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Sink Or Swim, The Fate Of Real Estate’s Mightiest CEOs Will Be Revealed

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Heads will roll and company valuations will sink so low that new outsiders will opportunistically make big acquisitions, Brad Inman writes. Real estate’s Masters of the Universe are on notice.

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The changing real estate market has humbled our industry leaders. Big visions must give way to the nuts and bolts of survival.

One-time outsider Ryan Schneider, who in 2017 promised to use data to transform Realogy (now Anywhere), today must make deep cuts to his payroll and slash other costs. Can you imagine his whiteboard right now? I doubt his data vision is up there.

Redfin CEO Glenn Kelman and Compass founder Robert Reffkin are scrambling, as their stocks plunge and home sales tank. One-time change agents who proclaimed at different times a righteous attitude toward the industry’s old ways, they both must now slog in the trenches with everyone else.

The mantra was that growth is more important than profits. Not anymore.

Difficult markets are unforgiving. And swagger no longer fits in the corporate boardroom.

Anywhere, Redfin and Compass are all encumbered with debt, which makes each chief executive’s job even more difficult.

No one promised these leaders an easy time building their enterprises, but no one predicted unprecedented headwinds like they face now. What they do next will become their legacy, not what they had accomplished before this economic firestorm.

Zillow, Opendoor, the power buyers and many innovative software companies are also struggling.

Zillow seemingly got ahead of the mess when it abandoned iBuying a year ago and returned to its roots of selling leads. A tweak in its business model was to collect agent success fees for its referrals.

But agent success becomes harder to come by when mortgage rates climb to 7 percent.

Zillow CEO Rich Barton stepped over one pile of shit, only to land in another.

Third quarter earnings will shine light on this messy situation.

With a better balance sheet, Gary Keller owns his company, so Keller Williams does not face the ire of investors. But his big tech promises and his plans to go public are left to the digital scrapbook as he cuts his technology budget and axes his IPO “A” team.

The technology arms race is over. Tech is expensive and most real estate companies cannot afford much when times are tough.

Not to mention, funding sources are drying up. Venture funding for the third quarter of 2022 totaled $81 billion, down by $90 billion (53%) year over year and by $40 billion (33%) quarter over quarter, according to a Crunchbase analysis.

This is not good news. Venture capital helped get listings on the internet, perfect home search, deploy e-signings, make house videos possible, create 3-D technology, develop virtual escrows, aggregate market data, create AVMs and so much more. We have much more to do.

What’s next?

I predict some heads will roll and some company valuations will sink so low that new outsiders will come in and make some big acquisitions. The gossip about Vista Equity Partners acquiring Compass shows what might happen.

Right now, it is not clear that anyone inside the industry is capable of making such big moves.

I have heard of many meetings but no meaningful outcomes. First class flight receipts to and from Austin, Los Angeles, New York, San Francisco and Miami are the only thing to show for these talks.

Take Berkshire Hathaway: Warren Buffet’s holdings are down 50 percent. Do you really think he’s spending his waking moments planning to acquire a Compass? Maybe, but I doubt it.

Booming markets make us all look good. At some point, this descent will end, and only then will we find out which leaders had the right stuff.

Email Brad Inman

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