Events that Shape an Industry: Real Estate Brokerage 2007 

In follow up to last week’s post where I detailed the Trendsetters of 2007, I today list the top 10 events that made headlines and captured the attention of the real estate industry in 2007. The selection of these events was based on both 2007 prominance as well as potential future impact on the industry for the next few years.

Read the complete list with here on next page.

 1. The Collapse of the Sub Prime Market

 If anything dominated 2007 it was the velocity with which the mortgage market came to a grinding halt, pulling down everyone heavily involved with subprime lending. Few were spared with even the 10^th largest mortgage lender, American Home Mortgage, filing bankruptcy.  When the largest mortgage lender in the U.S., Countrywide, experienced severe cash flow problems it had to be bailed out by Bank of America to the tune of $2 billion.  In addition, the company further agreed to refinance or modify up to $16 billion of its loans. The ripples continued throughout the year with companies like Bank of America themselves writing off $3 billion, Merrill Lynch & Co. writing down nearly $5.5 billion and Citibank posting losses of $11 billion. 

2. The Break Up of Cendant and the Creation of Realogy

 Now we know what the ballpark price tag could be should someone aspire to buy themselves a major chunk of the real estate brokerage industry. In a transaction valued at $7.75 billion, Realogy was created (as a spin off from Cendant) and sold to an affiliate of Apollo Management, L.P., a leading private equity and capital markets investor. If anyone is still in doubt, rest assured that real estate brokerage is officially on its way to become corporatized and is no longer the last remaining bastion of small entrepreneurship. 

3. Revival of Better Homes & Gardens

 Once a popular real estate franchise, this well established brand disappeared off the industry’s radar after being sold by former owner Meredith Corporation to GMAC in the 1997 and the subsequent required phasing out of the BH&G brand. In 2007 Realogy announced the re-introduction of the brand by signing a 50-year licensing agreement with Meredith, which apparently has reconsidered the use of its brand in real estate again; by a company it doesn’t own. 

4. Google and WEB 2.0

 The Web isn’t new to real estate, but after the crash of 2000 some wondered when it would return. Well, 2007 saw its reintroduction as it roared back with vengeance, renewed vigor, new VC funding, new ideas as well as retooled and rebranded pre-2000 companies. And the leader of the pack, Google, is the epitome of the quintessential personification of WEB 2.0.  It has become the nexus of all information.  With each Google search more data is refined and with each website more information is being stored. This time around the Web is more knowledge, more information and much more power and Google has its hand on the steering wheel.  Some have labeled it an average garden variety monopoly while its vast network of servers, now an integral part of the Internet itself, is rapidly becoming a national security infrastructure. Being a techie or nerd is cool again as we are seduced with iPods, iPhones, online digital communities and wikis. 

5. DOJ  Releases Study on Real Estate Brokerage

 The industry is taking note as a report by the U.S. Federal Trade Commission (FTC) and the U.S. Department of Justice (DOJ) stated that they have decided to participate in the transformation of the industry by deciding that certain existing laws, rules and regulations need to be repealed. Their feeling is that as commission fees “do not vary in proportion to changing home prices,” they are considered to be “relatively inflexible” and therefore have in real terms become too high. The FTC is recommending that state legislators and industry regulators should consider repealing existing laws, rules and regulations like minimum-service and anti-rebate provisions that limit choice and reduce the ability of new brokerage models to compete.  

6. MLS Consolidation Heats Up

 Consolidation isn’t new but with the strong pressure toward larger and larger MLSs, the DOJ breathing heavily and the growing pressure and ability to create single seat sign-on access, consolidation discussions have multiplied exponentially as MLS talks about mergers and consolidations picked up momentum and statewide MLS systems became the flavor of the year. 

7. Fidelity Reboots Cyberhomes

 With Fidelity National Real Estate Solutions (FNRES) allocating $50 million to the establishment of a consumer portal through previously acquired Cyberhomes.com, it has become the first title company to reach out directly to serve home buyers and sellers. FNRES also announced in 2007 that it would replace Realtor.com in its longstanding relationship with AOL to become the exclusive listings content provider in AOL’s revamped home-valuation and real estate center. 

8. Guthy-Renker Buys RealtyTrac

 Established in 1988 Guthy-Renker, one of the world's largest direct response television companies with sales of more than $1.5 billion per year, surprised the real estate industry in early 2007 with the acquisition of RealtyTrac.com, the leading For Sale by Owner (FSBO) and foreclosure website. Since that date no significant major announcement or strategy has been made. Meanwhile RealtyTrac, already a very large website, continues to enjoy the spoils of the growing foreclosure and FSBO market and is often listed as one of the five largest real estate websites in the U.S.  

9. CBS’ 60 Minutes Debates Real Estate

 The segment on 60 Minutes by Lesley Stahl titled Chipping Away at Realtors' Six Percentbecame one of the most controversial TV shows about real estate in recent times. She tagged Realtors® 6% commission as “sacrosanct” and gave new business model Redfin a huge amount of free publicity.  It was surprising that after pursuing the story for so many months and even discussing the show with the National Association of Realtors® that CBS ended up with such an unbalanced program - even featuring an outdated clip on long-ago-defunct eRealty. However, further research uncovered that numerous hours of recorded interviews with NAR ended up on the editing floor. 

10. Closing Down of Foxtons

 Born in the Web 1.0 era, lasting through the crash and surviving with a name change from Your Home Direct (YHD) to Foxtons (foxtons.com), the discount real estate brokerage company filed for bankruptcy in 2007 listing $40.9 million in total liabilities and $488,000 in assets. For many this was an affirmation that the discount model isn’t viable yet, many others see it as just a precursor to a declining real estate market that will still claim the “lives” of many real estate companies, irrespective of the model.  But further research uncovered the fact that the closing of Foxtons USA was prompted by the sale of Foxtons UK to BC Partners, a private equity firm, for around £370m ($751m). This transaction specifically excluded the non-profitable U.S. based operations and thus triggered its subsequent closing. 

The intro to the 2008 Swanepoel TRENDS Reportlists the highlights of 2007, be it the Trendsetters, Newsmakers or Events. The 170-page Report is however predominantly about the Top 10 future trends shaping the real estate brokerage industry for the coming year.  The Report is annually published by RealSure Publishing and distribute on February 1^st every year. Copies of the Report can be obtained from Amazon.com, the NAR Bookstore and RealEstateBooks.org.