At Inman Connect Las Vegas, July 30-Aug. 1, 2024, the noise and misinformation will be banished, all your big questions will be answered, and new business opportunities will be revealed. Join us.
As a managing director at global wealth management and investment banking company Keefe, Bruyette & Woods, Ryan Tomasello leads the firm’s research coverage of fintech software and real estate technology.
Over the years, he’s not only gained deep insights into the publicly-traded companies he covers as a research analyst — including Blend Labs, CoStar Group, nCino, Offerpad, Opendoor and Porch — but a broad knowledge of the industry as a whole.
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Tomasello, who before joining KBW in 2013 was an investment banking analyst at Bank of America Merrill Lynch, will be a featured speaker at Inman Connect Las Vegas taking place at the Aria Resort and Casino from July 30 through Aug.1.
He took time this week to discuss how commission lawsuits and economic uncertainty have combined to create a “watershed moment” that has the entire real estate industry searching for a path through a “no man’s land” that will ultimately lead not only to consolidation, but more disruptive innovation.
Our interview has been edited for length and clarity.
INMAN: There’s a lot of uncertainty over how the commission lawsuits will affect the real estate industry — a lot may depend on whether the DoJ steps in — but it seems there’s general agreement that commission revenue is going to take some kind of hit. How big a hit do you think it will be, and broadly speaking, who do you think the winners and losers will be?
Ryan Tomasello: We’ve said in our past research that we think the decline in commission [revenue] could be upwards of 30 percent over time. That number is based on various data points, ranging from survey data to comparing commission costs in the United States to that of major countries internationally.
I think the key caveat there is that it’s likely to take time. It’s not something that will happen overnight. As much debate as there’s been around how much commissions will decline, there’s an equal amount of debate around how long this impact will take to play out.
From the winners and losers perspective, I think you can bucket the industry between near-term and long-term winners and losers. Over time [changes to commission rules] stand to benefit the major players across the brokerage space that are best in class, brands that are innovative and choose to adapt and thrive in a new type of market structure.
Those types of firms potentially stand to benefit from increased market share in terms of agent count and transaction count. That could very much offset the headwinds from the actual decline in the commission pool, depending on how market share gains shake out.
Does that mean that we could see a wave of mergers and acquisitions? And what does that mean for startups that see opportunities to innovate and be disruptive?
From just traditional brokerage M&A and agent and team consolidation amongst different brokerage brands, I think there’s a growing consensus out there that this whole storyline ends up being an incremental catalyst to drive more consolidation in the brokerage industry. So the players that have a history of consolidating probably continue to capitalize on that consolidation.
There’s an interesting side thread that occurs next to the bigger picture changes to industry structure from an innovation standpoint. We’ve also said that this could be an opportunity for new disruptive models to capitalize on this watershed moment, to essentially ride an increased wave of transparency and provide knowledge to consumers around the transaction and their options and the fees that are involved.
You’re already seeing companies that are trying to go after this, whether it’s new companies or companies that have been around for some time but are kind of folding this into their strategy. Perhaps they’re taking a more novel approach to how they’re pricing out brokerage services, or investing in new platforms that are alternatives to the more traditional transaction methods of today, such as auction platforms and MLS alternatives.
And how does the role of portals change? How does the role of brokerages and agents in the transaction change? We think this ends up being a watershed type of catalyst for that type of disruptive innovation as well.
What is the climate for startup companies like that to actually get funded? And in big-picture terms, interest rates are coming down gradually as inflation eases, even as the stock market is hitting new records. What’s your view that rates can continue to come down without the economy crashing — that the Fed can actually pull off a soft landing?
We’re not rate prognosticators, but based on our own internal economic forecasts we do expect a gradual decline in the long end of the interest rate curve over the next few years. But the question becomes how much of an impact is that going to have for housing in general?
Based on the performance of the stock market, and our general sense of investor sentiment, it does seem like the consensus is for some sort of soft landing, with inflation continuing to come down [without a recession].
The funding environment for real estate, broadly, whether it’s venture capital or growth capital for mature firms, continues to be very low in terms of capital availability.
So I think real estate is still kind of stuck in the mud a bit here in the current environment, despite this expectation that we will ultimately have a soft landing. When you combine the macroeconomic picture and the rate backdrop, that’s still a difficult environment for housing overall — plus all this uncertainty around the lawsuits.
I mean, real estate is in a bit of a no man’s land right now, from an investor standpoint, given all of these very material moving pieces between macro and near term macro and these long-term structural dynamics.
What do you think people will be hoping to learn at Inman Connect Las Vegas? What are you looking forward to?
I think events like Inman are always a great opportunity to get together in person, have face time with folks, and talk about what everyone is seeing on the ground. Whether it’s housing macro or these longer-term structural elements, we’re just looking forward to hearing what other folks are seeing and what other folks are hearing about how these changes are actually playing out in real time, and sharing our perspective on that.
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Join us to see Ryan Tomasello live at Inman Connect Las Vegas, July 30-August 1 at the Aria Resort and Casino. Reserve your spot now to gain access to real estate’s premier event.