In this episode we are breaking down the trends of the week and showing how they impact brokers and agents. Steve Murray, President of REAL Trends discusses the implications of national real estate companies buying real estate tech funds, agent turnover and opportunities, and the impact on the industry overall from the changing of the guard of industry leaders
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We notice a trend of people like Keller Williams and RE/MAX making large acquisitions of real estate tech funds. We notice the same thing, for instance, going on with companies like Fidelity who acquired SkySlope and we see this trend picking up, not slowing down. What's this all about and what does it mean for brokers and agents?
Well, as we have commented on in the past, there is a strong belief that to compete in future real estate brokers at the local, regional, and national level, are going to have to have comprehensive, integrated, big data, artificial intelligence driven technology platforms to equip their agents to compete for the customer of tomorrow. Berkshire Hathaway and Realogy, are also pursuing that dream and that plan. Redfin, of course, has been working on it for years and has, by most observers, one of the most integrated, effective, real estate technology platforms already there. Zillow has a highly integrated data platform and they are reaching out to connect agents or brokers to that information platform as is Realtor.com as evidenced by their acquisition of Opcity. There are other reasons for that but one can clearly see that down the road we could have six to eight to 10 national real estate brokerage service companies that have fully integrated platforms with everything from transaction management and CRM, to customer search, to data mining, to all kinds of captured data.
Do we really know whether that will give one system a leg up on the others? No one could know for sure. If all six to eight have such integrated, well developed, data driven, consumer data mining operations on behalf of their agents, and they are for customers as well, our main question is, on what basis then will they be competing in the future? Will the new superstars of residential brokerage become these data mining PhDs who can pinpoint buyers before they want to buy, before they even know they want to buy or sellers who may want to sell or they don't even know they want to sell yet?
One can dream that's all going to happen based on the establishment, instruction, and investment in these kind of platforms. Again, I come back to one of our key questions. If eight or 10 companies all have these platforms, then on what basis will they compete in the future? Will it be the quants in Minneapolis, and Madison, and Seattle, and Austin, and Denver? Or will it the power still be in the hands of agents and their relationships with customers. In our recent Harris Insight Study that we did, thanks to the help, investment, and support from the California Association of Realtors and the CE Shop, we uncovered the fact that 69% of recent buyers and sellers of all generations said the number one thing they rely on in choosing an agent is a referral from a trusted source. Relationships still matter, at least today. Do all these organizations believe that data and technology platforms are going to replace that? I don't know the answer to that, I don't think anybody knows the answer to that. What we do know is that major national real estate companies are making a huge bet that rather data and knowledge about consumer habits, attitudes, and practices will one day trump those personal relationship matters. We'll have to wait and see but, for this observer, I don't think that's going to happen in a hurry.
At the Gathering of Eagles this past May here in Denver, Mark Stratz, the President of Terradatum, the operator of Broker Metrics, one of the most widely used data analytics tools, asked the question on stage,
"Does anybody know how many agents move each month?"
One of the panelists surprisingly guessed very close, 22,000 agents move from one broker to another broker every month. That's every month. On an annualized basis that's 264,000 realtors are shifting from one brokerage to another each year. Out of 1.3 million realtors, that's between 20-25% of all agents are going to move in a given year, 20-25%. One thing, of course, is for many brokers to look at their own turnover, are you below or above that number?
Another thing that brokers should be looking at is they ought to look at their data, they ought to be looking at Broker Metrics or Real Data or Trend Graphics, three of the more prominent providers of software to help brokers analyze MLS in agent and sales data. Are you above or below that line, that's a great question.
Then look at how you are using the data provided by these companies or others to pinpoint which agents are moving and try to develop profiles of where they're moving from and to and why (among other factors)? We know that at least two of the national real estate organizations are developing entire national systems to measure these trends weekly, if not daily, to see what patterns are uncovered. The question becomes, is this something that any brokerage company could do simply at the local level, whether you have 25 agents or you have 2500 agents?
As we've said, you only have to do three things to prosper in the broker's business:
Well, the number one is you have to be able to recruit talent. What are you doing to look at the opportunity when you know now, if you didn't before, that 20-25% of all realtors will change from one brokerage to another in a given 12 month period of time. What are you doing to examine and mine that data so that you can become more effective at finding those people who are prone to move and present your case to them? It's a huge opportunity.
We commented over a year ago that of the five major national organizations, Realogy, RE/MAX, Berkshire Hathaway, Keller Williams, and Leading Real Estate Companies of the World, had almost the same leaders in the same chairs for the past 20 years. We knew this time last year that at least two of those companies for certain were going to change. We knew that Richard Smith had already announced his intention to step down at Realogy. We also knew that Pam O'Connor had planned to step down at Leading Real Estate Companies of the World. We know that Keller Williams under Chairman Gary Keller had shifted from Mark Willis to Chris Heller and now to John Davis, a real changing of the guard at Keller Williams. In each case we said it would be very interesting, to see what impact that would have on the industry.
One of the biggest changes that's taken place comes out of Realogy where the entire approach to franchising is changing. For those who don't know, for the last 40 years the major franchises of this industry have had a prohibitive restriction on, let's say, someone who has a Coldwell Banker franchise anchor franchise in Atlanta, Georgia owning a Better Homes and Gardens franchise in Dallas, Texas. Or a large RE/MAX operator in Denver owning a large Berkshire Hathaway franchise in California. Until just this year this was absolutely prohibited, so that's two big changes coming out of Realogy. The first big change you already know about. New CEO Ryan Schneider announced in January,
"We will curtail NRT's acquisition actions, endeavors. We will support our affiliates of ability to acquire others, and we may well shift some of our resources to helping our own companies buy and acquire agents and teams."
That's a new strategic imperative for a lot of companies to combat Compass, EXP, and others.
Realogy has also made a number of moves that indicate that they believe that the most important thing for the future of real estate franchising is capital and management talent, leadership, and capital. They have told us in no uncertain terms that they will review opportunities where, say, a Better Homes and Gardens Brokerage Company in Chicago was run very well and has capital and who may want to acquire, for instance, a Century 21 company in Indianapolis..
In our conversations with John Peyton, the new leader of the Realogy Franchise Group, he made it clear that he would look at cases where a well loved brokerage company from one market could acquire one of his franchisees in a distant market. Now, this doesn't mean that they're opening the doors necessarily to saying we will allow a Coldwell Banker firm in Houston, Texas to also operate a Century 21 firm in Texas, but even that will be considered on a case-by-case basis.
This is going to have a profound impact on the structure of this industry three to five years from now. There's no doubt in our minds that we will start to see the breakdown of the 40 year order to a new order with the emphasis by all operators of franchises (Keller Williams, RE/MAX, Realogy or Berkshire Hathaway), will start to open the doors to having their affiliates run by people with talent and who have capital. That is going to make the difference in how competitive they can be.
At Leading Real Estate Companies of the World there will be significant changes coming in how they view who can be their affiliates as well. There's a lot of changes coming because we have a whole new crop of leaders at the heads of these companies who have looked out at the environment, the landscape of our industry, and who see that the major national brands are struggling to continue to grow and they're going to change how they operate their businesses.
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