Welcome, faithful readers to an annual tradition here at Notorious ROB: making predictions for the coming year that are Guaranteed to be Wrong, or Your Money Back!
The musical pairings for this edition comes from the extraordinary and extraordinarily unique French cover band, Nouvelle Vague. I mean, who else does remakes of 80’s new wave hits with a vaguely self-aware melancholy infused with a 60’s bossa nova vibe? Yep, the French, that’s who.
Let’s get into it.
1. The Broker Portal Launches
The dream of large brokerages everywhere for years and years will finally see the light of day in 2015. It’s unclear whether this national broker portal initiative is the same as, partnered with, or totally separate from things like Project Upstream or Project Flanker (from Realogy). Because anyone involved with the projects who knows isn’t talking. Apparently, the NDA’s are something out of a hackneyed thriller movie involving the CIA and a white-haired assassin. Or something.
In any event, their lips are sealed. So we can but speculate. Well, I can speculate, and you can think about the speculation.
I think the Broker Portal will be a collaboration between the largest brokerages and franchises in the industry. The obvious candidates are the brokerages of The Realty Alliance and Leading RE, because those two organizations have been talking about something like this for a while now. Thing is, I can’t see a national portal play of any sort without the largest franchises also joining in.
BHHS is an obvious one, since it is owned by HomeServices of America, the main power behind both The Realty Alliance and the Leading RE. Furthermore, I can’t imagine a project like this going anywhere without the Big Dog in real estate — Realogy — giving its blessing to it. For that matter, could it really get that far without REMAX and KW involved as well? The other franchises — EXIT, Realty Executives, etc. — may be coming along or may not be, but they’re not as necessary as the Big Four for getting a real national portal underway.
So let’s assume that the broker portal will have all of the big players involved, and it will have some sort of generic URL that doesn’t advantage any broker or group. Maybe something like “FindAHomeNow.com” or maybe “NotZillow.com”.
All of the brokerages would somehow send data to the broker portal. That’s where “Project Upstream” might come into play. Because really, there are only a few ways to get listing data for a portal:
- Syndication Feed: Maybe I’m dead wrong about this, but I think brokers would eat broken glass before they go pay Listhub for a syndication feed that any old “third party outsider” can get. It’s their data, after all, and they’re not outsiders: they’re the brokers.
- IDX: IDX is a strong possibility, especially with the recent changes to the rules that allow for things like commingling and sold-data-over-IDX. The downside is that IDX rules vary from one MLS to another, change constantly, and can be arbitrary. These large brokers and franchises are on the record as saying that having to deal with dozens or hundreds of MLSs is a major pain in the ass and advocating for consolidation across the board. That doesn’t mean the broker portal won’t be IDX-powered, but it does suggest these huge companies might not be thrilled about it.
- VOW: VOW would make sense, except it requires registration, which is anathema to consumers. So pass on that.
- Direct Feed: The best solution for everyone involved is to get a “direct feed” from all of the member brokers and franchises. Zillow and Trulia spend millions on “industry relations” which revolve around these direct feed agreements, which gets around all of the issues with IDX and MLS and so on and so forth, and provides much richer data sets direct from the broker or franchise.
Project Upstream was supposedly about getting “upstream” of the MLS, to put data into a national database for usage by member brokerages (especially the big ones). Well, that fits in perfectly with the Direct Feed model above, no?
So that’s my speculation. The broker portal will launch, and it will be powered by Project Upstream + IDX where necessary. Upstream may be a totally separate entity, operated only by a few of the companies involved, or it may be a totally related joined-at-the-hip entity to the Broker Portal.
Either way, I think we see a broker portal launch, to try and give Zillow and News Corp a run for their money.
2. RPR Emerges As A Serious Player in the MLS Space
https://www.youtube.com/watch?v=8NDLm5Dm3DY
At 2014’s NAR Convention in New Orleans, there was an interesting little story that went completely unreported, undetected… except by well, yours truly. I sort of touched on it in this post from November.
The original REALTOR of the Future Leadership Team Proposal contained Policy Proposal #3 that read as follows:
Policy Proposal #3
REALTORS will have efficient access to the most comprehensive data, including more efficient MLS systems.
OBJECTIVE: NAR should strive to ensure REALTORS have the best data available by using its size and scale to help members compete in a complex environment and should adopt policies that promote a broader data reach, embrace efficiencies and eliminate unnecessary or duplicative costs. [Emphasis mine]
The actual decision of the NAR Board did not include any such language or policy. I don’t know whether the proposal was actually put forth, debated, and then eliminated, or if it was simply pulled from the actual proposal submitted to the Board. (I have heard the latter from reliable sources.)
Thing is… one has to wonder why Proposal #3 was in the original draft at all. What do those words mean? What might have motivated them?
Well, let’s start with the “more efficient MLS systems” bit. Is it a stretch to think that perhaps the problem to be addressed is… um, I don’t know… inefficient MLS systems? At least in the experiences and minds of the Leadership Team that made the proposal? Hm, could be.
We have the language about broader data reach, and eliminating unnecessary or duplicative costs. Whatever could that mean, applied to the issue of “comprehensive data”? What unnecessary or duplicative costs do REALTORS incur in the realm of comprehensive data?
Without question, the single biggest expense that a REALTOR incurs in the realm of data is MLS access. I mean, what other data is a REALTOR buying? They’re not exactly lining up to purchase consumer behavior data. Keep in mind that public records data and tax data are usually bought through the MLS. And “broader” reach… what could that mean?
The obvious answer that combines all of this is that Policy #3 is more-or-less calling for NAR to drive MLS consolidation. That would eliminate a whole lot of unnecessary or duplicative costs, especially for larger brokerages that have to be part of dozens of tiny little MLSs, while “broadening” data reach. And of course, such consolidated MLS systems would be far more efficient than the 850+ hodgepodge we have today.
No wonder the provision was quietly assassinated before it ever hit the Board of Directors.
And then we have this “size and scale” business. What could that possibly mean? NAR is obviously large and in charge, but MLS’s are all local affairs. Even large regionals like CRMLS and MRIS are conglomerations of local Associations. So what does NAR’s size and scale have to do with anything dealing with MLS data, consolidation and the like?
Well, there are two possibilities. One is that Policy Proposal #3 contemplated NAR becoming some sort of a purchasing club, going to the CoreLogics, the Black Knight Financials, and other MLS vendors and negotiating a volume discount on behalf of the 850+ local MLSs. That, of course, makes zero sense, since (a) what’s in it for NAR, and (b) local MLS boards are likely to welcome such “assistance” by NAR like the Auburn football program would welcome advice and help from Nick Saban of Alabama Crimson Tide.
The other possibility where “size and scale” matters is that NAR might do something with its single largest line item in its 2014-2016 budget, the REALTORS Property Resource, or RPR. NAR is spending north of $21 million per year for RPR, which happens to be a top notch data utility, with a very talented technology team led by the brilliant (and skinny) Marty Frame. And RPR’s CEO, Dale Ross, is the creator of MRIS — which broadened data reach and eliminated a lot of unnecessary and duplicative costs for a whole lot of brokers and REALTORS in the greater Washington DC metro area.
Again, Policy #3 was not approved. It’s not NAR’s official policy. But something motivated that proposal. Whatever that something was likely hasn’t changed over the course of a conference.
I don’t know what RPR could/would do, but my prediction is that we will see RPR emerge as some sort of a serious player in the MLS space in 2015. Whether that is through providing tools and resources and data (RPR has a LOT of data, y’all) to MLS’s to cut costs, or through encouraging consolidation, or something else, I think 2015 is when we see RPR emerge from a cocoon.
3. Realogy Triumphant
Big business is very wise; I’m inside free enterprise….
If you’ve been paying attention, you’ll know that The Artist Formerly Known As Realogy has been slowly climbing out of the debt hole that its former owners have put it in. If you’ve been obsessively paying attention, then you’ll know that 2014 might have been a turning point of sorts for the quiet giant who simply dominates real estate.
Consider these numbers from just the first 9 months (we won’t know full year 2014 results until sometime in 2015):
- $4 billion in revenues
- $125 million in net income (remember when people were pooh-poohing Realogy for losing money?)
- $117 billion in sales volume for the company-owned NRT brokerages
- $200 billion in sales volume for Realogy franchisees
Oh, and Realogy refinanced its high-interest debt with lower-interest debt to the tune of $397 million. As Realogy continues to drive down its debt and interest payment expenses, it keeps generating additional cash with which it can pay down more debt, which then lowers interest expenses, which means… yeah, yeah, a virtuous cycle.
NRT continues to buy up smaller brokerages, adding $11 million in GCI, while RFG is signing up franchises to the tune of $216 million in GCI in first nine months of 2014.
And of course, Realogy made a big move in 2014, buying ZipRealty for $167 million in cash. I think that’s a pretty big f’ing deal, especially strategically. Realogy has already made it clear that it plans to offer the whole Zip technology to its franchisees and to the NRT brokerages. I think we’ll see the impact on franchise sales, but it can’t hurt Realogy to be able to go to brokerages and offer them one of the leading technology back-office/CRM/lead-gen solutions in the industry for joining the Realogy family.
I think the ZipRealty deal puts enormous pressure on other Big Four franchisors, but particularly Remax (as we discuss below). We’ll see the impact next year.
Either way, improving financial health, rapidly paying down debt, ZipRealty acquisition, and continuing to produce results… 2015 may be the year when everyone wakes up to find out just how badass Realogy really is.
4. Redfin Buys Remax
https://www.youtube.com/watch?v=1boeQ9zoF-s
Closely related to #3, I am predicting that by end of 2015, we’ll see a merger between Redfin and Remax. Now, we’ll call it a merger to be nice to everyone involved, but in reality, it will be an acquisition by Redfin, a “reverse merger” by which it can go public without having to actually IPO. The rumor mill has been spinning for quite some time that Redfin does plan an IPO soon, perhaps even in 2015.
The first question is why Redfin buying Remax, instead of the other way around? I mean, Redfin is a tiny little pipsqueak troublemaker brokerage, while Remax is a giant in the industry, no?
Well, consider these three things:
A. Remax isn’t that big of a giant, actually.
As of this writing, Remax’s market cap is just shy of $407 million, with its stock trading at about $35 a share. Critically, Remax only has about $98 million in cash.
Earlier this month, Redfin raised an additional $70.9 million, including participation from previous investors (which shows faith by those investors in Redfin). That brings the total amount raised by Redfin to $166 million.
It’s highly questionable whether Remax with only $98 million in cash could even put together an offer for Redfin whose book value (whatever it is, given it’s a private company still in startup mode) might be higher than the $407 million market cap of Remax. Even if they could put together some sort of a cash plus stock type of deal, seeing as how Trulia went for $3.5 billion to Zillow, and Move went for almost $1 billion (in cash at that) to News Corp, I can’t imagine the Redfin investors entertaining an offer to be bought out. (In fact, I suspect that the only reason why Realogy bought ZipRealty was that Redfin rebuffed their advances.)
B. Remax Has to Do Something
Of the Big Four franchises, Remax goes into 2015 with the biggest set of strategic disadvantages. Realogy is just a dominant force. BHHS is growing fast, is the sexy new franchise brand on the street, has huge advantages in company-owned stores, and has Warren Buffet kinda sorta in its corner. KW is growing the fastest of all, having topped 100K agents sometime in 2013 and likely adding on to that in 2014, and the culture at KW is absolutely unique.
Then Realogy goes and acquires ZipRealty. The competition for franchise sales just got a lot harder for anyone who isn’t Realogy. But I feel that BHHS and especially KW have unique value propositions themselves such that the “your franchise can be powered by Zip” pitch isn’t going to hurt them as badly as it will Remax.
Remax has to match Realogy’s move here. And the only really viable option is Redfin. As we noted above, though, Redfin isn’t a seller. It may, however, be a buyer.
C. Margaret Kelly, Remax’s longtime CEO, recently retired.
Kelly was, without question, a dynamic and forceful leader who has lead the day to day operations at Remax since 2005. She grew the company dramatically and led it to a public offering. Her retirement is a big, big loss for Remax.
Dave Liniger, the co-founder and chairman, will be taking (back) over as CEO. While there is no doubt that Liniger is brilliant, shrewd as ever, capable beyond question and energetic, last I checked, the man was 68 years old and not getting younger. He also achieved pretty much everything a man could achieve in his chosen industry and field. I mean, he singlehandedly transformed American real estate and ushered in the agent-centric era. What else does he need to prove? In contrast, Glenn Kelman is young, smart, motivated, ambitious, and definitely has something to prove. He’s a rebel like Liniger himself was back in the day, out to change the industry, just like Liniger from back in the day. If Liniger wants to groom a successor for Remax in the 21st century, he could do a whole lot worse than Kelman.
Given the above, I actually think Redfin acquiring Remax makes a ton of sense. Infusing what is still one of the Big Four brands in real estate with the technology and online/mobile presence of Redfin is a game-changer. The “company owned stores” of Redfin’s operations can become Remax franchisees, just like NRT brokerages are franchisees of Realogy’s brands.
It could happen. It should happen. And since I’m making predictions guaranteed to be wrong, I’ll say that it does happen.
5. Disruption Comes to the Listing Agent
The first decade or two of “real estate technology” has been all about the buyer — and therefore, the buyer agent. Despite all the hype and hoopla around DISRUPTIVE TECHNOLOGIES OMG!!11!!, pretty much everything revolved around buyers, home search, and tools for them. The business models of various companies, including the big portals like Zillow, depended on buyer traffic, and therefore, buyer agents.
Listing agents, however, who represent the homeowner looking to sell the property, really haven’t been impacted all that much. Yeah yeah, there’s a lot of bitchin’ & bellyachin’ about Zillow selling leads on “MY listings” and so on — but as we’ve discussed on this blog many a time before, that complaint simply falls apart logically when IDX exists. So all in all, listing agents have benefited from technology, especially productivity tools, but they haven’t really been disrupted by technology. As the saying goes, “it’s still a belly-to-belly business.”
I think 2015 is when we see disruption cross that chasm from buyers to sellers.
Top of the list, for me, is Opendoor.com, which finally launched. I wrote about them here earlier in the year. We now know what the actual offering is, and it isn’t quite as threatening or disruptive as it could have been. (Opendoor charges 5.5% instead of the 6%, and splits escrow costs with the seller — but that’s not a huge savings.) Plus, Opendoor makes it clear that it plans to work with real estate agents to sell the homes it acquires.
Nonetheless, as Fortune says, “Opendoor is hoping to cut through most of that red tape, helping sellers get instant offers and close in just three days.” That’s… disruptive. And as Opendoor says on its website, it will include a report to the seller when it makes an offer to purchase the home detailing how it got to the price it’s offering. Presumably, the homeowner can dicker back and forth a bit with someone at Opendoor.
Simply that time savings and the convenience are going to put some pressure on the traditional model of “let’s stage your home and spend four months having strangers come and go in your home” deal.
But as I said, and as I’ve written on this blog before, Opendoor is merely the highest profile of the wannabe disrupters. Allre.com, about which I’ve done a podcast, is also looking to make some noise with sellers. So is Surefield, a new-model brokerage company that wants to get rid of agents walking people through the home, which I’ve written about here.
Who knows if any of those companies will be successful or not in the long run. They may be, or they may not be. But I think the concept and the idea are out there: technology can be used to help sellers, not just buyers. As more and more people try to make those concepts into reality, we’ll see more and more disruption of the traditional listing agent.
And I say 2015 is when it all begins, leaving listing agents singing, “Can’t stop now, dontcha know, I ain’t never gonna let you go.”
6. Agent Teams Cross A Line
https://www.youtube.com/watch?v=DGqQGyQQhTA
It isn’t as if agent teams are a brand new phenomenon none of us know about. In fact, while few people really discuss agent teams (except, well, y’know… *ahem*) and their impact on the industry, fact is, they’re changing almost everything about the real estate industry. Kinda under the radar.
In 2014, we saw Keller Williams — the most agent-team friendly of them all — launch something that raised a few eyebrows. Or, rather, quite possibly just my eyebrows. That something is called Mega Agent Expansion:
“Simply stated, Mega Agent Expansion is taking your administration systems and team and your lead generation systems and team to an additional location,” he said.
Keller said there are three big reasons to expand:
- To increase profits;
- To expand the vision for your business so you can attract and retain more and higher quality talent;
- And to deepen your bench.
Keller interspersed his comments with stories about the early years of Keller Williams and the lessons he and the company learned. “In Austin, we had two market centers and I resisted adding any more.” Eventually, he awarded new market centers in the area to other owners. “What’s interesting is that our business grew at the original.” The expansion didn’t diminish the growth potential, in fact, it enhanced it.
Basically, Mega Agent Expansion is KW embracing and encouraging its top agent teams to expand into other markets. The suggestion is to start close to home, then go out from there. As the blog above says, expand within the same MLS, then a different MLS, and then a different state (which requires licensing in that state).
Now, Gary Keller specifically countered the “expansion is for brokerages, not agents” thing, and calls Mega Agent Expasion a “big, big opportunity”.
I happen to agree that geographic expansion is a big, big opportunity. And it is one that the elite top agents within KW are going to jump into with gusto.
For some folks, the idea of multi-state agent teams right there might “cross the line”. But that isn’t what I have in mind.
You know what else is a “big, big opportunity” that is held to be the province of companies, not agents?
Affiliated businesses. Yep, that’s right. Mortgage, title, escrow, home warranty — if it’s connected to real estate, it may be an affiliated business.
Thing is, broker after broker have told me time and again that in many instances, they run their brokerage operations as a loss-leader in order to generate leads for their title, mortgage, escrow and home warranty businesses. Almost all of their profits come not from buying and selling houses, but from all of these affiliated business arrangements.
I have had more than one broker tell me that the minute that an agent, no matter how productive, starts messing with affiliated businesses is the minute that he’ll fire the agent. Well, I think we’ll see some agent teams cross that line in 2015.
Yes, yes, I know about RESPA. I know one has to be careful in structuring things, and maybe an agent team won’t be able to do it legally (being an agent team, rather than a brokerage). But where there is money, and the incentive to figure something out, I think smart folks are going to put their heads together and come up with a way to make that money.
So I don’t yet know exactly how agent teams will cross this line, but I think at least the pioneers will try in 2015. I mean, it wasn’t long ago that the notion of agent teams crossing state lines was unthinkable too.
7. Inman News Drops Inman Select
https://www.youtube.com/watch?v=sVkv42PHXKo
In a manner of speaking, Inman News has been telling us everything by saying nothing. Well, at least, saying nothing for free. Well, that’s not entirely correct….
The Inman Select program, launched in 2014, puts a lot of the content behind a paywall. To access those stories, one must subscribe to Inman Select for $199/year (individual).
As a content producer myself, I sincerely hope and pray that Brad Inman institutes a culture of paying for content in the real estate industry. 🙂 No selfish motive there at all, no. Yet, as a content producer who has dabbled in the area, I have my doubts.
There’s also the fact that some folks I won’t link to an Inman story that is behind a paywall anymore. Not because I hate them (in fact, it’s exactly the opposite) but because I love my readers. And if they — that is you — are not subscribers, then whatever I link to can’t be read. And if content is behind a paywall, I don’t feel right excerpting it as I do with blogs or open web content.
So I might want to discuss a story like say… this one: Where an MLS sees free leads for members, some brokers see competition. It’s by one of my favorite real estate reporters, Andrea Brambila, who does really good work. But I can’t, because of the paywall. So I won’t.
Inman Select may be (please dear God) an extremely smart business move for Inman. But it also takes Inman out of the general conversation about issues in the industry, except amongst the elect, I guess. I think it tends to reduce Inman’s influence on the industry, actually, because of the paywall.
I might be wrong, and I hope I am, cuz all of you reading this now may find yourself coughing up some cash for next year’s version, heh. 🙂 But I’m actually predicting that Inman News, finding that while it has more money in the bank, the Inman Select program reduces readership, reduces influence, and reduces discussion about important issues in the industry, decides to drop Inman Select in 2015.
Happy New Year, Everybody!
Well, that’s this year’s edition of Seven Predictions. I hope to see many of you at various industry functions in 2015, and I’ll certainly see you all around the Interwebz. Have a wonderful new year, remember that what does not kill us makes us stronger, and remember: all predictions guaranteed to be wrong, or your money back!
-rsh
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