Photo by AJ Canaria of MoxiWorks
As we all learned in pandemic times, interaction with others cannot be undervalued. Craig Cheatham lives and breathes this every day as president and CEO of The Realty Alliance (TRA), a national network of more than 70 brokerage firms, representing all denominations of the industry, from small independent to large franchisee. The quick success of the organization’s recently formed spin-off group, the Broker Resource Network, serves as further proof of the growing urgency among industry leaders to confer and collaborate—to come together and form a unified front against the shifting challenges facing real estate professionals and their consumers.
During the National Association of REALTORSⓇ Conference in San Diego this past November, I sat down with Cheatham at the RISMedia booth to get his take on today’s top issues and the best path ahead for brokers and their agents. Given his years in the business and ideal vantage point from the top of TRA, it’s no surprise that the conversation was candid, insightful and grounded in good sense.
Maria Patterson: We’ve certainly faced all sorts of challenges over the past couple of years. Craig, what are Realty Alliance members now facing in 2022?
Craig Cheatham: We were fortunate with the strong market. It allowed us to take a little time off from some of the big challenges, and spend our time taking care of the business that was coming in.
Right now, brokers are facing a wide variety of new or tweaked business models, so it’s all about figuring out how to compete—what ideas are resonating that brokers can incorporate into their own business—and how to communicate their value proposition when that core value proposition is called into question by every new model that says, “We do it better, we do it right. Agent, we treat you better; customer, this is a better experience.”
MP: There’s so much talk about the so-called disruptors—so much conversation about the Zillows and Compasses of the world. As an industry, are we spending too much time thinking about those competitors?
CC: Not many years ago, when we used the word disruptor, we were talking about a non-real estate entity, usually technology based, that was coming in to try to disintermediate the brokerage or the agent. Now when they talk about disruptors, they’re talking about actual brokerage models, some using technology, some with a compensation structure that’s different or a different level of service. So, they’re really talking about brokers in most instances—that’s what’s changed. They’re still talking about disruptors but it’s no longer a lion coming over the hill…it’s an innovator next door.
MP: So where should brokers direct their concern when it comes to competition this year?
CC: The biggest issue is venture capital-based competitors. I would be so bold to say that that has made more of an impact on our industry than the Internet did. When you are competing against an entity that apparently does not have to make a profit, that is more significant than whether you have an MLS book or an MLS website. And if that continues, that will be a 2022 challenge.
MP: What are you seeing among your members in terms of brick-and-mortar vs. virtual. Are we looking at a sea change in how brokers utilize office space?
CC: Space has always been about “how much square footage do we have per agent— what’s the layout, what’s the use?” All those considerations about office space will come to the fore in 2022, and the answer and approach may be different than the track we were on before the pandemic. Homeowners realize the value of home and some of their habits will be forever changed, and agents are feeling the same way in relation to their office. They’re all wired differently—some of them got very comfortable with remote and hybrid options and will want to hang onto that. Other people, it made them appreciate being in the office and interfacing with other human beings, and they’ve been really craving that and want to return to that.
MP: So, is this an opportunity for brokers to cut operation costs and put that money somewhere else?
CC: The trend will continue as it was before the pandemic to reduce total square footage. It will only accelerate now. What I don’t know is what it’s going to look like. Before the pandemic, it was about the Starbucks model. They were all moving toward smaller but collaborative spaces, fewer cubicles, and I expect that will be the same.
MP: What are your concerns about inflation and rising interest rates? How much impact will all of that have?
CC: I like to tell this story: The first REALTORⓇ convention I went to, the only keynote speaker I remember was from the mortgage industry. The going rate for a 30-year mortgage had just dropped to nine and seven-eighths—single digits. And the message I remember was, ‘tell your customers and clients now is the time to buy. Rates are in single digits—they’ll never experience this window again.’ 31 years later, we’ve never been in anything but single digits.
Even at that time, people were buying houses at a steady clip. The value of home has always been clear. My parents paid 15% interest. Even back then, people tried to tie interest rates to what was going to happen in the industry, so now, decades later, I’m going “meh.” That’s why I seem a little bit casual about the interest rates.
MP: So in other words, when it comes to interest rates, it’s more of a perception problem…
CC: Exactly. We were excited about nine and seven-eighths and it caused a rush into the market. Affordability is really the issue and employment. Interest rates are a factor but I’m not panicked. It’s still a fantastic deal and it’s for something that still makes a lot of sense—for shelter, the investment. I’m probably more concerned about rising prices due to inventory and inflation, unrelated to interest rates.
MP: Makes sense. How are affordability issues going to affect the market?
CC: The impact 31 years ago, when rates started going down and down, was that people just bought a bigger house. So the impact is, we’re going to need inventory that’s more affordable whether it’s condos, town houses, tiny homes…we need our builders to create inventory at a lower level. As interest rates go up and inflation goes up, square footage is going to have to go down. And do we have that in the pipeline? That’s the question I have and it’s going to be a generational question, and perhaps a moral question. Those who have the power to create that inventory, will they see the need and will they act on it? Square footage will go down and our children and grandchildren will be amazed at the square footage we had when interest rates were 2% and 3%.
MP: During our Power Broker Forum (held Nov. 12 during the NAR conference), someone said that we need to do a way better job at educating would-be sellers. That there would be more inventory if we were able to better communicate. Do you agree with that?
CC: I suppose I don’t disagree with that. But that’s a one-at-a-time conversation. It’s hard to scale that. I’d rather see a flood of inventory. These new buyers prefer the minimalist lifestyle. They prefer low maintenance. It should be a win-win—not putting the next generation into something they don’t want. It’s probably what they would design if it were up to them—it’s just not available.
MP: With commissions being squeezed, what do brokers need to do to maintain their profitability?
CC: Well, the affiliated businesses have had their attention for many years and that’s definitely the future. That’s where brokers are shifting a lot of their focus. They don’t view real estate as a loss leader but they’re spending more time on the affiliated side than they did in the past. I think they see that company dollar will continue to shrink. Our companies try to operate at scale so they can survive, and through those economies of scale, offer a value proposition that others can’t. But the largest growth in our industry is in fee-based, 100% commission models. RE/MAX started in 1973 and we thought the world was upside down—but the pace of that has just picked up. So, it will really be about affiliated business and cost cutting.
MP: Are there new affiliated businesses that brokers should be looking at?
CC: Some of the focus has been trying to reach the consumer earlier in the cycle. We’ve got to get to that consumer much earlier and stay with them longer. Brokers are now trying to step forward and get involved on the pre-qual side and then become the go-to on any home-related need. Brokers have the contacts and referrals so that becomes an income stream, but it also keeps them in touch with that client so when it comes time to sell again, they actually know who their REALTORⓇ is, which for years has been our weakness. We’re working with Buyside and on other projects to get our members ahead of everyone who’s beating us to the listing, and then trying to see if we can’t get income at all those points along the way. We’re trying to spread on both sides, before and after. That’s going to be just as key.
MP: That’s reflected in platforms now that are helping brokers and agents stay in the complete homeowner lifecycle now…
CC: Yes, and I don’t think they’re inserting themselves artificially in that. It makes sense for them to be that go-to. So, I think it works. It’s a long-term residual payment that, although small, keeps them engaged. And they’re a trusted advisor.
MP: What are the issues you’re watching closely on the legislation and regulatory front?
CC: Tax policy, at this point. And on the regulatory front, the CFPB and how it affects our affiliated business. We’ve had public policy whiplash from one administration to the last one and now to this one, and the CFPB is the battleground where we see a whole new staff with a whole new philosophy. But we’ve seen this philosophy before, so we know what we’re getting into. That’s where we’ll watch things in the courts. They’re swooping in on a white horse, but what they may end up doing is making life harder on the first-time homebuyer. Title on the state level is a big deal. There are a lot of people coming after title. Philosophically, they’re against title insurance.
MP: Let’s talk about agents. What do brokers need to do to prevent their agents from being lured away by big bonuses and promises of advanced technology?
CC: Their challenge is to think long-term, and I understand what a challenge that is in that role. We now have the ability to track agents after they leave our firms. They take a buyout but inevitably their production drops significantly; eventually the other brokerages may realize that math is not working, but it works in the short term for that agent. We keep the door open because we believe our approach supports the agent and makes them more productive.
MP: How do you get that message across to the agent?
CC: That is the discussion at our organization. We have to build a concise and compelling value proposition and communicate it before this dilemma is presented to your agents. Then we keep the door open and we see people coming back. We can see how the math might work for these companies that are shelling it out, but they’re thinking short term as well.
Our firms are trusted firms for generations. We’ve been here, we’re going to be here. We have to pause and take a breath and keep doing what we do because most often, people come back to the solid level of support they get from our model.
Maria Patterson is RISMedia’s executive editor. Email her your real estate news ideas to maria@rismedia.com.
