SHIFT HAPPENSSHIFT HAPPENS

The results of the research …The results of the research …

• What we know …What we know …

• What we fear …What we fear …

• What we sense …What we sense …

What we know …What we know …

The continuing uncertainty The continuing uncertainty regarding the national regarding the national economy is negatively economy is negatively

impacting the real estate impacting the real estate market.market.

A pronounced and/or A pronounced and/or prolonged economic prolonged economic

downturn will impact the downturn will impact the industry to a point that it industry to a point that it may not be able to remain may not be able to remain

viable.viable.

The sub prime trigger is The sub prime trigger is continuing to impact the continuing to impact the

national economy and the national economy and the industry at several levelsindustry at several levels

The reformation of the The reformation of the mortgage process and mortgage process and

industry is more expansive industry is more expansive than generally recognized.than generally recognized.

The vanishing real estate The vanishing real estate investor is and will be a investor is and will be a

factorfactor

The evolved Internet The evolved Internet consumer will play a major consumer will play a major

role with respect to all role with respect to all aspects of the real estate aspects of the real estate market moving forwardmarket moving forward

GGenerational and ethnic enerational and ethnic imperatives must be imperatives must be

addressedaddressed

The consumer’s continuing The consumer’s continuing questioning of the questioning of the

REALTOR® value proposition REALTOR® value proposition will place additional will place additional

downward pressure on fees downward pressure on fees and commissions.and commissions.

The inadequacies of the The inadequacies of the traditional brokerage traditional brokerage

business model must be business model must be addressed if the industry is to addressed if the industry is to

maintain its position in the maintain its position in the recovery marketrecovery market

What we fear …What we fear …

Increased government Increased government oversight, regulation and oversight, regulation and

intervention will negatively intervention will negatively impact the industry’s ability impact the industry’s ability

to stabilize when the to stabilize when the sustainable market returns.sustainable market returns.

The The continuing media assault continuing media assault and the difficulty of and the difficulty of

rehabilitating the REALTOR® rehabilitating the REALTOR® image will play a powerful image will play a powerful

role in the equationrole in the equation

The Internet’s The Internet’s disintermediation of the role disintermediation of the role of the agent may go beyond of the agent may go beyond the point of rehabilitationthe point of rehabilitation

The industry’s lack of The industry’s lack of resources will dry up resources will dry up

innovations and creative innovations and creative research and developmentsresearch and developments

The fact that current market The fact that current market share holders are not share holders are not

moving to meet consumer moving to meet consumer expectations is creating a expectations is creating a

environment of opportunity environment of opportunity for non-traditional entrantsfor non-traditional entrants

That today’s searching, That today’s searching, inquisitive and capable inquisitive and capable

consumer, especially in the consumer, especially in the 21 – 43 year old 21 – 43 year old

demographic, may discover demographic, may discover an acceptable alternative to an acceptable alternative to

traditional real estate traditional real estate servicesservices

What we sense …What we sense …

That there is a changing That there is a changing vision of housing and home vision of housing and home

ownership in America ownership in America especially among the especially among the generation X and Y generation X and Y

demographicdemographic

TThat the average brokerage is hat the average brokerage is in the process of shedding in the process of shedding capability to a point where capability to a point where

innovation and creativity will innovation and creativity will take a back seat to survival. In take a back seat to survival. In the same vein when the market the same vein when the market

recovers there will be a recovers there will be a substantial lag in those firm’s substantial lag in those firm’s

ability to achieve relevance and ability to achieve relevance and competitiveness in the new competitiveness in the new

market.market.

That when the market returns to That when the market returns to sustainable levels it will be defined by sustainable levels it will be defined by

the following:the following:• A pent up demand for housingA pent up demand for housing• Low interest ratesLow interest rates• Higher requirements for mortgage lendingHigher requirements for mortgage lending• Lack of equity or cash resources combined with Lack of equity or cash resources combined with

higher income requirements will force consumers to higher income requirements will force consumers to reevaluate their expectationsreevaluate their expectations

• The market for higher priced homes will recover more The market for higher priced homes will recover more slowlyslowly

• The recovery market will not be characterized by the The recovery market will not be characterized by the 2003-2005 production levels.2003-2005 production levels.

• The strongest market dynamic will occur at the lower The strongest market dynamic will occur at the lower end of the price spectrumend of the price spectrum

That, in general, generation X and Y, a group that will constitute a

significant percentage of the buying market, will have less financial

resources available with which to engage the housing market

Why?Why?

• Significantly lower joint and household incomesSignificantly lower joint and household incomes• Heavier credit card debtHeavier credit card debt• Educational debtEducational debt• Wedding debtWedding debt• That this lower level of financial resources That this lower level of financial resources

combined with higher mortgage requirements will combined with higher mortgage requirements will propel this buying demographic into lower cost propel this buying demographic into lower cost homes and delayed home ownershiphomes and delayed home ownership

• That in response to these factors the “frugal That in response to these factors the “frugal chic” lifestyle will be predominant within this age chic” lifestyle will be predominant within this age group for the foreseeable future.group for the foreseeable future.

That the Internet will have That the Internet will have completed its evolution as completed its evolution as

the primary site for the the primary site for the fulfillment of the real estate fulfillment of the real estate experience from search to experience from search to discovery, to purchase and discovery, to purchase and

closing, and to the post closing, and to the post closing experience.closing experience.

Strong, capable and well-Strong, capable and well-funded competitors, drawn by funded competitors, drawn by both the obvious opportunity both the obvious opportunity

and weakened in place market and weakened in place market shareholders, will appear very shareholders, will appear very

early in the recovery cycle.early in the recovery cycle.

That the downturn will also affect That the downturn will also affect franchises resulting in weakened franchises resulting in weakened

franchisee supportfranchisee support• By general downturn in revenues for both basic fees By general downturn in revenues for both basic fees

and optional services. Moreover franchisors will have and optional services. Moreover franchisors will have record levels of account receivable from unpaid fees.record levels of account receivable from unpaid fees.

• With less revenues franchisors will cut services and With less revenues franchisors will cut services and will trim their own organizations further weakening will trim their own organizations further weakening the over-all systemthe over-all system

• Collection efforts and remedies will cause stress and Collection efforts and remedies will cause stress and discorddiscord

• This combination of circumstances will also weaken This combination of circumstances will also weaken the relationship between the franchisors and their the relationship between the franchisors and their franchisees.franchisees.

Franchise issues continued …Franchise issues continued …

• Franchisee abandonment and new Franchisee abandonment and new recruiting rates may be affected as some recruiting rates may be affected as some brokers discover lessened service levelsbrokers discover lessened service levels

• Those franchise entities that are owned Those franchise entities that are owned by equity firms will find it increasingly by equity firms will find it increasingly difficult to service debt and meet difficult to service debt and meet franchisee expectations. Their surviving franchisee expectations. Their surviving product may be the brand.product may be the brand.

The team next recognized that a major The team next recognized that a major impediment lying between the current impediment lying between the current

situation and success in the recovery market situation and success in the recovery market was the belief held by many brokers that the was the belief held by many brokers that the current down market was similar to previous current down market was similar to previous

down cycles and that the only necessary down cycles and that the only necessary remedy was to hunker down and make it remedy was to hunker down and make it

through to the next boom. through to the next boom.

The team strongly disagrees with this idea The team strongly disagrees with this idea and developed the following response.and developed the following response.

How is this down cycle different …How is this down cycle different …

• There are multiple pressure points as opposed There are multiple pressure points as opposed to the traditional cycle that centered on a down to the traditional cycle that centered on a down national economy or extremely high interest national economy or extremely high interest ratesrates

• Because during this down cycle the consumer Because during this down cycle the consumer has continued their evolution to becoming a has continued their evolution to becoming a more data and information powered buyer and more data and information powered buyer and seller. Moreover, at the end of this down cycle seller. Moreover, at the end of this down cycle the consumer will use this increased the consumer will use this increased sophistication to demand a higher level of sophistication to demand a higher level of service and a different level of involvement in service and a different level of involvement in the transaction.the transaction.

How is this down cycle different …How is this down cycle different …

• Consumers from the demographic group that will constitute a large share of the recovery market will be looking for homes on the lower end of the price scale.

• Non-traditional vendors in the market (Google, Zillow, Trulia) will continue to enhance their services and products for further intrusion into the real estate buying cycle.

How is this consumer different?How is this consumer different?• A significant percentage of real estate consumers A significant percentage of real estate consumers

within the recover market will either be or will be within the recover market will either be or will be associated with the X and Y generation, a group that is associated with the X and Y generation, a group that is noted for being self sufficient, self reliant, noted for being self sufficient, self reliant, independent, and involved.independent, and involved.

• This same consumer will be techno-fused and Internet This same consumer will be techno-fused and Internet empoweredempowered

• The recovery market will be characterized by a The recovery market will be characterized by a consumer who, for a wide variety of reasons, is more consumer who, for a wide variety of reasons, is more financially grounded and thus far more discriminating.financially grounded and thus far more discriminating.

How are traditional brokerage firms How are traditional brokerage firms vulnerable?vulnerable?

• Most traditional brokerages have yet to decide Most traditional brokerages have yet to decide whether to change their business modelwhether to change their business model

• The recovery market consumer will demand The recovery market consumer will demand higher levels of service and safety while at the higher levels of service and safety while at the same time wanting to pay a lower commission or same time wanting to pay a lower commission or fee.fee.

• Traditional brokerages are being weakened and Traditional brokerages are being weakened and may be unpreparedmay be unprepared

• Well funded non-traditional competitors will be Well funded non-traditional competitors will be waiting in the wingswaiting in the wings

• The ability of new entrants in the business to The ability of new entrants in the business to compete will be enhanced by the fact that they compete will be enhanced by the fact that they have no baggage.have no baggage.

13.13. Service Delivery RepresentativesService Delivery Representatives

• The economics and service delivery standards The economics and service delivery standards necessary for success in the recovery market will necessary for success in the recovery market will likely necessitate a substantial adjustment in likely necessitate a substantial adjustment in commission splits and overall compensation commission splits and overall compensation policies.policies.

• The service and informational standards The service and informational standards necessary for success in the recovery market will necessary for success in the recovery market will likely necessitate the creation of a standardized likely necessitate the creation of a standardized service and informational offeringservice and informational offering

USER DEFINED CONTENTUSER DEFINED CONTENT

• 80% OF Gen X and Y prefer user generated 80% OF Gen X and Y prefer user generated content over that of source information providerscontent over that of source information providers

• Our industry is yet to embrace user contributionsOur industry is yet to embrace user contributions• User sites and blogs are being created and used User sites and blogs are being created and used

by consumersby consumers• Realtors generally refuse to admit to the Realtors generally refuse to admit to the

existence of or contribute to user sitesexistence of or contribute to user sites• See SWAMPLOT.COM as exampleSee SWAMPLOT.COM as example

TRANSPARENCY TRANSPARENCY

• Consumers are demanding and getting complete Consumers are demanding and getting complete transparency transparency

• Consumers prefer to pass up those who will not Consumers prefer to pass up those who will not subscribe to transparencysubscribe to transparency

• Transparency in our industry means sharing all Transparency in our industry means sharing all the data, all the process, and all the feesthe data, all the process, and all the fees

THE ROLE OF MLSTHE ROLE OF MLS

• There is a definite need for a robust data source There is a definite need for a robust data source that can serve the members as they strive to that can serve the members as they strive to accommodate the desires of new buyers and accommodate the desires of new buyers and sellers.sellers.

• The Listing is only the beginning of the required The Listing is only the beginning of the required data. data.

• The Listing may not be the beginning of the data The Listing may not be the beginning of the data needs of consumers and members alike.needs of consumers and members alike.

• What scale undertaking is required?What scale undertaking is required?

NEEDSNEEDS

• Single technology platform for MLS and public Single technology platform for MLS and public facing web sitesfacing web sites

• MLS data standards such that all local needs can MLS data standards such that all local needs can be accommodated.be accommodated.

• Transaction management data exchange Transaction management data exchange standardsstandards

• Data transparency (ex sharing of sold data)Data transparency (ex sharing of sold data)• Maintenance of robust property data baseMaintenance of robust property data base

Consumer CentricityConsumer Centricity

• Of all the needs, consumer centricity is the Of all the needs, consumer centricity is the greatest.greatest.

• Understanding and satisfying consumer needs is Understanding and satisfying consumer needs is the first step.the first step.

• The role of the consumer is being transformed The role of the consumer is being transformed from passive buyer to active participant in co-from passive buyer to active participant in co-creating value.creating value.

• Setting and enforcing service delivery standards Setting and enforcing service delivery standards is an early stage must to begin the transitionis an early stage must to begin the transition

continuedcontinued

• The organizational changes demanded to achieve The organizational changes demanded to achieve such a shift are massive.such a shift are massive.

• A change of this magnitude can only come from A change of this magnitude can only come from the top of the organization.the top of the organization.

• The first source of conflict in achieving this goal The first source of conflict in achieving this goal relates to weather the vision is embraced as a relates to weather the vision is embraced as a cultural goal or is seen as an independent projectcultural goal or is seen as an independent project

And finally:And finally:

• Web centricity in Web 2.0 is consumer inter-Web centricity in Web 2.0 is consumer inter-action.action.

• Establishing and enforcing service delivery Establishing and enforcing service delivery standards also implies encouraging consumer standards also implies encouraging consumer rating of you and your organization.rating of you and your organization.

• Success will come to those who embrace the new Success will come to those who embrace the new world order.world order.