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REAL Trending Episode 76: Forbearance Impact On Housing Market , Top Agent Network Litigation Against MLS, Summary Of The First Quarter

From REAL Trends, the trusted source for real estate industry trends and news, this is REAL Trending episode 76. We’re analyzing the most important trends affecting brokerage companies and their agents. I’m Steve Murray, president of REAL Trends.

Today we’re discussing the impact on the housing market from forbearance, the Top Agent Network litigation against realtor MLSs, and a summary of the first quarter results from what I’ll call the big six. What do these trends mean and how can brokers firms best deal with them?

Steve Murray:

So, first up, as many people know under the CARES Act, homeowners were allowed to choose forbearance from six months to a year on their existing mortgages. According to Fannie Mae, by mid-May, over four million American homeowners had chosen to forbear on their mortgages, to essentially stop making their mortgage payments for a period of time.

It was unclear to many homeowners who chose this course until told by their mortgage company servicing units that they actually had to pay the money back sooner or later. And in many cases they were told they had to pay it off in a lump sum at the end of the forbearance period.

Steve Murray:

Well, as much has been the case with the CARES Act, there’s a lot of cleanup going on in the background to get this clarified for both homeowners, mortgage servicing companies, as well as mortgage guarantors, like Fannie Mae and Freddie Mac. In the meanwhile, the mortgage market was in a great deal of turmoil. But here are a couple of things for most people to be aware.

Steve Murray:

Even though the numbers of those forbearing are four million and still climbing, no one expects a significant rise in foreclosures. Although we may see a rise in distress properties, those who are in default or late payments.

We don’t see the rise of the foreclosure problem primarily because, first, inventory is still so tight in the country that it’d be hard to believe that there wouldn’t be buyers for homes at fair market price. Two, there’s no indication in any market in the country, below the very high luxury end of things, that prices are softening.

Steve Murray:

In fact, in many markets prices are still firm and still heading upward. Again, due to two factors, lack of inventory and the surge in buying activity since mid-April in almost every market around the country. Lastly, you have the I-buyer companies led by Zillow, Opendoor, Offerpad, and Redfin and others who announced they’re going to be back buying homes. It’s expected that any homes that might be in trouble under forbearance or other distress.

There are going to be more than adequate buyers and liquidity for those homes. And again, due to the scarcity of inventory should not be a major problem. The second biggest issue, however, was the mortgage servicing companies, many of whom are not deep pocketed, have the responsibility to forward the principle and interest payments to the mortgage guarantors, the secondary market if you will, and many just simply don’t have that kind of capital.

Steve Murray:

It was estimated that as of the four million forbearance, as of mid-May, would be costing these companies over $4 billion a month. That they would have to make good to the mortgage guarantee or secondary markets. Some structural changes have been made to limit their liability.

Fannie and Freddie basically saying for one that the services will be on the hook for the first four months and they will pick it up thereafter. There are other structural changes being made in the background of this situation that should assure plentiful mortgages to be available to homeowners.

Steve Murray:

Let’s go to the second topic. Top Agent Network and their lawsuit against the California Association of Realtors, the San Francisco Association of Realtors, and the National Association of Realtors over their policy of limiting the time that agents can hold their home off MLS after signing a listing, but prior to putting it on MLS.

Top Agent Networks around the country, it’s a whole membership organization, claims that this is anti-competitive, it’s restraint of trade, et cetera, et cetera. The bottom line is, and this is just this humble editor’s thoughts on this, we have said this numerous times in the past, and we will continue to have this position.

Steve Murray:

If we believe that the MLS is the best mechanism to achieve the highest possible price in the shortest period of time for sellers, then everything we do should be to make that possible and build and support that mechanism.

It is also fair for buyers because they can get access to the broadest array of what’s available on the market and what the prices are that they can be as deeply informed as anybody about what prices and terms are in the marketplace.

Steve Murray:

What companies like Top Agent Network purport to do is to say, “Well, on the one hand, we have a lot of sellers that don’t want to market their home through the MLS because that’s too public.”

And yet they’ll have 25, 50, 100 members in a market of Top Agent Network that they’re going to market to. So it’s not really private. It’s just private to a group of top performing, potentially, high end type agents who know that market.

Steve Murray:

Nothing wrong with that. It’s fine if they want to market it within their own network simultaneously to the MLS. Because it has always been our contention that if you do something like this to undermine the MLS, then you end up with a circumstance as outlined in Michael Lewis’s book, Flash Boys, which I recommend that anyone listening to this take the time to read, about what happens when instead of the New York Stock Exchange or the NASDAQ, as we know it, instead of them being the market dominant forces, you now have 15 other stock exchanges trading shares that no one outside of the professional ranks ever heard of.

Steve Murray:

To know whether you’re actually getting the best price for your shares that you’re selling, or the most effective price if you’re a buyer of shares in publicly held companies, not to mention the fact that companies dominating Wall Street, like Goldman Sachs and Morgan Stanley and even some of the big banks, hold equity, stock, inventories of their own and trade inside their own companies, which they referenced by the term “dark pools”. Sounds sinister, doesn’t it?

Steve Murray:

Well, any time you form a Top Agent Network type organization that says we’re only going to market properties to each other, you’re undermining the basic premise of the most fair open market price clearing mechanism ever designed, probably anywhere in the world, that benefits both sellers and buyers. Now, I admit I’m no expert. There may be high end sellers that don’t want their home ever seeing MLS.

Then those sellers that that is truly what they want, they should sign a two sentence disclaimer, alone by itself on a single sheet of paper in font 20 saying they understand by agreeing to allow an agent to market it off MLS that they may or may not get the best price for their property because the whole market hasn’t seen it.

Steve Murray:

That is surely the truest test of any claims that say, “Oh, this is what the sellers want.” Then make sure they understand the implications from doing that. On the last issue, the first quarter wrap up of performance from companies like Redfin, Zillow, eXp, Realogy, Remax, and Keller Williams. Well, the truth was, it was a mixed bag as anyone would imagine with the last half of March being the start of the fall off the cliff of pending housing sales.

Steve Murray:

Now the good news for most of these people is of course that March closings and therefore revenue activities for most of them were just fine and many of them did comment that in fact, the second quarter would be where some pain and punishment would happen to their quarterly results.

But here’s a clear finding in just a few bullet points. One, many of these major companies, with one or two exceptions, which I’ll get to in a minute have really seen, even in the first quarter, saw a significant deceleration in the growth of their results.

Steve Murray:

Whether those results are agent counts, those results are gross commission revenues, almost every single one saw either a measurable slow down or flat results in those key areas.

One of the few exceptions, of course, was eXp, which saw its agent count in the first quarter of 2020 show significant growth. But virtually all the other participants saw either flat or decelerating growth rates in all of their key businesses.

Steve Murray:

Most of those are going to continue into the second quarter. What does this actually mean though for the broker and agent on the street? So what if these six are seeing flat or slowing growth rates across their business models?

This is still a business where the leaders of an organization have to determine what matters most to them. Is it growth? Is it consistency? Is it a shift of focus away from growth in agents or transactions to some other business?

Steve Murray:

We note that you could make the case that both Zillow and Redfin, a year to a year and a half ago, shifted their focus from what had been their core business for 10 or 11 years, and started adding iBuyer as a new growth mechanism because their core business growth was starting to run out of gas in terms of its year over year growth.

Steve Murray:

Now having said that, look at Zillow’s results first quarter 2020. They actually had a reasonable growth rate in their advertising business with agents and brokers, but not at a growth rate that would warrant or support their stock market valuation. Enter the iBuyer phenomenon. What does it mean for brokers who might listen to this?

Steve Murray:

Number one, you have to decide how you’re going to grow. If you’re not growing, you’re dying. If you’re not growing, you’re dying. Number two, you have to decide, how am I going to grow my business? Am I are going to grow it by recruiting and developing more great agents? Am I going to increase the productivity of my existing agents? Am I going to build a better revenue yield per transaction potentially from mortgage title, escrow and other activities?

Steve Murray:

But what’s clear is it doesn’t matter whether you’re publicly held or privately held, you need to focus on growth and the second part of that big challenge is how am I going to grow? Not just am I going to want to grow, but how am I going to grow? And it’s clear that the same challenges that face the private owned brokerage industry are now afflicting most of the large publicly held companies in the country.

Learn more about industry trends and successful tactics for brokerage firms, agents and teams, as well as listen to past REAL Trending on Apple Podcast, Spotify, Google Play and others. Visit This has been Steve Murray and please stay safe and healthy.

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