Which Real Estate Companies Survive?

Which Real Estate Companies Survive the Next Downturn?

There is about to be a lot of change in our industry. So the question becomes, who survives? Everyone is talking about that. There is a lot of disagreement on what and how much is going to change. But time will tell with the best ideas and the best changed business models ultimately winning. 

So let’s talk about what so few are wanting to talk about, let alone admit. A reduction in agent count AND a reduction in the amount of real estate companies. 

I have heard some talk on the agent count, but no one has talked about the reduction on real estate companies. 

Let’s do a quick survey of the field. Even without these industry changes, the industry was on it’s way of contracting the agent count either way. 

We currently have 1.6 million agents for 4.5 million sales. The last time we had a market with 4.5 million sales it was supporting about 1 million agents. Essentially the agent count was already going to have to contract in order to get back within the historical norm. 

But now let's add in this additional cluster that is the NAR settlement. 

We can debate the amount of agents that will be forced to leave until we are blue in the face. But what is not really up for debate is the question as to whether this will reduce the amount of agents in the industry. 

I think it’s safe to say that it’s a lot of the same agents that were going to be forced to head to the door due to the natural re-alignment from the decrease in sales. But I still think there will be additional fallout. I think this lawsuit essentially makes being a part time agent nearly impossible. The people that are doing this for a hobby will be forced out of the industry. The ones who could retire, but just don’t want to will ultimately be forced to head to the door as well. 

I think it all ends up creating a more professional industry, but unfortunately a lot of people are going to get hurt while this happens. 

So back to the initial question, who survives? 

As we said, it’s the professionals that will survive from the agent perspective. 

But what about on the Real Estate Company side? How can an agent ecosystem that goes from 1.6 million agents to let’s call it 800,000 agents support the same amount of agencies? 

And there has been an explosion of agencies as the agent population has grown. 

Not all of them are going to survive. You have new models, you have old models and then you have new models that are really old models. 

You see the high fees gave cover to not only the crappy real estate agents, but also the overweight real estate brokerages. You know… The overweight, the ones with too much overhead. Ones that have the most expensive leases on main street with a ton of middle management. 

Which companies aren’t going to make it? Maybe first we should take a look at a 2023 Net Loss chart like this to get some insight. (Have Chart pulled up).

Ouch. Okay, in the end I actually think an Opendoor benefits from this. They survive. 

Kiss Compass goodbye. Too much overhead with massive losses and dependent upon the luxury market. They won’t be able to buy agents anymore like they currently do. Also, quick question, do you really think that a very educated luxury buyer that is purchasing a $10 million dollar house is going to stroke a $250,000 to $300,000 check for a buyer agent representation? If you do think that is the case, Compass will make it in this changing market… Then I have some magic beanstalk beans to sell you. 

Zillow? This one is really interesting. How do they pivot? They tried the home buying game. Lost billions. They tried the FLEX program with referrals and also lost a boat load of money as it required them to hire a ton of Inside Sales Associates and account managers to manage the real estate agents. The only way they have really been successful is selling leads to us agents. But a buyer lead isn’t going to be nearly as valuable anymore. They won’t be able to sell those same leads for the type of money that they are demanding now. 

Zillow will need to adjust their model. But I think they ultimately make it. The model won’t look the same as today, but they make it… And the reason why isn’t most likely what you think. I think they make it due to the immense amount of data that they have… Data that us agents have given them over the years. Yup, we can thank all the Dotloop and Follow Up Boss users for that one! They make it because we have been aiding and abetting an enemy for all of this time… Then again, it was really our “partner” the NAR that was the one that really stabbed us in the back. 

Does Redfin make it? Yup. They make it. But they will make a hard shift to a low cost model and utilize their website as a direct to consumer method for a seller to sell a house. I feel like it would be a great stock to short tho. Because Redfin ultimately depended on the buyer agency fee that was being offered by other agencies. They could take a haircut on the seller side and give a portion back to the buyer side by leaching off the back of the traditional agent. That changes come July. Could they become the biggest pocket listing company in the country? Well they surely have the front facing website with a ton of traffic for it! 

Anywhere, the king of the Traditional Model. Anywhere is a holding company that manages brands such as Century 21, Coldwell Banker, The Corcoran Group, ERA Real Estate, Better Homes and Garden and Sotheby’s International Realty. In the end, they have nearly 200,000 agents in the United States. Expect consolidation here. First maybe it’s rolling up their weaker brands like ERA and Century 21 into one. Then maybe it’s the luxury brands like Corcoran and Sotheby’s. They make it, but they will look a lot different with a lot less agents. And it’s because a lot of those 200,000 agents are part timers and stay at home moms and dads who are going to be forced to leave the industry. And Cartus, the relocation company… Not sure if that is really worth as much as it once was. I think the relo game is about to change because I always felt it was the agent paying for those relo reimbursements… I mean we would pay 45 to 50% of our commission back to the relo company! I feel like this all changes with the new world order. 

RE/MAX and Keller Williams make it. Again, the amount of franchises and agents will be reduced just like everyone else. RE/MAX makes it due to them having pull with the consumer and their brand while KW makes it due to the extremely loyal agent following they have. I think RE/MAX ends up pivoting hard back to their desk fee model and away from the 70/30 model they have been shifting towards for the past 10 years or so. But in the end, who makes it in these models will HIGHLY depend on the franchise owner. A weak franchise owner will end up closing up shop and do so very quickly. 

eXp makes it and so does REAL. I believe it’s the lower cost models that will thrive the most in this new world order. Minimal overhead with maximum money back to the agent while eeking out a small profit will be the winning formula for success. eXp makes it due to them having such an established footprint and such a big head start. REAL makes it as they are a solid #2 that is more lean and an ever improving balance sheet. And I could even see a marriage of these two models as the agent counts really start to decrease. But here is a crazy prediction… It will be REAL acquiring eXp. Ha, I bet you didn’t see that prediction coming…

Fathom, LPT… Ya, we don’t really need to waste time on those guys. There is no chance.  

But the biggest losers are going to be the brokerages who charge a flat fee, the smaller regional players as well as the mom and pop shops littered around town. These guys relied on the part time agent that would sell a couple transactions a year, but were on commission splits that heavily favored the brokerage. Those are the agents that are going to be shown the door first and at a fast pace. And therefore those are the companies that will be hardest hit and the fastest. 

Who you are aligned with is more important than ever. Shifting your model is more important than ever. If the people that are advising you are saying that nothing is really going to change and to just pick up the phone and pound that next FSBO or Expired, then either get ready to start skimming the job boards or do yourself a favor and find a new mentor and company to align with. 

The world changed. Will all of these predictions be 100% correct? No. But a lot of it will and hopefully it’s gotten the wheels in your head churning about the change that our industry is really about to go through. If you are currently working for one of the brands that most likely won’t make it or one of the brands that will have major contractions and thereby major reductions in the value that they can provide to you, the agent… Then you may want to start looking at new opportunities now. Get entrenched so you can better weather the storm. 

If that’s you, then I would love to chat. Confidentially of course. REAL is going to make it and they are going to grow thanks to their Financial Technology segment of the company. 

The hurricane is coming. We can see it on the radar. The direct hit will happen in July, but we will feel the effects of Hurricane NAR far before it actually hits landfall. 

Until next time. 

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