As we start another year in the real estate industry we look forward to what the new year might bring. Some of us want to continue the success we had ending the decade, and some of us want to learn from the missteps we made and make improvements for the new year. I’ve always looked forward to the inevitable prediction posts that come in the waning days of each year, so this year I decided to share my own predictions.

We probably won’t see a 100% accuracy rate on these predictions, but that’s part of the fun about forcasting. Sometimes we’re right on target, and sometime we look back and ask ourselves what we were thinking. However, regardless of the accuracy, it’s just plain fun. So, let’s get to it.

Compass Deflation

Compass has been the golden child and media darling of the real estate world for the last couple of years. They’ve experienced round after round of VC funding, that’s filled their coffers to brimming. Most notably in the form of their initial round funding of around $800 million from Softbank. With that funding, they’ve been able to buy their way into a lot of the most competitive markets in an effort to achieve their 20/20/20 goal(20% of the top 20 markets by 2020).

A lot of the hype and buzz is starting to die down and the VC money hasn’t been flooding in anymore. 2020 is the year that the rubber is going to meet the road for Compass. They’ve got to get to the nitty-gritty of brokerage management and deal with the everyday issues every brokerage does: agent retention/recruiting, commission compression, and customer acquisition.

Compass has some very intelligent people on their roster, and they have the potential to do well. However, they’ve ridden the tide of positive hype and flush wallets. Gone are the days of the 100K agent signing bonuses and here are the days of investors asking what the profit plan is. Will Compass be the next WeWork or the next Realogy? We may very well find out in 2020

Agent Job Shift

The role of the agent, and customer expectations, are changing. This isn’t a new concept, but it’s one that’s going to become more and more prevalent. There are a lot of agents that still believe their job is to help their clients find and home, and while that’s technically part of it, it’s not an accurate statement. Yes, agents often know about listings that may be coming soon or off-market deals, but these make up a very low percentage deals that actually happen in most markets. The modern consumer doesn’t need help finding houses they’re interested in. There are more sites that have more listings, and listing information, than ever.

I don’t need an agent to help me find a home. What is need is someone to advise me on the transaction. I need someone to tell me that if the house was built before 1978 it might have led based paint or if it was built in the 60’s or mid-70s it probably has aluminum wiring. I need someone to explain to me how the transaction works, because buying a home isn’t like buying a TV, or a computer, or even a car. It’s an extremely critical transaction that can have extraordinary repercussions on a client’s life. See available inventory is not what customers need help with anymore. The devil is always in the details, and that’s what customers need and want.

Agents are no longer salespeople, or at least not just salespeople. They are consultants and advisors. Customers are hiring an agent to advise them on their home sale and purchase. How to stage the property, what repairs to make or request, how the heck the offer/counter-offer process works. That is where the agent’s value lies and that’s why customers will turn to an agent.

The iBuyers Are Coming!

iBuyers market share is growing! Now panic, scream, and run in circles. I’ll wait….Have that out of your system? Good.

The number of iBuyer transactions per year rose and rose quite a bit in certain markets. Are iBuyers going to kills off agents? No. There will always be a market for iBuyers.

Think about it for just a second. There are certain types of sellers that are willing to take below market value for a quick, guaranteed sale. Sellers who inherited property have no investment in the property, so anything they get is pure profit. Sellers that have a lot of equity, need to move their house quickly, may take a lower offer if they get offered a short close window with no contingencies. However, most sellers are going to want to get the most they can for their home.

This is another scenario that agents are going to have to adapt to overcome. Agents are going to have to demonstrate their value and how they’re going to procure the highest price for a seller’s home, shifting more to that adviser role than simply a salesperson.

Smart Home Technolgy blows up…..

…in agent’s faces. Ok, maybe that’s a little dramatic, maybe not. Smarthome technology, or Internet of Things, implementation is booming. The exact numbers vary, but current estimates put in-home voice assistants at around 36% and all estimates have those numbers climbing at a high rate. The adoption rate of Google Home and Alexa devices has been a gateway to other connected devices, like smart light bulbs and smart plugs.

The bulbs and plugs are easy to take with you when you leave. However, we’re now seeing “smart” devices of a more permanent nature getting installed in homes. Smart Thermostats, fixtures, light switches, outlets, fridges, and even smart HVAC vents. These kinds of things aren’t easily moved when the home sales. So, how do these items transition from one owner to the next? That’s the problem agents are going to have to deal with. Is it the agent’s responsibility? Not really, but how many times to agents get a call for advice or guidance about any number of random things to do with a house that a client recently bought or sold?

Where it’s going to be problematic for agents is that the smart home market is a mess right now. There are no real standards for how these different devices integrate or, more importantly, how to transition them from one owner to another. How happy do you think a new homeowner is going to be when they realize that the previous owner still has access to the thermostat, locks, lights, and cameras in their new home? Not please at all.

The good news is that there are plans in the works to put standards in place to make working with these devices easier for the layperson, but the bad news is that until those standards are in place the smart home revolution is going to be a problem for agents.

Zillow is one of the most polarizing, if not the most polarizing, topics in the real estate industry over the last decade or so.  If you ask any given agent or broker you’re just as likely to get a gushy declaration of love as you are a venom-filled tirade. So, what’s a broker/team/agent to do?

I understand why Zillow is disliked. I don’t like it from a marketing perspective because it makes my job harder. It’s harder to produce a site that can compete with Zillow from both a capability and SEO perspective.  They’re cutting into the traffic and leads that my site would’ve produced otherwise. They are guilty of inaccurate data on several fronts. Then there’s the old argument that Zillow is selling agents their own leads back to them. That statement is somewhat true. Zillow’s channel of leads is based on the listing agent’s inventory, but they’re actually selling leads to the paying agent an not necessarily the listing agent. That fact makes them even less popular with successful listing agents.  It’s a competition without being direct competition since Zillow isn’t a brokerage itself…….yet.

However, let’s look at the other side of the coin. Zillow does provide a valuable service to its customers. Under Premiere Agent 4 Zillow qualified and scrubbed leads before handing these leads over to members of the PA4 network. A lot of PA4 agents haven’t been too happy with that change, but that’s a different topic. If you’re an agent or brokerage that doesn’t have a strong SEO or organic lead generation program than Zillow is a legitimate source to get leads from to drive business. I’d argue for some if it weren’t for buying into the PA program then those agents or brokerages could find much less success generating leads on their own.

Any brokerage can choose to not put their listings on Zillow.  There’s nothing stopping them unless there are some MLS boards that have voted to unilaterally publish the listings in their feed. So, if you don’t want your listings there pull them. Here’s the rub, pulling listings from Zillow is only going to work at scale in a given area.  Sellers expect their house to be on Zillow. I’d be willing to bet most sellers check Zillow’s site before the site of the brokerage they listed with. If the entire MLS doesn’t pull the listings from Zillow it hampers those individuals that do.  If we take into account my earlier comments that a lot of smaller brokerages use Zillow to level the field, what’s the likelihood that they’re going to agree to the whole MLS stopping syndication?  I’d be willing to bet that likelihood is zero.

Like I said earlier, Zillow makes my job more difficult in some ways. However, I don’t think Zillow is going anywhere. If anything Zillow is digging in and finding new ways to generate revenue from the real estate transaction.  If that’s the case then why not use them to your advantage?  If you have to play their game at least get something out of it.

Compass is real estate’s latest industry darling and investors are falling over themselves to sink cash into the company. These guys have raised $800 million since starting in 2012, with the latest infusion being a big check from Softbank for $450 million.  If rumors are to be believed Softbank is looking to double down by throwing another $400 million or so their way. That would bring their VC investment to roughly $1.2 billion. I don’t know about you, but where I come from that’s a lot of liquidity to play with.

Compass announced at Inman Connect San Fransico that they will begin leasing their coveted technology stack to other brokerages.  Agents are completely enthralled by Compass’ tools, whether they’d actually use them or not.  If there’s a brokerage struggling to get their own tech tangle sorted out then Compass’ offer could be a boon for them. That begs the question: Why would Compass lease access to its biggest advantage? I can tell you that it’s not because of any altruistic goals of Robert Reffkin. I think it can be summed up in one word: Acquisitions. I think more specifically acquisition of independent brokerages. Compass wants in the door, behind the curtain, and its tech stack is its gateway drug.

If a brokerage implements Compass’ technology stack then all of their data is running through that system.  They’ve just pulled the curtain back to all of their critical performance data. Compass knows how the brokerage is performing, who’s producing, who’s not, conversion rates, etc.  Some, if not all, of the most critical data it would need to do what? Acquire said brokerage.  Who do you think is going to lease Compass’ system? ReMAX, CB, or Keller Williams franchises? I would think that’s not likely.  I keep hearing that “systems” are why agents go to franchise shops. Why would these franchise shops pay for two systems? I can guarantee you that CB and Keller will get their pound of flesh. Why would a franchisee pay CB for their systems AND pay Compass?  Well, they wouldn’t. It’s the independent brokerages are the shops that most likely don’t have solid “systems” in place.

Let’s consider a scenario. There’s an independent brokerage in Charleston, which is a market that Compass currently doesn’t have a presence in. They lease Compass’ systems because they believe that it’s the best solution for them and will give them a leg up on everyone else. Fast forward 12 to 18 months. Compass has been able to look at essentially all their production data, from the inside, and know exactly what their numbers are what their profits and losses look like and how they might approach them. It shortcuts 90% of the footwork and due diligence required for an acquisition.

Compass has already snapped up a couple of indy shops this year.  They grabbed Platinum Drive Realty in February, Colon West in April, The Hudson Company in June, and Paragon Realty in July.  Who’s gonna be next? Reffkin has already publicly stated he’s willing to pay 4 to 6 time EBITDA for a brokerage and that can be a pretty attractive offer to a lot of owners. Take that on top of the fact it looks like the former owners stay on as either managing brokers or sales managers.  They see it as a win-win. For Compass there’s not a downside either. If they can use their tech stack leasing to find valuable acquisition targets then it’s served its purpose, but even if the leasing brokerage isn’t a good acquisition Compass still makes money from the tech lease.

Compass has got to spend all that sweet VC capital somewhere.  Where do you think it’s gonna go?