2005 was another year of record success in real estate, though the market started to show strong signs of slowing in the second half of the year. Industry participants started thinking and planning more seriously for their approach to online customers. The anticipated entrance of e-commerce veteran Rich Barton into the real estate industry, along with real estate heavyweight Cendant announcing plans to break up its conglomerate into four individual companies, and RealEstate.com eying the real estate brokerage business were among this year’s industry highlights. Several controversies also made this a memorable year, including a major antitrust lawsuit filed against the National Association for Realtors and several nationwide title insurance kickback investigations that resulted in millions of dollars being refunded to consumers.
Here’s a list of our picks for 2005’s most memorable real estate stories:
Expedia founders to launch real estate company. Not much is known to date about Zillow, the latest brainchild of Expedia founder Rich Barton. But the expectation is that in a short time everyone will know who they are and not everyone will like what they’re doing. The Seattle startup launched earlier this year, but hasn’t officially opened its doors. What we do know is that the founders are serious, smart, have experience in shaking up industries, and are focused on some sort of online consumer model, though the company’s tight-lipped approach thus far has revealed little of what that model will look like.
Housing market hits major headlines. The real estate market itself was a huge story in 2005, with media headlines proclaiming a housing bubble one day and no housing bubble the next. The extraordinary run-up in home prices and proliferation of so-called exotic home loans caused many experts — including Fed Chief Alan Greenspan — to view the hot housing market as a potential problem. In the second half of the year, many sources started reporting increasing home inventory levels and signs that the market is softening, shifting from a seller’s market to a buyer’s market.
Cendant splits into four separate companies. Real estate franchise giant Cendant announced in October that it will split into four companies, one each for its real estate, travel distribution, hospitality and vehicle rental businesses. Following the split, which is expected to take place in summer 2006, Richard A. Smith will become CEO of Real Estate Services for Cendant, whose brands include Century 21, Coldwell Banker, Coldwell Banker Commercial, ERA and Sotheby’s International Realty. Cendant hasn’t disclosed the planned titles for each of the new companies or the new stock symbols for Wall Street trading.
Real estate industry comes under fire for alleged anticompetitive practices. After a two-year investigation, the U.S. Justice Department in September filed a lawsuit against the National Association of Realtors, alleging its controversial policies for online property listings display are anticompetitive and impose restrictions on Internet brokerage companies. Trade group officials have said the policy does not discriminate against any brokerage model and NAR intends to defend its rules. The association has advised multiple listing services to hold off on adopting the new policy while the lawsuit is pending.
Meanwhile, the Justice Department and the Federal Trade Commission also have targeted several states this year for proposing and passing legislation or regulatory rules that mandate a minimum level of service that brokers must perform in all home sales transactions. In addition, the federal agencies targeted rules in at least two states that prohibited consumer rebates in real estate transactions.
Regulators take closer look at real estate price competition. The Government Accountability Office issued a report on real estate competition in September, concluding that the industry lacks price competition, and that the use of multiple listing services enables brokers to cooperate but may discourage them from offering discounted commission rates. In addition, the Justice Department and the Federal Trade Commission held a public workshop in October to discuss competition in the industry. National Association of Realtors officials and other industry participants say that competition is strong in the industry and point to the more than 1 million Realtors out there who compete with each other for business.
Newspaper industry makes significant move into online real estate. Classified Ventures in July bought HomeGain, securing the newspaper venture’s place in online real estate marketing services at a time when massive amounts of marketing dollars are migrating from print to online channels. Classified Ventures is a joint venture owned by six major media companies, including Belo Corp., Gannett Co., Knight Ridder, The McClatchy Co., Tribune Co. and The Washington Post Co.
Regulators crack down on industry kickbacks. Insurance regulators in Colorado in February launched an investigation of nine Colorado title insurers for alleged kickbacks and sparked dozens of similar investigations nationwide, including Florida, Washington, California, Oklahoma, Minnesota and Washington. The companies are accused of phony reinsurance contracts between title companies and real estate brokerages, developers and lenders. Under these alleged elaborate schemes, the title insurers agreed to give about half of the premium on title insurance policies to captive reinsurance companies created by the other conspirators in exchange for volumes of business.
Eminent domain ruling hits close to home. The U.S. Supreme Court in June made a controversial ruling in the eminent domain case, Kelo vs. City of New London, saying that local governments can seize individuals’ homes and businesses against their will to make way for shopping malls, office buildings and other private economic development. The ruling set off a rage among the nation’s homeowners and key real estate industry groups, which have since backed measures that would restrict state and local powers of eminent domain.
Hurricane season devastates Gulf Coast real estate. Hurricane Katrina was the real estate story of 2005. Considered the largest natural disaster in U.S. history, the storm hit the Gulf Coast in late August, destroying some 250,000 homes in New Orleans alone. Inman News reported on the steady recovery of some of the gulf region’s largest real estate brokerages. The storm was said to impact some 360,000 real estate loans, and many lenders set up some sort of relief program for affected borrowers.
RealEstate.com to open brokerage. RealEstate.com, the online real estate portal owned by LendingTree, plans to enter the real estate brokerage business in select markets during the first half of 2006. The move signals the first time a major online lead generation company will participate in on-the-ground brokerage services. The company did not disclose exactly how many brokerage offices it plans to open, but said it will be a simultaneous launch in likely two or three markets in the Northwest and that the company will not compete for leads with RealEstate.com’s existing broker partners.
Real estate fraud high on the radar. There was no shortage of reports of real estate loan fraud in 2005, with the FBI saying this type of fraud is “pervasive and growing” in the United States, and the Mortgage Asset Research Institute – which tracks mortgage fraud – saying a growing number of incidents are being reported. Georgia, which is often noted as being among the states with the highest incidences of fraud, took action this year, passing the Georgia Residential Mortgage Fraud Act, the first law that defines the criminal offense of residential mortgage fraud.
More money flows to online real estate. Private equity firm Elevation Partners in November announced a $100 million investment in online real estate marketing company Homestore, which operates home-search Web sites Realtor.com and HomeBuilder.com, among others. Also, ZipRealty and HouseValues, which each went public in 2004, continued to report increasing earnings this year. And online lead generation got a boost from giant companies like Cendant and RE/MAX announcing initiatives to provide a greater supply of listings through their Web sites.
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