REAL Trending Episode 26
Steve Murray discusses Zillow in the brokerage business, a new wave of MLS consolidations and reorganization, and our forecast for 2019. Let’s jump in.
From REAL Trends, the trusted source for real estate industry news, this is REAL Trending episode 26. 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, and today, we’re discussing Zillow in the brokerage business, a new wave of MLS consolidations and reorganization, and our forecast for 2019.
Zillow In The Brokerage Business
For as long as this company has been doing zillow.com and all the things they’ve done since, people have said, “Zillow’s going to be in the brokerage business. It’s our greatest fear.” Ladies and gentlemen, Zillow got in the brokerage business the moment they opened zillow.com. Perhaps everyone was just talking about, “Well, they don’t employ agents,” or, “They don’t have bricks and mortar brokerage offices,” but increasingly, Zillow is expanding its footprint in the brokerage business, but they’ve been doing this for years, starting of course with zillow.com, and the Zestimate, and the Premier Agent program, and the concierge program, and the Premier Broker program. They are a lead generation and advertising platform.
Recently, with their iBuyer program, they’re offering to buy homes direct from sellers. Zillow’s intent is not to buy tens of thousands of homes. Zillow’s intent is to uncover seller leads for Premier Agents and Premier Brokers, which is directly in line with their stated mission of their founding, to create a great real estate experience and to connect housing consumers with agents, and figure out a way to make money doing that.
Another thing of recent, over the last year or two, very quietly, Zillow is also assembling their own lobbying capabilities, both at the national and at state levels. They’re acting more and more like any national real estate company would. I don’t think it’s a surprise to anyone that as of yet, it doesn’t look like they want to buy brokerage companies, and they don’t want to get into bricks and mortar brokerage offices, but you know, if you think back, truly they’ve been in the business of recruiting agents for as long as they’ve been in the business, recruiting them to spend money on zillow.com, to advertise the agents’ services. Whether we like the way they did it or the model, that’s what they did.
They’re also in the business of developing talent. Look at their conferences, their training programs, their CRM, Dotloop, and other technologies, which is all in a direction to help develop agents’ business and help them become more effective. So as we enter 2019, Zillow is in fact in the brokerage business, just not how we would have done it perhaps.
MLS Consolidations & Reorganization
Secondly, new wave of MLS consolidation and reorganization. News out of the New York area, the Long Island MLS and the Hudson Gateway MLS announced they are merging. We expect, in 2019, we will see a lot of MLSs coming together. At the same time, we are well aware that there are large brokerage companies throughout the United States who are again looking carefully at alternatives to existing MLS. We ourselves engaged in some consulting work on that program.
We’ve also heard from other brokers that the effectiveness of the MLS in their particular marketplaces is declining. Due to the lack of inventory and the plethora of new, low-cost brokerage models, we’re seeing evidence that more and more brokers are just getting an agreement with the seller and letting the buyer agents fend for themselves as far as getting their own buyer-agency agreements and negotiating their compensation direct with buyers.
Will that become a serious trend? We don’t think so, but this all wraps around the whole issue of what is the role and function of an MLS going forward in the future, and will it continue to be at the heart of the realtor marketplace? It’s going to be interesting to see how this rolls out over the next two years. Will we see a national MLS arise? Will we see regional MLSs arise? Will we see metropolitan area or natural geographic MLSs arise where existing realtor or privately owned MLSs don’t adapt to the future? Going to be an interesting ride, but we know for sure, a year from now, there will be many new MLSs, many consolidated and regionalized MLSs, and it will look a lot different than it does today.
Lastly, our forecast for 2019, it’s getting very interesting with the Federal Reserve having raised rates multiple times in the last 18 months, that the way that the market is right now, the 10-year bond rate has fallen back below 3%. In fact, it’s backed off 15 to 20% just in the last 45 days. Now, that can reverse itself, but it appears as though the Fed is doing the Texas two-step about just how many, how frequently, and by how much they might raise rates in the future, and they keep changing their language about their intent, and the basis on which they’ll decide whether to raise rates. We do know that will have an impact on housing sales in 2019.
Here’s some of our other predictions. Unit sales have now slumped eight out of the last nine months. We will continue to see that happen through at least the first half of 2019, so buckle up and watch your costs. Stay focused on activities that lead to listings and sales, highly important.
Number two, the average commission rate will continue to softly slide downward. The lack of inventory and the growth of realtor numbers point us in that direction. Not catastrophic, not significant, but another step in the slide to where the average commission in the United States of America will dive under 5% for the first time since we began measuring it, nearly 20 years ago.
The gross margin for brokerage companies will continue to be under pressure, and it will slide as well, as will profit margins. Returns from businesses such as title and mortgage will continue to be under pressure due to overcapacity in the existing business. It’s going to be a challenging year, but still a very solid year for those brokers who focus on, as we’ve said before, acquiring talent, developing that talent, and spending less money than they have coming in.
Economically, we know the general economy will continue to be strong. It may weaken some. We note that hiring was off in November a little bit, but the unemployment rate remains at all-time record 50-year lows, so generally, underlying our industry, the economy is good, hiring and employment is good, incomes are going up, consumers still want to use agents when they buy or sell a home, and navigate the currents of the housing market. So all in all, we think 2019, while not a great year, will be a very solid year.
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/. This has been Steve Murray, until next time.