[Posted earlier at Inman News; now that it’s actually 2019, figured it was safe to post to my site for posterity.]
So it turns out that I started doing musical themes in 2011 with the Techno Edition for 2012. I’ve done great music (like Alison Krauss and Union Station) to hair-curlingly cringey music (like the Boy Bands edition). My wife Sunny thought from the very start of our relationship that I have the strangest mix of musical tastes, but she was good with mixing gangsta rap with opera with outlaw country. But without a doubt, her tolerance is tested — and her patience is evidenced — when K-Pop comes on the car stereo.
Seeing as how K-Pop is a phenomenon sweeping the U.S. (indeed, the world) in 2018, I figure we all can be all like into-the-future trendy while we look at predictions Sure To Be Wrong, Or Your Money Back! (Please note: Inman subscription fees are not refundable.)
Without further ado, then, here are the Notorious ROB Seven Predictions for 2019.
1. Redfin Hits You With That 뚜두뚜두 (DDU-DU DDU-DU)
In my December Red Dot, I wrote at length about Redfin’s coming moves in 2019. I posted an excerpt here, saying:
There is a very good chance that Kelman recognizes that Redfin is uniquely positioned among all brokerages to survive and even thrive in the dark. So they will bring the darkness, by spending $60 million to bring about the low commission environment.
Strong agent teams will survive, of course, and having survived, they will actually grow their market share. And Redfin is the strongest agent team of them all. But tens of thousands of competent middle-tier agents will find themselves struggling to stay in business.
Brokerages will struggle mightily. Even the strongest brokerages with dominant market share face enormous problems in a low commission environment.
So it seems obvious that Redfin pressuring the commission would be my first prediction sure to be wrong. But if it’s wrong, it may have more to do with timing as it might take longer than a year and $60 million in consumer advertising for the idea to take hold in consumer consciousness. After all, Redfin has been in Seattle for over 10 years, and advertising there for a while. Yet, in the Q3 earnings call, Glenn Kelman said consumer awareness of Redfin was only 19% in their home market.
We’ll see if massive increase in advertising to get the message across about full service brokerage at lower commissions makes a difference. But I reserve my judgment to swing and miss in 2019 and repeat this one for 2020.
If Redfin’s advertising blitz is successful, then it will have hit the industry with that 뚜두뚜두 (DDU-DU DDU-DU), ah yeah, ah yeah! I have no idea what that means, because it isn’t actually a word in Korean. But the impact will be significant, and lasting.
2. Zillow Homes Drops the Mic
It’s safe to say that Wall Street treated Zillow’s entree into the iBuyer market, now called Zillow Homes, the way orthodox Jews might treat a bacon-wrapped porkchop at Shabbat dinner: with a mixture of disgust and horror. Zillow stock immediately took a nosedive, and analysts have been skeptical about Zillow ever since.
And yet, there is no question that Zillow validated the entire iBuyer space overnight when it came in. Just the fact that Zillow started testing iBuyers with Zillow Offers made Opendoor, the pioneer of the model, something of a household name within the industry. When Zillow put down the big bets, everybody noticed.
In my profile of Arik Prawer, the new head of Zillow Homes brought over from Invitation Homes, I noted:
So iBuyer is the most important initiative in real estate today. Zillow is the highest profile iBuyer in the industry today, with the largest war chest, largest audience, and the largest network of agents. If Zillow fails, then it is quite likely that the world will write off the entire “you will buy and sell your house to a company” thing as a mistake, or at best, a niche investor/house flipper play.
Furthermore, the iBuyer initiative is at the core of Zillow’s transformation from an ad-supported media company to something else that is central to the flow of transactions in residential real estate. I believe that something else is what I’ve been referring to as the Iron Throne: The Real Estate Platform.
Given Prawer’s deep background in buying, renovating, managing and renting single family homes (Invitation Homes had some 82,000 of them in its portfolio), and Zillow’s commitment to the bet-your-company strategy, I predict that Zillow will blow the doors off of expectations in 2019 in its Homes segment. It will surprise everybody when they do.
Especially as the housing market slows down. A lot of people imagine that iBuyers will fold up shop and go home once the market turns soft. Not so much.
Redfin’s Q3 results contained this gem:
And if the market is down next year, one thesis is that, I’ve met homeowners who are already angry when a listing agent says, your baby ain’t that pretty, this house is going to sell for less than you think, and they’re angry.
And so, presenting that in an offer as a check where the counterparty might increase their anger and we’d see offer acceptance rates decline, but there is another case to be made that, they’ll pay more for liquidity. In anxious times, there will be a massive premium on that. And our first data on that was buried in the script, I don’t know, if you heard it, but we saw offer acceptance rates modestly decline.
I thought there was a possibility they’d fall through the floor that nobody would take our offer because we started pricing in significantly more risk into the offer in Q4. But people still took us up on it. So it hasn’t been a binary answer to your question.
Translated into normal English, what that means is that homeowners took offers that Redfin thought were way under “market price” because they took future slowdowns in the market into consideration when making the offer. And the sellers took them.
In an effort to be wrong, I’m going to predict that whatever analyst expectations for the Homes segment are starting out 2019, Zillow doubles or triples them when it’s all said and done.
Mic drop. To quote BTS, bet it gets their haters hella sick.
3. Amy Bohutinsky Tries a New Color Palette as CEO of eXp Realty
One of the more surprising pieces of news from 2018 was that Amy Bohutinsky was resigning as Zillow’s COO and taking a seat on the board of directors. Almost overnight, arguably the most powerful female executive in the real estate industry was gone.
As Andrew Flachner’s Inman interview with AmyBo showed, while it appears clear that Amy no longer wanted an operational role (she says at one point, “It was time for something new”), apart from taking some time off, spending more time with her kids, and serving on boards (Zillow and The Gap), she doesn’t actually have anything planned as a next step. (Unless she does, and was just great about saying on camera that she doesn’t.)
Seems to me that there’s a fast-growing real estate company just north of Seattle that could offer Amy something beyond a day-to-day operational role, that of CEO. That company, of course, is eXp Realty.
The current CEO, Glenn Sanford, is one of the nicest guys in the industry and very, very smart. But I think he himself would tell you that he’s not exactly the most dynamic person in the world, and isn’t exactly what you might call the “face of the brand.” In a real way, Sanford reminds me of Bill Gates who may have founded Microsoft and was CEO during its life as a startup, but quickly gave up the CEO role to Steve Ballmer to do what he did best: vision, strategy and software. Sanford could also look at what Rich Barton and Lloyd Frink of Zillow did, naming Spencer Rascoff as CEO, while they focused on what they do best.
It goes without saying that getting Amy to come on board would be a major coup for eXp. She could singlehandedly change the fortunes of eXp, with her background and experience and contacts. She is one of the best speakers and presenters in the real estate industry — indeed, in any industry in North America. She is brilliant, charming, always poised, media-savvy, and her people just love and adore her. With her decade-plus experience at Zillow, she knows in her bones how just about every segment of real estate works: brokers, agents, the MLS, the Associations, franchises, and of course, the consumer.
Given her track record of understanding consumer needs, then creating smart marketing and advertising campaigns to appeal to them, Amy could do some truly unique and interesting things from within a brokerage company.
Could eXp tempt her? Likely not with money, since she has been at Zillow from its founding. But they might be able to with the opportunity for a legacy. As brilliant as Amy’s career has been, the world doesn’t speak of Amy taking Zillow public; they speak of Spencer Rascoff doing that. Much like being the star running back on a football team, it’s the quarterback who gets the credit. As CMO and as COO, she has been a key lieutenant in Zillow’s growth and success, but she has never been the general.
eXp could offer her that opportunity. I think they will, since eXp has a history of hiring talented people from Zillow. Cynthia Nowak and Mitch Robinson, VP and SVP of Marketing & Communications, respectively, both came from Zillow to eXp, and they both worked closely with Amy in their time. I could see them lobbying her hard to give it a shot.
I say Amy trades in the green-and-blue of Zillow for the blue-and-orange of eXp to see if she could transform real estate brokerage as much she has real estate portals.
4. Realogy Tells Opendoor, “I Need U!”
In the September Red Dot, The Game of Platforms, I wrote that Realogy and Compass were the two “dark horse” picks to contend for the Iron Throne: The Real Estate Platform. I thought they were sleeper picks rather than out-and-out contenders because:
- Neither have announced any intent to provide iBuyer services;
- Neither have much of an ability to control the quality of their services to consumers; and
- Neither have much in the way of a consumer audience. Consumers have relationships with their independent contractor agents, not with them or their brands.
And in the report, I wrote the following about Realogy:
[Ryan Schneider, CEO] inherited a giant company that was losing on its core battlegrounds: recruiting and retention. I look at what Realogy has been doing as trying to stanch the bleeding, then reversing momentum in its core businesses. It’s hard to expect game changing pivots out of Realogy given its urgent need to return to fighting form in its core brokerage and franchising businesses.
But I don’t believe that Schneider and the senior leadership team at Realogy is ignorant of what’s happening in the industry. Nor do I think they’re not thinking about the consequences to Realogy should a true Platform emerge. It’s just that they’re a little bit busy putting out fires right now.
So suppose they manage that. Suppose they emerge from 2018 with a changed culture that values speed of execution and taking smart risks, as opposed to a culture that values stability above all. Suppose they start thinking about the long term strategic issue of the Platform.
Realogy is still a company with the largest brokerage, largest franchise operations, some of the most respected brands in the industry, whose agents touch 20-25% of every residential sale transaction in the U.S.
It has access to capital, but even more impressive is the cash flow it generates: $192 million in free cash flow in Q2 alone. Realogy is currently spending that cash buying back shares; it can easily repurpose it for something else. Like standing up a pretty impressive iBuyer program if it wanted to.
I think that Schneider spent all of 2018 fixing the internal organization and culture of Realogy, with new leadership, new discipline, and new urgency. He says as much in his December 2018 interview with Inman News:
I’m most proud of two things in year one. First, Realogy is starting to move fast. We’re a big animal in real estate, but the perception is that Realogy has been slow and we’re slow to change. And there’s some truth in that perception. But in 2018 we began accelerating: new technology, new recruiting, new brands, new talent and a big animal moving fast can be really powerful.
Now, he says that Realogy is going to bet big on agents. But every real estate executive says that. Schneider also says:
We’re really excited about our cataLIST project partnership with Home Partners of America. We think it’s already starting to show successful results for consumers. We have a lot of consumer interest in our target markets of Dallas, Atlanta and Tampa. We’ve already closed on and purchased some houses with Home Partners of America. We’d love to make this a bigger part of our offering both for our own agents and hopefully over time for franchisees. We are still in early days but we’re very excited about the momentum we’ve got here.
That’s within months of launching. I think by next year, Schneider and his team will see the data from its trial program with Home Partners of America and decide they need to move big into iBuyer space. That’s especially true if Realogy hopes to contend to be The Platform.
And I kinda sorta think they do, based on this from the Inman interview:
As a company, we have mortgage, we have title, we have a number of the things that go into it. And nobody, including us, has really found a way to truly simplify the process. But boy we have the potential to do that and the size and scale and the pieces. But it’s still a complex process. With all of the pieces, companies that have the size and scale of Realogy have the chance to build a consumer experience for the home sale and closing process. But that hasn’t been done by anyone including us in the market to date.
The big missing piece to truly simplifying the process is, of course, an effective iBuyer service. (See the Zillow piece above.) The simplest and fastest way to start that up is to go court Opendoor.
Opendoor is the pioneer of the iBuyer movement. It is still the leader in that space, for now. But its future prospects took a big hit when Zillow waded into the pool, and then Redfin followed suit with a “CANNONBALL!!!!” Suddenly, the market leader is behind in web traffic, behind in boots on the ground, and competition is about to get turned up to 11.
Granted, Opendoor raised an absolutely shocking amount of cash to date: $400 million from Softbank in September, $325 million in June, and has a valuation north of $2 billion. But all that money doesn’t buy you boots on the ground, so Opendoor acquired a small brokerage called Open Listings in 2018. What does having a brokerage arm do for Opendoor? From BizJournals:
“By integrating Open Listings’ online buying experience with Opendoor, we’re putting customers in control of the entire process so they can buy, sell or trade-in their home seamlessly be it for retirement, upsizing for a growing family or moving for a dream job,” said Opendoor founder and CEO Eric Wu in a statement.
“Together, we’re eliminating double moves, added expenses and months of headaches — which have all made moving a chore rather than the exciting life moment it should be,” added Open Listings CEO Judd Schoenholtz.
If acquiring a small little tech brokerage lets OpenDoor do all that, what could getting married to the NRT, the largest brokerage by a country mile in North America, which also happens to have all of the other pieces of the puzzle from mortgage to title to relocation, let them do? Rocket. Fuel. Ignition.
Meanwhile, the board of Realogy has got to be looking at this situation and going, “Realogy’s market cap is lower than Opendoor’s valuation? Really?” Meanwhile, Realogy is still generating north of $200 million a quarter in cash flow, had $900 million in current assets as of Q3, and $4 billion or so in annual revenues. It has the largest ground army of agents between the NRT and its multiple franchise brands.
A marriage between the two — it won’t be an acquisition, but a merger of equals as much as that might annoy the Realogy fans — makes all manner of sense. The previous Realogy and its buttoned-down corporate culture would never have worked with Opendoor, but the new Realogy under Schneider might find that there is a fit between the two.
So, I predict that Realogy will tell Opendoor, I need U. Whether Opendoor swipes right on Realogy remains to be seen, but I think it does because it makes so much sense for both of them.
5. Compass Wants Nobody, Nobody but Keller Williams
Not to be outdone by Realogy’s play to contend for the Iron Throne, I think Compass decides that there’s nobody, nobody they want but Keller Williams.
It actually makes sense if you think about it.
Gary Keller’s announcement in 2018 that Keller Williams was no longer a real estate company but a technology company has been widely covered. KW is the largest brand by agent count, with 166,854 in the United States as of Q3, and the loyalty of KW agents to the brand is legendary.
Robert Reffkin and Ori Allon would contend that while KW would like to transform into a tech company, Compass already is one. Inman just reported that Compass is hiring 100 more engineers in its Seattle tech hub, to be headed up by its new CTO, Joseph Sirosh, formerly of Microsoft. Compass’s technology is a big draw in recruiting top producing agents to them (although big checks and sweetheart deals as widely reported don’t hurt, one imagines).
Combine the two and you have a powerhouse that really could realize Gary Keller’s vision of “tech-enabled agent” beating back the dark forces of “agent-enabled tech”. Compass certainly falls into the “tech-enabled agent” bucket as well, as Reffkin makes clear time and again, every chance he has, that Compass is all about the agent.
There is some strategic fit between the two brand as well. Compass goes after the very best top producing agent teams in Top 20 markets; KW has many of the top producing agent teams in the industry thanks to its long focus on teams. But KW also has teams in every market in the country, and tens of thousands of not-so-top producers everywhere. A combined Compass-KW (operated as separate brands, of course, as Realogy does) would allow top KW teams to migrate to Compass, while making the Compass-KW technology available to every one of those 166K-plus agents, and let Compass transition some less productive people over to the KW side of the house.
Just combining the training and coaching of KW with the technology teams at Compass alone could create massive headaches for every other franchise and brokerage in North America.
That combination could easily go public and be the IPO of the year, with Compass valued at over $4 billion and KW valued at God Only Knows.
Finally, Gary Keller, one of the most charismatic leaders ever seen in the industry, is not getting any younger. I’m sure that there are younger leaders within KW who are talented and amazing individuals. But honestly, Robert Reffkin is a star in the industry for a reason. He brings a kinder, gentler style than does Gary, but no one can say he lacks charisma and leadership ability. He would be a worthy successor to Keller and be one of a very few who could step into his Texas-sized shoes.
6. The Feds Remind Real Estate Who Daddy Is
The FTC/DOJ has been… uh… what do we call what the federales have been doing in 2018? It’s not an investigation, per se. It’s not a hearing either. It’s something like a look-see to “update” the 2007 Competition in the Real Estate Industry report in light of the 2008 DOJ-NAR settlement agreement expiring.
There was a semi-publicized event in June when the FTC and the DOJ held a joint workshop — a series of panels — to talk about competition. A lot of heavy hitters and rebels went to Washington DC and talked about all kinds of things. Dozens of people and organizations submitted formal comments to the agencies to try and sway them one way or the other.
Chances are, nothing is going to happen in 2019. The last time the FTC looked into competition in real estate, it was in October of 2005. The formal report above came out in April of 2007. In between, there was a Congressional hearing at which nothing was done. But the DOJ did sue NAR, and NAR settled that lawsuit in 2008.
That was the last time the Feds felt they had to step in to remind real estate who really runs the show and who has the real power. I think they do it again in 2019.
It’s probably nothing major, like an anti-trust lawsuit. I mean, NAR learned from the last go-around that it just doesn’t pay to go up against some of the best lawyers in the country who have an unlimited budget. So what will it be?
I think it will be something similar to what happened in Toronto, when the Canadian Competition Bureau (their equivalent of our anti-trust authorities) finally won its battle against the Toronto Real Estate Board. I wrote about that episode in the November Red Dot. The whole issue is far too long to go into here, but bottomline is that the Canadian authorities have decreed that TREB must open up its data vault to consumers, and more importantly, to companies who want to do more with previously undisclosed MLS data. Primarily, that means sold data, off-market information (pending, withdrawn, expired, etc.), and commission rates, including compensation offered to buyer agents.
Since Canada is so similar to the U.S., and since we know that the regulators talk to each other (and the Canadian Competition Bureau submitted a formal comment to the FTC/DOJ this time around), it seems reasonable that the American regulators just copy what worked up North.
The primary change would be to adopt the “but for” test from the Canadians, which says that an MLS rule is anticompetitive if “but for” that rule, brokers or agents could have done something, built something, or tried something that they did not actually do, build or try. It is one of those tiny details that make a rather large amount of difference.
As I wrote in the November report:
Since almost all iBuyers, from Opendoor to Zillow to Redfin, want to work with traditional agents as partners (or as customers in Zillow’s case), there is likely to be a number of “but for” situations that arise as the two worlds intersect.
“I have a business that does not yet exist, in which I help negotiate deals directly with iBuyers and save consumers money, and I would totally start that business ‘but for’ MLS policy X and Association rule Y that prevent me from doing so.”
This kind of a scenario is not a Black Swan, because it is foreseeable and predictable.
And given the attention that the FTC/DOJ paid to all kinds of issues around data and real estate, it seems to me that they’ll write a report and make recommendations that “responsible adults” (that would be the Federal government) oversee/handle/administer/regulate the all-important issue of data in order to… ah… ensure robust competition in real estate.
Regulators are uninformed as to some of the nuances of the industry, but they’re not stupid. They just need eyes and ears to see and hear that there are constant battles over control over data in the real estate industry; I mean, why is Upstream still a thing? Because control over data is unresolved. They don’t need to be industry experts to detect the whiff of data fraud in the MLS that still has not been addressed. They don’t need to talk to that many tech companies to learn that many have simply abandoned building software in real estate because just how difficult it is to get data to run their apps.
So I think the Feds do something to remind us all who’s in charge around here. Nothing dramatic, like a lawsuit, or pushing for new legislation, I don’t think. But a firm reminder nonetheless.
Sing it with me and Psy:
Hey, where’d you get that data from? Where’d you get that data from? Where’d you get that data from?
I got it from my daddy.
7. Re/Max Trains Its Agents to Bang, Bang, Bang
Unfortunately, agent safety was recently in the news when Ryan Homes sales rep Steven Wilson was found murdered in the model home where he was working. It is but the latest in a long line of tragic stories of real estate agents killed, raped, and victimized. Jay Thompson wrote about it recently and implored: “Please, do something. Stop talking, and take action.”
In 2019, I think Re/Max does do something about it and takes action. In addition to offering agent safety apps, in addition to training their agents on situational awareness and smart pre-screening and taking measures to avoid problems, I think Re/Max goes a step beyond. Re/Max offers firearms training, including concealed carry courses, for their agents who are legally allowed to carry a handgun.
I say this because the new CEO of Re/Max, Adam Contos, is a United States Marine honorably discharged with the rank of Sergeant. He is a former police lieutenant, who ran a SWAT team. He kicked in doors, blew things up, and saved people. (It’s in his LinkedIn profile). He was a firearms instructor in both the Marines and the police. He is, obviously, an expert marksman.
In fact, Contos began his career at Re/Max as an independent contractor doing agent safety training: the S.A.F.E.R. (Safety Awareness For Every REALTOR) program. He personally knows all of the issues around agent safety. Here he is in a RealTrends interview:
When I was in law enforcement, I started a couple businesses and I had worked with some real estate agents and looking at what police officers learn to stay alive every day and then seeing real estate agents getting hurt and killed in their job, unfortunately in the early 2000s, that’s what got me into RE/MAX.
One of those issues is that all of the pre-screening, the situational awareness, the buddy system, checking IDs, getting people to sign in, safety apps, etc. are all good and valuable right up to the point when shit goes down. When things get bad, really bad, you need a way to defend yourself, period. Your friend who accompanied you is just another victim if he or she is also unarmed, and the bad guy pulls a knife or a gun, unless your friend is Donnie Yen. And while nonlethal options are better than nothing, police carry a gun because, well, it has the best chance of stopping an attack.
Adam knows that personally, in his bones. He’s trained others on properly and safely on how to use a gun for self-defense and to stop bad guys from doing bad things. He still trains regularly with pistol and rifle, as well as open handed martial arts. I know, because I’ve asked him and have seen the photos.
It would cost very little for Re/Max to sponsor group classes for concealed carry and for basic combat pistol. Honestly, it might cost less than a single speaker luncheon event to do a half-day training class for an entire office. Re/Max with its size could easily partner with local instructors across the country to provide discounts and subsidies for Re/Max agents to learn how to handle a firearm. Hell, Re/Max could offer corporate discounts on guns and ammo purchases through affiliate relationships with any one of the major retailers: Gander, Academy, Brownells, Midway USA, and on and on.
Of course such safety classes would include all of the other useful tips and training, as S.A.F.E.R. undoubtedly did and does. And it goes without saying that Re/Max would never pressure an agent to carry who is uncomfortable with guns, or allow an agent who is not legally allowed to own a gun to do so. But for everyone else who wants to learn about the ultimate last-resort step in a safety program? Welcome to Re/Max!
With Contos at the helm, Re/Max is uniquely positioned to be the brand that takes agent safety truly seriously and does something about it. I think they do. It makes too much sense not to.
If it saves just one agent’s life, such a program would be worth it, and Contos would be a hero. Again.
There you have it, my seven predictions for 2019 that are certain to be wrong. And I hope so, except for #7, because that really would be wonderful to see Contos and Re/Max step up.
For all my readers who aren’t Korean, well, you’re welcome for introducing you to the global phenomenon that is K-Pop. Since your teenaged children and grandchildren are all into it, maybe this post will help you bond with them when you name drop BTS or Blackpink.
Seriously, try it next time you see them. Casually, over brunch, ask them, “Hey, so what did you think of Blackpink’s latest?” Once they pick up their jaw off the table, follow up with, “And isn’t Jimin (a member of BTS) just so cute?” Make sure someone is recording their reactions secretly.
And for anyone who may be seriously concerned about any of these predictions, know that my lifetime batting average is somewhere near or below the Mendoza line. With that, let me wish you all a Happy New Year as we ring out the Year of the Dog and ring in the Year of the Pig.
I leave you with one of my personal favorites, from one of the OGs of K-Pop, because I’m an old guy and as an old guy, I love the old classics.