly affected by the continuation of the leadership in some form.

Franchise Affiliation

This is among the most misunderstood factors of all the non-financial factors affecting the valuation of residential brokerage firms. Most franchise agreements restrict the ability of an affiliated firm from selling shares or a controlling interest to other parties without the permission of the franchiser. The history of the actions of franchisers is that they do not approve of such transfers or sales unless the franchised brokerage remains in the current franchise. This history goes back 35 plus years. This limits the number of purchasers for such a firm. Logic instructs us on this point.  A firm with five potential suitors versus one potential suitor is generally going to have a higher valuation. It’s true that the franchise itself has contributed to the increase in the value of a brokerage firm.  We are not arguing that point. It’s more likely true than not, otherwise, why would intelligent brokerage leaders agree to the franchise in the first place, absent some value they believed they were getting in the exchange? Our experience indicates that regardless of a franchise brand, the value of a franchised brokerage does increase in most but not all cases as the franchise agreement near its end. That’s because that franchised brokerage is approaching the point where they may access a far broader market for their firm than that within its franchise brand. Note that we say in most but not all cases because then the valuation has to take into account all of the other non-financial factors we list here together with the financial considerations.

The Housing Sales Market

On top of all these factors, there is the market place itself. The current market for most brokerage firms is certainly more bearish than the market two years ago at this time. When housing markets are stable to increasing, then values typically move upwards. When housing markets are headed down, as they have been doing since the first quarter of 2018, then brokerage valuations are going to either be flat or in decline.

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It's A New CFPB

by: Sue Johnson

It's A New CFPB

Public statements and actions by Director Kathy Kraninger shed some light on her approach to financial services regulation and enforcement.
The Senate confirmed Kathy Kraninger as Consumer Financial Protection Bureau (CFPB) Director in December 2018, following a year-long stint by Mick Mulvaney as Acting Director. Given her lack of a financial services background, no one was certain about the path Kraninger would follow when she assumed the helm. But her public statements and actions over the last few months have shed some light on her approach to financial services regulation and enforcement.

No More Rulemaking Through Enforcement

Former Director Richard Cordray's tenure was defined by the CFPB's failure to provide clear guidance as to what was expected to avoid legal action under federal consumer protection statutes such as RESPA. The most glaring examples of this policy were his administrative ruling against PHH, in which he ignored previous HUD guidelines to set new RESPA standards (which later was vacated by the D.C. Court of Appeals), and the CFPB's consent orders on marketing services agreements (MSAs) that created confusion throughout the industry by vaguely warning against the usage of MSAs without further guidance. Mulvaney signaled during his tenure that this era of "regulation by enforcement" at the CFPB was over, and Kraninger also appears to have adopted this policy. In an April 17 speech, she announced that the CFPB will no longer engage in rulemaking through enforcement and instead will use formal rulemaking that provides "clear rules of the road. Rules "are not best articulated on a case-by-case basis through enforcement actions," she said.

More Targeted Civil Investigative Demands

On April 23, the CFPB announced that its Civil Investigative Demands (CIDs) would provide more information about the potentially wrongful conduct under investigation. Under Cordray's tenure, CIDs had been worded in extremely broad terms, leaving the recipient with little information as to what specific conduct may have violated the law and inviting what some called fishing expeditions under which the Bureau would request a wide array of information and then change the scope of the investigation based on what it learned from the acquired materials.

A Revamped No-Action Letter Program

The CFPB's new Office of Innovation (created by Mulvaney) is overhauling the Bureau's 2016 No-Action Letter Program, which provides limited enforcement relief to companies that develop "consumer-friendly innovations" for "emerging products or services" when regulatory standards are uncertain. In a December 13, 2018, Proposed Rule, the CFPB noted that there has only been one No-Action Letter issued so far, indicating that the Program has not provided firms with sufficient relief to encourage applications. It requested public comment on ideas to improve and expand the Program, such as a streamlined application process, confidentiality safeguards, and agreements with state regulators for similar state relief. In the same proposal, it outlined a new Product Sandbox Program that would give companies additional regulatory relief when testing new financial products and services.

Possible TRID Clarifications in the Works

Kraninger has recognized publicly that additional changes may need to be made to the Truth in Lending Act-RESPA Integrated Disclosure (TRID) rule. In a January 14 response to a letter from Senator Hoeven (R-ND) expressing concern that the TRID rule does not allow title companies to disclose available discounts on mortgage disclosure forms, Kraninger replied that the CFPB intends to launch a mandatory five-year assessment of the TRID rule and will "carefully examine" the disclosure of title fees during that assessment. She informed Congressman Brad Sherman (D-CA) during an April House committee hearing that she has heard about needed clarifications to TRID from stakeholders and said that it "is something we are looking at."

Little Focus on MSAs and Affiliated Businesses…So Far

Kraninger has demonstrated less awareness of issues raised by Cordray's controversial interpretations of Section 8 of RESPA, although she has expressed a willingness to review concerns brought to her attention. She indicated that she was not aware of a 2015 RESPA bulletin that Congressman Sherman told her at an April committee hearing was "problematic" (presumably referring to the CFPB's vaguely-worded 2015 compliance bulletin on MSAs), but stated she "will go back and take a look at it." When Congressman Bill Huizenga (R-MI) asked if the CFPB will change the definition of "points and fees" in the Qualified Mortgage rule to correct the disparate treatment of affiliated title fees, she acknowledged that the CFPB has been asked to reconsider the "points and fees" definition and that she "has been talking with staff extensively about the issue." In April testimony before the Senate, Kraninger emphasized that she is committed to enforcement and will "take aggressive action against bad actors who break the rules by engaging in fraud and other illegal activity." But based on her recent remarks and actions, the industry also can expect more guidance and collaboration from the CFPB over her five-year term. Sue Johnson is the former executive director of RESPRO, the Real Estate Services Providers Council Inc. She retired in 2015 and is now a strategic alliance consultant.

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April Showings Are Sluggish

by: Guest Contributor

April Showings Are Sluggish

Market Sees Ninth Straight Month of Diminished Year-Over-Year Activity.

Key Points:

  • April saw a 6.5 percent year-over-year decrease in showing activity across the U.S. despite a drop in mortgage rates; the West Region, down 11.1 percent, again recorded the largest year-over-year decline of all four regions
  • For the seventh consecutive month, showing activity also fell in the South (-8.1 percent), the Midwest (-7.1 percent) and the Northeast (-3.8 percent)
Real estate agents throughout the U.S. may have to brace for a more sluggish market than anticipated based on last month’s decline in home showing activity, the ninth consecutive month of a nationwide year-over-year decrease according to the ShowingTime Showing Index®. Buyer traffic was down 6.5 percent across the U.S. compared to the same time last year. The diminished showing activity was felt in every region throughout the country, most notably in the West, where for the 13th consecutive month showings declined on a year over year basis.
“Showing activity stabilized and is holding steady, but it is still slightly off from the higher levels registered in 2018,” said ShowingTime Chief Analytics Officer Daniil Cherkasskiy. “The slowdown in showing traffic continues to be concentrated in the upper price quartiles across the U.S., with less expensive homes registering the same or slightly higher levels of showing traffic than at the same time last year.”
The ShowingTime Showing Index, the first of its kind in the residential real estate industry, is compiled using data from property showings scheduled across the country on listings using ShowingTime products and services, providing a benchmark to track buyer demand. ShowingTime facilitates more than four million showings each month. Released monthly, the Showing Index tracks the average number of appointments received on active listings during the month. Local MLS indices are also available for select markets and are distributed to MLS and association leadership.

To view the full report, visit: showingtime.com/index.

About ShowingTime ShowingTime is the residential real estate industry’s leading showing management and market stats technology provider, with more than 1.2 million active listings subscribed to its services. Its showing products and services simplify the appointment scheduling process for real estate professionals, buyers and sellers, resulting in more showings, more feedback and more efficient sales. Its MarketStats division provides interactive tools and easy-to-read market reports for MLSs, associations, brokers and other real estate companies, as well as a recruiting tool for brokers. ShowingTime products are used in more than 250 MLSs representing nearly one million real estate professionals across the U.S. and Canada. For more information, contact us at [email protected].

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The Life Of A Lead

by: Warren Dow

The Life Of A Lead

The best CRM is the one an agent uses. Building on existing relationships will keep your business thriving.
Affter a year in real estate operations, I’ve chosen to return to the ranks of real estate software. I hope to put my experience to use helping improve technological efficiencies and engagement across the industry. I continue to be drawn to organizations that focus on leveraging technology to enhance ongoing consumer-engagement. Why? Because many brokerages and real estate professionals focus more on lead generation than on lead engagement. The life of a lead can be for the life of your career, but we often focus too much on the shiny penny rather than the power of continually engaging our database—people who already know and like us or have worked with us in the past.

It’s Easier to Keep an Existing Relationship

NAR’s 2018 Profile of Home Buyers and Sellers outlined that 69 percent of sellers would definitely use their agent again, but only 24 percent do. Homebuyers: 74 percent would use the same agent, but, still, far fewer do. Where is the disconnect? A simple question with a simple conclusion: It is far easier and less expensive to keep an existing relationship than to build a new one.

The Most Important Tool

They say the best CRM is the one an agent uses. A CRM is designed to keep your contacts organized, but it’s also designed to help keep your communications, follow-ups, and tasks organized, as well. That’s why a quality CRM is arguably the essential tool in your marketing tool belt. However, all too often we pay to capture leads, engage them with a few manual emails, and then stop following up because we think they don’t want to work with us. Alternatively, we get the opportunity to help them with the biggest purchase of their life and give them a closing gift hoping that they’ll remember us years later during their next sale. Brokerages need to train their agents on how to leverage their technology infrastructure to develop and automate an effective follow-up cadence that generates repeat and referral business.

No Replacing Personal Contact

Technology can’t replace a personalized note from you, but it can help automate other valuable ways to stay in front of your customers. Drip marketing campaigns can nurture your leads before they’re ready to buy or sell, sending a series of emails with useful information based on where the lead is in the process. You can use the same drip marketing tools to send out coordinated and timely information post-transaction as well. Do you want to send a follow-up after your buyers have been in their new home one month? Three months? Send monthly market insights? Provide a complimentary comparative marketing analysis (CMA) on the purchase anniversary for customers each year? Absolutely! But as our database grows, all of these manual follow-ups start falling by the wayside. We need to use the technology at our fingertips to make sure we’re replicating our recipe for success and continuing to stay front and center with reduced manual intervention.

Services to Save Time

Third-party services can be beneficial in saving time and improving engagement as long as they’re branded to the brokerage and agent. There are a wide variety of options to share helpful content that reminds your past customers that you’re still here to help them when they’re ready for their next purchase or sale. Groups like MooveGuru send your leads free home-related, money-saving offers during the home buying/selling process and then continue to deliver branded offers related to home-ownership month after month. Service for Life generates and sends monthly or quarterly branded newsletters to your leads and past customers. One solution isn’t going to work for your complete database. I am an advocate of multi-channel marketing and engagement. By combining manual touch points with various automated ones, brokerages can keep their agents front and center with content that is timely and valuable both pre- and post-transaction. The life of a lead is continually evolving, and the content we send them at various points throughout the relationship must be timely and useful. It could be years before we help a past customer with their next purchase, so leveraging technology in the right way will help improve lead conversions, repeat business, and most of all, it will help save your agents a lot of time!  Warren Dow is the VP of Business Development at Peabody & Smith Realty based in New Hampshire. Warren has over a decade of leadership experience in real estate software and services. With a degree in behavioral neuroscience and a back-ground in technology, consumer engagement, and marketing strategy, Warren offers a unique perspective in brokerage efficiencies with a client-first mentality.

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Australia And New Zealand

by: Peter Gilmour

2019 Residential Real Estate Market Update

Australia And New Zealand

What’s happening in these very different real estate markets?
With house prices falling significantly in the major cities in Australia, the inevitable question is “will the downturn spread to New Zealand in 2019?” The two real estate markets are different, so we need to examine the fundamentals to predict what is likely to happen in each country.

Australia

In Australia, population growth is strong and supports demand for real estate. On the supply side, the number of new homes built this year in Australia is expected to drop, which will lead to demand not being met by new construction. This will lead to a shortage of homes for sale and upward pressure on real estate prices. In contrast, there is a growing oversupply of apartments in the upmarket cities of Sydney and Melbourne, which have seen prices drop sharply over the last 18 months. The year-over-year median price decline in Sydney is close to 6 percent and in Melbourne around 2 percent. Unemployment in Australia is declining, and this is expected to support the stabilization of the market and negate any prospect of a crash. Interest rates are always a critical factor in the real estate market, and as the Australian economy shows signs of softening, historically low interest rates will provide support for property prices.

New Zealand

In New Zealand, banks have been offering several competitive fixed-rate deals. About 80 percent of mortgage debt in New Zealand is on fixed rates, which allows them to structure their finances ahead of any future increase in rates. This is unlike Australia where fluctuating rates dominate. Cities of Brisbane, Canberra, and the Gold Coast are showing reasonable growth in prices as Sydney investors look elsewhere for better returns. Sydney and Melbourne’s markets are still expected to weaken further in 2019 with tightening lending criteria and the abolition of negative gearing on resale properties should the government change in the Federal Elections to be held in May 2019. Negative gearing is an Australian tradition and investors hope to secure negative gearing arrangements ahead of the election as all existing negative gearing arrangements at the time of the election will not be affected.

Property Prices

According to the CoreLogic House Price Index, property values in New Zealand have grown over the last year by 3 percent. Values in Auckland, the major city, have dropped due to high property values, and sellers have to adjust prices downward to get a sale. A key topic is The New Zealand Tax Working Group’s report which recommends the introduction of a more competitive Capital Gains Tax for residential investment property. Investors are waiting for the Government to respond to the recommendations. The New Zealand market; however, looks strong with significant value declines less likely. Australia’s GDP has eased slightly in 2019 but is still one of the highest of the international economies at 2.8 percent forecast for 2019. The country has not been in recession for 28 years, and the indicators are that this will continue for another two years at least.

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A Shrinking FHA Footprint In 2019?

by: Sue Johnson

A Shrinking FHA Footprint In 2019?

An update to the TOTAL Mortgage Scorecard may foreshadow additional Federal Housing Administration (FHA) restrictions over the coming years.
The Federal Housing Administration (FHA) announced on March 14 that it’s updating its TOTAL Mortgage Scorecard to redefine which loans need to be manually underwritten. While the impact of this change will be felt most by borrowers with low credit scores and high debt-to-income (DTI) ratios, it also may foreshadow more FHA restrictions over the coming year as the agency strives to mitigate risks in its single-family portfolio.

The TOTAL Mortgage Scorecard

The TOTAL (Technology Open To Approved Lenders) Mortgage Score-card is an algorithm accessed through an automated underwriting system that evaluates borrower credit history and application information. Lenders are required to score potential FHA loans through TOTAL, except for streamline refinances, Home Equity Conversion Mortgages, Title I mortgages, and loans involving borrowers without credit scores. TOTAL recommends a decision of “Accept” or “Refer” for each application. “Accept” means the FHA will insure the borrower’s loan with reduced documentation and without a manual underwriting review, and “Refer” means the loan must be underwritten by a Direct Endorsement (DE) underwriter using FHA guidelines.

What the New FHA Guidelines Do

FHA now advises that, for loans with case numbers assigned on or after March 28, 2019, borrowers with credit scores of under 620 and DTIs of over 43 percent may receive results from TOTAL indicating that the loan must be manually underwritten. This is a reversal of its 2016 decision to remove similar requirements it had imposed in 2013. Since the FHA did not identify precise loan characteristics other than low credit scores and high DTI ratios that may trigger manual underwriting, questions remain as to what other factors or combinations of factors will create a manual underwriting referral.

The Potential Impact

Overall, the percentage of loans flagged for manual underwriting is expected to be relatively small. An FHA official reportedly told The Wall Street Journal that approximately 40,000 to 50,000 loans a year likely will be affected by the manual underwriting trigger, which amounts to 4 to 5 percent of all the mortgages the FHA insures on an annual basis. But mortgage industry observers say it’s likely that many of the loans targeted for manual underwriting will end up being disqualified, since DE underwriters may be cautious about approving marginal loans that could affect their endorsement authority—even if there are compensating factors that could improve a borrower’s chance of qualifying.

The Reasons Why

The FHA took this step because it has insured an increasing number of loans in recent years with high-risk credit characteristics that it believes could lead to higher default rates and more insurance claims. This could eventually drain the Mutual Mortgage Insurance Fund. The agency highlighted the following risk factors in its Annual Report to Congress released in November 2018:
  • Increased Cash-Out Refinances: FHA cash-out refinances increased by about 60 percent in 2018, compared to total refinances.
  • Higher Debt-to-Income (DTI) Ratios: During the fiscal year 2018, 25 percent of all FHA forward mortgage purchase transactions had DTI ratios above 50 percent, the highest percentage since 2000. The average borrower DTI ratio continued to increase for the sixth straight year and was 43.09 percent for the fiscal year 2018.
  • Lower Credit Scores: Borrower credit scores dropped to an average of 670 in 2018, the lowest average since 2008. First Quarter 2019 statistics show that they are continuing to decline, with 28 percent of all FHA loans having credit scores under 640 and 13 percent having credit scores under 620.

Is There More to Come?

The FHA has cautioned that this TOTAL Mortgage Scorecard modification is just the first step it will be taking to address the higher risk factors in its loan pool. President Trump’s Housing Policy Reform Plan announced on March 27, identifies two FHA programs involving higher credit risks that will be assessed in 2019. The Plan instructs the FHA to “address the financial viability of it’s Home Equity Conversion Mortgage (HECM) program,” which had a negative economic net worth of over billion in the last fiscal year. It also directs the FHA to assess “the risks and benefits associated with providing assistance to first-time homebuyers, including down payment assistance.” The share of FHA mortgages with some form of down payment assistance increased to 38.79 percent in the fiscal year 2018 and exhibit higher delinquency and default rates, according to FHA’s 2018 Annual Report. The bottom line is that buyers, sellers, and real estate professionals could find that loans involving borrowers with lower credit scores and higher DTIs that once made it through the TOTAL system now may be delayed or rejected. There may be more FHA announcements in 2019 that could further shrink the FHA footprint. Sue Johnson is the former executive director of RESPRO, the Real Estate Services Providers Council Inc. She retired in 2015 and is now a strategic alliance consultant.

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Gen Xers' Adult Children Influence Their Buying Decisions

by: Guest Contributor

Gen Xers' Adult Children Influence Their Buying Decisions

One in six Gen Xers purchased a multi-generational home, overtaking younger boomers as the generation most likely to do so; with 52 percent of those Gen X buyers indicating that they did so because their adult children have either moved back or never left home. 
A National Association of Realtors’® 2019 Home Buyer and Seller Generational Trends study, which evaluates the generational differences1 of recent homebuyers and sellers, found that older millennials who bought a multi-generational home, at 9 percent, were most likely to do so in order to take care of aging parents (33 percent), or to spend more time with those parents (30 percent). “The high cost of rent and lack of affordable housing inventory is sending adult children back to their parents’ homes either out of necessity or an attempt to save money,” says Lawrence Yun, NAR chief economist. “While these multi-generational homes may not be what a majority of Americans expect out of homeownership, this method allows younger potential buyers the opportunity to gain their financial footing and transition into homeownership. Younger millennials are the most likely to move directly out of their parents’ homes into homeownership, circumventing renting altogether.”

Millennials

Millennials as a whole accounted for 37 percent of all buyers, making them the most active generation of buyers for the sixth consecutive year. 2019 is the first year the report separated younger and older millennials, accounting for 11 and 26 percent of buyers respectively. This separation was deemed necessary as younger millennials now account for a larger buying share than the silent generation (7 percent). Gen X buyers were the second largest group of buyers (24 percent), followed by younger boomers (18 percent) and older boomers (14 percent). Dividing millennials into younger and older cohorts highlights the disparities between the two age groups and paints a picture of older millennials that is much closer to Gen Xers and younger boomers. Older millennials have a median household income of 1,200 and purchase homes with a median price of 4,000, comparable to Gen Xers (1,100 income, 7,800 median home price) and younger boomers (2,300, 1,100 respectively). Yun says this is to be expected as millennials continue to age and advance through various stages of their lives and careers. “Older millennials are now entering the prime earning stages of their careers, and the size and costs of homes they buy reflect this. Their choices are falling more in line with their Gen X and boomer counterparts.” Younger millennials, meanwhile, are purchasing the least expensive homes and smallest homes (7,000 and 1,600 square feet), meaning they face the greatest challenge in finding affordable inventory. They also report a median household income of ,200. Downsizing to a smaller home is not currently common among any of the generations. Sellers over the age of 54 only downsize by a median of 100 to 200 square feet. A lack of smaller inventory could have hindered Gen Xers and boomers who may have been interested in downsizing or may have been impeded by the increase in multi-generational living these generations are reporting to accommodate the needs of adult children and aging parents. Student loan debt remains a barrier to homeownership. Older millennials and Gen Xers carry the most substantial amount of student loan debt, with a median amount of ,000. Younger millennials rank second with a median amount of ,000. However, younger millennials are the most likely to have student loan debt, with 47 percent indicating that they carry some amount of student loan debt, while only 42 percent of older millennials and 27 percent of Gen Xers report student loan debt. Younger and older boomers also say carrying student loan debt but a lower amount, 10 and 4 percent respectively.

Difficult Tasks

Younger millennials were the most likely to say saving for a down payment was the most challenging task in the home process, 26 percent. Among them, student loan debt delayed their home purchase (61 percent); however, they indicated that this particular debt only delayed them a median of two years—the shortest delay of all generations. “These buyers are the most likely to receive some or all of their down payment as a gift from family or friends, usually their parents,” says Yun. “This could explain why their debt is not holding them back from homeownership as long as other generations, who are less likely to receive down payment assistance.”

Homebuyer household compositions shift from married couples

While the majority of buyers in all age groups are married couples, single buyers and unmarried couples continue to make a mark on the real estate market. Single females accounted for 25 percent of all younger boomers and silent generation buyers. “Many of these buyers are entering the market after a divorce, which is the case for younger boomers, or the death of a spouse in the case of those in the silent generation,” says Yun. While only 8 percent of buyers as a whole were unmarried couples, they accounted for 20 percent of all younger millennial homebuyers, compared to 13 percent for older millennials, 8 percent for Gen Xers, 4 percent for both younger and older boomers and 3 percent for the silent generation.

Working with a Real Estate Agent

A majority of buyers and sellers work with a real estate agent, regardless of age. Buyers and sellers across all age groups continue to seek the assistance of a real estate agent when buying and selling a home. At 92 percent, younger millennials were the most likely to purchase a home through a real estate agent. “Help to understand the buying process” was cited as the top benefit younger millennials said their agent provided (87 percent). Across all generations, 87 percent of all buyers purchased their home through a real estate agent. Gen Xers were the largest group of sellers, accounting for one-quarter of all sellers. They were also most likely to have wanted to sell earlier but could not because their home was worth less than their mortgage; 15 percent reported they were in this situation. Ninety-two percent of all sellers used an agent during their home selling process, with older millennials and Gen Xers most likely to have used a full-service agent who offered a broad range of services and managed most aspects of the sale. “Consumers of all ages understand that working with a Realtor® is the advantage they need to compete in this fast-moving, constantly evolving real estate market,” said NAR President John Smaby, a second-generation Realtor® from Edina, Minnesota, and broker at Edina Realty. “Buying a home is an exciting, complicated and sometimes daunting process, and Realtors® have the knowledge and expertise to guide buyers and sellers through this experience.” NAR mailed a 129-question survey in July 2018 using a random sample weighted to be representative of sales on a geographic basis to 155,250 recent homebuyers. Respondents had the option to fill out the survey via hard copy or online; the online survey was available in English and Spanish. A total of 7,191 responses were received from primary residence buyers. After accounting for undeliverable questionnaires, the survey had an adjusted response rate of 5.6 percent. The sample at the 95 percent confidence level has a confidence interval of plus-or-minus 1.10 percent. The recent homebuyers had to have purchased a home between July 2017 and June 2018. All information is characteristic of the 12 months ending in June 2018 except income data, which are for 2017. Source: “2019 Home Buyers and Sellers Generational Trends Report,” National Association of REALTORS® 1Survey generational breakdowns: Younger millennials (ages 21-28); Older millennials (ages 29-38); Gen Xers (ages 39-53); Younger boomers (ages 54-63); Older boomers (ages 64-72); and the silent generation (ages 73-93).

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U.S. Median Listing Price Hits 0,000

by: Guest Contributor

U.S. Median Listing Price Hits $ 300,000

Based on homes advertised on realtor.com’s website, the U.S. median home listing price crossed into uncharted territory in March, increasing 7 percent year-over-year and hitting $ 300,000 for the first time.
The typical U.S. home list price has set a new high right on the cusp of the spring homebuying season, and despite a slowing growth rate, home prices will likely continue to set new records later this year,” says Danielle Hale, realtor.com’s chief economist. “Heading into spring, U.S. prices are expected to continue to rise, and inventory is expected to continue to increase, but at a slower pace than we’ve seen the last few months as fewer sellers want to contend with this year’s more challenging conditions.” Part of the reason for the higher median asking price may be related to fewer listings for home prices at $ 200,000 or less. Although housing inventory continues to increase nationally, the pace of that rise continues to slow as fewer new listings hit the market. Homes priced $ 200,000 or below decreased 9 percent year-over-year. However, that situation might be true everywhere. “A buyer’s experience will vary notably depending on the market and price point they’re targeting,” Hale says. The U.S. housing market has seen years of increasing home prices and surpassed 2018’s summer high of $ 299,000 as the spring home-buying season launches. The continued, albeit slowing, rise in the national median home price amid a market slowdown is likely driven by inventory growth in the high-end of the market. According to realtor.com’s analysis, the inventory of for-sale homes priced above $ 750,000 increased 11 percent year-over-year, even as the number of entry-level homes priced $ 200,000 or below declined. Housing inventory continued to increase in March, but the rate of growth slowed compared to the last few months, and this slower-price-growth trend could continue into April, especially if fewer new listings hit the market, according to Hale. Approximately 56,000 additional homes were for sale in March compared to last year, amounting to a 4 percent increase year-over-year. The growth was primarily driven by the U.S.’s 50 largest markets, which grew by a more substantial 9 percent on average year-over-year. However, the number of newly listed properties hitting the market declined by 0.4 percent from last year, suggesting that while buyers may have more options to choose from, the share of new properties coming up for sale has not increased. Of the U.S.’s 50 largest metros, those that saw the most significant inventory decreases were St. Louis, Washington, D.C., and Oklahoma City, where inventory declined by 19 percent, 14 percent, and 11 percent, respectively. Metros, where inventory continued to increase, were primarily pricey, West Coast markets. San Jose, Calif. topped the list; followed by Seattle, and San Francisco, growing by 114 percent, 77 percent, and 44 percent, respectively. Nationally, homes in the U.S. sold in an average of 65 days in March, two days slower than a year ago. Kansas City, Mo.; Hartford, Conn.; and Indianapolis, saw the largest increases in days on the market with properties spending an average of 16, 12 and 12 more days on the market year-over-year, respectively. On the flip-side, properties in Pittsburgh, Birmingham, Ala., and Oklahoma City sold an average of 10, eight and five days more quickly, respectively.

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Driving to The Net

by: Guest Contributor

Driving to The Net

If agents are responsible for tending to their leads and databases to eventually sell these contacts a home; what are brokers responsible for?
wanted to take you back to 2012. There was a story that came out that Target knew that a young woman was pregnant before her father did. That was the precursor to today where algorithmic behavior is fueled by digital advertising: track and market. Those of us in real estate are following these developments with keen interest. Every few years, there are these massive dustups where the holy grail becomes visible and seemingly just days away—knowing when someone might buy or sell a home, get to them before anyone else and get the deal. Of course, we have emerging trends and modern plays like iBuyers, virtual brokerages, and coders galore working hard to figure it all out. Along the way, these smart people may teach consumers new behaviors. We have to be ready for it. Agents are encouraged to use social media, target market and be a personal brand. The list of what we encourage them to do grows almost every day, but it’s almost always geared to helping them grow their sphere of influence. We want them to cast their net wider and create as many personal connections as possible. Each new person they meet gets tossed into their net. The hope is that the net never breaks, and the agent can continually connect with all inside working to turn them into leads or referrals. If constantly carrying and caring for the net is the agent’s role, where does the brokerage’s marketing efforts come in? There are a few critical areas.

Brand Building

The first is to raise awareness of the brokerage, getting its logo seen, establishing the company’s agents and brokers as the local experts, participating in community activities, and reaching the masses at the top of the marketing funnel. This effort includes lead generation. The agents feel good knowing the company is behind their efforts. The brand awareness—whether through digital and social campaigns, billboards, radio, TV, cause marketing, etc.—gives the salesforce added credibility and confidence to push open new doors of opportunity. With a consistent approach, this brand building will have a long-tail impact as the consumer becomes more comfortable with the company. The company builds trust allowing potential buyers and sellers to associate the agents with that positive source. If brokers are involved in this type of work to support the agents, (which all should be doing), there is often a critical piece that is left out. Everything the brokerage does to reach consumers should also have mechanisms for the agents to piggyback on and take advantage of the program. Most agents won’t interpret what to do. You have to tell them.

Communication Tools

Helping get people into the agents’ nets should be followed by a strong effort to help them communicate with those they’ve captured. In today’s world, that means content marketing, social media, email campaigns, market updates, home value estimators and a wide variety of other tools, including listing collateral, that can be shared on an ongoing basis. Finally, it’s critical for the brokerage to offer strong listing marketing support. Whether using an in-house creative team or an automated approach, providing the agents with a high quality and consistent look is extremely valuable. This includes photography and video. Nielsen says that the average person consumes 11 hours of media a day. If that’s the case, our materials better look great, or they’ll never get noticed. And, if they don’t get noticed, not only will the property not attract buyers, but we’ll lose the opportunity to use it to reach those already in the net or attract new people.  David Siroty has spent 30-plus years in marketing and communications, the last 15 in real estate. He launched Imagine Productions, a marketing and communications consultancy focused on assisting real estate brokerages, in December 2016 after 13 years leading global communications for Coldwell Banker. He can be reached at [email protected]

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It's All About The Manager

by: Larry Kendall

QUALITY MATTERS

It's All About The Manager

A great manager is what it takes for companies to be productive.
Five years ago, the Gallup organization embarked on one of the most ambitious deep dives it has ever conducted—an analysis of the future of work based on a decade of input from nearly two million employees and more than 300,000 business units. The results confirmed something Gallup had seen before: It’s the manager. A company’s productivity depends, to a high degree, on the quality of its managers. What was unusual was the sheer size of the correlation—something Gallup calls “the single most profound, distinct, and clarifying finding” in our 80-year history of research! Their study showed that managers didn’t just influence the results; they explained a full 70 percent of the variance. In other words, if you want to build a great team, 70 percent of the battle is hiring the right manager. Here’s a thought for our industry: Rather than recruiting top producers, how about putting your energy into recruiting the top managers as well? Or are you developing them? Do you have a career development program for your managers? The manager is the difference that makes the difference. No other single factor even comes close according to Jim Clifton, Gallup’s CEO. “That blew me out of my chair when I saw it,” he says. The study’s conclusions are laid out in Gallup’s forthcoming book, It’s the Manager. It is recommended reading for any owner or CEO of a company.

Measuring Engagement

One of Gallup’s favorite metrics for rating business teams is engagement or a belief among employees that they’re doing meaningful work in a climate that supports personal growth. Gallup and others have shown that highly engaged teams have significantly lower turnover and higher productivity, among other things. Only one-third of employees in the U.S. are highly involved, Gallup found, but in successful businesses that figure runs north of 68 percent. And what was the single most significant factor in engagement? It’s the manager. Gallup advises companies to seek out managers who engage and infect their teams with a sense of purpose and function more like coaches than conventional top-down bosses. When we hold Ninja Selling workshops at a company, we notice the company owners who are there for the classes (engaged) and require their managers to be there (engaged) have much more productive companies. They are committed, connected, and engaged with their people and their people feel that level of commitment and purpose. Their productivity is not an accident. It starts with engagement at the top.

Improving Productivity

What specifically can a manager do to improve engagement, productivity, profitability, retention, and customer satisfaction? An earlier Gallup study found the great managers in these areas rated 5’s on 12 questions asked of their employees. Poor performing managers rated 3’s or less. Can it be that simple? According to Gallup—yes! Here are a dozen key questions (On a scale of 1 to 5 with 5 (Strongly Agree) and 1 (Strongly Disagree):
  1. Do I know what is expected of me at work?
  2. Do I have the materials and equipment I need to do my work right?
  3. At work, do I have the opportunity to do what I do best every day?
  4. In the last seven days, have I received recognition or praise for doing good work?
  5. Does my supervisor, or someone at work, seem to care about me as a person?
  6. Is there someone at work who encourages my development?
  7. At work, do my opinions seem to count?
  8. Does the mission/purpose of my company make me feel my job is important?
  9. Are my co-workers committed to doing quality work?
  10. Do I have a best friend at work?
  11. In the last six months, has someone at work talked to me about my progress?
  12. This last year, have I had opportunities at work to learn and grow?
Companies that administer this 12-question survey every year to both their sales associates and staff have found, just as in the Gallup study, there is a direct correlation between the manager’s rating and the performance of their office. The 12 questions help their managers get clear on what is essential and how to get results. The survey can also be used in the manager’s performance evaluation. Can great management be as simple as engagement in these 12 areas? Gallup believes the answer is yes. For more information, read their book on this study, First, Break All the Rules, What the World’s Greatest Managers Do Differently, by Marcus Buckingham and Curt Coffman. Then, read Gallup’s latest research in their new book, It’s the Manager. It will be worth your investment. After all, it’s the manager who is the difference that makes the difference.

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The Numbers Tell A Story

by: Scott Wright

REAL TRENDS 500 OBSERVATIONS

The Numbers Tell A Story

The newly released brokerage rankings offer insight and valuable information about the real estate industry. We break it down.
Each year, for the past 31 years, brokers, agents, analysts, and investors have highly anticipated the release of REAL Trends’ acclaimed brokerage rankings. Without fail, this report unveils a plethora of valuable information and insights into the residential real estate industry, and this year it didn’t disappoint. The 2019 REAL Trends 500 was high-lighted by a changing of the guard at the top, two major national firms exhibiting triple-digit, year-over-year growth, and a record number of qualifiers. Below are some observations as we continue to digest the data: With a record 346,629 closed transaction sides in calendar 2018, HomeServices of America wrested the No. 1 spot from stalwart NRT LLC, ending NRT’s 20+ year reign as the nation’s largest residential real estate brokerage firm.
  • A record 1,757 firms qualified for this year’s rankings by closing a minimum of 500 transaction sides.
  • It took 1,992 transactions to be included in the REAL Trends 500, up from 1,899 the previous year.
  • The average sales price for the firms in the 500 grew to 1,385, up from 2,702.
  • A whopping 297 firms closed over billion in residential real estate in 2018, up 8.4 percent from 2017!
  • The top 500 firms closed nearly 3.3 million transactions in 2018, up 2.7 percent from the year before. With national existing home sales down by up to 4 percent last year, the REAL Trends 500 once again gained market share.
  • The cumulative transactions closed by the 500 represented approximately one-third of all new and resale trans- actions completed by brokerages during 2018, yet these firms represented only about .05 percent of all brokerages in the nation.
  • On the heels of its huge acquisitions of Pacific Union and Paragon, Compass jumped to No. 3 in volume and No. 6 in sides.
  • eXp Realty continued to climb the ranks, with staggering year-over-year increases in sides and volume of 198 percent and 231 percent respectively. eXp now ranks No. 4 in sides and No. 5 in volume.
  • More RE/MAX affiliates qualified for the brokerage rankings (500+ sides) than any other national franchise.
  • More Keller Williams affiliates qualified for the REAL Trends 500 (1,992+ sides) than any other national franchise.
  • In 2018, nationally franchised firms accounted for 76 percent of the REAL Trends 500, with the independents filling out the balance.
  • Independent flat/monthly fee firms made huge strides, with the top five seeing average year-over-year growth in transactions of 19 percent.
  • Given a tumultuous 2018, as expected, several firms experienced a decline in production. A whopping 830 brokerages closed fewer sides than the year before, which outnumbered those firms that grew among the returning applicants.
  • California once again led the nation in the number of firms that resided in the 500, with Texas and Florida tying for second.
  • Agent productivity declined from 8 sides per agent in 2017 to 7.4 in 2018.
Overall, 2018 was another exciting year in the residential real estate industry, and these observations are just a glimpse of what you can find in the full report. Visit https://www.realtrends.com/rankings/rt500/ today to view and download the REAL Trends 500.

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What's On Their Minds?

by: Steve Murray

TALKS WITH REALOGY LEADERS

What's On Their Minds?

We picked the brains of real estate leaders to find out where they see opportunities in the coming year.
During the last few months, we had the chance to visit and observe the national conferences for all major brands. While we were there, we had the opportunity to personally visit with a few of the leaders of these companies. Here are some thoughts about what they’re thinking about their companies and our industry. Michael Miedler, President and CEO, CENTURY 21 It’s clear that Miedler, who has a significant background with Century 21 and Realogy, has his sights set on the fundamentals of working side by side with his affiliates to grow their businesses as a means of increasing his business. He commented that, despite the challenges from new models (many of them less expensive than many of his affiliates for his agents), he thinks Century 21 still offers excellent value. While he believes that technology is essential to the future of Century 21, we got the sense that he also believes that creating strong, enduring relation-ships with the affiliates will be just as important in his future growth plan. Charlie Young, President and CEO, Coldwell Banker Young, who is leading a complete rebranding of this venerable brand (now over 110 years old), shared that among the challenges Coldwell Banker faces is not recruiting great talent, but engaging with them in a way that is meaningful and long-lasting. In a refreshing and fun way, he includes the term awesomeness among the cultural attributes of this new, forward-leaning global network. While he and his peers have more than a few challenges in their businesses (who doesn’t?), he also believes that building a powerful, enduring culture is going to be vital to maintaining the company’s position in the market of the future. Our Thoughts We will be reporting more on what national branded organizations think in future editions. What’s interesting is that while virtually every conference had a strong emphasis on technology and the drive to build robust data and artificial intelligence capabilities, in private conversations with agents, teams and local leaders, they talk about the need to re-engage with the agents and staff of their companies. We do believe that the four most significant real estate brand organizations will successfully build out their tech platforms, and it could be that the trend towards consolidation among them (and a few others) will accelerate as a result of these investments in tech. We know that the REAL Trends 500, released at the end of March, showed that the 500 largest firms had gained market share each year for the past five years in a row. Many of them are affiliated with one of the four largest brand organizations. It stands to reason that there’s a potential for these new platforms to help recruit and engage agents more so in the future.

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Stories of Leadership

by: Steve Murray

Stories Of Leadership

After traveling around the country to many of the network events and real estate conferences, Steve Murray documents the leadership lessons learned.
There were some great speakers at the various real estate network and industry events. Here’s a roundup of the best. Alison Levine: Explorer, leadership coach and teacher Takeaways: Leadership is everyone’s responsibility. It’s not solely the responsibility of the C-level executives or the management team. It’s not just the job of coaches or team owners. Everyone in an organization is responsible. It’s also everyone’s responsibility to look out for the people on either side of them and help them move forward. Marcus Lemonis: Actor, “The Profit” Takeaways: The most critical weakness in many businesses is the lack of relationships between the owners and employees of an organization. There’s also a lack of clarity and understand-ing about the goals and objectives and the mission of the organization. Further, without opening one’s self to the others, a leader may never develop the trust necessary to gain the loyalty and support from their organization that is possible. Nick Vujicic: Motivational speaker Takeaways: Born without arms or legs. Nick has built an amazing personal and professional life. What did he offer at his presentation? Understand and accept that life has challenges and that you define your ability—not others. He says to dream big dreams, take action, use your head, have faith and remember you always have a choice. Does anyone see a pattern here? These individuals, who have accomplished enormous successes against tremendous odds, all talk about personal relationships, the power of forging ahead and of remembering that you’re not alone. Whether it’s faith in the people of your company, belief in a higher being or faith in your capabilities, there are nothing but opportunities ahead. As all three pointed out, it is not without challenges. For every two steps forward, there may well be one step back. I believe that those of us who cover the industry, research, write about it, offer opinions, consult and teach, only do so from the sidelines. In the end, it’s about the leaders of brokerage firms throughout the industry to forge ahead in the best way they know how. I offer this commentary from one of the most adventurous American presidents.

The Man In the Arena

President Theodore Roosevelt

“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of the deed could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes up short again and again; who spends himself in a worthy cause; who knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.”

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Today's Threats & Opportunities

by: Steve Murray

Industry Assessment

Today’s Threats & Opportunities

What can you learn from today’s threats? What are the opportunities brokerages should be seeking?
Real estate has long been an industry filled with new business models, lawsuits and emerging technology. It’s also an industry that offers unmatched opportunity. Here’s an outline of some of the threats and opportunities brokerage leaders are facing today. Plus, I’ll discuss some ways to thrive in 2019 and beyond.

Industry Threats

Here are a few of the threats we see today:
  • A national lawsuit is alleging anti-trust restraint of trade by several prominent law firms in the structure of the cooperative payment of commission dollars to buyer’s agents.
  • California Supreme Court defines independent contractor arrangements in such a way as to make the real estate independent contractor structure untenable.
  • iBuyer firms to take meaningful share of brokerage transactions within a few years.
  • Technology platforms to dominate the industry within a few years, whether from national franchise firms or alternative brokerage firms such as Zillow and Redfin. Those without are projected to be at a competitive disadvantage.
  • Household formations will continue to run ahead of home construction as we are entering a period of continuous scarcity of inventory.
  • The scarcity of inventory will cause prices to continually rise ahead of household incomes, causing affordability to be under pressure in many markets where most of the new jobs are locating.
  • The continued increase in Realtor® membership against a backdrop of low inventory continues to drive commission rates downward.
  • The entry and growth of low-cost brokerage models drives gross margins to new lows in many metro areas.
  • The growth of the number and size of teams adds to this pressure.
That summarizes most of the significant threats that we hear about today. Some of these challenges have been faced in the past in different ways and with different players. Now for the opportunities.

Industry Opportunities

In every new iteration of our industry, there are bright spots. Here are a few:
  • The use of agents by consumers hit an 18-year high in 2018 at 90 percent. Even millennials used agents to buy and sell at a 92 percent level (Harris Insights/REAL Trends 2018).
  • Nearly two-thirds of all consumers still found and chose an agent because of a relationship of some kind.
  • Millennials and Gen Z have the same appetite for homeownership as all previous generations, and they will become the largest, most prosperous and most educated generations in American history.
  • Gross commission incomes came in at just over billion in 2018. The average commission rate remained above 5 percent during the year. Total commission revenues were flat in 2017 even though unit sales were down.
  • For the first time in nearly 40 years, private investors are investing in brokerage. All past purchasers were involved in building their brokerage firms—trying for scale. Investors today think there are new and creative ways to build brokerage firms and take advantage of the proven cross-marketing activities of related core services.
  • Technology is driving fewer agents to do more of the business. For the top 10 percent of agents and teams, productivity is rising. The real promise of technology to equip agents and brokerage firms so they all benefit from increased productivity has not been fully developed yet but it will be.

What Can Be Done?

There is nothing the typical brokerage firm, agent or team can do about the litigation mentioned above, nor was there anything they could have done with similar legal actions in the past – except support your Realtor® organi-zations and national real estate firms’ efforts to get them resolved. There is nothing the typical brokerage firm can do to affect housing supply, affordability, and household form-ations. They are beyond your reach. Brokerage firms can’t likely match the capital of the iBuyer firms, but, in some cases, they can either have their modest programs, point out the weaknesses in their approaches to buying homes, and work with those who want to work with you. Some market economists believe that—at most—these firms may achieve 10 to  15 percent market share in the next five to 10 years. Understand that the growth of the low-cost brokerage models will reduce the number of agents and teams who will see the traditional, full-service model firms as an attractive alternative. That doesn’t mean every agent thinks that the financial relationship between the agent and the brokerage is the only issue—or even the most critical issue—affecting their choice of firm. It does not mean the end of traditional brokerage. It implies that brokerage must reconfigure their offerings, not play the game on the low-cost model’s turf.

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The 500 Top Brokerage Ranking Report: Accuracy and Relevancy in Brokerage Rankings

by: Steve Murray

The 500 Top Brokerage Ranking Report: Accuracy and Relevancy in Brokerage Rankings

Competition is fierce among those ranking brokerage firms. But, ethics, accuracy, and verification are what matter most.

On March 27, REAL Trends proudly released its annual REAL Trends 500 and Up-and-Comers report which ranks the top residential brokerage firms in the country. This study—now in its 31st year—is the standard by which all other rankings are measured. That’s because firms have the option to willingly submit their numbers and third-party verification. That is the standard set by REAL Trends that sets our report apart from others. The 500 Recently, another firm released its own brokerage rankings. That makes them the third firm to do so. They claim that their report is “the most comprehensive, accurate brokerage” rankings. Their press release also says, “Without the best data available, assumptions and decisions are flawed before they’re even made.” Further, the release says, “We are determined to include all of the nation’s largest companies, whether they participate or not.” Their claims fail in a number of ways. First, located in their footnotes, they admit that they made up the numbers for four of the top 15 firms in the country. Not only are these numbers wrong; they are wildly wrong. Second, they are still missing many firms that belong on the list. These are firms that REAL Trends is aware of; however, we don’t publish their data because they did not choose to have their data released. We respect that decision.

WHAT’S IMPORTANT

The problem with their claims is that they fail to understand the respect a company must have with its clients. The authors of this other report have told brokerage firms that if they don’t submit their data, then the authors of the third-place ranking report will make up the numbers. They will put in whatever they think are the right numbers. REAL Trends has corroborated this information from several sources. Rather than respect the privacy of brokerage firms that chose not to participate, this company tries to force them to do so. Now, let’s talk about third-party verification—the reason that REAL Trends is the standard to which all other rankings is compared. The third-place ranking does not require third-party verification. From their own admission, they made up data for at least four of the top 15. And, now that they add agent count data (for analysis purposes they say) which leads to another problem—they don’t verify agent counts. As we know from long experience, these numbers are among the most easily manipulated for the purposes of one brokerage firm being more productive than another. It will lead to grossly misleading statistics now and in the future in calculations of this kind. They just don’t know it yet, because they don’t have any history doing this kind of work. Brokerage firms don’t live and die by where they rank. These firms like our report because it gives them a sense of what they and others are doing, and which businesses are growing and which are not. Most importantly, they have always enjoyed it because it is the most accurate due to independent, third-party verification. It is this feature that makes the REAL Trends 500 the most respected, even if not every brokerage in the country is on it. Finally, the REAL Trends 500 is not meant to glorify the authors of the report, but rather highlight the incredible brokerage companies that dedicate themselves to building and growing their companies. We have always tried to do the best work we can and let the work speak for itself, just like brokerage leaders do. The relationship we have with those who provide their data and submit to the verification process is the reason we have the most successful brokerage ranking in the industry. The 500

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