Grading Time! The 2018 and 2019 Predictions

Well, so I guess I forgot to do this last year so I can’t call it an annual tradition anymore. But it’s that time of the year to grade myself on predictions made and how I did. We’ll do a double-header this time, grading both the 2018 Predictions (link goes to Inman.com) and the 2019 Predictions.

For those keeping track at home, my record so far:

• 2010 Predictions: 6 for 10 (.600)
• 2011 Predictions: 4.5 for 7 (.642)
• 2012 Predictions: 2 for 7 (.286)
• 2013 Predictions: 4.5 for 7 (.642)
• 2014 Predictions: 3 for 7 (.429)
• 2015 Predictions: 2.5 for 7 (.357)
• 2016 Predictions: 1 for 7 (.143)
• 2017 Predictions: 2 for 7 (.286)

Well, so I’ve had a couple of Hall of Fame years, and then one disastrous stinker. Let’s see how I did in 2018 and 2019.

2018: 1. Realogy transforms to ‘Stay Alive’ NO

So I thought back then that Realogy would need to transform in order to deal with the core business profitability problems:

But having a new CEO at the helm, with no preconceived notions of what does and doesn’t work in real estate, gives Realogy a chance to reinvent itself.

I think it will do that. Maybe it’s with a low-cost brand because none of its existing brands are competitive on cost. Maybe it’s with an employee model, like Redfin, to leverage new ways to use data, analytics and technology. But one way or another, Realogy transforms.

I thought back then that Ryan Schneider really would transform Realogy into something we had not seen before. What can I say? I was dead wrong.

Schneider has done quite a bit to change the culture at Realogy, put some of his own people into place, and has done what is actually a marvelous job overall in a tough environment, but… he did not transform Realogy as we know it. It still remains the flag bearer for the traditional brokerage, for the traditional franchise model, and for the traditional real estate company.

Pretty sure I struck out on that one.

2018: 2. Redfin becomes third-largest brokerage by volume. NO

Gotta admit this one caught me by surprise. I didn’t see Compass coming back in 2017 when I wrote the prediction, but also didn’t think Douglas Elliman would keep it going as it did.

According to the Swanepoel Mega 1000 for 2019 (which uses 2018 data), Redfin was #5 not #3, behind NRT, HomeServices of America, Compass, and Douglas Elliman. Still a respectable showing and I don’t think I was that far off going by the S-1 filings from 2017, but still… #5 isn’t #3 so… got this one wrong.

2018: 3. NAR ends its long love affair with RPR. YES

I made that prediction in 2017 because there was a change at the top in leadership:

Now, it’s not a deep state secret that RPR was Dale Stinton’s baby. As Inman put it, RPR was supposed to be an answer to the threat from Zillow, and “Dale Stinton hated Zillow as much as President Trump despises CNN.”

I think that’s a bit of hyperbole; Trump doesn’t despise CNN quite that much, nor does he see CNN as an existential threat to the U.S.

But there’s a new king on the throne now, and Bob Goldberg has no real incentive to keep Dale Stinton’s baby going. In fact, Goldberg has some incentive to kill RPR off next year.

Today, RPR’s failure can be laid at the feet of his predecessor. In two years, that’s no longer the case; he has to eat part of the blame for RPR going down.

Add to that a growing chorus of voices saying it’s time to cut losses on RPR, and I think we see NAR finally break up with RPR in 2018.

Well, in February of 2018, NAR killed off AMP (the MLS front-end project), and cut 20% from RPR funding. In April, Dale Ross, the CEO of RPR, left. In June, the chief architect of RPR, Marty Frame, left. Then in December, NAR walked away from Upstream, which relied on RPR.

So while RPR still exists, it’s a shadow of its former self. I think it’s enough of a change that we can’t really call what exists between NAR and RPR a love affair anymore. I’m giving myself the Yes on this one.

2018: 4. Realtor MLSs start to convert to non-Realtor status. NO

Yeah, that’s a swing and a miss. I thought back in 2017 that due to the MLS of Choice rules that were promulgated, REALTOR MLSs would realize they have a cost-disadvantage in competing against non-REALTOR MLSs and take steps to address it by converting to non-REALTOR MLSs.

Boy, was I wrong on that call. I’m not familiar with even a single REALTOR MLS that did such a thing. MLS of Choice has not had much of an impact, which is counter to my thoughts in 2017.

So we’ll just mark that one down as a big no-no.

2018: 5. The giants enter real estate, at last. NO

In 2017, I thought we would see the real tech giants getting into the real estate business in a big way in 2018. A lot of that was based on Facebook making significant changes to its Marketplace and then creating “Dynamic Ads for Real Estate.” Mike Delprete had a fantastic article on Facebook’s forays into real estate, which influenced me quite a bit.

Plus, Amazon was making a lot of noise that looked like they were getting serious about maybe offering real estate brokerage services. From the 2018 Predictions post:

In fact, Inman reported back in July that Amazon was planning to enter the real estate space. Inman found a placeholder webpage that says, “Hire a Realtor” and spoke with a source who said “they were approached by a person who was looking for help with integrating agents into Amazon’s professional services marketplace.”

Amazon has since taken down that webpage, but it got the industry talking for a while about the prospect with a mix of fear and anticipation.

All of that turned out to be a big nothingburger. Facebook’s changes did not set them on the path to becoming a true portal. Nor did Amazon relaunch that webpage with anything special.

So here we are, knocking on the door to 2020 and Big Tech appears to be happy to leave real estate the hell alone and just make some money from real estate agents and brokers buying Facebook ads, or buying up search keywords. Smart, if you think about it.

2018: 6. Revolution in MLS technology finally arrives. Sort-of (1/2 right)?

So in 2017, I saw the arrival of CloudMLX from W+R Studios and its deal with CRMLS, the country’s largest MLS, as the forerunner to a revolution in MLS technology. I thought we would see front-end-of-choice everywhere by the end of 2018 as CloudMLX was a hundred times better in UI and user experience than existing platforms.

As we all know by now, that did not happen. It’s 2020, and most brokers and agents are still using the same old UI, same old front-end-of-no-choice.

Thing is, 2018 is when Remine introduced its MLS 2.0 platform to the industry, at the CMLS show in September. Now, that’s not entirely front-end-of-choice, but it is a damn sight better than what the traditional vendors were offering then. And it does have quite a few backend technology pieces that could maybe qualify as a “revolution” in technology.

Now, as far as I know, as of this writing (and certainly by the end of 2018), no MLS anywhere was using Remine’s MLS 2.0 platform to power its MLS. They were doing deals with Remine for things like the mobile app, or data deals, but not actually operating the MLS on Remine’s new platform.

Having said that, I didn’t say revolution in MLS technology ends or matures or finds wide adoption; I said it arrives. Perhaps we could consider Remine to be that arrival? Maybe? I’ll give myself half-a-win on this one.

2018: 7. Independent contractor lawsuits hit the agent team. NO

Two years ago, after the $4.5 million settlement in the Bararsani case, I thought the lawyers would smell blood in the water and start going after agent teams with employee misclassification claims:

Although I don’t think the brokerages are out of the woods just yet, I think these rulings and settlements (in particular, the $4.5 million settlement, which means the lawyer got $1.5 million for his troubles) sets up the next wave: labor law litigation against not brokerages, but against agent teams.

While I still think agent teams are vulnerable to such lawsuits, fact is that no such lawsuit was brought or successfully taken to trial and victory at court in 2018. It just didn’t happen.

Now, in 2018, the California Supreme Court handed down a major employment law case directly on point: Dynamex. Lawyers had a lot of fun analyzing what that means, and in 2019, the California legislature codified the Dynamex rule (the “ABC test”) into law… but real estate agents got an exemption.

So there was a lot of action around independent contractor vs. employee thing, but no agent teams were sued by anybody on that theory.

I’ll take another zero on this one, thanks very much.

2018 Totals: It looks like I had another horrible year in 2018, going 1.5 for 7 for a .214 batting average. Hey, that makes me the same as Bryce Harper for the first half of the 2018 season! Guess I’ll learn to be pleased with that.

Now, let’s do 2019 Predictions.

2019: 1. Redfin Hits You With That 뚜두뚜두 (DDU-DU DDU-DU) NO

So, based on Redfin’s plan to spend up to $60 million on consumer advertising in 2019, I thought the Seattle-based discount brokerage would really bring commission compression into the industry:

So it seems obvious that Redfin pressuring the commission would be my first prediction sure to be wrong. But if it’s wrong, it may have more to do with timing as it might take longer than a year and $60 million in consumer advertising for the idea to take hold in consumer consciousness. After all, Redfin has been in Seattle for over 10 years, and advertising there for a while. Yet, in the Q3 earnings call, Glenn Kelman said consumer awareness of Redfin was only 19% in their home market.

We’ll see if massive increase in advertising to get the message across about full service brokerage at lower commissions makes a difference. But I reserve my judgment to swing and miss in 2019 and repeat this one for 2020.

If Redfin’s advertising blitz is successful, then it will have hit the industry with that 뚜두뚜두 (DDU-DU DDU-DU), ah yeah, ah yeah! I have no idea what that means, because it isn’t actually a word in Korean. But the impact will be significant, and lasting.

Well, here we are at the end of 2019 and there is nary a sign that commission rates generally have moved very much. They haven’t moved that much in those markets where Redfin did go on advertising blitzkrieg. And in an earnings call from earlier this year, Kelman downplayed the expectations of such mass media advertising saying that Redfin is seeing some real positive results, including consumers now knowing that Redfin is in fact a brokerage.

But commission compression? Hardly. Bringing the Darkness? Not at all. Maybe it’ll happen next year… or the year after… or…. But we know now that it did not happen in 2019.

2019: 2. Zillow Homes Drops the Mic YES

So here’s what I wrote last year:

And yet, there is no question that Zillow validated the entire iBuyer space overnight when it came in. Just the fact that Zillow started testing iBuyers with Zillow Offers made Opendoor, the pioneer of the model, something of a household name within the industry. When Zillow put down the big bets, everybody noticed.

In my profile of Arik Prawer, the new head of Zillow Homes brought over from Invitation Homes, I noted:

So iBuyer is the most important initiative in real estate today. Zillow is the highest profile iBuyer in the industry today, with the largest war chest, largest audience, and the largest network of agents. If Zillow fails, then it is quite likely that the world will write off the entire “you will buy and sell your house to a company” thing as a mistake, or at best, a niche investor/house flipper play.

Furthermore, the iBuyer initiative is at the core of Zillow’s transformation from an ad-supported media company to something else that is central to the flow of transactions in residential real estate. I believe that something else is what I’ve been referring to as the Iron Throne: The Real Estate Platform.

Given Prawer’s deep background in buying, renovating, managing and renting single family homes (Invitation Homes had some 82,000 of them in its portfolio), and Zillow’s commitment to the bet-your-company strategy, I predict that Zillow will blow the doors off of expectations in 2019 in its Homes segment. It will surprise everybody when they do.

I think it’s safe to say that Zillow has in fact blown the doors off of expectations… starting with the return of Aragorn Rich Barton as king. I’m not going to go find every Wall Street analyst’s forecast of Zillow back in 2018, but let’s use this one:

Wedbush Securities analyst Ygal Arounian reduced his price target for the shares to $30 from $45, saying the company is getting distracted from its core online business.

Arounian’s new target is just below where Zillow is trading in early morning trading; the stock is now down 25.3%, at $30.44, a new 52-week intraday low.

“The increased focus on home buying and selling, mortgages, and the general move down the funnel seems to have taken too much focus off core lead generation,” he wrote on Wednesday. “The transition to the new lead validation and distribution model for Premier Agents has led to higher churn and negative feedback from agents.”

As of this writing, Zillow stock is at $41.81. And then we get this:

Zillow Group Inc. Z, -0.63% shares gained more than 10% in after-hours trading Thursday after the online real-estate company reported that sales more than doubled from the year before in the most recent quarter thanks to the company’s push to buy and sell homes.

So even though my prediction was double or triple what analyst expectations were for Zillow Homes, I can’t find any expectations from them for number of sales or number of markets or whatever. Instead, I’m going to declare victory based on stock price, analyst sentiment, and the bull case appearing to win so far.

2019: 3. Amy Bohutinsky Tries a New Color Palette as CEO of eXp Realty NO

Well, that was embarrassing for yours truly… if I wanted to be right, at least. But as we all know by now, Amy Bohutinsky, former COO of Zillow, did not take the job as CEO of eXp Realty. Instead, she joined the venture capital firm TCV.

I mean, that probably makes a whole lot more sense given her experience in consumer-facing tech companies, but I don’t think my prediction was a crazy one given that RJ Jones, former head of investor relations at Zillow, just went to eXp. Still, wrong is wrong, so chalk up another swing and a miss.

2019: 4. Realogy Tells Opendoor, “I Need U!” NO

See, when I made this prediction, it was right after Realogy reported positive results from its cataLIST adventure with Home Partners of America. I thought that test would show them the benefits of having an actual iBuyer program. So here’s what I wrote:

That’s within months of launching. I think by next year, Schneider and his team will see the data from its trial program with Home Partners of America and decide they need to move big into iBuyer space. That’s especially true if Realogy hopes to contend to be The Platform.

And I kinda sorta think they do, based on this from the Inman interview:

As a company, we have mortgage, we have title, we have a number of the things that go into it. And nobody, including us, has really found a way to truly simplify the process. But boy we have the potential to do that and the size and scale and the pieces. But it’s still a complex process. With all of the pieces, companies that have the size and scale of Realogy have the chance to build a consumer experience for the home sale and closing process. But that hasn’t been done by anyone including us in the market to date.

The big missing piece to truly simplifying the process is, of course, an effective iBuyer service. (See the Zillow piece above.) The simplest and fastest way to start that up is to go court Opendoor.

I don’t know if such an overture was made, of course, but what we all know is that Realogy did not get married to Opendoor. Instead, it took its budding relationship with Home Partners of America to the next level with RealSure and RealSure Mortgage.

After doing my 2020 Predictions, it kinda makes more sense. Until Realogy does something about that debt burden, it may need to stick to partnerships and alliances rather than big M&A deals. So RealSure looks to be the future for now, and I look to have missed another one.

2019: 5. Compass Wants Nobody, Nobody but Keller Williams NO

In retrospect, this prediction was sure to be wrong — so I’m glad I made it. But also in retrospect, both companies might look back on my predictions and say to themselves, “We should have done that deal.”

Here’s what I wrote back then:

Gary Keller’s announcement in 2018 that Keller Williams was no longer a real estate company but a technology company has been widely covered. KW is the largest brand by agent count, with 166,854 in the United States as of Q3, and the loyalty of KW agents to the brand is legendary.

Robert Reffkin and Ori Allon would contend that while KW would like to transform into a tech company, Compass already is one. Inman just reported that Compass is hiring 100 more engineers in its Seattle tech hub, to be headed up by its new CTO, Joseph Sirosh, formerly of Microsoft. Compass’s technology is a big draw in recruiting top producing agents to them (although big checks and sweetheart deals as widely reported don’t hurt, one imagines).

Combine the two and you have a powerhouse that really could realize Gary Keller’s vision of “tech-enabled agent” beating back the dark forces of “agent-enabled tech”. Compass certainly falls into the “tech-enabled agent” bucket as well, as Reffkin makes clear time and again, every chance he has, that Compass is all about the agent.

There is some strategic fit between the two brand as well. Compass goes after the very best top producing agent teams in Top 20 markets; KW has many of the top producing agent teams in the industry thanks to its long focus on teams. But KW also has teams in every market in the country, and tens of thousands of not-so-top producers everywhere. A combined Compass-KW (operated as separate brands, of course, as Realogy does) would allow top KW teams to migrate to Compass, while making the Compass-KW technology available to every one of those 166K-plus agents, and let Compass transition some less productive people over to the KW side of the house.

Fast forward a year later, and Compass is dealing with the fallout from the Softbank/Vision Fund debacle with WeWork, and Keller Williams has already spent a ton of money developing and deploying its software platform.

Had they gotten married back when everyone was feeling good about Compass’s $6.4 billion valuation, and before Gary Keller had spent even more millions on Command or Kelle or whatever, that combined company could have scoffed at the WeWork-derived troubles.

But they did not, and we will never know what could have been, might have been. We will only know that I got another one wrong.

2019: 6. The Feds Remind Real Estate Who Daddy Is YES, Sort Of (1/2)

No, the Federales did not enact any new major regulation of the real estate industry in 2019. That is true. I had thought it was possible that we might see something like what the Canadians did up north:

I think it will be something similar to what happened in Toronto, when the Canadian Competition Bureau (their equivalent of our anti-trust authorities) finally won its battle against the Toronto Real Estate Board. I wrote about that episode in the November Red Dot. The whole issue is far too long to go into here, but bottomline is that the Canadian authorities have decreed that TREB must open up its data vault to consumers, and more importantly, to companies who want to do more with previously undisclosed MLS data. Primarily, that means sold data, off-market information (pending, withdrawn, expired, etc.), and commission rates, including compensation offered to buyer agents.

Since Canada is so similar to the U.S., and since we know that the regulators talk to each other (and the Canadian Competition Bureau submitted a formal comment to the FTC/DOJ this time around), it seems reasonable that the American regulators just copy what worked up North.

The primary change would be to adopt the “but for” test from the Canadians, which says that an MLS rule is anticompetitive if “but for” that rule, brokers or agents could have done something, built something, or tried something that they did not actually do, build or try. It is one of those tiny details that make a rather large amount of difference.

They did not do that. However…

The Feds did do something extremely unusual in 2019 by intervening in two civil antitrust cases, Sitzer v. NAR and Moehrl v. NAR. I wrote about that for the VIP audience back in October, saying:

With this Statement of Interest, the DOJ just chopped the legs out from one of the strongest arguments that NAR (and the corporate defendants in Sitzer and Moehrl) had: that the system of cooperation and compensation and the entire MLS system are procompetitive. A big part of that argument was that all of those had gone through extensive antitrust scrutiny by the DOJ back in the early 2000s and the DOJ blessed the arrangement.

That argument just went up in smoke.

…

Short of joining the lawsuit, or bringing its own antitrust lawsuit, I don’t think there’s anything that the DOJ could have done to help the plaintiffs in Sitzer and Moehrl more.

Not that anybody expected these cases to be dismissed, but I feel pretty confident that with this intervention by the DOJ, no judge anywhere is going to issue a dismissal now.

Furthermore, I think this move by the DOJ makes things much more difficult for NAR and the corporate defendants at trial. The same arguments brought up in the motions to dismiss will be brought up at trial, but the DOJ just chopped the legs out from one of the key pillars: the MLS is procompetitive. Now, NAR has to show that the MLS is procompetitive without the authority of the United States behind them.

Some of you have heard me present on the commission lawsuits and the possibility of government regulation. I have made the point over and over that should the DOJ come out with some kind of regulation requiring greater disclosure on the part of the MLS, the implication of such a regulation would be that the MLS is not procompetitive in its current incarnation. That, I argued, would be like handing a machine gun to the plaintiff’s lawyers in Moehrl and Sitzer.

Well… filing a Statement of Interest literally specifying that the DOJ has never found the MLS to be procompetitive, and that NAR is misrepresenting the 2008 consent decree, and that the rules being litigated in Moehrl and Sitzer have never been scrutinized or litigated… damn, that’s not a machine gun being handed over… it’s like an airstrike devastating the opposition to help the plaintiff’s lawyers.

It’s not quite the new regulation I was predicting, but it isn’t nothing, especially since the government so rarely intervenes without being asked in a civil case.

I do think it’s a power play, a move to remind various players in real estate (especially NAR) who daddy is. So I’m awarding myself 1/2 on this one.

2019: 7. Re/Max Trains Its Agents to Bang, Bang, Bang YES, Sort Of (1/2)

Finally, last year I predicted that RE/MAX would take proactive steps to train its agents on firearms and concealed carry:

In 2019, I think Re/Max does do something about it and takes action. In addition to offering agent safety apps, in addition to training their agents on situational awareness and smart pre-screening and taking measures to avoid problems, I think Re/Max goes a step beyond. Re/Max offers firearms training, including concealed carry courses, for their agents who are legally allowed to carry a handgun.

I say this because the new CEO of Re/Max, Adam Contos, is a United States Marine honorably discharged with the rank of Sergeant. He is a former police lieutenant, who ran a SWAT team. He kicked in doors, blew things up, and saved people. (It’s in his LinkedIn profile). He was a firearms instructor in both the Marines and the police. He is, obviously, an expert marksman.

Agent safety was unfortunately very much on all of our minds in 2018, and I thought that with Adam Contos becoming the sole CEO of Re/MAX, we might see something like that.

Well, suffice to say that RE/MAX corporate did not offer any such training or any such courses. However, I have heard from quite a few RE/MAX owners across the country that they offer such courses for their agents, and have heard from a very good source that Contos is not opposed to any such training as long as it is properly done by properly credentialed teachers and trainers.

It should be no surprise that Contos is not personally against law-abiding citizens, including his own agents, protecting themselves with a firearm as long as they are properly trained, nor carrying them with appropriate training and licenses where allowed.

So I’m going to take half a point here, even if strictly speaking, I got the prediction wrong. Because I can, when I’m grading myself.

2019 Totals: Batting .286, even if two of them were bunts where the fielder kind of bobbled the ball, gets me into Ryan Braun category. Top 40 in the MLB baby! I’m not making the Hall of Fame, but I’m probably not getting demoted to the minor leagues either with that kind of an average, right?

Final Thoughts

So what have we learned, apart from the fact that Yogi Berra was right when he said, “It’s tough to make predictions, especially about the future?”

We have learned as we always do that what seems logical doesn’t always happen for a wide variety of reasons. Things change, events occur, personalities fit or don’t fit, and there are factors behind the scenes that nobody knows.

We have also learned — or at least I have learned — that real estate is a bubbling cauldron of change these days. But like a bubbling cauldron, it rarely just blows the lid off. Change comes, but it comes slowly… until it suddenly comes quickly. Patience is a virtue, and predictions should be taken with a shaker of salt. Unless you’re a snail, in which case that would be fatal.

Either way, I hope all of these predictions — mostly wrong, but that was kind of the point — have entertained you and given you something to think about over the years.

Thanks for your support and your attention. I truly do have the best informed readership in the industry.

Merry Christmas, everybody!

-rsh