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REAL Trending Episode 84: Importance of Core Services, The Growth and Impact of Referral Organizations, and Housing Consumer Exuberance

Sep 15, 2020 6:00:00 AM

On REAL trending episode 84, Steve Murray discusses the importance of core services, the growth and impact of referral organizations, and housing consumer exuberance.

Steve Murray:

From REAL Trends, the trusted source for real estate industry news, this is REAL Trending, episode 84. We're analyzing the most important trends affecting brokerage companies and their agents.

I'm Steve Murray, President of REAL Trends, and today we're going to discuss the importance of core services, the growth and impact of referral organizations, and housing consumer exuberance. What do these trends mean and how can brokerage firms best take advantage of them?

Steve Murray:

So, core services importance. One thing that's becoming very, very clear to us at REAL Trends in our valuation and merger and acquisition practice is that those brokerage companies who have developed core services, such as mortgage, title insurance, settlement services, escrow, residential property management, and others have a decided advantage in today's market, primarily from an operating point of view. They produce far better returns, profits from each transaction on average, than a firm that's just operating in the brokerage industry.

Steve Murray:

It's particularly acute right now with the success in mortgage and title because of the refinance boom. There are many of our clients that are now making far more returns or higher returns in the mortgage business than they are in the brokerage business.

Of course, a firm that has multiple sources of profit from each transaction is going to have more money to invest in all those things that grow brokerage companies, whether that's recruiting, training, marketing and advertising, digital assets, et cetera. It just creates a stronger firm.

Steve Murray:

It also, in today's market, makes that far more attractive to many of the private equity and other acquirers of residential brokerage companies. There is more attention paid and more interest in firms who have developed multiple sources of revenue and profit from core services.

More than ever before, in our 35 years nearly of consulting work, we are seeing that those firms that have these core services are stronger, they're better positioned. And we encourage firms, all of our clients, regardless of the model, brand, location or size, find ways to diversify your revenue and profit source through core services.

Steve Murray:

Secondly, we note that the number of organizations now having referral services is growing rapidly. Now, if you stop and think about it, we always know there were broker to broker referral companies, there were relocation management companies, but today we're now seeing companies like of course, Rocket Mortgage.

We're seeing Zillow, Offerpad and Opendoor, Redfin. And then there's firms like Referral Exchange and others. There's also realtor.com and Opcity. On and on and on, there are organizations that are generating online interest with housing consumers, and the number of them now referring business to either their own agents or to what we might call partner or referral agents is growing rapidly.

Steve Murray:

Now, referral closing still make up a minuscule part of the overall industry. But given the fact that about one third of all buyers and sellers of homes are not connected to a personal relationship with an agent, whether direct knowledge or by referrals, it's just very, very interesting that the number of companies that are building referral businesses and the opportunity is large. Both of them growing rapidly.

Steve Murray:

Last point, the exuberant housing consumer. You may have noticed this past three months that the surge in people wanting to buy a home has been something we not only didn't expect, but we haven't seen home sales at this level, according to NAR in over 14 years. Now, there's two things at play here. First, we took about four months of demand and crammed it into two and a half months.

You took April, May, June, July, August, and jammed it into June, July and August. So you have this concentration. Second thing, you have tens of thousands of families that are either leaving Metro areas for the suburbs, or they're buying second homes in suburbs or away from the urban core, or they're leaving high-priced, high-taxed states and moving to lower-costs, lower-taxed states.

Steve Murray:

One of the things driving that of course is we're in the middle of shifting a lot of people's work to where they can work where they live, and not have to live where they work. Or remote working and working from home become significant new parts of the ecosystem of housing.

Steve Murray:

Housing consumers, meanwhile, are looking at incredible bargains with historical low mortgage rates, plentiful money available, and they're buying. Boy, are they ever buying. We expect it to slow down seasonally this fall, but early indications are, so far in September, it's not going off a cliff.

So we expect a good, solid fall. And next year, 2021, it would not appear that there's going to be any huge slowdown. A, we still are creating more households than housing units are being built. Two, the economy is recovering and unemployment is dropping. Three, we'll still have low mortgage rates.

Steve Murray:

The only hindrance to a booming housing market, therefore, for the next year and a half, is the scarcity of inventory. The exuberant consumer knows that buying a home is still one of the best investments they can make on top of every other factor.

Steve Murray:

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

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