Ripple Effects in Real Estate
Schneider, Howard, Mortgage Banking
Change is redefining the real estate brokerage business. Just as technology, competition and consolidation have transformed mortgage lending, they are also are rippling through the realty business. A new, radically changed industry could emerge.
Many mortgage lenders are so challenged by change in their own industry that they aren't aware their business partners are also struggling. However, the National Association of Realtors (NAR) reports that 25 percent of all residential brokerage firms operated at a loss in 1995 - which was a good year for real estate sales.
Lenders should be aware of the changes taking place with realty companies, which will surely affect mortgage lending to some degree.
Some are seeing opportunities in the midst of the shifting marketplace. HFS, Incorporated - a Parsippany, New Jersey, franchising firm with 1996 revenues predicted to reach $725 million - within the last year purchased ERA Franchise Systems, Inc., Coldwell Banker Corporation, and Century 21 Real Estate Corporation. In doing so it has captured an estimated 19 percent of the nation's residential sales market.
Robert Pittman - a turnaround and startup expert with a history of successes at MTV and the Six Flags theme parks - now is CEO and managing partner at Century 21. "The real estate industry is behind where the consumer wants it to be," he says. "If you catch up with those expectations, you wind up with a competitive advantage." Pittman notes that "tapping into a need is easier than creating a need."
Pittman obviously plans on making changes at Century 21 - and that fits in with what HFS has done with other franchise operations. HFS is the world's largest hotel franchisor, with 4,700 properties in an empire that includes Days Inn, Travelodge, Howard Johnson and Ramada. One way HFS increases revenues at its hotels is by using "preferred vendors."
For instance, if you call room service at a Days Inn to ask for a pizza, you'll be connected with a nearby Pizza Hut that will prepare and deliver the pie. HFS is bringing that philosophy to the real estate business. Already it has sought agreements with firms such as Sony and AT&T, in order to offer new products to real estate buyers and sellers.
Lenders seeking to develop business with realty firms also must make decisions about how they can profitably work together. During times of rapid change, this can seem like attempting to hit a moving target. Yet firms that wait for the dust to settle could find their competition already has new relationships in place. Mortgage Banking asked real estate experts what factors are sweeping across their industry, in order to help mortgage bankers consider how to position themselves. Here are seven trends most real estate executives agree are changing their business:
* Loss of exclusive access to property information. Real estate agents traditionally have listed homes for sale on local Multiple Listing Services (MLS). "We owned the MLS and the key to the lockbox;' says Dave Liniger, cofounder and chairman of RE/MAX International, Inc., in Englewood, Colorado. "If someone wanted to buy a house, they had to use a Realtor."
But that is changing. Moore Data Management Services, a large MLS provider based in Minneapolis, has an Internet site (http://www.cyberhomes.com) that allows consumers to search for homes in several markets across the country. Vice President of Marketing Howard Latham says a homebuyer can search for properties with specific characteristics that are within a mile of a certain school.
George Slusser, senior vice president of member services at ERA Franchise Systems, Inc. in Parsippany, New Jersey, predicts that within three years, NAR will have no connection with MLS. "Access to property listings created a position of power for the Realtor," agrees John Tuccillo, NAR's chief economist. He adds that "it is being eroded - or transferred to the consumer. …