This is the first blog post in a series of ten that covers the trends that will shape the residential real estate industry in 2019 and beyond according to the publication, Swanepoel Trends Report 2019. The views, thoughts, and opinions expressed in this post belong solely to the author, and not necessarily to the author’s employer or the publication cited.
If there is one constant in the residential real estate industry, its change. And with change, brings a lot of mixed emotions. Some individuals and companies seem to thrive in this environment, while others hold onto the past and get swept away in a tsunami.
The Swanepoel Trends Report cites a number of examples of companies that were on the top of their game but then failed to anticipate a shift in the business environment. Read these two quotes and you’ll get the picture:
“Google is not a real company. It’s a house of cards.”
Steve Ballmer, CEO, Microsoft (2004)
“Neither Redbox nor Netflix are even on the radar screen in terms of competition.”
Former Blockbuster CEO Jim Keyes (2008)
So if businesses evolve either up or down, where are we now?
Swanepoel claims that there are four quadrants in the real estate brokerage industry innovation cycle:
- Quadrant 1: Birth (3-5 years) – This period is when new ways of doing business are created and fresh competitors emerge.
- Quadrant 2: Build (3-5 years) – Evidenced when newer models become embraced by the industry and less effective, ‘old guard’ companies get absorbed.
- Quadrant 3: Growth (3-5 years) – The industry experiences an overhaul and the newer models gain market share.
- Quadrant 4: Domination (3-5 years) – Companies that were once the newbies now dominate the business but its easy to become complacent with past successes.
I agree with the assertions in the report that think we are somewhere in the midst of Quadrants 2 and 3 at the present time. There have been a number of new competitors within the past couple of years that have gained a foothold in our industry but not necessarily in Central Pennsylvania. They include the following:
These companies didn’t even exist just a couple of years ago which lead many ‘old guard’ companies and brokers to assert that they are pretenders and when the market turns, they will implode. Personally, I don’t think these companies are going to pack up their bags and go home anytime soon.
They each have a unique value proposition that appeals to the average real estate agent and the consumer (perhaps a future post for another time).
Here are the differences between these companies today and the ones that couldn’t make it just a couple of years ago:
1. The Amount of Venture Capital Available
Investors today, unlike years ago, are willing to forgo quick financial returns because they clearly see the end game. Amazon broke that mold. They had a great idea and people were willing to risk their valuable capital because this startup had a unique value proposition that appealed to the consumer. Investors were willing to wait for a return on their investment.
Today, established brokerages that need to produce a positive bottom line are competing with these newbies that are being infused with large sums of money and being told by their backers to ‘stay the course.’ Only time will tell how long these investors are willing to keep these companies afloat without a positive return
2. The Technology Wave
The technology that is being introduced into the residential real estate business is staggering. It is not unusual for me to receive a dozen solicitations a week from technology companies wanting to gain my attention.
For the brokerage new kids on the block, this technology is easier to incorporate into their business model because they are starting with a clean slate. Companies that have been around for years already have legacy systems in place that they have grown accustomed to. Changing now would not only be an expensive proposition, but the personnel in place (i.e. agents, staff, and management) may be resistant to migrate to newer platforms no matter how superior they may be.
3. Speed Kills
Our industry is moving at the speed of light. Don’t believe me? Of the twelve largest brokerages by sales volume in 2017 according to the Swanepoel Mega 1000 rankings list, four of them didn’t even exist twenty years ago. That’s fast.
Expect this trend of newer brokerages to steadily move up the list which will threaten the status quo.
The report does point out that many established franchises are beginning to see this shift and are fighting back by revising their existing brokerage structures or investing in technology to potentially gain production advantages.
Realogy (brands include Century 21, Coldwell Banker, ERA, Sotheby’s, Better Homes and Gardens) acquired ZipRealty in 2014 so it would have exclusive access to their technology platform to increase the productivity of its agents.
In 2018, RE/MAX acquired the technology company, booj, to develop a brand new technology platform that will be rolled out to the franchise in mid-2019.
Only time will tell if these technology plays will pay dividends.
We are living in a time of great change in the residential brokerage industry. Many of the new players that have already had an impact on the industry, are still relatively unknown and are catching a huge segment of our business by surprise with their business practices and innovative, different way of selling residential real estate.
Those agents, brokerages, and franchises that study these new players and understand their key differences and unique selling propositions will prosper. Those that don’t plan and adapt – – well – – – good luck.
Up Next: Trend 09: The Evolving Real Estate Value Proposition – Redesigning the Brokerage Relationships with Agents and Consumers
SOURCE: Swanepoel, Stefan. “Trend 10: The Residential Real Estate Brokerage Shift – Suddenly Arrived in 2018.” Swanepoel Trends Report 2019, edited by Stefan Swanepoel, 14th Annual Edition, RealSure, Inc. and T3 Sixty, LLC, 2019, pp. 14–27.