Friday Flash: The monster under the bed

There’s a lot not being said about the monster hiding under the industry’s bed right now. 

Andrea Brambila at Inman is doing a great job reporting on the litigation and regulatory developments threatening to restructure real estate, but that’s not what I mean.  

I mean that no big industry players are talking about this publicly. They can’t, really. They’re either defendants or don’t want to tip off competitors as to how they’ve war-gamed the bejeezus out of this situation. 

We thus appear, outwardly, to be resting comfortably, letting the NAR file the motions and make the public statements.

Which… I dunno. 

But here’s the thing: it’s not just giants like Zillow and that are at risk — both of these companies are currently expanding referral-fee businesses that are completely dependent on shared commissions — but also thousands upon thousands of brokerages and agents without a phalanx of lobbyists and lawyers.

It is for these people that the outward calm is a dangerous illusion. I don’t get the sense that many of them are even thinking about this stuff, let alone have contingency plans. 

What happens if cooperation and compensation is obliterated? Have you thought about a fee-based model for buyers? And what if NAR’s Clear Cooperation Policy proves untenable? What happens when big listing brokers then starve out their buy-side dependent competitors by selling their own stuff?  

I am not a hysteric. I tend to think that the default prediction about anything in this business should almost always be “yeah, nothing changes.” And NAR has been quite effective at insulating the industry from disruption with a million surplus members scattered across the country like a diffuse, rag-tag army executing an asymmetrical war against change. 

But what’s going on now feels like something worthy of acute discomfort, and careful planning. 

Speaking of surplus real estate agents, I talked with a broker in the Bahamas this week who told me that their real estate association limits new practitioners to 80 per year. 

This, in a country of 400,000 people. 

There are 900 practitioners, total, in the entire country. The licensing requirements are strict. Aspiring agents must find a broker under which to apprentice before even taking the licensing exam, which costs $2,200 and is given only twice per year. 

It can be done. 

Realogy announced Q1 earnings this week, and continued to demonstrate resilience. Over the past couple years or so, the company has managed to significantly reduce its debt burden, quietly unwind its ill-fated ZipRealty acquisition, move past the blown-up Cartus and Amazon deals, and withstand a frontal assault on its brokerage operations by Compass.  

I mean, it’s been pretty darn hard not to do well in this business lately, but still: Realogy seems to be executing well. 

Of note in the earnings release was an $8 million dollar loss in its mortgage joint venture with Guaranteed Rate, which was formed in 2017. This isn’t shocking given the state of the mortgage market, but it made me think of Compass, and their own Guaranteed Rate joint venture, Origin Point

Origin Point was launched in July of last year, and Compass hyped it in Q3 and Q4 as a key element in its path to profitability. As of today, Origin Point’s website shows 35 loan officers in 4 states. Fact is, building out a mortgage operation is slow going. It’s why Redfin outright bought a big mortgage lender at the beginning of this year. 

We’ll learn more when Compass releases its Q1 earnings in a couple weeks, but it seems unlikely that mortgage — a business with declining margins that is hard to scale — will move them meaningfully upwards from their pit of breathtaking losses. 

Have a restful weekend (and check under the bed before turning in).