I go to NYC early each year to absorb the perspectives of different groups of real estate leaders. Last year and the year before, even the most optimistic leaders had little confidence in market growth. This year, we see the tale of two beliefs – a group that believes that real estate is poised for growth – and a group that believes that our strong US Economy has a higher risk of downside despite 2019 jumping out to a great start.
For the most part, New York and regional brokers around New York are seeing a buyers market. The softest area of the regional New York market for sellers is in Luxury, basic inventory is flat. By some estimates, there is 6.5 years of shadow inventory in the NYC area. It will take years to work that out. In contrast, some western real estate leaders are seeing things like 20% to 40% growth in 2020 over 2019 despite a lack of inventory. There is a belief that new California law will get development going there again. Granted, we are only a month in to the year, but results have been outstanding. A title leader indicated that they saw a 27% growth in title contracts in December and January. The market is hot.
Many brokers and franchises are focused on CRM and allowing agents to focus on the 80% of their business that comes from people they know. Clearly, Keller Williams, Realogy, eXp, Compass, RE/MAX and other major brands are building platforms around CRM. Sphere marketing is not new, but investing in data as an asset to uncover opportunities is where leading firms are investing. Realogy has picked up the MoxiWorks and Upstream data distribution strategies. If firms provide data services to agents, agents can pick the technology tools that they want to use. Remember, most leading firms have agents who are competing with other agents in their office more than people think. If two Compass or Coldwell Banker agents go into a listing presentation with the same presentation, it’s hard to show sellers the difference between picking between two agents at the same office. LoneWolf announced a similar solution. The App Store for real estate is going to become the biggest trend over the next 2-3 years.
In contrast to this strategy are a bunch of companies that are focused on serving the digital consumer on behalf of the agent, then referring the consumer to an agent when they are ready to buy or sell. The trade off is ⅓ of the agent’s commission. That is a hearty share of commission, but there does not seem to be any limitation to the number of agents who will discount 33% of their fees when a lead converts. I strongly believe that brokers need to get back into the business of developing new customers for their agents rather than allowing referral companies to fill that role where brokers are not delivering.
By all accounts, technology investments will continue to grow. Not only are brokers, teams, and agents spending more – but the amount of capital going into tech firms that serve them is up to $9 Billion. This represents a 69% increase in equity and debt raises by the tech firms between 2018 and 2019. Moreover, 88% of Venture Capitalists suggest that 2020 investments will increase over 2019. On the M&A side, 96% of investment bankers expect increases in investments in 2020. That is high confidence. Expect a lot more consolidation in the real estate space as a result of this funding. Using capital as a strategy, companies can acquire a lot of growth through acquisition to speed up growth and market share.
Despite competing beliefs about the market, great research will allow companies to invest in recognized patterns of effectiveness.
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