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REAL Trending Episode 69: Regulators Running Wild, Congress Threatens the Independent Contractors Status, and What Redfin's 2019 Results Tell Us

Feb 19, 2020 10:40:25 AM

From REAL Trends, the trusted source for real estate industry trends and news. This is REAL Trending Episode 69. We're analyzing the most important trends affecting brokerage companies and their agents.

Steve Murray:

I'm Steve Murray, President of REAL Trends and today we're discussing regulators running wild. Congress threatens the independent contractor status and what Redfin's 2019 results tell us about the direction of the brokerage industry. What do these trends mean and how can brokerage firms best deal with them? But first, a quick message about an upcoming event.

Tracey Velt:

Tracey Velt, REAL Trends, Editor of Content. Join me, April 29 through May 1st, 2020, at the Grand High of Denver for the premier leadership event of the year. The REAL Trends gathering of Eagles.

Tracey Velt:

Steve Murray and I will be interviewing brokers who accomplished the impossible; multiple years of growth no matter what the market. Plus hear from author and leadership expert, Patrick Lencioni, on how to build a healthy organization. After his keynote session, coaches from Lencioni's team will be on hand to lead small group workshops so you can put his practices into play.

Tracey Velt:

For the first time ever, we're inviting brokerage leaders and up to three of their leadership team members. Go register at realtrends.com/events. You won't want to miss this one of a kind event and spaces are filling up quickly. Go engage. Go lead. Go register. REALTrends.com/events.

Steve Murray:

So regulators in the city of New York, in an attempt to rein in what they consider to be bad behavior by leasing agents and tenant brokers in the city, outlawed certain payments that tenants are making to secure an apartment in the city.

Steve Murray:

Now step one is, it came without any warning or any hearings or any discussion. The New York regulators, New York City regulators merely announced it and then imposed it, which threw enormous chaos into the New York City brokerage community because leasing is such a huge, huge part of the brokerage industry in New York City and in fact it's growing in other places as well, like Chicago, San Francisco and Los Angeles.

Steve Murray:

But the regulators literally, without any careful consideration of the impact and whether it was pro consumer or not or anti broker or leasing or not, launched this in New York City. Now the good news is, is the brokerage industry responded with a suit in front of a judge that requested a temporary restraining order or a TRO and according to sources that we have that TRO was immediately granted, which held this new regulation in abeyance until the court has time to sort this out.

Steve Murray:

But it's an example of regulators running wild and not taking into consideration the impact of their new rules and laws on the actual functionings of the marketplace. Something for us all to be aware of in our own communities and it may come in, the guise of no yard signs or no solicitations or no door knocking, or, or, or.

Steve Murray:

Every leading broker agent team in the country needs to be aware of the possibility that regulators and rule makers in their local communities can make decisions without a lot of input from those affected that can have dramatic effects on their business, which leads us to topic number two.

Steve Murray:

The US House of Representatives, about 10 days ago, on a party line vote passed the PRO, P-R-O Act, which is targeted at changing a number of significant labor regulations to make it much more easy to unionize and far harder for people to not be compelled to join a union.

Steve Murray:

I can go into a lot of details of things like they want to return to the Obama era, National Labor Relations Board Actions, which stipulated that franchisors like McDonald's or Re/Max for that matter, would be held responsible for the employment practices of their franchisees.

Steve Murray:

Can you imagine Realogy], Berkshire Hathaway, Re/Max and Keller Williams now being responsible for the employment compensation and benefit packages of all the employees of their franchised real estate companies and the impact that would have on the cost of doing business for real estate franchises? Think I'm kidding. That's the rule that the National Labor Relations Board tried to impose back during the Obama administration.

Well, they're trying to bring it back now. But most importantly, part of the PRO Act, proposed and passed by the democratic controlled house, is to institute the AB5 regulations, now the rule of the law in California and submitting or causing everyone to have to submit, if you will, to the ABC test that the California Supreme Court and the California legislature passed and now again, it's the law of the land in California. Congress, the US Congress wants to impose AB5 is the bill is known, on all states.

Steve Murray:

One of the key things to know is that under any layman's review of the standards in California, real estate agents would no longer be considered, or could no longer be considered, independent contractors.

Steve Murray:

Now, California Realtor Association, a very strong, well-informed and well funded organization, was able to get an exemption from the California laws pretending to independent contractors but independent truckers had been affected so much so, that there is also a restraining order issued by a judge against California from enforcing these new AB5 restrictions on the trucking industry.

Steve Murray:

But there are a lot of industries that couldn't get an exemption. Publishing, for instance, one large national organization that had over 200 freelancers writing for them from the state of California had to terminate all 200 and could only afford to hire 20 of them. So 180 people had previously been able to make a living writing for various publications can no longer do so.

Steve Murray:

But let's talk about AB5 across the country and everyone says, "Well, there's no way that the state legislatures would all adopt it." Ladies and gentlemen, this would become the law of the land if passed by the House and the Senate and signed by the president and many of you I'm sure are saying, "Well, but there's no way this Senate or this president would sign that bill," and you'd be right about that.

Steve Murray:

But it does remind us all that elections matter and how the elections turn out this fall, may well tell us whether this PRO Act becomes the law of the land and our wonderful industry is fighting for its existence, as we currently know it.

Steve Murray:

It pays for every realtor, whether you're a brokerage, an agent or a team, to understand supporting our pack and making sure that your representatives are aware of these issues is a vital importance as to how we run our businesses and what the future of the industry looks like.

Steve Murray:

Last issue, Redfin released its results for both the fourth quarter of 2019 and for the full year of 2019. Now the good news is, Redfin is growing rapidly and beat Wall Street's estimates for how well they would do. The important thing when we're looking through the numbers, however, shows us that while they're growing rapidly, so are their operating losses and while Redfin is a superior brokerage company in that they're highly productive, they have a highly trained full-time employee agents, they have what is recognized to be a significant and superior technology platform, they don't have any particular path yet to how they're going to grow and yet make money because the losses in 2019, even with significant growth, were larger than the losses in 2018.

Steve Murray:

And further, after 10 to 12 years of now being in business, while they are an exciting brokerage firm to watch, one does wonder, at what point they're going to have to make fundamental changes to actually earn a profit or at the least, show that there is a path to profitability.

Steve Murray:

What does this mean overall for the industry? There are other firms out there that have the same profile; rapid growth in revenues, growth in market share, superior technology, or at least competitive technology, growing rapidly, disrupting parts of the industry and yet even today, four, five, six, eight, 10 12 years after their formation, they're not only not profitable now, but they have no certain path to the point that will come when they will be profitable. Now, sooner or later, it's going to require that any of these companies to become profitable because even Wall Street wakes up after a time.

Steve Murray:

Learn more about industry trends and success tactics for brokerage firms, agents and teams, as well as listen to past REAL Trending on Apple podcast, Spotify, Google Play, and others. Visit www.realtrends.com/channels/. This has been Steve Murray. Until next time.

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