Moving to a Segmented Market

1. Moving to a Segmented Market A report to the Realtors of Region XI February 15, 2007

2. Moving to a Segmented Market The market for residential realty services has been a homogenous market for the past thirty years. An overwhelming percentage of realty firms and sales professionals have historically charged similar prices for similar services.

3. Moving to a Segmented Market While commission rates have fallen consistently for the past 15 years, the average price of homes sold has risen faster than the average commission has fallen.

4. Moving to a Segmented Market Now alternative model realty firms offering online, flat fee, discount and rebate oriented services are increasing their share; We have had a downturn, a mild one, but will have a slow recovery

5. Factors to Consider The Internet arrived in residential realty services in late 1995. The number of residential realty sales professionals has risen from 720,000 to over 1,350,000 from 1995 to today.

6. Factors to Consider The total number of homes sold has risen from 4.4 million in 1995 to a peak of 8.4 million in 2005 and 7.3 million in 2006 (est). The total value of homes sold has risen from $695 billion in 1995 to $2.2 billion in 2005 and $1.7 billion in 2006 (est)

7. Factors to Consider The share of sellers/buyers using a traditional full service full price professional has declined from 82% to 72% since 1995.

8. Factors to Consider The percentage who used a discount realty offering has moved from less than 2% in 2002 to 8% in 2006.

9. Factors to Consider We believe that discount and alternative model realty firms will grow from 8% to 12-14% by 2010. The share held by traditional full service realty firms will decline from 72% in 2006 to 68% by 2010.

10. Factors to Consider In 2010 the market for housing services will likely segment in the following way: 12-14% discount 15-18% do it yourself (FSBO) 4-6% high end luxury

11. Factors to Consider First time homebuyers will make up 35% of all home buyers Their average age will be <37 years They will buy and sell differently than their parents

12. Factors to Consider The percentage of housing consumers who will be from a minority household is expected to rise by 50% in the next five years alone. By 2010 minority households will make up nearly 40% of all first time homebuyers.

13. Factors to Consider Minority households tend to have somewhat different methods and reasons for buying and selling; This is also true of Generation X and Generation Y housing consumers.

14. Characteristics of tomorrow�s market Firms that historically provided services and products to real estate professionals will face a segmented market where each niche will require more custom solutions.

15. Characteristics of tomorrows market We will move from traditional media to true multi-media with heavy doses of the Web. There will be an increase in online advertising where results can be measured.

16. Characteristics of tomorrows market A trend towards marketing to target segments of consumers A trend towards more specialization of services will result as well. High end or first time, primary home or investment housing, Asian American or Hispanic�all are have the potential for developing specialties.

17. Real Estate Ad Spending, 2001-2010

18. Buyers and sellers found similar sources of information were valuable

19. Information-Buyers Most Valuable Sources 2002 Driving around neighborhoods Newspapers The Internet Friends/Colleagues Yard Signs Most Valuable Sources 2006 The Internet Driving around neighborhoods Friends/colleagues Yard Signs Newspapers

20. Other trends Consolidation will occur at a faster pace in the next 2-3 years than occurred in the last ten years.

21. Other trends Nationally branded realty firms will continue to increase total share and at a faster pace than in the past. However, even these firms will offer multiple models within the same brand.

22. Other trends Traditional realty firms will see an increase in profitability from offering packaged real estate services.

23. Other trends The next generation of realty Web sites will have listed inventory, FSBO, new homes and AVM tools. Consumers are seeking the most information-rich sites even today even if they are not perfect (Zillow) nor have each and every listing (Realtor.com)

24. Conclusions Firms that serve residential realty firms will need to set their plans based on: Segmentation of realty services More online activities Better measurements as to effectiveness of tools

25. Conclusions As we commented in a report to the National Association in 2004, segmentation poses an enormous challenge to all existing structures in our industry.

26. Conclusions The National Association of Realtors The State and Local Association The MLS National realty brands Local real estate brokerage Real estate sales professionals

27. Conclusions At the core, for instance, real estate sales professionals will not just be selling consumers on the use of a real estate professional; But on the value of their particular offering.

28. Conclusions At the Local Association and MLS level, how do you define the core services and policies when you have twenty different business models? How do you design policy and rules so that they do not tilt the playing field in favor of one over the other?

29. Conclusions We continue to believe two things: The Association and MLS will continue to be critical to the functioning of the residential real estate marketplace; The industry has a very healthy business environment in the years ahead.