The two big corporate real estate entities, Reology and Berkshire Hathaway, lost money in the first quarter, and both lamented about first-time buyers:
Ron Peltier, chief executive of HomeServices of America Inc, said “our industry is probably in the sixth inning of a nine-inning recovery,” with very strong activity in coastal markets such as Miami, Boston, New York and Silicon Valley, and in the market for higher-end homes across the country.
“The single most-challenged sector of the market is the first-time home buyer,” he said. “Historically, they make up 40 percent of the existing home market. In the last 18 months to two years, it has been 27 to 28 percent. Twelve percent of the market has been missing. It’s troubling.” Peltier spoke in an interview on the sidelines of Berkshire’s annual shareholder meeting in Omaha, Nebraska.
In the first quarter, Berkshire reported a $24 million pre-tax loss from “real estate brokerage and other” items within Berkshire Hathaway Energy, as spending rose on employment and marketing.
The take from Realogy:
Although prices — and thus commissions — are up, the slowdown in sales nationally, especially at lower- and middle-price tiers, is hurting the brokerage business.
“2014 could be a challenging year, especially if transaction volume growth continues to slow throughout the prime selling season,” chief financial officer Tony Hull told analysts.
Hull and other Realogy executives said that they did not expect the share of first-time buyers in the market to climb anytime soon and that the lack of inventory available to potential move-up buyers is slowing the market down.
The company reported a net loss of $46 million, compared with a loss of $74 million in the same period last year.
Both will probably rebound during the selling season, but it shows how tenuous the brokerage business can be.
Part of the new normal or new fundamentals is how this brokerage thing shakes out. Two of the top five agents in the SD North County Coastal region have changed offices this year, which is unusual, and more change could happen.
Agents have several brokerage choices to consider; everything from the traditional splits at the name-brand, big-box companies to multi-level marketing companies to the 100%-commission brokerages that only charge $495 per sale. Or go out on their own.
Because selling real estate is an individual sport (not a team sport), the consumers are hiring the agent, not the company. It used to be that offices spent a lot of money on signs and advertising themselves, and had newer agents manning the phones. But now agents are branding their own team or group, and running their own advertising that directs consumers back to them, not the big office.
You have probably noticed how agents have relegated their office’s name to smaller print on every sign and card. You have to look pretty hard to figure out who your agent’s broker is, if you can find it at all.
Sales are going to keep dropping, which should cause more concern about profits. The old prudential team is running the store for Warren Buffett, and will ride his coattails until he croaks. They, and other top-heavy brokerages, will have to get crafty to keep up the fight and stay in the black.
Zillow and Redfin have ample star power currently, and they have started the disruption while the big brokerages have been standing around. While neither are dictating where agents work, they are getting the consumer’s attention.
There has never been a better opportunity for a company to step up and lead the way, and in doing so, attract both consumers and agents. Which company will do it?
Here’s a new company that I saw at 1000 Watt that was started by an ex-Redfin guy. His brokerage is using 3D imaging to market homes:
I’m still wondering why agents won’t do video tours like mine, which have the added benefit of an audio description too. Will a whiz-bang new feature be what helps a company lead the business into the future?