The Future of the Real Estate Brokerage Industry by mirit35

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									   The Future Of The Real Estate Brokerage Industry

                                  by

                          Stefan Swanepoel

                          Word Count: 1648


In "Real Estate Confronts Reality" (1997) I wrote: " The next few years
could mark the end of an era of real estate brokerage as we know it
today e large revolution….the time has come for real estate
professionals to accept that they can no longer ignore what's
happening around them."

Since that time, real estate portals, new employee based fee-for-
service type brokerage companies, a flood of revolutionizing Internet
technologies, the unbundling and elongation of home related services
and the restructuring and liberation of MLS data have all significantly
started to fundamentally change the structure of the industry.

As these trends mature through their cycle, rest assured that we are
but at the early stages of this change and that most of the impact is
yet to be felt. Supplemented with some new trends and players, such
as the anticipated entrance of banks and title companies into the
brokerage industry and the continuing changes to agency law, and it is
evident that dramatic transformation of this industry is unavoidable.

Over the next year or two, expect the following trends and/or
companies to play a significant role:

  1. Continuing Consolidation
     Real estate brokerage companies are getting larger and larger as
     acquisition mania rampages through the industry. Fueled by
     declining residential revenues per transaction, economies of
     scale and cross selling, larger companies have been forced to
     pursue mergers, acquisitions and joint ventures as a survival
     strategy. Many large non franchise affiliated brokerages such as
     Long and Foster, Arvida Realty Services and Alain Pinel Realtors
     have maintained their regional dominance this way, while
     numerous large franchisees such as Coldwell Banker Bain,
     Prudential California and REMAX Alliance have gobbled up
     smaller franchisees, mainly within the same stable.
  However, one company leads the pack. NRT, Inc. (51% owned
  by Apollo and 49% by Cendant) has not only continued to
  dominate the national ranking as the worlds largest real estate
  brokerage company (some 900 offices and an estimated sales
  volume this year of $125 billion) but seems to have a never
  ending ability to acquire excellent companies such as Fred Sands
  Realtors, Gundaker Realtors and Corcoran. Who said size doesn't
  matter?

  When Cendant (formerly HFS) bought Century 21 only five years
  ago, many said no big deal; major corporations have owned real
  estate companies before. They sited Sears, Control Data and
  Metropolitan, pointing to what many consider were failures.
  Statistics can, of course justify any side of an argument;
  however I think it can safely be said that Cendant has had a
  major impact on the real estate industry over the last five years.
  This includes the residential real estate brokerage, mortgage
  origination and relocation segments of the industry. In almost
  every category in which they participate they are number one,
  and whether hated, loved or feared, you have to respect them as
  they have succeeded where many other of their predecessors
  previously failed.

2. New Real Estate Models
   Although a lot of negative talk has generally cast a pessimistic
   view of this phenomenon, between all the recent Dotcom rubble
   a few new paradigm real estate models are finding their feet and
   slowly becoming profitable. These companies vary strategically
   but largely support the notion of a buyer represented, agent
   employed, technology driven fee-for-service model. While
   companies such as ZipRealty, SOMA, eRealty, YHD and
   HomeTouch, when compared to any national and many regional
   companies are relatively small, they continue to make inroads
   and some of them could very well become national players in the
   coming decade. The impact of these companies, together with
   the push by some to see a change from the traditional role of
   agent to that of only transactional middlemen, will collectively
   also heighten the already downward pressure on commissions.

  Providing a larger variety of transactional services during as well
  as after the home purchase seems an obvious way to
  supplement declining real estate commission. As an example,
  more traditional real estate brokerage companies such as
  HomeServices, 9keys Inc., Prudential Fox and Roach and Howard
  Hanna have already successfully re-engineered their brokerages
  businesses and expanded into mortgage, title, insurance,
  warranty and home repair type services. Many of these services
  are not just minor value added departments, but have in their
  own right become, in many cases, large independent profitable
  subsidiary companies.

  On the portal side it would seem that the game is over in real
  estate. Although HomeStore still face significant challenges in
  the integration of their acquisitions as well as additional ways to
  find more meaningful ways to generate revenue, they have
  basically won. HomeStore (operating entity for companies such
  as Realtor.com, homebuilder.com, move.com, and iPlace.com)
  has executed perfected on a grandiose plan and created a new
  giant in the real estate industry. With significant cash in hand
  and a public stock that is (although low) worth more than almost
  all of the companies they have and are acquiring, HomeStore
  remains in a very strong position to change the industry in the
  future.

3. Entrance by Banks and Title Companies
   Rarely has pending legislation suggested changes to the financial
   services arena as controversial as the recent Gramm-Leach-
   Bliley Act. The proposed new rule would declare real estate
   brokerage, real estate management and employee relocation to
   be activities that are "financial in nature" or "incidental to a
   financial activity." This would allow financial holding companies
   and national bank subsidiaries to enter these businesses.

  Since the 1980's there has been extensive debate about the
  shortcomings of the Glass-Steagall Act and, over the last two
  decades, there have been various reductions of the Act's
  separation provisions. If approved, the proposed new legislation
  would remove the separation of commercial and investment
  banking entirely. NAR has put up a memorable and fierce battle
  and yes, the war is far from over. Download free copies of a 26
  page white paper on the subject at www.RealSure.com. The
  general expectation however is that banks and title companies
  will become major players in the real estate industry in the not
  too distant future, so watch out for Bank of America, Chase,
  Countrywide and/or
  Wells Fargo.

  On the Title side, if you have been watching closely the last
  couple of years, you would have noticed how a relatively small
  title company, Fidelity National Financial (FNF), has with military
  precision acquired various key companies to become, not only
  the largest title company in the nation but also, one of the most
  diversified financial groups. During 2001 FNF acquired VISTA
  (who in turn had earlier acquired Moore Data Management
  Systems -- the nations largest MLS provider) as well as iProperty
  (one of the leading new paradigm transaction integration
  companies who had in turn earlier acquired RISCO -- the nations
  3rd largest MLS provider). If one company could make huge
  strides towards integrating, sanitizing, adding value and then
  delivering quality real estate data on a national level it is FNF.

4. Internet and Telecommunications gains momentum in
   real estate
   Yes in April 2000 the Internet bubble officially exploded and
   thousands lost billions of dollars. Although many Internet
   companies crashed, they and those who survived introduced a
   legacy of new and creative new ways of doing real estate
   business. Companies like HomeGain, E*Loan, Katabat, BidTrac
   and others have offered certain services for free, innovated
   where and how we deal with the e-Consumer and collectively
   pushed towards a faster and more effective home purchase
   transaction. Numerous insolvent dotcoms left behind a legacy of
   technology development courtesy of the VC companies that
   funded them. Some traditional companies are now purchasing
   the aforesaid and slowly but surely former visions of grandeur
   are finding a home, albeit a tad more realistically, in a old
   paradigm company. So if you thought the Internet was dead,
   think again….e-Business is on track to globally reach US$1.3
   trillion by next year and will, when we enter the next economic
   upswing in 1-2 years, start to have a significant impact on the
   Industry.

  Meanwhile, on the telecommunication side, new innovation is set
  to impact the way we sell real estate. Twenty years ago most of
  us didn't have multiple telephones (office, home, mobile, etc.
  etc.), each with its own voice mail. Ten years ago we didn't have
  five email accounts, and … well, you get the point. With the
  growth of mobile telecommunication, devices are expected to
  surpass 1 billion units worldwide by 2003, management of our
  communications has become a full time task. The time has
  arrived to make it simpler.
      With wireless Internet connectivity expected to surpass wired
      connection within the next 24 months, a variety of new voice
      technologies will soon become available. Companies such as
      AOL/Time Warner, Sprint, Quest and GenuTec are slated to
      introduce services such as mobile Online Collaboration (live text
      based chat between companies and the customer over the
      Internet); VoIP (Voice over Internet allowing customers to
      connect to the company instantly by voice over the Internet);
      Unified Communications (the integration of voice, fax and email
      together with a call center, all through one number) and
      VoiceXML (interfaces voice-recognition software and web content
      for delivery over the phone).

Conclusion

Although it is not possible at this stage of the change, to predict which
players and trends will ultimately have the largest and most lasting
impact, rest assured that the consumer will enjoy a faster and less
expensive home buying transaction in the future.

Stefan J. M. Swanepoel is an author, strategist and international
entrepreneur. He helped grow California based 9keys with 200% into
a $1.6 billion home services group, while in South Africa he launched
and expanded US franchise ERA from zero to 120 offices within 24
months. Currently he is Vice Chairman of GenuTec, an American and
European financed telecommunication company developing the next
generation of unified communications and integrated messaging
systems. For information about Stefan’s speaking and consulting
services, please contact the Frog Pond Group at 800-704-FROG (3764)
or email Susie@frogpondgroup.com; http://www.frogpondgroup.com.

								
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