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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