Top 5 Predictions for Real Estate In 2016

Our 5 Predictions on real estate in 2016

The business of real estate is always reminiscent of riding a roller coaster with it’s ups and downs, and twists and loops. In 2015 we dealt with sky high prices and profits at record levels, but in 2016 we think that there is going to be a change in the winds when it comes to brokerages and the  agents they attract.

1. Boutique Brokerages will be king

Although the big six international real estate company brands we all know eat the lion’s share of Los Angeles area real estate transactional volume, the most valuable homes are being represented by the local, boutique brokerages. So what does this mean? It means that wealthier buyers are the first to jump the international brokerage ship for the luxury and A+ customer service boutique’s offer. Luxury real estate clients want a quality relationship, not just a quick sale. Because the boutique brokerage is small, the full organization is reachable, touchable, living, and a breathing member of the community.

Ask any agent from an international brokerage why they're better then the boutique offering and you’ll get the same answer—we’re international and have access to buyers around the world. Maybe a truism prior to the internet, but in today’s world, every listing gets A+ international exposure. It's possible that some clients feel comfortable working with the big corporate guys, but the numbers are speaking to a change. Homes selling in Los Angeles above $2.5 million are statistically going to the boutique. The second driving force ties to the agents themselves. Top, luxury-centric agents are gravitating away from the big six for a litany of reasons. We suspect that many pros would rather be a big fish in a small pool rather than an other corporate citizen. Plus, the idea of being part of a team that is small, nimble and evolving is a driving force.  

2. Social Media, real estate advertising and Venture Capital will try to disrupt the real estate market, yet again. 

Real estate agents are under a constant attack for their money and knowledge. On one flank, technology driven companies are looking to crack the real estate model with some sort of transformative tool or widget that will take agents out of the equation, while advertisers and infrastructure providers are bombarding agents with promises of sure-thing leads.

Today, we believe that social media advertising for real estate is one of the best tools available to agents, it’s also one of the worst. Companies that sell online advertising have one job, which is to reach into the wallet of agents and separate them from their money. 7 out of 10 agents are spending big bucks online, but the return on the investment sees just 2.5% of the paid leads turning into a closed transaction. We think that online and social advertising needs to be a strategic part of an agents marketing efforts. The strategy is to understand that online advertising is a great tool to reinforce your brand, to communicate to your existing clients that you’re a real player in the business. We know of top westside agent who spends $300,000 a year for social media advertising, which generated a paltry six transactions last year. If these online advertisers can find a way to substantially increase client ROI, then there will be a huge increase in ad revenue for these companies. On the technology front, the two problems that companies are trying to solve are:

  1. What’s my home worth
  2. Real Estate Porn (show me my next home, cool home, dream home and what's my home worth), AKA, valuation, search

Billions of dollars are being invested here with little disruptive traction. The big tech wave in 2016 will be predictive (smart) products that will develop a local landscape of sales opportunities based on some sort of mind numbingly smart data mining principles. Hey, aren't these the same ivy league educated guys who caused the tech bubble in 2000 and the financial market meltdown in 2007? Me thinks yes. 

We look to Uber as a great example of how technology made a very human centric activity 100% better. You still need a car and driver, but Uber found a better way to bring driver and fare together. What will the Uber of real estate be?  

3. Los Angeles, California will be home to a new Gold Rush. 

There are huge boatloads of cash-rich brokerages headed to Los Angeles with their gun-sites trained on our local four billion dollar market. These firms are backed by investors with deep pockets and they are coming here  from New York and Miami. This is a Gold Rush for sure. Most of these companies aren’t even making money yet, but have fancy offices selling the Los Angeles lifestyle, and they are spending big to make sure they look the part. The hottest place to plant a new brokerage seed is Beverly Hills, where office rents are an easy $50,000 to $100,000 a month. Imagine you’re a successful 90210 agent who gets a call promising a 50 to 100% income jump, plus cool technology and a huge chunk of company stock, you’d listen, wouldn’t you?  For 2016 we’re going to see a lot of agents flip-flopping between the new boutique brokers. Top agents will be lured to one company, only to be wooed away by an even sexier offer. 50,000 shares of the company’s stock is like a billion dollars, right? As agents jump from one “it” brokerage to the next, the old guard will be about as sexy as kissing your grandmother. This dotcom-ish real estate broker model might be the most disruptive activity we see in 2016. As the top agents jump to the new companies, many of the mid-tier agents will follow. The companies with the best marketing and bribes will see their rosters grow to 100’s of agents over night. And as one brokerage grows, another shrinks. By 2017 at least one of today’s big players will be gone. 

4. Print Ads will be useless. 

While most traditional print media outlets have been suffering from a lack of readership due to internet take over, this means the slow decline of effectiveness of traditional print advertising. We find that most of the time this type of advertising is done to make the agent feel good, or to make the customer feel better about their agent selection, but as far as helping in selling homes, the shift to creating an online brand for yourself becomes more and more powerful. As we see in mainstream popular culture, internet celebrities and influencers becoming more prevalent and sought after. In 2016 agents will continue to shift their advertising money to the internet. Print ads will further constrict and publications that are 100% real estate will consolidate. 

5. Home prices will remain on the steady up swing. 

When people say they can predict the economy, some of the smartest people we know, some of the smartest people you know, they’re wrong, crystal balls don’t work. No one, not those guys at UCLA or anywhere, have done a good job of predicting the future of real estate activity or real estate valuations. Here’s how we predict the future of real estate for 2016, and it’s based on the side of the bed you wake up on financial model. If you’re in a good mood, read the Huffingtonpost.com. For the days you’re looking to talk bubbles, world ending events and an eminent financial meltdown, there’s always zerohedge.com. See, you can pick how you want the real estate market to look in 2016. Short of there being some sort of thermonuclear financial meltdown, we see no reason for home values to decline.