The Roaring Twenties of Real Estate: A Response to Rob Hahn

The Notorious Rob Hahn published his 2022 predictions not long after I published my own.

Amazingly, my article earned me an invite onto his excellent podcast to talk out our mutual predictions!

I’ve read Rob’s blog and been a devotee of his podcast with Greg Robertson for years. Getting to speak with him, let alone record a video, is probably how it feels for fans who get invited on stage to play with their favorite rock stars!

It’s a long episode, and I wanted to distill some of my answers and thoughts on his predictions below, as well as push back slightly on what I perceive to be Rob’s doom and gloom for our industry.

My Thoughts on Rob’s Predictions

Rich Barton Retires Again; Susan Daimler Named As CEO of Zillow 3.0 – AGREE

I was, until just this week, a Zillow employee. But I don’t have any special insights here. I’ve never interacted with Rich Barton or Susan Daimler in my 2.5 years at Zillow.

This prediction makes a lot of sense to me, though. Rich Barton rejoined Zillow specifically to oversee Zillow Offers. Now that it is dead, why is he there?

In the earnings call announcing the demise of Zillow Offers, Barton paid some lip service to the idea that Zillow 2.0 is still the dream, but that it will be achieved in a different way. But is a Power Buyer going to keep Rich’s interest the same way iBuying would? That’s more like Zillow 1.5.

Not only that, but doesn’t it seem likely that Zillow will want new leadership? Some industry observers almost seemed to praise Zillow for their decision to wind down iBuying. Their rationale is that Zillow was brave to take the big risks and equally brave to admit when it wasn’t working and exit quickly.

But Zillow Offers wasn’t a side project like Google Glass or Google Plus. According to Zillow, it was existential to Zillow’s future. By Zillow’s own logic, this failure is a core failure of their business model. And given it was an avoidable failure, it makes all the more sense there would be consequences in 2022 for Zillow leadership.

Meanwhile, Daimler would make sense, now that Premier Agent is the business left standing. And as she had little to do with Zillow Offers; her reputation is the least tarnished of the top Zillow brass following the debacle.

An Explicitly Conservative Real Estate Brand Launches – DISAGREE

Firstly, there are some small-time brands that already do this. I found, for example, Conservative Move.

But at 3 employees per LinkedIn, Rob is clearly talking about a larger disruptor, akin to the rise of NewsMax or Trump’s nascent social media platform. Rob’s clearly imagining a multi-state franchise trying to be “the eXp Realty for Republicans”.

I don’t buy this for the following reasons:

• It’s not hard to find a conservative real estate broker in America. I downloaded FEC filings for the 2020 presidential campaigns and found that 55% of self styled “real estate brokers” donated to Donald Trump, the other 45% donating to various Democrat candidates. Even assuming some of those are commercial brokers, it still implies it is not difficult to find a broker that agrees with your politics, if that is critical to your selection of broker.
• I think the dissonance between “woke” corporate headquarters and middle America make headlines, as in the Brandon Huber case, but don’t describe the reality for the vast majority of real estate agents and doesn’t demonstrate a critical mass of support for hyper-political brokerages.
• Brands that are explicitly political, like Black Rifle Coffee or Ben and Jerry’s ice cream, are selling $5-10 items. Maybe you pay an extra $0.50 for “Republican” coffee or “Democrat” ice cream to signal your political support. But does that translate when you’re paying $10,000s in commissions and fees each year to a broker? Clearly it is important, as in Brandon Huber’s case, to have a brokerage that at least accepts and tolerates your personal religious or political views. But as I’ve established, there are lots of options already for that! Are you willing to spend extra on your broker just for the USP of “I’m a Republican”? That is really niche!
• It kind of depends on what “explictly political” means. I think even the brands mentioned, like Black Rifle Coffee and Ben and Jerry’s ice cream would not describe themselves as “explicitly political”. They each champion certain values that are commonly associated with one US political party rather than the other, but I’m not sure that quite qualifies as explicitly political? Is there an “explicitly” Democrat or progressive brokerage?
• I’d wager most agents opposed to “corporate wokeness” don’t want a conservative alternative, but rather the depoliticization of the workplace altogether. It doesn’t help to reinvent the same problem, but in reverse.

Bottom line, if you are a brokerage thinking about taking such a gamble, I would strongly advise against it!

Opendoor Launches a FSBO Service – DISAGREE

I’m not strongly attached to this disagree, but I think it’s small ball for Opendoor that risks distracting them from what matters most at this moment.

There are 3 reasons I can think of for Opendoor to launch a FSBO service, and I don’t think any of them apply to Opendoor today.

• Reason 1. If they were a mature company looking to squeeze 5% profits from somewhere. If the goal is to make money selling $250 limited service contracts to FSBO sellers to list on the MLS, that seems like something Opendoor would do if they’ve exhausted all the other avenues for monetizing their customers. Instead, they have much higher priorities, like expanding to more markets and adjacent services like financial products and home renovations. FSBOs are less than 10% of market sales, and that’s being generous by counting nearly all off market transactions. In my own MLS for Bell County, Texas, of 3775 sales in the past 6 months, only 13 were limited service agreements or “MLS only” listings, good for 0.34% of the market.
• Reason 2. To generate leads for the traditional listing services. If the goal is to capture the FSBO top of funnel and then convert those either to either direct sales to Opendoor or their full listing services, then they have different problems.
  • If you list your home on a FSBO service and it fails to sell, why would you trust that same service to take you the rest of the way? Clearly you need to set expectations for FSBO sellers. But the point of listing FSBO with a limited service agreement is still to sell, right? Once the FSBO listing period ends and they haven’t sold, they’ll drop Opendoor and do what many serious sellers do after a listing agreement expires: find a new agent.
  • Relatedly, the incentives are misaligned. If Opendoor makes money when you choose to list traditionally or sell to them, how invested are they really going to be in your FSBO success?
  • I admittedly only looked briefly, but it doesn’t look like other FSBO services like FSBO.com, Fizber, etc monetize by upselling FSBO homesellers to traditional listings. That suggests to me that that monetization route is a tough one.
  • If a limited service agreement, e.g. FSBO services, does successfully sell homes, then you’ve cannibalized your funnel. Why not pivot entirely to the limited service model? Opendoor can become a discount brokerage with a la carte pricing and compete on price with all the big brokerages.
• Reason 3. To drive traffic to exclusive listings. If you want to see Opendoor off-MLS FSBOs, the only place you can do that is on Opendoor.com! And Opendoor has exclusive data about off-MLS listings and deals. That’s worth something, but…
  • I loathe the strategy of fragmenting listing visibility and then trying to monetize the artificial informational asymmetries. Forcing people to your site to see exclusive listings is not pro-consumer versus the transparency that MLS syndication allows. If that’s Opendoor’s goal, it would be a step in the wrong direction.
  • The data isn’t worth the squeeze. Ostensibly, owning these transactions would be a data advantage, except most of them would still be represented in the MLS and available for other data consumers, and it would likely be only a tiny fraction that sell off MLS. Of those, is that sale reflective of full-market value? I personally do not include off market sales when I create a CMA. Off-market means off-MLS.
  • Opendoor doesn’t seem that interested in being a portal? Hence their relationship with Realtor.com.

So, for all these reasons, I think Opendoor continues trying to grow elsewhere. In their financial offerings in particular, where the money is.

FTC Hands Down First of the Big Regulations – DISAGREE

Rob has been predicting government intervention into our industry for a looong time. And it hasn’t really happened. And I think it will stay that way.

But this may be the most favorable environment for government intervention in real estate since the Great Recession. Rob might finally be right on this one!

Reasons Rob will be right and FTC regulations are incoming:

• Aggressive FTC. The new FTC chair is 32 year old Lina Khan. If you want to learn more about her, here is an article titled “Lina Khan Isn’t Worried About Going Too Far“. That’s not exactly a headline suggestive of an FTC intent on restraint and regulatory humility. Khan outlined her FTC priorities in September, which include prioritizing addressing “dominant intermediaries and extractive busines models. Research documents how gatekeepers and dominant middlemen across the economy have been able to use their critical market position to hike fees, dictate terms, and protect and extend their market power“. Yikes!
• New Brandeisian Movement. Lina Khan is the most influential member of an informal and burgeoning movement called “hipster antitrust”. Essentially, it rejects existing antitrust standard of “consumer welfare” (if consumer’s aren’t harmed, then there isn’t an anti-trust violation) and instead insists that, actually, consumers can still be harmed even if prices are low. Instead, it is focused on perceived “structural” problems like being “too big” or vertical integration.
• Bipartisan Hatred for Big. The real estate industry is not the main target of hipster antitrust. It’s Big Tech. And from Senator Elizabeth Warren to Senator Ted Cruz, there is bipartisan antipathy toward Big Tech. Currently, there are bills before Congress to give the FTC more power to flex its muscle against Big Tech. “Big Real Estate” might be caught in the crossfire, too.
• Anti-trust Solutions to Inflation. Already the Biden administration is heavily signalling that antitrust is going to be a major pillar of their fight against inflation. Whether or not that makes economic sense, it’s suggestive of an administration willing to throw caution to the wind when it comes to dropping prices for consumers. In this case: the price of Realtors.

Reasons Rob will be wrong and FTC regulations, if any, will be “meh”:

• FTC is limited by the Law and Courts. Only just this summer, the FTC was struck down by the Supreme Court in a unanimous 9-0 decision. It was a narrow case that doesn’t have anything to do with the regulations Rob Hahn anticipates. I’m not a lawyer and don’t know if there are legal impeditments to the FTC implementing the kinds of regulations Rob proposes they might. But it’s clear their authority has limits and they may be deliberate about where they spend political capital.
• FTC has a small window to act with changing political alignments. To the extent they need additional power from Congress, they might just get it with the bipartisan fear of “Big Everything”. But unsurprisingly, there are many, Republicans in particular, who are still wary of giving FTC those powers. Biden is in office until 2025, so it’s likely that the FTC will be essentially “Democratic” until then (it’s technically bipartisan, but the chair is a Biden appointee). But Republicans appear to be poised to make significant midterm gains in 2022, depriving Biden of any legislative power to grease FTC’s wheels.
• Real estate isn’t that consolidated. Realogy is the largest brokerage with 194,200 real estate agents, versus an estimated 2M real estate agents. So about 10% market share. Zillow owns Google search results, but classifying “ranking high on Google search results” as a “monopoly” is a stretch. And at a $15B market cap as of today, Zillow is small ball compared to the other tech giants. The only “monopoly” worth mentioning in real estate is admittedly a big one: NAR and its subordinate MLSs. If even that much happens, it will qualify as a win for Rob’s predictions. But FTC action is likely limited to that topic.
• They don’t have better alternatives. Obviously the government is not above making unilateral decisions without alternatives in mind and letting industries deal with the consequences. But I am being hopeful that reason prevails and the FTC at least considers the history of why the MLS and cooperating commissions exist before issuing heavy handed dictats reversing pro-consumer evolutions in our industry.
• It won’t be in 2022. Most readers may not care if Rob’s predictions come true in 2022 or 2024. Either are near enough to be concerning. But for the sake of precision, I think it is unlikely that big changes roll out in 2022. New rules require public comment periods, which are often months long and see extensions. There are currently no proposed rules in the real estate field. This new FTC era is in the beginning stages and it will take a while before any eventual changes are decided and put into effect.

I am perhaps wishcasting some here, rather than predicting. I am not a fan of the New Brandesian movement and I hope Rob’s predictions come to naught. I agree with its critics that big isn’t necessarily bad, and that the pre-“consumer welfare” FTC standards were capricious and made consumers worse off.

CoStar Launches a MLS… in the Metaverse – DISAGREE

Obviously Rob is having some fun with this one and admitted he thinks this is the least likely of his predictions. The reason I think CoStar will decline this idea is:

• Running an MLS isn’t that hard. Please don’t get offended, MLS execs and administrators. I am just talking about the basic mechanics. Ink a deal with a vendor like CoreLogic or Black Knight and copy-paste the NAR MLS policy handbook and you’re already 90% of the way to a functional MLS. The hard part of an MLS, like any business, is the execution, lead generation (at least for an upstart independent MLS that doesn’t have a geographic fiefdom already carved out for it), and people management. That is something CoStar already has lots of business units it can experiment and practice on, including the number one commercial real estate “MLS” in America.
• CoStar has its hands full. They had a busy 2020 and 2021 and are still digesting their acquisitions of Homes.com and Homesnap. They have most of what they need to start being a threat in the residential space.

Rob’s hypothesis is that CoStar wants to position itself as the White Knight to save MLSs in the coming collapse initiated by busy-body regulators in Washington.

If that is CoStar’s strategy, I would recommend they reconsider. Waiting for the next era of MLS is like waiting for Godot.

Realogy Debuts Property Management Business – AGREE

2/3 of residents are renters in my neck of the woods, and all of the top brokerages either have in-house property management or are affiliated with local property managers. In what is normally a flat appreciation market with mostly 100% financing VA loans, good relationships with property managers were essential. Half of my listing appointments were with homeowners underwater on their 103% LTV VA mortgage when PCSing after 3 years and had to park their house in property management until they’d paid enough to break even selling.

Having property management is a must.

That market no longer describes Killeen, TX, which has appreciated tremendously with the growth of nearby Austin. It doesn’t describe most markets in America. So a lot of brokerages apparently have been getting away with ignoring property management!

But they should start paying attention to property management!

With uncertainty on what the market will do as rates rise and inflation takes hold, having a counter-cyclical business model like property management will let brokers sleep easier.

The only downside is that it may distract business owners from their sales business. My own broker keeps the lights on with the 500 rentals under management, not his sales commissions. Therefore, the incentives for his investment and attention lie with the property management side of the office. Under the wrong management, that can result in an exodus of your sales talent if you leave them neglected.

That’s a manageable problem, and I can definitely see Realogy trying to further diversify if “renter nation” is our future.

Federal Ban on Investment in SFRs – DISAGREE

Speaking of renter nation, Rob’s hypothesis here is that politically vocal Millennials priced out of the housing market will make their muscle felt in Washington or State capitols and put serious restrictions on institutional investing for the purpose of making homes more affordable.

Of all his predictions, this is the one I disagree with the strongest.

“Making homes affordable” is another term for “housing market crash”. And most voters don’t like that. Specifically, homeowners benefit from rising prices.

More to the point, homeowners are a far more powerful political coalition than renters. Over 60% of American households are homeowners. They are disproportionately from the older generations, who also disproportionately turn out to vote.

Rob suggests that younger folks are making up an increasing share of political power. On the contrary, the data from Pew suggests that 52% of registered voters in 2019 were 50 or older compared to only 40% in 1996. And that should continue to get more lopsided in the future as longevity increases and family formation dwindles.

If you want to get something passed in Washington, you need old people on your team. That’s why, in my humble opinion, other policies like college tuition forgiveness have zero chance of passing.

This isn’t meant to be a NIMBY v YIMBY debate on housing policies and incentives. I am just trying to describe the reality that exists and that I think will prevent Rob’s prediction from coming to fruition.

I will say, speaking as a Millennial, I have no time for other Millennials who think they’re hard done by. I guarantee not a single one of us would trade the 2000-2020 era for any other 20-year span of human history. We have it pretty good. And Zoomers will have it even better.

The Not-So-Scary Future for Realtors

My interaction with Rob began not on his 2022 predictions post, but rather my response to his article about the future of his content. He wants to focus on futurism more than criticism of the real estate industry.

But in particular, he seems very pessimistic about that future! I dissent!

Specifically, he mentions these trends which might seem very portentous for the average agent:

• The government’s war on commissions
• A storm of lawsuits
• Devaluation of the currency
• The resulting shift in buyer demand
• Political instability and division
• Massive battles between titans shaping up inside the industry (think Zillow vs. CoStar vs. Opendoor)
• Rise of crypto, blockchain, and web3
• Rise of DeFi (decentralized finance)
• The coming Metaverse
• Exponential acceleration of technology
• Demographic decline in the West

Those are interesting trends to be watching. But let’s compare them to our industry’s recent past.

I got my license in 2013, well after the biggest developments in the Internet age of real estate were well in motion. I can only imagine what doing real estate was like in 2000. Between 2000 and 2015, the industry went through:

• DOJ v NAR lawsuits
• The birth of Zillow and democratization of home search
• The largest housing crash in living memory, sparking the largest recession since the Great Depression
• The rise of the Internet, including navigating social media
• The rise of Google and Facebook, who barely existing in 2000 and now account for over 50% of digital advertsing spending
• Political turmoil of 9/11 or the Bush v Gore political division
• (I disagree with his “demographic decline” argument based on my being persuaded by Peter Zeihan, who basically argues that America will do fine because everywhere else in the world is even worse off)

I think real estate has changed a heck of a lot since 2000! And yet many of us are still standing!

But Rob isn’t the only pessimist!

Looking through the Inman survey of 2022 expectations, it looks like a lot of agents are feeling down about 2022. The consensus answers so far include:

• rising mortgage rates
• real esate celebrities embarassing themselves in tougher markets
• NAR getting dragged through the mud by DOJ
• Valuations across the real estate sector will be depressed, spelling trouble for KW and Douglas Elliman IPOs
• Crazed competition will subside, putting pressure on power buyers
• New opportunities for investors by the end of 2022 to buy the dip

To Be Continued

In particular, Rob talks about commission compression and technological deflation, two separate but related phenomenons.

I think one is not inevitable and the other is a good thing!

I am going to write my predictions and ideas on each of these in a follow-up post. My basic argument, however, is that:

• 10% of agents do 90% of the deals, and will continue to thrive. The 90% aren’t doing that much business anyway, so it won’t look that differently if they are gone or in new and better roles.
• We humans will climb the ladder of automation and spend more time in the parts of the business we all enjoy. The history of technology’s creative destruction in the workplace has been one of pushing people into better, safer, and more rewarding jobs. There’s no reason technology of the future will be different.
• Instead of competing on price in a “race to the bottom”, many agents will compete on service, and technology will allow us to offer more to consumers rather the same services for cheaper.
• Events like the demise of Zillow Offers demonstrate that our industry is still a very human industry, and technology is not replacing anyone any time soon. Certainly not in the Roaring Twenty-Twenties!

…. until next time!