There’s been a lot of talk lately about the future of not just the players in the real estate industry but the industry itself. Who wins and who loses in the next several years depends on various combinations of many factors against the backdrop of an uncertain environment, not unlike “Game of Thrones”. Also not unlike “Game of Thrones”, alliances, deceptions and invaders have existed for years and more will emerge in the future. But first, the factors.

Consumers vs. Agents

Is it about the consumer or about the agent or both? I suspect that all of these companies would say that it’s really about the consumer regardless of their respective business models. But here in the present where Zillow is the leader far and away in consumer site visits, as much as the traditional brokers and franchisors talk about the value of their consumer facing websites, many of their top producing agents are Zillow Preferred Agents because they recognize the reality that consumers check with Zillow over any other real estate website – and it’s not even close.  This effectively puts Zillow, Opendoor and maybe a couple others in the consumer camp.

The brokers and franchisors, even those who present themselves as ”tech-enabled” and “consumer focused” like Redfin and Compass, rely on agents for revenue and are really in the agent camp.

Pure and simple. Or is it?

Rise of the Agent Teams

This one has actually been on the rise for at least 15 years but really started gaining traction when technology became ubiquitous and (gasp!) much more within the grasp of more agents than ever. The explosion of agent teams coincided with the decline of company dollar and the increase in the agent commission split. It’s hard to tell which came first but at this point it really doesn’t matter.

The Ubiquity of Technology

The last decade has witnessed the proliferation of real estate tech companies. Many of them offer nice solutions for specific operational activities but except for those with the resources (remember – people, money, and time), it’s hard to be all things to all people in the real estate industry.

On top of that, agents and teams can and do go out and buy their own solutions for every aspect of their business. For brokers and franchisors, agent adoption of software tools sponsored or purchased by them becomes problematic but for agents and teams, it’s not THEIR problem. Additionally, the broker’s problem is only exacerbated by the shiny object syndrome.

 Shiny Object Syndrome

A lot of companies have spent millions on new initiatives, software products or worse yet, in-house development of software solutions with little or nothing to show for it. Even it that solution made it off the drawing board, did the broker or franchisor achieve the necessary agent adoption rate to justify that investment?

Unfortunately, the shiny object syndrome often goes hand-in-hand with the decisions made by franchisors and larger brokers. As noted before, three critical resources – people, time and money – are all valuable but the only one that is not fungible is time. One doesn’t get many opportunities in this business only to come up short on big initiatives or projects.

Build vs. Buy

This one goes also hand-in-hand with the shiny object syndrome and the ubiquity of technology. Fifteen or twenty years ago, a case could be made to build software solutions. There simply weren’t that many viable products out there, the real estate market was booming, and the franchisors and larger brokers wanted solutions then and there.

Nowadays, any technology executive worth his or her salary knows that back-office, CRM, and most of the other brokerage functions can be solved by working with the right vendor who has been around real estate for a while and realizes that the larger brokers usually have some unique aspects to their business processes that must be reflected somehow in the software. Developing these tools from scratch is a risky endeavor with more than a few unknown variables and time is not on the side of the company that chooses that path.

Scale vs. Focus

Scale dilutes focus more often than not in this business. Focus requires a level of discipline and relentlessness down to the branch office level. As an example here, Howard Hanna is one of the few larger brokers who have maintained or improved office and agent productivity since 2005.

When examining this issue, one only has to look at the Real Trends 500, RISMedia and Swanepoel annual reports to get an accurate view of who has scale and who has focus. Scale is not the big advantage that it used to be. Other good examples of focus are Hanna, Sibcy Cline, and the Keyes Company, all of whom are still regional brokers. Coincidence or not?

Affiliated Services

One cannot simply wave a wand and will such an operation into profitable adulthood. It takes years of discipline, consistency, and focus with knowledgeable people running each operation whether it’s title, mortgage, insurance, moving services, or rentals. Just ask the larger brokers with these operations. This may not seem like much but those who do this well have much better cross-sell capabilities, more repeat business, and more profits.

Public vs. Private

Publicly traded companies have to provide a certain amount of transparency that private companies don’t. Going public also shines a light on the success of the company’s business model, decisions and ability to zig and zag while still being held accountable to its public shareholders. Four relevant examples with distinctly different business models are Redfin, Zillow, Realogy and eXp.

Redfin’s employee-based business model is still a work in progress and market share growth continues to be elusive. Zillow has successfully navigated its path as a public company with a few bumps in the road and hard right turns at the doorway, while Realogy’s recent history has put a spotlight on its recent problems. While eXp is publicly traded, its model is actually pretty similar to Realogy’s with the one notable exception that eXp’s approach is to steer clear of a brick-and-mortar based operation. Regardless, the public filings of all four provide good context for future developments in the business.

One cannot discuss this factor without considering the “unicorn” aspect – specifically Compass and Opendoor. Both of these companies have to go public at some point and the VC’s funding each of them will start asking before their respective IPO’s when their respective business models will generate profits.

The Regulatory/Standards Landscape

Recent lawsuits could potentially change the face of residential real estate brokerage but the Department of Justice and the Supreme Court would likely have to accept any decisions at the state or appeals court level. Either way, that takes time. Ditto for the recent DOJ order sent to CoreLogic.

It’s hard to envision either situation as an omen for the demise of the industry as we currently know it but they will certainly bring more transparency to property information as well as the buying and selling of homes.

Knowledge of the Industry

And this means knowledge gained by first-hand experience, by learning quickly from one’s mistakes, and by the recognition that if you’re the smartest person in the room, then you’re probably in the wrong room. This last one also requires a large dose of humility.

There are LOTS of people in this business who are very knowledgeable about how things operate down to minute details but people come in cold at the executive level all the time from other industries. They all learn – some more quickly than others – that real estate is different.  Time, however, is still not fungible.

More to come in Part 2.

[GoT logo via Variety.com]