If you haven’t noticed, the real estate market has done a 180-degree turn in the last 7 months. We went from 3.5% interest rates and very little inventory to 7%+ interest rates and inventory, which has doubled and continues to grow. This also means Realtors, lenders, and Title Companies need to pivot their businesses in a big way. If you recall in the last quarter of 2021, that is when we first started to see the signs of a market shift but that was mostly due to the very little housing on the market.
During the COVID years, when business was everywhere, companies had to staff up to handle the volume and they started implementing some creative tactics to win over large producing real estate teams. You guessed it–they would sign them to real estate joint ventures, but now, as many of those joint ventures are still in place, it’s costings many people their jobs. Let me explain…
How it Got Started
Real estate joint ventures have been around for a long time, but things really took off during the pandemic with unprecedented low-interest rates. At that time and through most of 2021 business was falling from the sky. Having a joint venture was great because the volume of transactions was there to not only support the JV but make it very profitable for everyone involved.
What else happened during this time was Title Companies had to staff up to handle the volume of business coming in the door. This meant more processing people, closers, post-closers, etc. This gravy train started to slow down in November of 2021 and into 2022.
Spring of 2022–Making the Deals
In the Spring of 2022 housing inventory was at an all-time low nationwide. With interest rates still at 3.5% buyers were everywhere trying to secure their next home purchase. With such little inventory that meant far fewer transactions happening overall. With Title Companies with bigger staffs and fewer deals coming in–something had to be done. The solution was to create joint ventures not with brokerages, but with real estate teams. Not with just one real estate team, but 4-5 teams at once.
Title Companies get the business from the teams, but give up 40% of their Title revenue. Good deal? Well, potentially if the market never changes or slows down. Guess what happened about 60 days after these joint ventures were signed? The federal reserve, to heed of a potential recession and to ease the amount of money entering the market, started raising interest rates.
The federal reserve has made several rate hikes in 2022 and has doubled rates from the time these joint ventures were signed. This has caused serious issues in terms of the number of real estate transactions occurring.
With Title Companies having nearly zero refinance business, their purchase business down 50%-60% AND giving up 40% of their Title revenues to these joint venture teams…it’s a real problem in terms of keeping employees. Many Title Companies have been laying off processors, front desk people, attorneys, and more.
In the market, I’m in (and probably yours) a lot of these layoffs are from the companies that have these joint ventures. There isn’t enough meat on the bone to make the Title Company profitable. The end result is the real estate team still wants their 40% check, but the single mom who needs her job to support her family gets laid off. Does that sound fair to you?
The End of Real Estate Joint Ventures?
Probably not. Sad to say but in most cases profits come before people. I do think that the market we are currently in and will be in for quite some time will end many of the team joint ventures because the profit motive isn’t there. You can’t send 4 transactions a month and give up 40% of your Title revenues when in reality you need 20 deals to make it profitable.
The reality is people are getting laid off due to the lack of transactions, but then to give up almost half your revenues so real estate teams who already are successful can have another “revenue stream” is ill-timed. At Title Companies, many people work paycheck to paycheck or need a job to support their families. If you are reading this and work for a real estate team with a joint venture, know that the agreements you made with the Title Company in Spring seemed great then, but are having real effects on people now.
I wrote this blog post because people on all sides of the real estate front are feeling pain and though attrition happens, it doesn’t need to be exacerbated. Let’s hope both Title Company owners and real estate teams take heed and protect employees.
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