Real Trends - Thoughts on 2015

By Missouri REALTORS posted 01-22-2015 04:12 PM

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From housing to brokerage priorities, here are REAL Trends’ predictions for the New Year.

When it comes to the future of real estate, the industry is bright. The REAL Trends’ team speaks with brokers, industry experts and movers and shakers daily. Here’s a round-up of predictions for 2015.

Housing
2015 will most likely see unit sales increase over 2014. Average prices will be up as well in most markets. Why?

Households are adding jobs, and although the percentage of working-age Americans with a full-time job are still at historic lows, jobs are up as are household incomes.

The country has received a tax cut of an estimated 75 to 80 billion dollars with the decline of oil prices. This extra money will not only enable increased savings towards downpayments, for instance, but will help build confidence among consumers.

The recent loosening of mortgage underwriting standards will enable more Millennial and Gen-X households to afford homes. Lower down payment requirements are a real plus in this regard.

The American economy will receive a huge boost from lower energy prices and the growth in jobs should accelerate. On the downside, exports will likely soften harming businesses that depend on them for growth. Further, the downside of the decline in energy prices is that businesses in the oil and gas patch will be negatively affected.

Look for mid- to high-unit-price increases (or better) and similar results in average prices. There are some areas like New York, San Francisco and Miami-Fort Lauderdale that will outperform in both units and prices due to their economies and the influx of foreign purchases.

Brokerage Priorities
REAL Trends consulting specializes in four areas:
1. Valuation, merger and acquisitions
2. Strategic and business planning
3. Brokerage technology assessment
4. Online marketing.
In every area, 2014 was a record year for us in the number of clients served.

Valuations are running at near double their historical rate. Brokerage firms are using valuations not just for sales or mergers but also for business planning purposes. Some of our clients use them for bi-annual and succession planning. Many of these are the sale or purchase of minority interests, gifting of shares into trusts and for other personal reasons. Where in the past valuations were usually about a sale of a company, now they are used for a variety of purposes.

The number of brokerage firms using our technology assessment services has exploded. What we are learning is that brokerage leaders understand that they have assembled platforms of some exceptional technologies but have not been able to integrate them or create a strong plan for implementation. There is a growing realization that having a platform that is integrated and having a plan of getting the tools into use by the agents is, in fact, a sustainable competitive advantage.

A part of this is how, when and where to spend monies in the online world. Again, what we have learned in working with brokerage firms is that they are quick to realize that there are ways to more effectively spend their money, and there are great ways to measure the effectiveness in this arena.

We think that many brokerage firms have grown comfortable in the market for housing sales, that the sky is not going
to fall in in the next year or two, and it is time to begin longer-term planning and begin to get efficient in the use
of technology.

Slow and Steady for Brokerage Firm Growth
This year will mark 20 years since HFS (predecessor to Realogy) acquired CENTURY 21 and began its march to become the largest residential real estate company in the world. It took 20 years and a few billion dollars to do so. Today, their total cash flow likely exceeds that of virtually all of their nationally branded competitors combined.
RE/MAX and Keller Williams each took nearly 20 years after their founding to achieve measurable market shares in the United States and significant profitability along with it.

In fact, most successful residential brokerage firms of the past 30 years achieved substantial success only after years of re-investment and patient growth. While there are a few exceptions (i.e., @Properties, HomeSmart and Realty ONE Group) it is interesting to note that building a sustainable realty organization, whether national or local, takes time and patience.

We bring this up as a contrast to some of the fast growth, technology-driven firms that have captured the lion’s share of attention in recent years. ZipRealty, Redfin, Zillow and Trulia are the most well known of this group. While they each brought fresh new approaches to the industry and have been led by highly capable leadership, each seems to be concerned with faster-than-average growth in a business that historically defies this trend. Each has been backed by investment capital that appears to be mostly interested in overturning the status quo in the industry and/or generating above market valuations.

We don’t pretend to know how this all works out. It just seems that once the initial excitement has passed, investors will have to settle in and understand that it takes time, capital and execution by great leaders to create a truly substantial and valuable company in this industry.

Changing of the Guard
For those who missed it, Dave Liniger, founder of RE/MAX, has stepped back into the role of CEO of the organization with the announced retirement of Margaret Kelly who had held that role for over 10 years. Also on January 1, Gino Blefari will step in as CEO of Berkshire Hathaway HomeServices replacing Earl Lee in that role. Earl had also served in that role for nearly 10 years. We are aware that there are other senior roles in the national and regional realty ranks that will be changing in the not-to-distant future.

This is a normal part of organizational progress. While the majority of privately owned realty firms have no discernable succession plan in place, the national firms (especially those who are publicly held) must plan for the future in this area. There are some great exceptions to this, such as with Long and Foster, Allen Tate, RE/MAX Alliance and the Howard Hanna Companies, where succession planning has been in place for years. However, an organization typically has either a succession plan as an ongoing part of its work, or it is setting itself up for a sale to other parties. There are few other options.

Lesson Learned
Agents don’t much care what the leadership of the National Association of Realtors® or the national companies think when it comes to initiatives that both have underway with respect to portals and core standards. What they care about is how to grow their businesses effectively, whether they are individual agents or teams. In several studies that REAL Trends and others have done this past year, productive agents care about gaining more knowledge about growth, how to use technology more effectively and how to be more productive with their own time.

They also report that while they may be concerned about the future of the listing portals, many use them liberally
to advance their own personal interests. At the same time, agents show that they use various channels to reach existing and potential clients. Among these channels, strangely enough, is direct mail. Studies done by NAR and REAL Trends also show that brokerage and agent websites are some of the best sources for leads, not the portals.
Don’t forget that Facebook and other forms of social media are now among the leading sources of leads for agents, and they know it.

Agents and brokerage firms may have changed the way they reach consumers and potential clients and customers, but they have not changed their understanding that the fundamentals of the brokerage business are still in reaching and communicating with people.

This article appeared in REAL Trends Newsletter and is being reprinted with permission of REAL Trends, Copyright 2014.

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