REAL Trending Episode 29
Steve Murray talks about housing market predictions for 2019, the growing power of highly productive teams and agents, and the valuation of small- to medium-sized brokerage firms.
From REAL Trends, the trusted source for real estate industry news, this is REAL Trending, Episode 29. We’re breaking down the trends of the week and showing how they impact brokers and agents. I’m Steve Murray, president of REAL Trends and today we’re discussing housing market predictions for 2019, the growing power of highly productive teams and agents, and the valuation of small to medium sized brokerage firms. But before we jump right in, make sure you listen to this week’s full REAL Trending episode. After I discuss this week’s three trending topics, I will dive deeper into a recent report we publish with Buyside called, A Study on Generating New Listings. Join Alissa Harper of Buyside and myself as we talk with Mark Stark, CEO of Berkshire Hathaway Home Services Nevada Arizona Realty.
Housing Market Predictions For 2019
Okay, onto the news. Housing market predictions, interesting article out of realtor.com about housing market predictions. Their thinking is that unit sales will be up two percent next year across the country and prices up around five-and-a-half percent, both of those national averages. They point out that of course, there are great disparities between different metropolitan areas. In the article that they publish about this they also talk about what causes some markets to grow faster in unit sales than others.
And interesting, they go on to mention population growth and employment growth, a growing economy, a high prevalence of millennials, young, first-time home buyers who historically make up 35 to 38 percent of all the buyers out there. What they don’t point out is when they list the top 10 or so of the fastest growing markets in the country, almost every one of them is a low-cost market. So it does help to live in a growing population area, but where we live, in Denver, Colorado, it’s a fast-growing metropolitan area. We’re adding 50 to 60 thousand net new people a year to the nearly three million people who already live here. But nobody’s predicting an increase in housing sales here, even though our population is growing, it is increasingly young and millennial, there are numerous job opportunities and there’s now housing available. The challenge here is, Denver is no longer a low-cost housing market.
So it’s interesting to note that the growth will now shift to those markets that are more attractive economically, places like Winter Haven and Lakeland, Florida, Boise, Idaho, areas like that. So it’ll be interesting to see 2019. We’ll go out on a limb here at REAL Trends and say while we are not economists and we don’t look at a whole bunch of aggregate data, we have the benefit of having lived in the industry for 42 years and seen lots of up and downs in housing market. I don’t think we believe that unit sales are going to be up in 2019 over 2018. On the positive side, mortgage rates are likely to ease with the decline in the stock market and the economy slowing. The 10-year treasury bill has declined from over three percent to almost two-and-a-half in the last three months. Lot of mortgage rates are based on that 10 year note. So that’s on the plus side.
On the other side, we have a generally slowing economy, although December job numbers were up substantially. It looks as though we’re heading into a slow-down, not a bad one, but a slow-down. And it looks like the housing market pauses to allow household incomes to catch up to housing prices. All in all though, could be it’ll be a flat year. Nothing wrong with that. It does intensify competition, however. More on that shortly.
Growing Power Of Highly Productive Teams And Agents
All right, let’s talk about the growing power of highly productive teams and agents. As I said earlier, we’re getting ready to launch our annual rankings and the collection of all the data, which commences next Wednesday, on January 9th, 2019. Last year, we had over 14,0000 individual agents and teams who filed to be considered for America’s best real estate agents. As individuals, you have to do at least 50 sides or $20 million in volume. As teams, you have to do at least 75 closed sides or $30 million in volume. Interesting to note that four years ago, we only had about eight thousand people who qualified. This year, we expect between 15 and 16 thousand to qualify. We’re seeing an increased consolidation of the business in the industry in fewer teams and highly productive agents. We also note that the number of teams and the average size of teams is growing rapidly. What does this mean for the brokerage industry?
You know, people have been talking about the decline of the use of agents. And we know that’s a fallacy. Our own studies from this past year prove that. There are a lot of people that believe the brokerage industry is in trouble because of new forms of competition, like EXP or Fathom or Compass or others. But you know what’s interesting is that every one of those models is a lower cost, in the case of EXP and Fathom, a lower cost brokerage model. Nothing really new about that. There have always been low-cost alternatives. Compass is acquiring agents, teams and in some cases, brokerage companies with a very, very large capital base to do that with. Nothing really new there. It’s not like we haven’t, in years past, had Merrill Lynch and Sears and savings and loans and insurance companies and credit unions and people like Berkshire Hathaway and Realogy acquiring brokerage companies and teams. This has been going on for 35 plus years.
Low-cost brokerages, well, if you think back long enough, the original low-cost brokerage in terms of an agent’s view, would have been Re/Max. And they grew enormously. Even Keller Williams, in some quarters, would be considered a somewhat lower cost brokerage than some of the models out there. None of this is really new. What is new is that more and more of the business is done by a smaller number of agents and teams. That’s the big change factor. As we’ve said for years also, it’s been a trend for at least 30 years that brokers were having to pay out more commission percentages to their agents, particularly highly productive agents, and now teams. That’s not a new trend. It’s been going on 25 to 30 years, at least. What’s going on now is just an intensification.
So as we’ve said in the past, brokers are faced with fairly clearcut choices. You either build a unique model, where it’s not about how much the agent gets as a share of the commission dollar inasmuch as it’s about the value and the culture and facilities and leadership and coaching and mentoring and training and marketing and technology that a firm can provide, and the number of agents that are looking for those kind of support tools. The power of increasingly highly productive teams and agents is affecting the brokerage industry in ways and in a manner much faster than anyone had anticipated.
So here’s what you got to do as a broker. Make up your mind what kind of brokerage you’re going to be. Are you going to be unique or low-cost? Do you want to have highly productive agents and teams, individual agents and teams, or do you want to recruit new people and train your own? There are a lot of great options, but it’s changing fast, and consolidating more and more.
Valuation Of Small- To Medium-Sized Brokerage Firms
Lastly, we recently publish a PDF entitled, Valuing Small to Medium Sized Brokerage Companies. Our intent is to make the information readily available to companies that have two agents, 10 agents, 50 agents, it doesn’t matter. It’s a time of consolidation. It’s a time of opportunity for both combination between small to medium sized brokerage companies, or alternatively, for small to medium sized brokerage companies to look for larger partners. We had an interesting conversation years ago with five small brokerages, all led by men and women who had left a particular brokerage company to open their own company. And in a very enlightening conversation we had with each other, it was revealed that in fact, as independent contractor agents, they do run their own business and that running a brokerage is never as easy as it appears to be when you don’t actually have your own brokerage and have to run one.
These kind of markets, these flat markets, these intensifying, competitive markets, really force men and women who own brokerage companies, whether they’re large firms, medium sized or small, to examine, “What is my intent, what is my purpose in owning a brokerage company?” As we’re often pointing out to clients, is it because you’re trying to build something of equity value? Are you owning your own brokerage because you think you could produce more income for yourself? Or are you doing it because it’s personally satisfying to own your own company and have the opportunity to build your own company? You know, the interesting part is today, teams are proving that men and women who want to “own their own company” can now build a team within a brokerage company, taking advantage of all the benefits that a large, well-funded and designed brokerage company can offer and the person building the team doesn’t have the headaches of legal and regulatory and other issues. They also, generally, aren’t signing office and equipment leases and other long-term liabilities. This is a time for small and medium sized brokers to examine again, “Why do I want to own a brokerage company, if in fact I could build a team or I could just build my own practice, enjoy life more, make more money?”
We publish the PDF, you can go to realtrends.com/buyside/. You can find it there and you can download it. It’s free. Also, feel free to share it with anyone you chose who might benefit from the information. Learn more about industry trends, marketing and technology strategies, as well as listen to past REAL Trending episodes on our website. This has been Steve Murray. Happy New Year, until next time.
Listen to an exclusive interview with Mark Stark, CEO of Berkshire Hathaway Home Services Nevada Arizona California Realty and Alissa Harper, VP of Growth at Buyside.