A guide to real estate’s future

Shared: December 15, 2020

By: Paul Hagey

This immense change happening in the real estate industry requires clear-eyed analysis and information, which is just what T3 Sixty poured into over 200 pages of the 2021 Swanepoel Trends Report, which was published on December 7. We provide an overview of the report in this article.

Over the last several years, the speed with which the residential real estate brokerage industry is becoming more digital, more sophisticated, more corporate has significantly increased. This light-speed change requires real estate leaders to find a guide that gives them the information and analysis to make smart decisions that allows them to take advantage of the immense opportunities ahead.

This need for clear information drove T3 Sixty to create, as it does every year, the 2021 Swanepoel Trends Report. With over 200 pages of analysis, the report’s 16th edition was published on Monday, December 7. Those who purchase a print copy, get 90 days’ complimentary access to a digital edition (including an audio version). This article provides a very high-level overview of the report.

2021 Swanepoel Trends Report includes the following trends:

  • Trend 9: The Housing Affordability Reality
  • Trend 8: Inside the Clear Cooperation Policy
  • Trend 7: The Brokerage Ancillary Business Playbook
  • Trend 6: The Real Estate Franchising Landscape
  • Trend 5: Real Estate’s Cloud-Based Brokerage Takes Flight (eXp Realty profile)
  • Trend 4: Revitalizing Real Estate’s Largest Franchisor and Brokerage Company (Realogy profile; includes a clear-eyed look at its challenges)
  • Trend 3: Managing Diversity and Inclusion
  • Trend 2: The Lead-Generation-Focused Business Opportunity
  • Trend 1: Real Estate in a Post-Pandemic ‘New Normal’

A short overview from five of the report’s trends are presented below.

Trend 9: The housing affordability reality

Homeownership is one of the pillars of the American Dream. While approximately 6 million Americans buy a new or existing house each year, a vast number of other would-be buyers simply cannot afford to buy a home.

Whether using simple measures of affordability, like the ratio of home price to income, or more sophisticated measures that include mortgage rates and other factors, the data points in one direction – housing affordability in the U.S. is deteriorating.

Some of the affordability pressure comes from home prices increasing to all-time highs in 2020, fueled by record low inventory.

Digging deeper into the numbers reveals just what’s happening with affordability, namely lower-priced homes are seeing price increases at much higher rates than homes in higher-priced tiers. This means the barrier to first-time homebuyers and to lower-income buyers is rising, even as interest rates scrape all-time lows. For example, from 2009 to 2020, homes in the lower-third price tier saw prices jump significantly higher than those in higher price tiers, in all 15 markets analyzed by S&P Case-Shiller.

Find more details and insights in the 2021 Swanepoel Report.

Trend 7: The Brokerage Ancillary Business Opportunity

Traditional brokerages face increasing profit pressure as commission rates continue to drop and splits in favor of agents rise. Increasingly, they need to develop well-designed ancillary businesses, which can significantly contribute to their bottom line.

The two most profitable operations for a real estate company are brokerage and mortgage – they represent quadrants 1 and 2 in the diagram below. Title and escrow represent a much smaller profit opportunity, but still significant – this is quadrant 3 below. The profit potential from everything else – homeowners insurance, home warranty, moving and more – fit within equally large quadrant 4. Clearly, firms who only focus on quadrant 1 miss out on two-thirds of the net-profit pie available to them.

Source: T3 Sixty

While ancillary business presents brokerages a valuable opportunity to capture more revenue, and, more importantly, increase their profit margins, implementing the practice requires great care. The 2021 STR chapter provides more analysis and information on how brokerages can profitably start up and operate ancillary divisions.

Trend 5: eXp Realty: Real Estate’s Cloud-Based Brokerage Takes Flight

EXp Realty has shown that a real estate brokerage can thrive without company offices, and in the process, validates a new business model for the residential real estate brokerage industry. The brokerage, founded in 2009, has quickly grown into the nation’s fourth largest brokerage with a 2019 annual sales volume of $36.2 billion, thanks to rapid agent growth and an innovative business model.

While the company’s cloud-based model gets all the headlines, the fuel behind the company’s growth comes from its revenue-sharing, equity programs and capped model that its lack of office space expenses allows it to invest in.

The report also dives into the company’s cost of revenue and profits as well as its recent growth strategy, which includes targeting independent brokers. As the company continues its staggering growth, this chapter helps readers fully understand its history, the fuel behind its growth and its future impact on the residential real estate industry.

Trend 3: Managing Diversity and Inclusion

Homes are the lifeblood of the brokerage industry and crucial to creating and sustaining healthy communities, thriving families and generational wealth. And, so far, Americans have had disparate support and opportunities in achieving both. The real estate industry has an important contribution to make in healing the country’s overall racial inequalities as well as improving the diversity among its own ranks.

The correlation between homeownership and household net wealth tells part of the story. In 2019, the median net worth of homeowners stood at $255,000 as compared to just $6,300 for renters. And the overall national homeownership rate of all Americans stood at 64.6 percent. For white Americans the rate was 73.3 percent, nearly 20 percentage points above the rate for the next closest race – Asians at 57.7 percent. Hispanics came in next at 47.5 percent, followed by Black Americans at 42.1 percent.

The family median net wealth by race reveals the result of this disparity.

Source: 2021 Swanepoel Trends Report

But the industry has begun to take action, thankfully. Read the chapter to better understand the industry’s diversity reality and how the industry can improve it.

Trend 1: Real Estate in a Post-Pandemic ‘New Normal’

When the pandemic began raging in March 2020 and real estate, like much of the American economy, ground to a halt, the industry looked like it might take a large hit. But all-time low mortgage rates, feverish consumer demand, a relatively healthy financial performance for consumers at higher income levels and quick adaptation by brokers and agents in addressing the restrictions staved off a downturn, thanks to a blazing third quarter.

The most significant industry impact, centered on some deeper shifts that will forever change the industry, some more than others.

Some of the longer-term brokerage industry impacts include:

  • More streamlined buying and selling processes
  • Smaller office footprints and fewer offices
  • Suburban relocation and the rise of new markets
  • Working more remotely than ever before
  • The move toward all-digital home closings

The chapter provides a deep, well-rounded understanding of how the pandemic will shape the industry in 2021 and beyond, and provides industry leaders insight into how to position their companies to take advantage of the changes.

Takeaway

The 2021 Swanepoel Report offers these insights and many more. The T3 Sixty team is excited to share it with the industry. And, of course, all of us here are ready to answer your questions or analyze how your company can respond. You can purchase a report here.