Follow The Money

By Saul Klein | Jan 10, 2023 |

It Is Time To Follow The Money

A series of recent acquisitions signal the long overdue digital integration of residential real estate and its impact on all participants in an end-to-end digital system, from first-time buyers at point of sale through trading and settlement with capital market investors. Technology is connecting the data that links listings with lending and liquidity. These transactions provide the roadmap to sources of future value for companies, customers, communities and shareholders.   Real estate brokers can simply follow the money.

The most important company in real estate is Intercontinental Exchange (ICE).  ICE is the owner of global marketplaces, including the New York Stock Exchange, that trade commodities, futures, derivatives and equities.  ICE’s initial intent to redesign how financial assets anchored by real property are traded, first surfaced in 2016 with its stake in the MERS registry. This was followed by the acquisition of the Simplifile network in 2019.  ICE then added Ellie Mae to deliver the lending component needed to converge the primary and secondary mortgage markets at scale.  ICE valued Ellie at $11B which was a 10X multiple of revenues.  BlackKnight and CoStar responded by extending their trading and data solutions with deals priced at 10X.

Real estate brokers command the top of the digital food chain but are valued at a fraction of a 10X multiple.  Vendors, lenders and platforms extract much of the value brokers create. The perishable opportunity for brokers is to leverage their market position to capture the downstream value of data.

If data is the new oil, then data rights is the core asset that controls the refining and formulation of data into information products needed by many industries.  REALTORS own the rights to the “original” data (its structure and local aggregations) but have been unable to monetize these assets beyond the first point of sale. “Market” data has pushed ICE’s profit margins to greater than 30% and their multiple to 10X. Showingtime’s acquisition by profit-challenged Zillow was also priced at 10X.  Zillow’s $10B market cap on revenues of $8 (meaning the multiple is 1.2) is the result of real estate content-creators trading away their original data– the “derived” data rights– for advertising and leads. It’s been a great trade… for Zillow.

Most real estate brokers deliver single digit profit margins, far below the services industry average of 17%.  Brokers share the powerful REALTORÒ brand and the network of Multiple Listings Services that make orderly local real estate markets possible.  They earn their commissions but don’t share when their data generates huge returns for media, retail and financial services.  With the property listings, brokers and agents create the “event” data that signals the opportunity for a new loan, the pre-payment of an existing loan, changes in servicing and insurance fees, future securitization cash flows and a surge of homeownership purchasing.  Brokers connect all parties to the first transaction that creates the “source” data for transactions occurring downstream.  What’s missing is a network that starts with shared data and ends with “payments.”

The collective innovation that created the MLS, and data “syndication”  unlocks new business models through systems in which local loan manufacturing markets connect to execution of the best capital markets.  The future starts with residential and commercial brokers creating a network of networks that delivers high value returns from their undervalued digital contribution to the asset class that is the provider of value for 43% of U.S. wealth.  The technology is secure, smart, proven and turnkey.

Real estate is a local business. Housing is not a commodity. Technology is becoming a commodity. Consumers are investors too. Under all is the land and markets know so well that you can’t trade what you can’t grade. Who will be the arbiters of value for all real estate related assets as local property markets connect with global capital marketplaces to know in near real-time what an asset is worth?

Which brokers will win the future and achieve 10X?

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