Plus: Why third-party verification matters to brokerage ranks, REAL Trends' own cybersecurity scare, and FHA tightens lending.
From REAL Trends, the trusted source for real estate industry news, this is REAL Trending, episode 42. We're breaking down the trends of the week, and showing how they impact brokers and agents. I'm Steve Murray, president of REAL Trends. Today we're going to cover changes in FHA lending requirements, some updates on cybersecurity, and some interesting information about the REAL Trends 500.
First up, FHA is clamping down on risky government-backed mortgages. What does it really mean? It means FHA noted that the average FICO scores, and other information about their most current lending over the last six to 12 months that the credit quality of the portfolio of loans being made by FHA was slipping, or had slipped from prior years. Since they're making up a larger and larger share of the loans, we think FHA took appropriate steps at this time to tighten up the underwriting standards for FHA lenders. It is poor underwriting standards after all that led to the housing crash in 2006 through 2009. We applaud these efforts by the FHA.
Subsequent stories have said that the changes aren't believed to be causing any downward trend in mortgages. In fact, the National Mortgage Bankers Association, and Inside Real Estate finance reported through the first two or three weeks of March, loan applications were up 18% year over year, indicating a strong selling, and buying season in housing. Primarily, it looks like, driven by average 30-year benchmark mortgage rates, which had been approaching 5% are now closer to 4%. It all bodes well for a really, really good spring housing sale time.
A note about cybersecurity: A number of reports have noted that the real estate industry is not subject to a lot of the cybersecurity rules and privacy rules that perhaps financial services companies are required to attend to. In fact, an attorney in a recent article said, "Unlike for banks and hospitals, there's no federal law requiring real estate businesses to implement security programs to protect information and systems." According to the article that's led to real estate businesses having vulnerable systems, and being the focus of potential attacks.
Quoting from a KPMG study, they also reveal that fully 50% of surveyed real estate companies believe that they weren't adequately prepared to prevent, or mitigate a cyberattack. At REAL Trends as we reported last week, we'd been deliberately attacked with a massive denial of service attack shortly after releasing the REAL Trends 500, and it took a significant time, effort and money to update our security protocols, and systems so that such a thing likely won't affect us the way it did.
On a side note, even though that happened we had nearly a doubling of the unique visitors to the site in the first few days after the launch, and a two-and-a-half fold increase of downloads of the REAL Trends 500 PDF. We survived, but it doesn't excuse us, or anyone else from investing the time to look into your security, and as we now have cybersecurity insurance to cover a whole range of issues related to attacks, or encryption attacks, or denial of service attacks.
Next, some interesting information from the REAL Trends 500 that we just released last week. Of the top 10 fastest-growing companies in the country on a percentage basis, seven of them were from Keller Williams Realty International. Many of those market leaders or team leaders and operating partners are doing a very, very good job of continuing to grow their business significantly. I might add that Compass, eXp, and a great RE/MAX company from New England were among the other top 10 fast growers on a percentage basis.
As people know from the REAL Trends 500, and our special reports, both eXp and Compass grew the most in terms of total transaction side growth in the last year. The REAL Trends 500, Top 500 brokerages in the country averaged 59.1 agents per office, and those agents averaged 7.4 transactions sides per agent, with volume of 2, 679, 000, and an average price of $361, 385 during 2018. That sales volume of course is well above national average, as is the average price that these agents handled.
It is disconcerting that the REAL Trends 500 agents averaged only 7.4 transactions per agent, which is a little bit below the national average. We don't know where that leads, but it is interesting to note. On another note, I wanted to post a special message for our listeners. This has to do with the accuracy, and relevance in brokerage rankings. Well, we welcome competition, and there is strong competition. What separates us from others is that we believe ethics, accuracy and verification matter most.
On March 27, REAL Trends proudly released its annual REAL Trends 500, and Up- and-Comers Report, which ranks the top residential brokers in the country. This study now in its 31st year is the standard by which all other rankings are measured. That is because firms have the option to willingly submit their numbers, and willingly submit to third-party verification. That's the standard set by us that mostly sets our report apart from others.
Recently, another firm released its own brokerage rankings. They claim that their report, "Is the most comprehensive accurate brokers rankings." Their press release also says "Without the best data available, assumptions and decisions are flawed before they're even made." They also commented, "We are determined to include all of the nation's largest companies, whether they participate or not." Well, their claims fail in a number of ways. First, located in their footnotes, they admit that they made up numbers for four of the top 15 firms in the country. Not only are these numbers wrong, in some cases they're wildly wrong and we know it.
Second, they're missing many firms that belong on the list. There are still companies out there that they evidently are not aware of that would have ranked on anybody's study, but people that don't wish to submit. We respect that decision unlike others. What's really important though, the problem with claims like this is 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 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 choose not to participate, this company tries to force them to do so. Now, let's talk about the third party verification. The reason that REAL Trends is the standard for all other rankings. The third place ranking firm does not require third party verification. From their own admission, they made up data for at least four of the top 15. And now, further, they add that 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's going to lead to grossly misleading statistics now, and in the future. They just don't know it yet, because they don't have any history of doing this kind of work. Brokerage firms don't live and die by where they rank. These firms like a 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 company 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've always tried to do the best work we can, and let the work speak for itself just like most 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 rankings in the industry. Learn more about industry trends, marketing and technology strategies, as well as listen to past REAL Trending episodes on our website, www.realtrends.com/blog. It's been Steve Murray, till next time.
REAL Trends has been The Trusted Source of news, analysis, and information on the residential brokerage industry since 1987. We are a privately-held publishing, consulting and communications company based in Castle Rock, Colorado.
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