This is the first installment in “The New Normal,” a multistory Inman series exploring what’s returning to normal in the real estate industry after the pandemic fades and what will never be the same. Check back tomorrow for the second installment.
Early last month, The Lahey Group jumped from RE/MAX to eXp Realty.
The Washington, D.C., team’s move was one of many similar gets for eXp in recent months, but while talking to Inman about the switch founder Jonathan Lahey made an notable point about what guided his decision: He wanted to expand easily, but without the headache of starting a new brokerage or franchise.
“In the next stage of my business, I want to be able to help other agents in other markets,” Lahey explained. “But looking at some options, I’d have to buy another franchise. EXp didn’t have all those limitations. I didn’t have to buy an eXp franchise.”
The comment captures a kind of industry zeitgeist. Teams remain ascendant, after all, and many team leaders are more willing than ever to consider alternative ways to expand their reach. In other words, the concept of a brokerage, and of what it means to be an ambitious person in real estate, is evolving right now in ways that it never has before.
In an effort to understand what exactly is going on, and to figure out what the real estate company of the near future might look like — especially coming out of the craziness of the last year — Inman recently spoke with a number of leaders and analysts. And while no one has a crystal ball, the takeaway from these conversations was that going forward the industry is likely to be dominated by teams, by a more fluid approach to geography, and by the continued rise of relatively new upstarts. In the end, the brokerage of the future may not be a brokerage at all.
Teams have been growing in popularity for years. But according to Russ Cofano, the real estate industry is currently seeing the rise of something a bit different, which he called “interjurisdictional teams.”
“Agents are building their own brokerage networks without geography,” Cofano said.
Cofano is currently the chief operating and strategy officer for title company NexTitle, and in the past served as the president and general counsel of eXp. He’s also worked as an agent and team leader, and his take was that numerous team leaders currently want to do what Lahey did, which is expand in an easier and more streamlined way. And one of the reasons they want to do that is because it allows them to expand the funnel of people they can potentially attract.
“Is my funnel filled with all the agents in Boulder?” Cofano said. “Or all the agents in Colorado? Or every agent in the country? Or potentially every agent in the world? I can build a marketing machine that is able to attract really limitless numbers of people.”
Theoretically, agents have always been able to do this. But as Lahey pointed out last month, it traditionally required running a complex physical ground game with new offices and other physical infrastructure. The logistics just weren’t easy if you were a successful team — or brokerage or franchisee — and you wanted to move into a new area.
Some agents still pursue the traditional route, but the difference now is that they increasingly don’t have to. Geography and ground games aren’t deal breakers.
Beyond expanding recruitment funnels, another reason this trend may be happening is because it allows team leaders to continue actively working in real estate, rather than shifting into a more bureaucratic role that would be required if they expanded their reach with a more conventional strategy.
“At the end of the day, successful team leaders want to focus on real estate,” Tamir Poleg, CEO of virtual brokerage Real told Inman. “They want to focus on building other agents around them and creating a really successful business, and doing what they enjoy doing. But as a broker, you have to deal with accounting and HR and other things — which most agents don’t want to deal with.”
This isn’t to say one single approach will dominate the entire industry. But again and again when Inman asked experts about the future of the brokerage, the answer came back, “teams.”
“I really think the future of real estate is teams,” Vija Williams, director of growth for the Ben Kinney Companies, told Inman. “I run brokerages, and I think that from a brokerage perspective, we have to look at ways to make our world big enough to hold our teams.”
In other words, agents are looking for agility and flexibility, rather than local control over the nuts and bolts of their back office.
National brands and franchises
While there was general agreement among the experts who spoke to Inman that teams are the future of the industry, there was more of a debate about what kinds of companies best allow those teams to thrive.
Williams, for example, argued that Keller Williams — with which Ben Kinney Companies is affiliated — has long been a conducive place for teams, and will continue to be so.
“Keller Williams will very much emerge as the leader,” she said. “We’re profitable. We are run on sound principles. There’s no question, it’s just an incredibly efficient and well-run company.”
On the other hand, some observers have pointed to relative upstarts as serious challengers to the legacy brands. Poleg, for example, argued that the “franchise model is extremely weak at this point.”
“Franchises are too long of a food chain,” he said, adding that brands with a “national platform” let agents “build their business the way they want to.”
This idea came up repeatedly in conversations for this story, and among other things Cofano suggested legacy brands could ultimately be at a “huge disadvantage” because “it’s very difficult for them to offer a nationwide solution for team networking.”
So who isn’t at a huge disadvantage?
Mike DelPrete, a real estate analyst and consultant pointed to eXp and Compass, among others, saying that they’ve seen massive growth. They also offer the “national platforms” that Poleg mentioned, but unlike most of the legacy brands don’t franchise. They’re like the In-N-Out to the legacies’ McDonalds.
“These are the models, right now, in 2021 that are impossible to ignore,” DelPrete said, “because of the incredible growth and traction they’e had over the past couple of years.”
In reality, both sides of the debate are probably right. Williams’ point about Keller Williams is a sound one, and neither they nor other big companies such as Realogy are going anywhere.
But companies like eXp and Compass do facilitate the “interjurisdictional teams” Cofano mentioned. And both their growth — which DelPrete has documented — along with almost weekly high-profile defections suggest a trend is afoot. The wind appears to be in the sails of this model.
All of which is to say that the new normal may increasingly include teams that are freed from geographic constraints even as they operate within massive companies that have a national reach.
Centralized control, and a buffet of options
Compass and eXp aren’t the only options of course. Take Side, for example. Unlike other companies, Side offers a kind of alternative model that powers agents’ back offices while allowing them to technically own and operate their own business.
But in the context of teams at eXp and Compass, the rise of a firm like Side — which recently hit unicorn valuation — highlights something very similar: The company lets agents foreground their own brand and business, while operating on a geography-free platform. In other words these various companies’ business models might be diverse, but their broader philosophies about agents’ relationships to brands aren’t so different.
There are plenty of other models as well. Along with Compass and eXp, DelPrete pointed to Redfin as one of the most significant business models in the real estate market right now. And he said other companies, such as Homie and Reali, have taken a similar approach by among other things hiring their own agents. He called this concept “broker 2.0.”
These companies generally don’t do teams, at least in the conventional sense. But they do share one key trait with other upstarts mentioned above: They centralize control of their technology, operations and platform. And that’s the other important factor that’s defining the new normal for real estate companies.
“There’s this big shift across the industry to more and more centralized control,” DelPrete said, adding that this trend is even apparent at legacy brands. “You see with Keller Cloud and Keller Command, it’s this central platform. It’s all about trying to centralize a lot of an agent’s needs.”
The takeaway here is that in the near future, leading a company in real estate may mean running a team rather than a true, standalone brokerage. And at the same time, the number of platforms may consolidate behind fewer powerful players. There could be simultaneously more independence, and more reliance on big brands.
But one thing is clear: The days when working in real estate meant choosing from a few legacy franchises based in an agent’s immediate surroundings are disappearing.
“There’s so many new models out there, that real estate is actually getting more complex, not less,” ” DelPrete said. “If you think about winners going forward, it’s the companies and the agents and the teams that acknowledge that and are empowering consumers to make the right choice for them.”