This week on the RealTrending podcast, Tracey sits down with Steve Murray, founder of RealTrends and a senior advisor to HousingWire.
Steve joins us to discuss the current state of mergers and acquisitions in real estate, how market changes are impacting broker valuations, and the growing shift toward team-based brokerage models. He also shares his predictions for President Trump’s impact on the housing market in 2025 and breaks down the challenges posed by government regulations on housing affordability.
Here’s what you’ll learn:
Most national companies have stepped back from significant acquisitions for the time being.
Local brokerage companies are now more active in M&A.
Commission compression is a growing concern for brokers.
Team-based models are proving to be more profitable than traditional brokerages.
Government regulations significantly impact housing affordability.
Steve joins us to discuss the current state of mergers and acquisitions in real estate, how market changes are impacting broker valuations, and the growing shift toward team-based brokerage models. He also shares his predictions for President Trump’s impact on the housing market in 2025 and breaks down the challenges posed by government regulations on housing affordability.
Here’s what you’ll learn:
Most national companies have stepped back from significant acquisitions for the time being.
Local brokerage companies are now more active in M&A.
Commission compression is a growing concern for brokers.
Team-based models are proving to be more profitable than traditional brokerages.
Government regulations significantly impact housing affordability.
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NewsTranscript
00:00It's been a long couple of years in the market with the lawsuits, the housing market, and
00:06agents, team leaders, brokers are weary.
00:10And Steve Murray knows that more than anyone.
00:13He is the founder of RealTrends.
00:16He runs RealTrends Consulting now, an M&A and business valuation company for real estate
00:22brokers and teams.
00:24And he is also a senior advisor to HousingWire.
00:27And we talk all things M&A, valuation, broker profitability.
00:33And we also talk about the housing market and the impact the new administration may
00:38possibly have on it.
00:40So enjoy the podcast.
00:42So Steve, welcome to the RealTrending podcast.
00:46Great to see you, Tracy.
00:47Nice to be with you.
00:48Yeah, it's always fun talking to you.
00:50You always have some great things to say.
00:52And we are going to talk about many different topics today on the podcast.
00:57So I want to start with one that you know best, and that is M&A and what is going on
01:04right now with M&A and real estate companies.
01:09When the market turned down two and a half years ago, most of the national companies
01:13that had been very active departed.
01:16Berkshire Hathaway, Home Services, Anywhere, Peerage, Cairn, United Real Estate, many of
01:26those who had been leading the charge for years are on the sidelines as far as significant
01:31acquisitions at this time.
01:34The two who are left are Compass, as people know, have been still very aggressive.
01:40And Howard Hanna is also been doing.
01:43So what we've seen mainly is the activity is now at the local level between local brokerage
01:50companies where I'm working on eight active assignments right now.
01:56They're all among local brokerage companies.
02:00So that's been the shift.
02:02That's been the big shift.
02:05It's still an active market.
02:07And so valuations, though, I assume have come down, A, because of the market and A, because
02:13of the lack of demand, or is there still a lot of demand?
02:17It's just a different type of demand.
02:20There is still demand by brokerage companies to want to acquire other firms to improve
02:27their market share, etc.
02:31Two things, right?
02:34Almost every brokerage in the country has seen a decline in their EBITDA, their profit.
02:39Well, that would bring valuations down, absent anything else.
02:43Then you take the price pressure that was there because of competition among many of
02:50the national companies.
02:52That's gone.
02:53So now the competition is among local brokers.
02:57And while they don't pay the same multiples of EBITDA that some of the national guys did,
03:04it hasn't slipped that far because there are only so many good brokerage companies
03:09worth acquiring left in our industry these days.
03:15So what does the future look like?
03:17What can brokers kind of expect as they age out of the market, as they are ready to sell
03:23their companies?
03:25What should they know?
03:26There is no certainty that brokerage companies will still be there of any kind to acquire
03:35companies in the future.
03:36We don't know what two years looks like, much less five years from now.
03:44We expect that there will be more consolidation, which means there will be acquisitions.
03:50There are companies, for instance, like Fathom that just announced a big acquisition back
03:57in October in Arizona, and others like them are making acquisitions in their particular
04:03segment of the brokerage business.
04:06But people should just run their businesses to make as much income as they can while pursuing
04:14their own goals and not try to gauge or build a company that you solely think,
04:21I'm doing this so I can sell it.
04:23Build it to run it, to make money, to enjoy it.
04:27We don't know what the future holds.
04:29Which is contrary to the whole private equity stance of build your company to sell it.
04:37Right.
04:37I mean, look, you have to have perspective on this.
04:44Until 1997, there was a market for brokerage companies in the late 70s, early 80s when
04:51Merrill Lynch and Sears and Savings and Loans were in the business.
04:56But the prices and terms back then were like nothing like they are today, and nothing like
05:02they were from 1997 when what became Anywhere and Home Services started buying independent
05:09brokers at multiples and terms we had never seen before.
05:16And now that era may be gone.
05:19We don't know, but it may be gone.
05:22Other than Compass and Howard Hanna, we don't know if any of the historical companies will
05:28be back, and we don't actually know for sure there'll be new companies like them.
05:33We don't know.
05:34Yeah.
05:35Well, what can brokers do?
05:38I mean, obviously there's always been commission compression now, even more so with the settlements.
05:44We don't really know.
05:47We don't have a good look yet what kind of impact they've really had on buy side commission
05:54specifically, but we can have an idea.
05:57And it's very difficult for brokers to grow.
06:00There's a lot of competition out there.
06:05Every model is similar in a lot of ways.
06:10What are some things that brokers can do right now to really prepare themselves for the coming
06:16market and excel?
06:19You're correct.
06:20We don't know for sure the long-term implications of the legal settlement and change in MLS
06:27and commission policy.
06:29As you know, because we've worked on it, the initial data seems to show not a lot of change
06:34yet, but the key word there is yet.
06:40No forecast for where we'll be a year or two years from now.
06:44What is compressing is the gross margin, the money that the brokerage has for its own expenses
06:52after agents have been paid.
06:55That has been on a downward slide for 40 years in our industry.
07:01Nationally, if you average all brokerage companies, the average is probably 10% to 11% now.
07:10There are business models that are lower than that, and there are those that are higher.
07:16But all of them have been coming down, all of them.
07:21Obviously, for brokerages that have some scale, being in mortgage, title, escrow, property
07:29casualty insurance, residential property management, related businesses are becoming
07:37important.
07:38For smaller firms, what you have to do is you really have to focus on the cost side.
07:44Now, every broker has to focus on the cost side, but small to medium firms that don't
07:49actually have access to the related service side of things, you've got to pay a lot of
07:57attention to your costs.
08:01And you've got to do what you can do to recruit good people and help them improve their careers.
08:09Training, coaching, mentoring, it's like I've said many times in the past, and it was still
08:19true today, this is not a complicated business.
08:23You have to recruit talent, you have to develop the talent, you have to spend less money than
08:27you have coming in.
08:28And the fact is, far too many brokerages do pretty well at the third one, managing their
08:35costs against revenues, but not doing that good of a job at recruiting and developing
08:40talent, because that is extremely hard work and takes a lot of skills.
08:45So it depends on what kind of brokerage you have.
08:49There are companies that are adding marketing and technology fees, they're adding transaction
08:58fees, sometimes charged to the consumer, sometimes not.
09:04There's a bunch of things brokers can do to tweak to improve their profitability.
09:10And what do you think, do you see any new models out there that are coming around or
09:16is there going to be a change in the model where a salaried model isn't so crazy anymore?
09:25Or these huge commission splits that are being offered, there'll be more, I guess the broker
09:35will have more power over the agent.
09:38Do you see that happening at all?
09:40No.
09:41How's that?
09:43I didn't think so, but just thought I'd ask.
09:46Over the last five years, the thing we've noticed, and anybody who looks at the RealTrends
09:51Verified data can see, the number and size of teams has grown in both cases.
09:59Both the number of them and their average size have grown.
10:03It turns out the most valuable thing a brokerage can do, if you watch teams, is if you can
10:09actually provide a flow of customer opportunities to your agents, then you can grow and you
10:17can be profitable, period.
10:20There's no question.
10:21The teams have proven the most valuable commodity is not technology, marketing facilities, brand
10:28name or anything.
10:29Not that those aren't important, they're just not the most important.
10:33The most valuable teams have proven is if I can provide my agents with 40 to 80 opportunities
10:40a year that they can close two-thirds of them, given the way they work, that's the most profitable
10:48brokerage model in the industry.
10:51Like a teamerage where they're providing all the leads.
10:55What is so difficult for brokers?
10:58I know brokers who have tried the lead gen, they've gone the lead gen way.
11:02They can't make it work.
11:04What is the secret to that?
11:05Why can teams make it work so much better than a brokerage?
11:10First of all, any medium-large brokerage companies, when they try to do that, they are now accused
11:15by their own agents of competing with those very same agents.
11:20That's a big hurdle.
11:22That's a huge hurdle for a large brokerage to get past.
11:27The second thing is it requires a mindset shift where you are basically telling your
11:33agents, I'm paying for the marketing, the technology, your office space, your assistance,
11:39and providing you all the customer flow.
11:42No, I'm not going to pay you 80 cents, 80% commission split.
11:46I'm going to pay you 35 or 40 because all you've got to do is take care of those people.
11:51That's all you have to do.
11:54That is a whole different mindset from any kind of traditional brokerage company.
12:00Those are the two problems they have.
12:02Those are the two main problems.
12:05So if you were going to start a company today, would you start a teamerage or would you start
12:10a traditional firm?
12:12Or 100%?
12:13I'll get in all kinds of trouble with all my friends.
12:17Really, if I'm starting today, the evidence is that a teamerage, if you want to call it
12:24that, can be grown.
12:26It can be scaled up.
12:28We've seen that proof and it's far more profitable than a brokerage company, even in the best
12:35days of our industry, 30, 40 years ago.
12:38Yeah.
12:39Do you feel like teams are like the wave of the future, that brokerages should really
12:42focus more on recruiting teams or helping build teams, giving them business help to
12:48build those teams within the brokerage?
12:51Yeah.
12:52It clearly is a big opportunity.
12:54We did a study some years ago with the California Realtors and we got results in through our
12:59survey questionnaires from 400 teams around the country and all those teams, the great
13:05majority of them said there is great value in a brokerage company being associated with
13:10them.
13:11You ask them, okay, what's the most valuable things?
13:14They talked about legal and regulatory guidance and they talked about brand name.
13:21So they're saying there's value.
13:26Can you have a brokerage that has a bunch of these teams where your margins will be
13:30as good as the teams?
13:32No, probably not.
13:34But structured correctly, there is value for a team and there's a way to make some money
13:42on them.
13:43There's no question.
13:45But that's not a route to increase the profitability of a brokerage company.
13:49That's a way to increase your market share.
13:52Yeah.
13:53Yeah.
13:54Definitely.
13:55And I feel like this coming market is predicted to be better.
13:59I think you had a different prediction than HousingWire.
14:03So let's talk about your prediction for the market in 2025.
14:09Well, everybody, HousingWire, Lawrence Union, NAR, a bunch of people go, we're going to
14:16be up 10% this year.
14:193.9% to 4.3% or 4.4% existing home sales.
14:24For the most part, it's all predicated on a measurable decrease in mortgage rates.
14:31Why would they think that's going to happen?
14:33And by the way, a lot of those folks thought it was going to happen in 2024.
14:38And a lot of folks thought it was going to happen in 2023.
14:42The fact is, if you read enough economic forecasts, the incoming administration's economic
14:50policies probably put upward pressure to some extent on inflation.
14:58If inflation stays where it is now, or the factors like stimulating the economy with
15:05more deficit spending through tax cuts, not going to tax Social Security, not going to
15:11tax tips, we're going to increase the SALT limitation, all those things put more money
15:18in the hand of families.
15:19That's good news.
15:21How does that help inflation?
15:23And inflation, if it stays where it is, the Fed keeps signaling, if we can't see improvement,
15:31we're not going to lower rates.
15:32If we don't get lower rates, why does anybody think we're going to pop 10% or 15% in housing
15:37sales?
15:39Well, I think Trump has been demanding lower rates.
15:42Good luck with that.
15:45By the way, he can't fire the chairman of the Fed, much as he'd like to, maybe.
15:50Or control it.
15:51Or necessarily control it, all kidding aside.
15:55I'm just being, I think I'm maybe being a little bit conservative, more so than Housing
16:01Wire or NAR or others.
16:04But you know what?
16:05I'd rather have my clients out there planning for a 5% increase, maybe, than something more
16:11robust.
16:15What about the recent executive orders with making homes more affordable?
16:19I know there hasn't been a ton of specifics around it.
16:23I assume a lot of that is focused on regulation and not actually the price of a home, but
16:30instead the price of building a home.
16:32But I don't know for sure.
16:34What have you read and what are your thoughts on that?
16:38Good luck.
16:39I mean, first of all, the federal government does not control local zoning regulations.
16:47And yes, there are a number of states, Colorado where I live, being one of them, are trying
16:52to kind of rewrite the state into the local zoning laws.
16:57And that's not working very well because the cities and counties really resent the
17:05state saying, well, you've got to change your zoning laws to put affordable housing in.
17:10So you've got the same not-in-my-backyard mentality in metropolitan areas all over the
17:18country.
17:19That's one problem.
17:20Second problem, you've got, depending on who you're reading, you have higher labor rates.
17:29You have higher construction materials.
17:33It's not going up like it did back in 2021-22, but it's still edging up.
17:40Timber, piping, sheetrock, I don't know where they are right now, but look, we've got a
17:48shortage of housing.
17:50I've written, depending on which numbers you look at, somewhere between four and five million
17:54homes, both single family and multifamily.
18:01The builders can't even build enough of that to supply the net new households we're forming.
18:07I mean, to catch up, they'd have to double and do that for five years.
18:13And I just don't see that in the cards.
18:15Do you think that Trump is playing the long game, so it might get worse first and then
18:20it will get better?
18:23Tell me your thoughts on that.
18:25The tariffs, obviously, that has the potential to drive up the cost of construction.
18:32So people are focused on today and the next year.
18:35But what do you think eventually will happen?
18:39I think he is following his own book in the art of the deal, which is throw all this stuff
18:47out there, including acquiring Greenland and Canal and renaming the Gulf of Mexico.
18:55I mean, he's asking for the moon.
18:59He'll get something.
19:00He may not get the moon, but get something in return.
19:04I happen to agree with some of those strategies, because otherwise the world just stays static
19:11and says, no, we're not going to change anything.
19:13And he said, well, be prepared.
19:16There'll be a price if you don't meet us at the table and we work out a different arrangement.
19:23The tax cuts, I know he wants to get those through.
19:25He's got the House.
19:26He's got the Senate for two years, period.
19:29So if he's going to get those kind of things done, he's going to have to get them done
19:34within the next year and a half, basically.
19:37And he will get most of those through.
19:39So yes, short term, there may be more stimulation that may cause at least a little upward pressure
19:48on inflation, because there's more dollars to spend.
19:52Now the key thing, and he knows this, and his people know this, the number one thing
19:58they have to attack if they want to fix housing and so many other things is regulations.
20:06And the regulatory trap from the Obama administration all those years ago and the Biden administration,
20:14we know it in our industry, it just, there wasn't anything they didn't seek to regulate
20:20and try to control more.
20:22Whether it's airlines, railroad, trucking, you look at the green trucking regulations
20:27that California is trying to impose on the whole country, it's ludicrous what that would
20:33do to our cost of delivered goods.
20:35So the Trump administration knows that one of the big causes of inflation is regulations
20:41that stifle supply.
20:44And I think they can have a big impact there.
20:47So I think short term, we may still have some upward pressure.
20:50As they get their teeth into this thing, they sick Elon Musk and the Doge on the regulatory
20:58environment, we may see some improvement.
21:00We did during Trump's first term.
21:02People forget the impact of reducing regulations generally causes an increase in supply of
21:10goods.
21:11Yeah, well, and you've got the becoming energy independent again, which might drive down
21:20the price of goods as well.
21:22Yeah, what's the energy factor in every manufactured good?
21:26And suppose you're able to bring down the cost of a barrel of oil by 20 or 30%.
21:32Well, that's going to have a big impact on inflation and on the cost of final goods.
21:38No question, right?
21:39Things like that.
21:40And I imagine that I think any of us might be horrified to look at the regulations around
21:47the building industry.
21:49I mean, my personal experience is I'm on the elder board at a church.
21:54We're building, finally have a new church coming out of the ground.
21:57The cost of building that church per square foot doubled from 2020 to today, doubled,
22:06right?
22:07Embedded in there is probably several hundred, $200,000 to $300,000 of required things from
22:15the local government authorities.
22:19I mean, it's just, you know, and you say, well, what things?
22:23Well, traffic studies, followed by more traffic studies, followed by fire department review,
22:30followed by tweaking by the fire department, followed by approval, filed by, oh, we think
22:38we missed a few things and it's going to cost us $40,000 or $50,000 more to accommodate
22:43the fire department.
22:46Maybe those things are necessary to make, how would I know?
22:50All I know is you builders of single family, multifamily homes, they go through this every
22:57time they go to build some.
22:58And that increases the cost of housing, there's no question.
23:03Yeah.
23:04I want to switch gears and talk a little bit about what you're hearing out there is the
23:10biggest opportunities and the biggest challenges for agents, brokers, in the business today.
23:18And you know, where you see some bright spots.
23:20Well, look, I can only reflect the national data I see and in my own experience in my
23:27own area, at least here on the southern suburbs of Denver, it appears that we have a lot more
23:33inventory available.
23:36It does not appear, however, that sellers got the memo that they're not in total control
23:42of the price they're going to get.
23:44Buyers are very, very savvy.
23:46I think that this is, as I've said in past times like this, this is the great opportunity
23:52for the best agents and teams and brokerage companies.
23:58But it means they have to be very proactive in furthering their skills, their energy level,
24:07because this is when really good brokerages and good agents really benefit.
24:14Because a lot of people are, what I'm hearing is a lot of tiredness from two and a half
24:20years of the market down and the struggles of inventory and the struggles of affordability,
24:26getting people, how do you afford a home?
24:29How are you going to afford a home at 7% mortgage rates and what the cost of homeowner's insurance
24:35has done?
24:36Yeah.
24:37I mean, all those things combined.
24:38And the lawsuits.
24:39I mean, people are just weary in general.
24:43Yeah.
24:44It's just a weariness.
24:46Okay, take a deep breath and understand this is when great opportunities arise.
24:51For medium to large brokerage companies, I just had a conversation with a firm yesterday.
24:57I said, if you're tired, imagine how the men and women who have two full-time jobs running
25:02a firm with 15 agents, they're trying to manage agents and their feelings and their business,
25:11and they're trying to list and sell to pay their own bills.
25:15You have to be prepared to talk to these people, build a relationship, and offer them
25:21an alternative where they don't have two jobs anymore, but still leaves their pride in what
25:28they've built intact.
25:31But that's where the great opportunity is right now.
25:34I mean, there are thousands and thousands of brokerages with five to 20 agents out there.
25:42It's tough for many of them.
25:45I think there's a huge opportunity with AI too to create efficiencies and cut costs in
25:50your brokerage or even as an agent in what you're spending on marketing or social media
25:57as well.
25:58Yeah.
25:59Yeah.
26:00I mean, I'm no expert in that particular area.
26:04But here's the thing, Tracy.
26:06For the last 30 years, the industry spent, I don't know, pick a number, $30 to $40 billion
26:12on technology.
26:14And the best thing we got out of it was digital forms and signatures, right?
26:20The fact is, this is still a relationship business.
26:24For agents and brokers, it's a relationship business.
26:28And yes, there's a segment of buyers and sellers that find an agent online.
26:32Okay?
26:33Everybody knows that.
26:34But still, two-thirds of all consumers indicate they choose an agent because they know one
26:40or someone they know referred them.
26:42It's about a relationship.
26:45But it does require agents to be very skilled at what actually is going on in the marketplace
26:52and how they're going to navigate putting a transaction together.
26:55That is not easy, right?
26:58So everybody keeps looking for a magic pill in technology.
27:03Now, let's talk about AI.
27:05I am no expert at AI.
27:08We are using it some here at RealTrends Consulting to do research and homework on marketplaces
27:14and trends and things.
27:16Very, very helpful.
27:18That's part of what an agent can use for what's really going on in the market, what are factors.
27:25How else it will be deployed, I don't see it yet.
27:30Although I do think we'll see technology AI evolve and become available, which allows
27:36an agent to search all available inventory, not just in MLS.
27:42They'll be able to find out, well, what are the FSBOs out there, without having to go
27:48to a whole separate database.
27:50It'll just pull it.
27:51Or new homework available, or foreclosures, all kinds of data.
27:57AI tools will probably evolve and become available in our industry to help agents do a much more
28:06deep dive into what's truly available out there.
28:09Yeah, absolutely.
28:11Yeah.
28:12Well, Steve, thank you so much for joining me today.
28:15You dropped a lot of wisdom on our audience, and I appreciate it.
28:20Well, we try to be helpful, don't we, Tracy?
28:23We do.
28:24Yeah.
28:25Have a great day.
28:26All right.