Moving to a Segmented Market

1
Moving to a Segmented Market

• A report to the Realtors of Region XI
• February 15, 2007

2
Moving to a Segmented Market

• The market for residential realty services has
  been a homogenous market for the past thirty
  years.
• An overwhelming percentage of realty firms and
  sales professionals have historically charged
  similar prices for similar services.

3
Moving to a Segmented Market

• While commission rates have fallen consistently
  for the past 15 years, the average price of homes
  sold has risen faster than the average commission
  has fallen.

4
Moving to a Segmented Market

• Now alternative model realty firms offering
  online, flat fee, discount and rebate oriented
  services are increasing their share
• We have had a downturn, a mild one, but will
  have a slow recovery

5
Factors to Consider

• The Internet arrived in residential realty
  services in late 1995.
• The number of residential realty sales
  professionals has risen from 720,000 to over
  1,350,000 from 1995 to today.

6
Factors to Consider

• The total number of homes sold has risen from
  4.4 million in 1995 to a peak of 8.4 million in
  2005 and 7.3 million in 2006 (est).
• The total value of homes sold has risen from 695
  billion in 1995 to 2.2 billion in 2005 and 1.7
  billion in 2006 (est)

7
Factors to Consider

• The share of sellers/buyers using a traditional
  full service full price professional has declined
  from 82 to 72 since 1995.

8
Factors to Consider

• The percentage who used a discount realty
  offering has moved from less than 2 in 2002 to
  8 in 2006.

9
Factors to Consider

• We believe that discount and alternative model
  realty firms will grow from 8 to 12-14 by 2010.
• The share held by traditional full service realty
  firms will decline from 72 in 2006 to 68 by
  2010.

10
Factors to Consider

• In 2010 the market for housing services will
  likely segment in the following way
• 12-14 discount
• 15-18 do it yourself (FSBO)
• 4-6 high end luxury

11
Factors to Consider

• First time homebuyers will make up 35 of all
  home buyers
• Their average age will be
• They will buy and sell differently than their
  parents

12
Factors to Consider

• The percentage of housing consumers who will be
  from a minority household is expected to rise by
  50 in the next five years alone.
• By 2010 minority households will make up nearly
  40 of all first time homebuyers.

13
Factors to Consider

• Minority households tend to have somewhat
  different methods and reasons for buying and
  selling
• This is also true of Generation X and Generation
  Y housing consumers.

14
Characteristics of tomorrows market

• Firms that historically provided services and
  products to real estate professionals will face a
  segmented market where each niche will require
  more custom solutions.

15
Characteristics of tomorrows market

• We will move from traditional media to true
  multi-media with heavy doses of the Web.
• There will be an increase in online advertising
  where results can be measured.

16
Characteristics of tomorrows market

• A trend towards marketing to target segments of
  consumers
• A trend towards more specialization of services
  will result as well.
• High end or first time, primary home or
  investment housing, Asian American or
  Hispanicall are have the potential for
  developing specialties.

17
Real Estate Ad Spending, 2001-2010
( millions projections in italics)
Sources Dun Bradstreet, Ad Audit Services,
Borrell Associates Inc., 2006
18
Buyers and sellers found similar sources of
information were valuable
19
Information-Buyers
Newspapers have dropped significantly as a
valuable source of information for homebuyers
since 2002.

• Most Valuable Sources 2002
• Driving around neighborhoods
• Newspapers
• The Internet
• Friends/Colleagues
• Yard Signs

• Most Valuable Sources 2006
• The Internet
• Driving around neighborhoods
• Friends/colleagues
• Yard Signs
• Newspapers

20
Other trends

• Consolidation will occur at a faster pace in the
  next 2-3 years than occurred in the last ten
  years.

21
Other trends

• Nationally branded realty firms will continue to
  increase total share and at a faster pace than in
  the past.
• However, even these firms will offer multiple
  models within the same brand.

22
Other trends

• Traditional realty firms will see an increase in
  profitability from offering packaged real estate
  services.

23
Other trends

• The next generation of realty Web sites will have
  listed inventory, FSBO, new homes and AVM tools.
• Consumers are seeking the most information-rich
  sites even today even if they are not perfect
  (Zillow) nor have each and every listing
  (Realtor.com)

24
Conclusions

• Firms that serve residential realty firms will
  need to set their plans based on
• Segmentation of realty services
• More online activities
• Better measurements as to effectiveness of tools

25
Conclusions

• As we commented in a report to the National
  Association in 2004, segmentation poses an
  enormous challenge to all existing structures in
  our industry.

26
Conclusions

• The National Association of Realtors
• The State and Local Association
• The MLS
• National realty brands
• Local real estate brokerage
• Real estate sales professionals

27
Conclusions

• At the core, for instance, real estate sales
  professionals will not just be selling consumers
  on the use of a real estate professional
• But on the value of their particular offering.

28
Conclusions

• At the Local Association and MLS level, how do
  you define the core services and policies when
  you have twenty different business models?
• How do you design policy and rules so that they
  do not tilt the playing field in favor of one
  over the other?

29
Conclusions

• We continue to believe two things
• The Association and MLS will continue to be
  critical to the functioning of the residential
  real estate marketplace
• The industry has a very healthy business
  environment in the years ahead.