COMPLIMENTS OF

APRIL 2019 NEWSLETTER LOW-COST MODELS CONTENTS IS THE BROKERAGE 1-7 FIRST PERSON • Is the Brokerage Value Proposition VALUE PROPOSITION Under Attack? • Redfin and RE/MAX Partner • The Problem With the WSJ Op-ed by REX Executives UNDER ATTACK? • Class Action Suit Filed Against Major Franchisers • The 500 Top Brokerage Ranking Report 8-11 BROKERAGE • Home Sellers Don’t Understand Real Estate Commissions • Do You Struggle to Communicate Effectively? • 10 Recruit Interviewing Traps 12-13 MARKET • ShowingTime Showing Index 14-16 REGULATORY • Regulation Opens Door to Private Flood Insurance Competition 17 VALUATIONS / M&A • An Analysis of the Compass/ Alain Pinel Acquisition 18 GLOBAL • Iceland: Real Estate Opportunity? 19-20 TECHNOLOGY • How Much Tech Is Too Much? • Case Study: A Flawless Tech Roll Out Yes! It’s time to invest in human capital By Steve Murray, president CLICK HERE rather than physical infrastructure. to register for the oday’s headlines include stories about Opendoor, Offerpad, Zillow, and Knock, along with Realogy buying homes direct from TWO of the industry’s most THE T consumers; and Compass and NRT acquiring agents and teams. informative events You’ll also see Keller Williams, RE/MAX and others building out global for real estate GRAND leaders - tech platforms that integrate numerous data and software services in a BACK to BACK HYATT single platform; eXp, HomeSmart, Realty One Group, Fathom and in ONE great city! DENVER, COcountless local, privately owned flat fee or capped commission plan firms GATHERING expanding rapidly either through virtual platforms or franchising. Plus, NRT stopping purchasing brokerage firms and Berkshire Hathaway EARLY OF EAGLES EARLY HomeServices lowering the prices and terms it is willing to pay. MAY 14-15, 2019 $495 BIRD May 15-17,MAY 15-17, 2019 2019 $1199 BIRD 1 Learn trends in valuations, mergers KEYNOTE SPEAKER APRIL 2019 and acquisitions along with Ken Auletta, strategies for building value in this Author, Frenemies super charged, 24-hour conference. Joined by: Larry Kendall, NINJA Selling Robert Reffkin, CEO of Compass Mike Staver, Industry Mastermind

Reserve your spot NOW at www.rtgoe.com before prices increase on December 31! FIRST PERSON

THE NUMBERS • Gross margins for all brokerage firms have declined from 22 percent five years ago to less than 15 percent as of the end of 2018. • Net margins for all brokerage firms have declined from 4.3 percent to 3.5 percent over the same period. • Average agents per office achieved little growth over the past five years for all brands and independents except Keller Williams. • Per-person productivity has declined as existing home sales flattened out and agent counts keep growing. • Teams are growing both in terms of numbers and average size and, in many cases, in the sophistication of their lead generation efforts. A 2018 California Association of Realtors® + REAL Trends team study showed that teams show gross margins of nearly 65 percent versus 7501 Village Square Drive, Ste. 200 brokerage firms that average 15 percent. Castle Rock, CO 80108 Phone: 303-741-1000 Email: [email protected] There are firms, mostly small- to medium-sized firms, Web: realtrends.com that are doing extremely well by investing in coaching President: and training, and who are much more intimately Steve Murray - [email protected] involved in their agents’ success than is the norm. Publisher: Tracey Velt - [email protected]

REAL Trends Team: Alicia Vivian - [email protected] Amy Falko - [email protected] Bo Frize - [email protected] Brent Driggers - [email protected] Cooper Murray - [email protected] Doniece Welch - [email protected] Nikki Lindholm - [email protected] Peter Gilmour - [email protected] Scott Wright - [email protected] Toni Lapp - [email protected] Trish Glodava - [email protected]

Copyright 2019 by REAL Trends. All rights reserved. Material in this publication may not be electronically stored or reproduced in any form without writtern permission. Violators will be punished by a fine of up to $100,000 per offense.

THESE ARE NOT UNCONNECTED EVENTS The value proposition of full-service, strong brand brokerage firms is under attack by lower-cost models without strong brand names. Whether the full- service brokerage firms are independent or franchised with a national brand, new competitors are undercutting the gross margin of the incumbents with less office space, less managerial and staff support and little-to-no marketing or advertising. In short, the low-cost models usually offer a tech platform of some kind but not much else—and a growing number of agents and teams are taking them up on it.

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There are signs of contra-trends as In our view, all the changes going on reflect Several firms haven’t succumbed to the well. Most of the leading teams and the end of an era where there could be attack of low-cost models by getting ever individual agents continue to align numerous traditional-type brokerage closer to their agents, establishing and with brokerage firms with strong local firms in any given market with relatively nurturing these relationships more intense- or national brand names. Many undifferentiated service offerings. Indeed, ly than at any time in the recent past. We privately owned brokerage firms, some of these firms will remain and be recall one of the great lessons from REAL whether independent or franchised, viable. Some will be replaced with Trends’ whitepaper “Against All Odds,” have deployed tech platforms that work low-cost brokerage firms of all kinds. which recounted the stories of the most as well as any of the national platforms successful brokerages through the 2006- (thus far). Incumbents are Most importantly, there will be a growth 2010 housing debacle, which was “if you restructuring their operations to in the number of brokerages with think you are close to your people, get closer still.” address lower gross margins. relatively higher costs that focus on the investment in their agents and teams The percentage of agents for whom the And there are a growing number of from a personal development position. historical value is attractive is shrinking incumbents who are moving away from We see that there are firms, mostly —but not disappearing. To compete in office space and managerial staff and small- to medium-sized firms, that are this new environment, incumbents (and moving towards mentoring, training doing extremely well by investing in new firms) will have to focus more on and coaching to differentiate their coaching and training, and who are the investment of themselves in their offerings—investing in their human much more intimately involved in their relationship with their agents and the capital rather than physical infrastructure. agents’ success than is the norm. development of their success.

NEW PARTNERSHIP REDFIN AND RE/MAX PARTNER TO REACH NEW MARKETS With this new partnership, REAL Trends By Steve Murray, president wonders who else may be partnering?

ith the announcement that RE/MAX, largest brokerage franchises in several areas, Wthe world’s largest residential brokerage some of which have not been attempted before franchise and Redfin, the United States’ largest by any franchiser. tech-driven brokerage, have entered into a partnership agreement to broaden Redfin’s In the Redfin deal, RE/MAX agents in Canada reach into new markets and secure a valuable will become the preferred agent partners with source of online prospects, the whole industry Redfin as it pushes into Canada. In must now wonder whether there are numerous areas in the United States where more partnerships and restructurings coming. Redfin does not have owned and operated units, RE/MAX agents The Redfin-RE/MAX partnership also highlights will also have access that, while some wonder about the future of the to the lead flow nearly 50-year-old brand, Dave Liniger, and CEO from Redfin’s Adam Contos are not planning for a status quo strong online future. The Redfin deal tops the successful launch presence. Both of Motto Mortgage, which now counts over 100 companies are franchises in less than three years with future exploring other ways growth rates climbing. Also, RE/MAX is investi- to work together in gating how to improve the growth prospects of its the future.

3 APRIL 2019 FIRST PERSON THE PROBLEM WITH THE WALL STREET JOURNAL OP-ED BY REX EXECUTIVES An Op-Ed with Unsupported Assertions

By Steve Murray, president

n a perceived attempt to smear the Realtor or- Iganization and its MLS services and excuse the failure of venture-funded entities to provide consumers with a better market opportunity to buy and sell homes, executives from a low-cost, tech-driven realty firm wrote an editorial filled with numerous unsupported assertions in The Wall Street Journal on March 3. The National Association of Realtors penned a response that was confined to the Letters page.

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EXPERTISE ASSERTIONS BY THE WRITERS ABOUT European car makers could to their First, a disclosure. I have been retained THE REALTY INDUSTRY: counterparts in the United States. “What by and qualified as an industry expert facts do the authors have to back up by the U.S. Federal Trade Commission 1. “Sites like Zillow and Homes.com are that claim? More to the point, what (FTC) in matters pertaining to MLS commonplace, but they could not have economics courses have they taken, and its relationship to brokerage and thrived without the department’s or studies have they read to get housing consumers. I testified as an intervention. “The authors may not have anywhere close to a correct assertion? expert in a major case brought by the known that Microsoft HomeAdvisor, FTC against an MLS that was found to Realtor.com, Homes.com and others 4. “Homeowners are required to hire a buying be practicing anti-competitive ways. were thriving before the DOJ’s actions. agent if they employ a selling agent Further, I was employed by the Canadian through a multiple listing service—a Competition Bureau in an investigation 2. “They’ve shielded themselves with a skein potentially illegal tying arrangement into the likely impact of certain of anti-competitive practices, such as under the Sherman Antitrust Act that minimum service requirements in restrictive all-or-nothing membership keeps buying agents paid though they offer Canada on low-cost brokerage firms. rules and commission tying practices. almost no useful service.” I have news Plus, I was employed as an industry These have kept the high fees they for the writers: No homeowner is expert witness by the National Association charge unchanged since 1991.” required to use an agent at any time. of Realtors® in the actions of the Without commenting on how Realtor In the U.S., no seller or buyer is U.S. Department of Justice Antitrust membership rules have any effect on required by law to use an agent. No Division. Most of these cases were over commission levels, they are wrong seller is required to pay any stated ten years ago. I also provided expert about commission levels. As the commission, as commission rates are reports on behalf of Zillow in its acqui- Department of Finance/FTC’s all negotiable. Our studies with sition of Trulia and, just last year, provid- economic reports show, through the Harris Insights (REAL Trends 2019 ed an expert report to the FTC’s panel end of 2006, the inflation-adjusted cost Consumer Study) show that looking into a review of the industry of commissions had gone up less than consumers know this. Further, even upon the termination of the 1.5 percent per year for the previous when a seller employs a listing agent, consent decree of 10+ years. Further, our own authori- the homeowner can dictate whatever more than 10 tative research on commission rates amount they decide to offer the years ago. show that the rate has dropped from agent working with buyers. If agents 6.1 percent on average to slightly less provide no useful service, then why than 5 percent in the past 25 years. do the authors employ their own agents to help buyers and sellers? 3. “The Realtors’ anticompetitive practices have had a greater negative impact on the In our REAL Trends 2019 Consumer American economy than anything Study by Harris Insights on recent Canadian dairy companies or buyers and sellers in July 2018, over 90

5 APRIL 2019 FIRST PERSON percent of all buyers and sellers used an • Buyers and sellers know that they agent, up from 85 percent in a similar Millennials (you know the can dictate the cost of their own study in 2014 and up from 81 percent in transaction, including not using a 2001. Millennials (you know the ones who ones who didn’t want to real estate professional at all. didn’t want to own homes or who would own homes or who would • Buyers and sellers find their agents’ use smartphones to buy homes instead services actually quite useful. of agents?) used an agent 92 percent of use smartphones to buy the time to buy or sell their homes. homes instead of agents?) Wall Street and Silicon Valley have been trying for 25 years to blow up our The REX authors say, “Agents offer no used an agent 92 percent industry and do away with agents, and, useful service.” Again, our independent of the time to buy or sell in some cases, brokerage firms. They Harris Insights research said that the their homes. haven’t succeeded yet. Even the best highest value consumers received was of the real estate tech firms, Zillow “helping me negotiate the price and and Realtor.com, have found that terms of a purchase or sale.” I assume using agents in their service delivery their own company does the same thing. is critical to their business success. But, what really jumps out is that buyers and sellers said they found that their Whether REX succeeds or not, the agent helped them “by providing me There are many things wrong with our execs who spent their time writing with homes that match my home when industry and those of us who have called these unfounded and unsupportable I am selling (Comparative Market it home for 30 to 40 years know what claims should spend more of their Analysis) and those I am looking for.” those things are. The MLS can be made time focusing on how they can offer They said this when housing more effective. Consumers know some- something compelling as a way to win consumers could find virtually every thing that these executives don’t know: the hearts and minds of consumers. home online; yet, consumers still find Otherwise, they’re just wasting their their agents helping them find homes! • Buyers and sellers like using a real investors’ money. estate agent.

CLASS ACTION LAWSUIT HOME SELLERS CLAIM ANTITRUST LAWS VIOLATED

The National Association of Realtors® is seeking dismissal of flawed lawsuit. By Steve Murray, president

laintiffs have filed a class action implementation of a rule that requires plaintiff bar attorney funding) have Plawsuit in the United States District all brokers to make a blanket, non-nego- decided to challenge the practice where Court for the Northern District of tiable offer of buyer broker compensation listing brokers agree to publish what Illinois claiming that defendants when listing a property on an MLS. they will pay to another broker working National Association of Realtors® (NAR), with a buyer for bringing that buyer to Realogy, RE/MAX, Keller Williams and While this practice has been litigated purchase their home. REAL Trends will HomeServices of America have conspired and settled many times in the past, once report more on this as it moves through together around NAR’s adoption and more some parties (no doubt backed by the system.

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THE 500 TOP BROKERAGE RANKING REPORT ACCURACY AND RELEVANCE

IN BROKERAGE RANKINGS RANKING THE TOP Competition is fierce among those ranking brokerage firms. But, ethics, accuracy, By Steve Murray, president and verification are what matter most.

n March 27, REAL Trends proudly brokerage firms that if they don’t submit Oreleased its annual REAL Trends 500 their data, then the authors of the and Up-and-Comers report which ranks third-place ranking report will make up BROKERAGES IN THE U.S. by: the top residential brokerage firms in the the numbers. They will put in whatever Transaction Sides Sales Volume Affiliation country. This study—now in its 31st year they think are the right numbers. REAL Top Movers Core Services The Billionaires’ Club —is the standard by which all other rank- Trends has corroborated this informa- Up-and-Comers 2019 ings are measured. That’s because firms tion from several sources. Rather than have the option to willingly submit their respect the privacy of brokerage firms numbers and third-party verification. that chose not to participate, this That is the standard set by REAL Trends company tries to force them to do so. The relationship we that sets our report apart from others. have with those who Now, let’s talk about third-party verifica- Recently, another firm released its own tion—the reason that REAL Trends is provide their data and brokerage rankings. That makes them the standard to which all other rankings submit to the verification the third firm to do so. They claim that is compared. The third-place ranking their report is “the most comprehensive, does not require third-party verification. process is the reason accurate brokerage” rankings. Their press From their own admission, they made up we have the most release also says, “Without the best data data for at least four of the top 15. And, available, assumptions and decisions are now that they add agent count data (for successful brokerage flawed before they’re even made.” Further, analysis purposes they say) which leads to ranking in the industry. the release says, “We are determined to another problem—they don’t verify agent include all of the nation’s largest com- counts. As we know from long experience, panies, whether they participate or not.” these numbers are among the most easily makes the REAL Trends 500 the most manipulated for the purposes of one respected, even if not every brokerage Their claims fail in a number of ways. First, brokerage firm beingmore productive than in the country is on it. located in their footnotes, they admit that another. It will lead to grossly misleading they made up the numbers for four of statistics now and in the future in Finally, the REAL Trends 500 is not the top 15 firms in the country. Not only calculations of this kind. They just don’t meant to glorify the authors of the are these numbers wrong; they are wildly know it yet, because they don’t have report, but rather highlight the wrong. Second, they are still missing any history doing this kind of work. incredible brokerage companies that many firms that belong on the list. These dedicate themselves to building and are firms that REAL Trends is aware of; Brokerage firms don’t live and die by growing their companies. We have however, we don’t publish their data where they rank. These firms like our always tried to do the best work we because they did not choose to have their report because it gives them a sense of can and let the work speak for itself, data released. We respect that decision. what they and others are doing, and just like brokerage leaders do. The which businesses are growing and relationship we have with those who WHAT’S IMPORTANT which are not. Most importantly, they provide their data and submit to the The problem with their claims is that have always enjoyed it because it is the verification process is the reason we they fail to understand the respect a most accurate due to independent, third-par- have the most successful brokerage company must have with its clients. The ty verification. It is this feature that ranking in the industry. authors of this other report have told

7 APRIL 2019 BROKERAGE

CONSUMER POLL HOME SELLERS DON’T UNDERSTAND REAL ESTATE COMMISSIONS

Many homeowners are misinformed about how much it actually costs to sell a home, according to a new study of prospective home sellers.

merging technologies and data- What they found was that the average percent were unsure. These types of Edriven startups are empowering homeowner remains ill-informed about arrangements are controversial, as dual consumers and fundamentally real estate commissions. The survey agents have no clear fiduciary responsi- changing the way they buy and sell found that 45 percent of home sellers bility to either party involved in the sale. properties. What’s more, discount didn’t know they were expected to pay and nontraditional brokerages are the buyer’s agent commission. O’Shaughnessy said that despite wide- challenging the longstanding reign spread industry disruption, real estate of the traditional realtor model. The findings echo concerns voiced professionals still have a crucial role to earlier in the year by the Consumer play in the home-selling process—and To get a clearer picture of the evolving Federation of America, which called it’s unlikely that demand for their services role of the real estate agent—and the for improvement of disclosure laws, is going to go away anytime soon. Most mindset of home sellers in 2019— and an outright ban of dual agency. home sellers—even those trying to sell St. Louis-based Clever Real Estate for sale by owner (FSBO)—still need a recently surveyed 1,000 Americans who Tom O’Shaughnessy, author of the real estate agent. About 50 percent of indicated they were planning to sell report from Clever Real Estate, said the respondents said they wouldn’t feel their homes within the next year. poll showed 37 percent of home sellers comfortable negotiating with buyers, would consider dual agency, and 46

THE AVERAGE HOMEOWNER remains ill-informed about real estate commissions. The survey found that 45 percent of home sellers didn’t know they were expected to pay the buyer’s agent commission.

8 REAL TRENDS BROKERAGE and about 62 percent wouldn’t feel No. 1 goal was to sell as quickly as home is preparing it for sale (27%), comfortable finding and completing possible. followed by attracting buyers (20%), the necessary paperwork for closing. pricing it correctly (18%), finding a • Consumers are almost ready for AI good real estate agent (13.5%), Clever’s poll found that many home technology in real estate. Approximately negotiating with buyers (10.7%), and sellers are on the fence about using a 50 percent of respondents said they handling all of the paperwork (9.7%) real estate agent, said O’Shaughnessy: would be willing to sell their home 32 percent were unsure if they’d end up using an AI platform that finds potential The key takeaway is that many home- using an agent, and 14.5 percent said buyers, and 37 percent believe existing owners simply don’t understand all of they were planning to try to sell FSBO. AI tech could outperform a human the costs involved in selling a home. real estate agent. Real estate agents should set realistic Here are some other takeaways from expectations at the outset to avoid nasty the study: • While many sellers use the internet to surprises and difficult conversations find and vet real estate agents, most • Sellers are preparing for a housing further down the line. This is especially (50%) said they rely on referrals true for first time home sellers, who market slowdown. Some 65 percent of from friends and family. respondents said they’re willing to wait were 53 percent more likely to believe longer for a better price versus 35 per- • According to survey respondents, the home buyers pay commissions than cent of respondents who said their most challenging part of selling a experienced home sellers.

WHILE MANY SELLERS use the internet to find and vet real estate agents, most (50%) said they rely on referrals from friends and family.

BROKER CHALLENGES DO YOU STRUGGLE TO COMMUNICATE EFFECTIVELY? It’s time to put in place a strategic communications system. By David Siroty

eal estate brokerages are filled withpeople-people —a group of leaders, staff, and agents who Rlove connecting. That’s why you would think it’s a place where strong communicators would run rampant. Instead, almost all of the real estate brokerages I’ve come across struggle to communicate for a variety of reasons.

The first is the breakneck pace of the real estate environment. There’s so much going on—so many deals, offices, and agents—that having a strategic communications system is challenging to set and maintain.

The second reason is the entrepreneurial nature of the industry. Each office tends to have its own culture and each manager his/her style. Most leaders are fearful that any effort to infringe on a manager’s work would hinder their spirit. The third is the agent-led system. While most leaders would love to have their agents tethered to the company, the reality is that most would rather have them selling and producing.

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THE TIME IS NOW they want and need to hear. They come should be shared in a company-wide If we believe challenges are to be met first. Once you hook them, then you email. Consider a targeted approach and overcome, I believe it’s time for can weave in your messaging in a way where agents interested in a specific brokerages to adopt better systems of that will engage them. Of course, you topic get those appropriate messages. communications. I can’t tell you how also need to understand the underlying 4. Facebook groups work. Your firm many broker-owners I’ve spoken to who themes you want to get across. should have a closed Facebook feel they’re continually showcasing and group where you can communicate, defending what they offer. They’ll say, Here are some ideas that may help you share, congratulate, etc. The group “We have X, and we have Y, but the better communicate with your teams: also allows for an environment agents don’t come to our meetings and where agents see energy, learn and don’t pay attention.” The agents have 1. Your intranet site is not a communi- engage. Keep it updated with only left the barn. The more they disconnect, cations vehicle. It’s a holding cell. current agents and staff, and never the harder it is to share what you offer. You still have to get them there. allow it to become a listings bazaar. 2. Newsletters work. You should have a 5. Sales meetings work. You must have Unfortunately, this has led many to healthy mix between what the agents them. And the broker-owner should have fewer sales meetings hoping that want to see and what you want to tell be scripting them with the manager’s the exclusivity of these events will be a them. As a simple example, if your input. Every office—and every draw. I’ve seen that many have drastically agents love celebrating birthdays, agent—should hear the same thing. cut back on emails and newsletters. include a list of birthdays for that The meetings should ooze company week. Write concise, scannable The problem is not how often you’re culture, energy, and vibrancy with chunks of copy along with bold trying to communicate, it’s what you’re time set aside for hardcore real estate graphics so that agents can read it sharing that has gone astray. along with traditional pieces that on the go. I’m a fan of the weekly agents love (i.e., new listings). newsletter rather than a monthly When communicating, no matter if 6. Managers must be in the know. dump of information. you do it through emails, texts, news- As leaders, we want to equip letters, video or meetings, you have to 3. Emails work as long as you’re not managers to tell the company understand the audience and what overusing them. Only major items story. If they’re not on the same page and have trouble articulating the firm’s value, that has to be fixed immediately. Then, get buy-in on the importance of consistency and WHEN COMMUNICATING, the tools that the company will use to share the message. NO MATTER IF YOU do it through What challenges do you have emails, texts, newsletters, video or communicating? meetings, you have to understand the audience and what they want

and need to hear. They come David Siroty has spent 30-plus years in first. Once you hook them, then marketing and communications, the last 15 in real estate. He launched Imagine you can weave in your messaging Productions, a marketing and communic- ations consultancy focused on assisting real in a way that will engage them. estate brokerages, in December 2016 after 13 years leading global communications for Coldwell Banker. He can be reached at [email protected].

10 REAL TRENDS BROKERAGE BUILDING YOUR TEAM TOP 10 INTERVIEWING TIPS Hiring great talent is at the top of every brokerage’s list. Here’s how to interview agents to find out if they’re good for your team.

By Larry Kendall, author of Ninja Selling and chairman emeritus of The Group, Inc.

he first step in building a great team Our sellers will be trusting them with The Ideal Team Player, Patrick Lencioni Tis hiring the right talent. Clearly, the the keys to their houses.) says his research shows the best team interview process is a key component. 5. Commitment. Do they have a commit- players are humble, hungry, and Here are 10 tips in interviewing. ment to a work ethic? “What was your smart. We’ve found these three first job for pay?” is a key question. characteristics to be important in 1. Hire to Vision. Hire for the vision you Research shows that young people building a high-performance culture. want your organization to become. who had a job for pay by the time 9. Three Accelerators. New people get Also, hire to the interviewee’s vision. they were 14 have a much stronger a faster start in our business if they What are they trying to accomplish work ethic. Explore their various have one or more of the following and how is your company positioned jobs and hours worked to determine accelerators: They have previous sales to help them achieve their goals? their commitment to a work ethic. experience; they have previous real 2. Stop Selling! Don’t be so focused on 6. Capacity. Do they have the capacity estate–related experience (mortgage, selling your brand, technology, mar- to work full time? The failure rate in title, builder); and, they have a large keting, etc., that you fail to interview the first two years for new real estate network of people who know, like, them. Instead, provide interviewees sales associates runs close to 90 percent. and trust them—and the interviewee with a package of information on A big reason is their inability or is willing to access this network. Look your company in advance that will unwillingness to work full time. Our for these three accelerators. answer many of their questions. For experience is that they’ll need to 10. The Informal Interview. the top producers you’re recruiting, work 60 to 80 hours a week for their Interviewees can sometimes fool you ask them what their greatest challenges first year to make it in this career. in the one-hour interview. Have them are in their business and then offer meet with your marketing or technology solutions. Stop selling and start solving. 7. Coachability. Are they coachable? people to “see the resources available The interview should be about them. Our industry attracts people who don’t respect the hard work and to you.” Tip-off your marketing and 3. Look for losers. In my 45 years lead- commitment it takes to be successful. tech people to watch for the signs ing a sales organization, I’ve learned They think what we do is easy, and listed above, especially coachability. that spotting the winners is difficult. they won’t have to do the work. One Does it look like the interviewee will Salespeople come in all shapes and way to test their coachability is to give embrace your marketing and tech sizes. Many surprise me. I’ve found them an assignment to bring to the solutions, or do they think they don’t it’s easier to spot the losers and make interview. Our favorite is to ask them need it? Are they humble, hungry sure I don’t hire them. The next few to bring their database. If they show and smart? This informal interview tips will help you eliminate the losers up without it, we learn two things. can be very revealing. and give the rest a chance. Put those First, they have a character issue. who meet the following criteria into They don’t keep their commitments. By following the 10 tips in this interview your sales system and see how they do. Second, they have a coachability template, you’ll hire the talent that fits 4. Character. Did they show up on time? issue. They won’t follow instructions. your culture. That’s a great start. The This is a sign of their ability to keep If they have character, commitment, next step is turning this talent into per- their promises. Are they dressed for capacity, and are eager to let us show formance which is the primary responsi- the interview? Are they likable? Would them the way, they’ll usually make it. bility of managers. To turn talent into I be proud to introduce them to a key performance, managers should use one 8. Culture. Will they fit into our team? Is client? Would I trust them with the of the proven sales systems available in their focus we or me? In his book, keys to my car and my house? (Note: our industry—and build a great team.

11 APRIL 2019 MARKET WATCH

SHOWING TRAFFIC FALLS

Sluggish February real estate showing activity SELLERS HOPE FOR continues seven-month decline foretelling a A SPRING THAW buyer’s market.

KEY POINTS: • February showing traffic fell 9.3 percent year over year in • The decline was also felt in the Northeast (-5.5 percent), the U.S.; the West Region again saw the largest decline in South (-11.3 percent) and Midwest regions (-10.5 percent), activity, down 16.8 percent vs. the same time last year, the the fifth consecutive month where all four regions saw a region’s 12th straight month of slowing traffic year-over-year drop

he traditionally busy spring home February saw national showing activity “Showing activity remained slow in Tbuying season can’t come soon drop 9.3 percent, with the West Region February, furthering the notion that enough for home sellers across the reporting the biggest decline at 16.8 the historically busy spring selling season country as February continued the percent. The West’s 12-month average may see less traffic than is typical,” said trend of year-over-year declines in percentage change was -11.7 percent. ShowingTime Chief Analytics Officer showing activity, according to data from The South Region saw an 11.3 percent Daniil Cherkasskiy. “These conditions may the ShowingTime Showing Index®. year-over-year decline, followed by the prove to be beneficial for home buyers, Midwest Region (-10.5 percent) and however, as the greater available inventory Marking the seventh consecutive Northeast Region (-5.5 percent). signals a strong buyer’s market.” month of year-over-year decreases,

“Showing activity remained slow in February, furthering the notion that the historically busy spring selling season may see less traffic than is typical. These conditions may prove to be beneficial for home buyers, however, as the greater available inventory signals a strong buyer’s market.”

— Daniil Cherkasskiy, ShowingTime Chief Analytics Officer

12 REAL TRENDS MARKET WATCH

ShowingTime® Showing Index February 2019

UNITED STATES WEST REGION MIDWEST REGION SOUTH REGION NORTHEAST REGION -9.3% -10.5% -11.3% -5.5% -16.8%

The ShowingTime Showing Index tracks the average number of buyer showings on active residential properties on a monthly basis, a highly reliable indicator of current and future demand trends.

Methodology: The ShowingTime Showing Index® measures showing traffic per residential property for sale by agents and brokers utilizing ShowingTime solutions for property-access management. A higher number means that an average home receives more buyer visits in a given month. All index values are scaled relative to initial index value set to 100 for January 2014. ShowingTime facilitates more than 4 million showings each month.

The ShowingTime Showing Index, the first of its kind in the ABOUT SHOWINGTIME residential real estate industry, is compiled using data from ShowingTime is the residential real estate industry’s leading property showings scheduled across the country on listings showing management and market stats technology provider, using ShowingTime products and services, providing a with more than 1.2 million active listings subscribed to its benchmark to track buyer demand. ShowingTime facilitates services. Its showing products and services simplify the more than four million showings each month. appointment scheduling process for real estate professionals, buyers and sellers, resulting in more showings, more feedback Released monthly, the Showing Index tracks the average and more efficient sales. Its MarketStats division provides number of appointments received on active listings during interactive tools and easy-to-read market reports for MLSs, the month. Local MLS indices are also available for select associations, brokers and other real estate companies, as well as markets and are distributed to MLS and association a recruiting tool for brokers. ShowingTime products are used leadership. in more than 250 MLSs representing nearly one million real estate professionals across the U.S. and Canada. For more To view the full report, visit www.showingtime.com/index. information, contact us at [email protected].

13 APRIL 2019 REGULATORY

NEW REGULATION MORE PRIVATE FLOOD INSURANCE COMPETITION? As Congress continues to debate comprehensive reform of the National Flood Insurance Program (NFIP), federal banking regulators have published a final joint regulation allowing for broader acceptance of private flood insurance policies.

By Sue Johnson, strategic alliance consultant

he National Flood Insurance Act insurance when purchasing a mortgage risk quantification and increases in capital Tof 1968 made federally subsidized originated, guaranteed, or purchased market capacities. However, few private flood insurance available through the by a federal agency, federally-regulated insurers can compete with the NFIP, which National Flood Insurance Program lender, or Fannie Mae/Freddie Mac. offers cheap subsidized rates but has had (NFIP) to cover gaps left by the to borrow $30 billion from the govern- withdrawal by private insurers from the RENEWED INTEREST BY PRIVATE ment to pay for its claims from flood flood insurance market. The Flood INSURERS disasters like Katrina, Sandy, and Harvey. Disaster Protection Act of 1973 In recent years, private insurers have Private insurers currently are estimated to required property owners in Special expressed renewed interest in providing issue only 3.5 percent to 4.5 percent of all Flood Hazard Areas to purchase flood flood coverage, due to advances in flood U.S. residential flood policies.

In recent years, private insurers have expressed renewed interest in providing flood coverage, due to advances in flood risk quantification and increases in capital market capacities.

14 REAL TRENDS REGULATORY

In an effort to enhance private flood considering deductibles, exclusions, A STREAMLINED PROCESS insurance competition, Congress passed and conditions offered by the insurer. To assist smaller lenders that often the 2012 Biggert-Waters Act, which were confused by the statutory require that federally regulated lenders Some commenters on the proposed definition ofprivate flood insurance,the accept private flood insurance as defined rule asked whether policies with Rule provides for a “streamlined in the Act. On February 12, federal anti-concurrent causation clauses compliance aid provision” that allows banking regulators (the OCC, the Federal would be considered “at least as lenders to determine, without further Reserve Board, the FDIC, the Farm Credit broad” as an SFIP, meaning that they review, that a policy meets the Administration, and the National Credit qualify as “private flood insurance” definition if the policy (or an Union Administration) published a joint that must be accepted by lenders. endorsement) contains the following proposed rule to implement this law. Anti-concurrent causation clauses language: “This policy meets the provide that if a loss is caused by two definition of private flood insurance Here are some of the Rule’s highlights: perils (such as wind and flooding), contained in 42 U.S.C. 4012a(b)(7) one of which is excluded and one of and the corresponding regulation.” WHICH PRIVATE FLOOD INSURANCE which is covered, the loss is not POLICIES MUST BE ACCEPTED covered. The regulators responded DISCRETIONARY ACCEPTANCE OF Federally regulated lenders must that the SFIP includes what is PRIVATE INSURANCE OUTSIDE THE accept private flood insurance policies effectively an anti-concurrent clause STATUTORY DEFINITION providing coverage that is “at least as and that as long as the private policy’s Significantly, the Rule has adiscretionary broad” as the coverage provided under anti-concurrent causation clause acceptance provision that allows lenders a Standard Flood Insurance policy excludes losses to not a greater degree to accept policies that don’t meet the (SFIP) issued under the NFIP for the than an SFIP that it qualifies as a strict statutory definition of private same type of property, including when private insurance policy. flood insurance, so long as they

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15 APRIL 2019 REGULATORY provide sufficient protection for a Enhanced private competition could designated loan, are consistent with Enhanced private provide more flexible flood policies, general safety and soundness competition could provide lower costs for some homeowners, and principles, and the lender documents reduce the NFIB’s financial risk after its conclusion regarding the sufficiency more flexible flood policies, major disasters. This Rule—which takes of the protection in writing. lower costs for some effect July 1, 2019—is a first step homeowners, and reduce towards expanded lender acceptance MUTUAL AID SOCIETY PLANS of private flood insurance policies, The Rule also allows lenders to accept, the NFIB’s financial risk after major disasters. which should be a boost to the growing under certain conditions, private flood private flood insurance market. coverage issued by mutual aid societies, under which members share a common policies, it considers anyone who leaves religious, charitable, education or the program to purchase a private policy fraternal bond. to have had a gap in coverage, which Sue Johnson is the CONTINUOUS COVERAGE could affect their rates if the homeowner former executive director STILL A CONCERN later decides to return to the NFIP. of RESPRO, the The Rule does not address the issue of The National Association of Realtors® Real Estate Services continuous coverage, which the NFIP (NAR) states on its website that it will be Providers Council Inc. considers when determining flood following up with the regulators on this She retired in 2015 insurance rates. Since the NFIP does and other issues, such as whether surplus and is now a strategic not officially recognize private flood lines residential coverage is included. alliance consultant.

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16 REAL TRENDS VALUATIONS / M&A

MERGERS & ACQUISITIONS REAL Trends DETAILS OF THE COMPASS represents Alain Pinel in the transaction. ACQUISITION OF ALAIN PINEL By Steve Murray, president s you may have read, Compass, the NYC-based volume—the other firm being San Francisco-based Pacific A brokerage, announced that it had acquired Silicon Union. Compass had also purchased San Francisco-based Valley giant Alain Pinel Realtors® on March 1, 2019. Paragon in June 2018, meaning that Compass bought three Alain Pinel closed over $12.2 billion in 2017 sales on nearly of the five largest firms in California in less than a year. 7,600 closed transactions ranking it seventh among all brokerage firms in the United States in closed sales volume. It appears that, in addition to its agent acquisition program, Compass will invest in the purchase of brokerage firms that In the calendar year 2018, the firm had a closed sales operate in high-priced housing markets. Compass executives volume of $12.2 billion and closed sides were up slightly, have told REAL Trends that they intend to remain opportu- which again ranked it in the top ten brokerage firms in nistic in so far as the acquisition of key brokerage firms in its the country based on closed sales volume for 2018. target markets.

With the acquisition of Alain Pinel, in the last six months, REAL Trends was honored to represent Alain Pinel and the Compass has now purchased two of the ten largest Hulme family in the transaction. brokerage firms in the United States based on sales

It appears that, in addition to its agent acquisition program, Compass will invest in the purchase of brokerage firms that operate in high-priced housing markets.

17 APRIL 2019 GLOBAL TRENDS

ICELAND CAPTIVATING NATURAL ENVIRONMENT OR REAL ESTATE OPPORTUNITY? I recently visited Iceland and experienced not only its varied, rugged environment By Peter Gilmour, chief of lava fields, volcanoes, geysers, and fjords, but I also saw how this tiny country foreign correspondent had recovered from their economic and banking crisis ten years ago.

celand has a population of about of home-based accommodation for ECONOMY I350,000 of whom nearly two-thirds live tourists is estimated at 50 percent, which Average house prices, as well as their in the capital Reykjavik on the West Coast. has put a strain on this sector due to the rate of inflation, vary widely between rapid increase in tourism. This has had Iceland’s different regions. The four The lack of crime, strong education, an impact on the expansion of the major driving forces of real estate are healthcare systems, and friendly popu- housing market and rising prices. the current economy, interest rates, lation are drawing more people to Ice- demographics and government land every year. Since 2015, visitors to subsidies from time to time. The Real estate prices in the capital Reykja- Iceland have doubled to over 2.5 million current average price of residential vik rose 14 percent in the first half of in 2018. The majority are from the property in Reykjavik is between 2017 but have leveled off recently. The U.S. (30%) followed by the U.K. (16%), $375,000 and $475,000. Real estate average rise in prices in the last ten Germany (7%), and Canada (5%). agents in Iceland charge commission years is 9 percent per annum. The These percentages also reflect the of between 1.5 percent to 2.5 percent average rent in Iceland is $2 per square buying interest of international buyers. of the purchase price. Buyers under a foot and in Reykjavik $2.3 per square It’s interesting to note that a large purchase agreement filed with the Real foot. The number of apartments under number of Icelanders living abroad still Estate Register get a formal title in construction in the country is currently have a second home in Iceland. terms of a deed issued by the seller, above the long-term average since and 25- to 30-year mortgages are EVERCHANGING OPPORTUNITIES before the banking collapse. However, available from commercial banks and The Icelandic market is everchanging The Iceland Review reported that an the State Housing Fund. with the opportunity to rent out economist from Housing Financing property to locals or visitors growing, Fund said that apartment construction according to results of a recent Airbnb had not kept pace with the demand, An investment in Iceland is an invest- survey. Earnings from Airbnb accom- and the cumulative shortage of apart- ment in the country’s future and its modations and similar services were ments is expected to exceed 9,000 by strong revival to date can give investors reported by The Iceland Review to be the end of 2018. Airbnb rentals are a some confidence when making their $55 million last year. The percentage significant factor in increased demand. investment decisions.

Iceburgs on an Icelandic beach.

18 REAL TRENDS TECHNOLOGY

THE OTHER SIDE OF REAL ESTATE

Technology won’t replace the agent, but an agent with technology will TECHNOLOGY IS THE KEY replace one without it.

TO BROKERAGE SUCCESS By Warren Dow

hen I first joined my brokerage as the vice president systems with the agents, managers, trainers, and coaches. At Wof business development, I had a relatively narrow the end of the day, the success of a brokerage is directly con- view of what my responsibilities would look like. I would nected to the company’s ability to leverage technology to help generate business for the agents, recruit for the offices, reinforce the systems that will help agents sell more real estate. and potentially evaluate, analyze and structure growth and acquisition opportunities. Coming from the software world, Leaving the Annual LeadingRE conference recently, I was I assumed the title reflected the responsibilities of the position. humbled at the diverse expertise top leaders throughout However, the last year has shown me that no position can live this industry hold. What’s clear is that they all have comfort in a bubble—it must work with other positions to share a recipe with technology and don’t shy away from it. I say this often for success. Technology infrastructure is key to that success. and will likely say this many more times—technology will never replace the agent, but an agent with technology, will Traditional leadership positions are no longer as simple to replace one without. define. Sales managers, recruiters, coaches, trainers, business development, marketing—they all have core responsibilities, but they also have one large common denominator: They have to be comfortable with technology and always thinking about Warren Dow is the VP of Business Development at Peabody & Smith how to leverage it to increase the brokerage’s bottom line. Realty based in New Hampshire. Warren has over a decade of leadership experience in real estate software and services. With a degree NEW ROLES FOR CTO in behavioral neuroscience and a back-ground in technology, consumer The days of a CTO having the sole responsibility for engagement, and marketing strategy, Warren offers a unique technology infrastructure is no longer applicable in the real perspective in brokerage efficiencies with a client-first mentality. estate world. All positions are responsible to increase the bottom line. They are all responsible for finding ways the company can use systems and integrate platform data to At the end of the day, the success of a brokerage create a recipe for success that can be replicated from agent is directly connected to the company’s ability to to agent within the brand. leverage technology to reinforce the systems that will help agents sell more real estate. York Baur, CEO of MoxiWorks, explained this concept quite eloquently, “The success of a brokerage is directly connected to recruiting and retention and agent productivity is the key to recruiting and retention. If agents are productive, they won’t want to leave, and it will be easier to get other agents to join your company. Productivity is tied to a specific method- ology or system, which is nothing more than documenting, training, and coaching to a specific set of tasks or activities to succeed with your unique value proposition, in your unique market. Technology must be leveraged to reinforce those

19 APRIL 2019 Find out how a brokerage struck gold with a well-thought-out technology strategy, a near-flawless platform roll out and record numbers of agent adoption.

REAL Trends and Inside Real Estate set tech platform actively, we were losing a to the system running. With three brands out to answer an age-old problem for lot of opportunities.” and over 4,000 agents, it was important brokerages: Agent adoption with to The Keyes Company and Inside Real technology implementation. What the The Keyes Company shares its techno- Estate to manage the project effectively two companies found in the case study logy journey by first identifying their pain to increase agent adoption. What Keyes were four main pain points outlined by points and then outlining a plan on how also solved was the agent adoption The Keyes Company and how they were to address them. They knew that it was problem by offering a smooth, well- determined to fix these setbacks. essential to find a technology partner thought-out rollout of the platform. that was flexible to their needs and ability Within three months, about 90 percent “With the lead landscape changing, we to integrate with all their other tools. of their agents had logged in to the needed to take control of our destiny This, they believed, would increase system. “Our lead cost went from $100 away from the major portals,” says Mike agent adoption. to $150 per lead to under $10 per lead,” Pappas, CEO of The Keyes Company in says Pappas. Miami. “To do that, we needed a smart The technology implementation strategy CRM to handle longer-term relationships is not a one-size-fits-all solution. It took with our clients and leads. Without being The Keyes Company nearly nine months Download the free case study: able to engage in the process using a from the time they signed with kvCORE CLICK HERE

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