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Season 5 of Selling Sunset aired on Netflix April 22, 2022, but Oppenheim Group President and founder Jason Oppenheim was eager to talk about real estate, rather than the newest season of his reality TV show, in a recent discussion with Inman in advance of the group’s appearance at Inman Connect Las Vegas.
The broker rightly cited the flurry of things happening in the market right now — a number of layoffs at high-profile real estate companies, severe fluctuations in the stock market and a cooling of demand — as primary reasons for wanting to stick to the market as a topic of conversation.
But no one could blame him if his recent breakup with Chrishell Stause, another member of the brokerage — which was revealed during the show’s season finale — was perhaps another reason for discussing less of what’s recently happened through the video camera’s lens.
Via Zoom, Inman spoke with Oppenheim and the brokerage’s vice president, Mary Fitzgerald, about how they interpret what’s happening with the market right now, and how it’s influencing their next moves.
Inman News: Where would you like to start?
Jason Oppenheim: I think we’re at an inflection point for agents right now in the market with supply at historically low volume, historically low interest rates (off their historic lows) and consumer confidence getting jolted a little bit by inflation. So there’s so much going on in the market. You just talked about where we’re going over the next couple years — we’ve had a pretty good run the last, arguably, decade, and I think there’s been a lot of complacency and unreasonable expectations that things will remain like that. So I think it’s interesting to talk about where agents are headed. Not to mention, there are lawsuits that could drastically, negatively affect real estate agents, our commission structure [as] a professional.
Then, also the brokerage model, and whether it’s broken, what needs to change … What we saw the last few years, which is a race to the bottom — competition between Douglas Elliman and Compass, and now the fact that most companies are hurting, laying off people, stocks are an all-time low, etc.
The news literally just broke about Compass laying off employees, and Redfin as well. The market had been really up for a long time, and now it seems like people are losing confidence. What do you think agents and brokers need to do at this point to pivot as the market is changing so much?
JO: I think the bigger concern should be with the brokerages, not the agents, because the brokerages have created this agent-centric model, which put the agents first for so many years. And I think that I’ve been extremely negative on the brokerage model for many years. These brokerages have been smoke and mirrors for so long. They’ve been giving agents splits that are unsustainable. They’ve been spending money on marketing and offices that are unsustainable. So it is no surprise to me that these brokerages are headed toward either bankruptcy or very, very difficult times and probably little, if any, profitability for the foreseeable future.
What’s the solution?
JO: Higher splits for brokerages. I don’t mean that in a self-centered way, because I’m not running a brokerage model. [Oppenheim has argued that his business model, which is to maintain a relatively small group of quality agents, has allowed the company to grow revenue by about 20 percent every year and protect it from downturns.]
But if we don’t get back to the 60/40 split that we had years ago when I started in real estate, you’re not going to see brokerages that will be able to provide the services they provide today. Compass cannot survive on the current splits that they’re offering. Same with Douglas Elliman, they will not become profitable and they will go bankrupt.
So yeah, I think that has to change and that agents may think that’s negative because they’re paying more money to brokerages, but their options are to either not have the brokerages anymore, or to pay a house but the days of both are over. It never was [sustainable].
And Compass was never going to be profitable. It was all about all this money going into these IPOs and just living off of investor money. And that is not a sustainable business model.
Is there anything that the Oppenheim Group needs to change at this point, as the market is changing? Or do you feel like you’re in a good place to tackle it all?
JO: I think we’re perfectly positioned for this mark, because we’re not leveraged and we didn’t expand — we don’t have a ton of agents [Oppenheim said they have between 20-30 agents total.], we don’t have a ton of overhead. So I think we’re fine, but that’s exactly why I didn’t expand, because I realized the brokerage model was dead years ago.
Let’s talk about luxury specifically — what sort of changes do you think brokerages or teams need to make as we look at luxury real estate moving forward in upcoming months, as the market changes and adapts?
JO: This is California-specific, but my biggest concern right now, are ballot initiatives that would put a tremendous tax on the sale of properties over $5 million. It would be devastating to the luxury market in terms of developers, who will simply not develop luxury properties anymore, will not buy properties and remodel them to resell them. I think they’re instituting a 5 percent tax on the total value of the property. But the problem is, and I know that I’m being nuanced, but if you buy — it may be only be 5 percent of the total value of the property — but it may be that that equates to probably 25 percent of the profits that would be had … You’ll just see, sales will dry up.
Do you see any trends on the horizon for luxury real estate this summer, either in reaction to recent market shifts or just buyer preferences?
Mary Fitzgerald: I think just with prices and everything, everything seems to be correcting a little bit more. It’s still LA, we’re pretty stable and strong, but it depends with how luxury we’re talking. But I think homes are sitting a little bit longer on the market in some price points, and prices are coming down just slightly.
JO: And my big concern are the secondary and tertiary markets that have done so well post-COVID like Nashville, Miami, Las Vegas, Scottsdale, Austin, places like that. Those places I think are going to have a significant correction over the next 12 to 24 months. And I think there will likely be something of a return to the cities the same way that there’s a return to the offices from work from home.
I think you’re gonna see something of a return to the larger cities, which I think will probably do OK the next couple of years. But I think those secondary and tertiary markets are going to have an awakening, because I think [prices] went up probably 30, 40 percent. They’ll probably lose half of that next year too, which, you know, might not be bad for the market generally, because it’ll create a little bit more sustainability, but you know, I think we’re gonna see a larger correction in those markets.
So what are you advising your clients during this time, where the stock market’s up and down and there’s a lot of uncertainty?
MF: It depends if they’re just going to buy, or if they’re selling and then buying something else … I think it’s kind of tough because if they wait for another six months, if they want to sell, you’re probably not going to get as much for their house. I’ve got a client, it’s just like a $2 million [house] or something like that, but they may not get quite as much for their house [later], but then the interest rates are rising too. So if they’re getting a loan for the other one, they’ve got a better loan on on the house that they currently have … I just take it case-by-case on what my client’s needs are.
JO: This is one of the more confusing markets than we’ve seen in a long time. I agree with Mary, it’s very case-by-case, very specific as to each person’s individual’s situation. I mean, what if they have a good loan, a long-term, fixed, low interest rate loan on their current house, maybe we’re better off renting it?
I’m actually in escrow right now, an $11 million piece of land, and we’ve been considering doing a good $6, $7 million remodel … and try to sell it for $30 million, but if the market softens even 10 percent and if these ballot initiatives come in, then I’m taxed another $2 million — I’m not going to do it.
I think we’re going to see a lot of investors not buying for the next couple of years. I’m going to wait things out, which is going to create less supply … As real estate agents, I think we’re headed for a very tough couple of years, because we’re not price dependent, we’re volume dependent.
Cash is going to be king in the next couple of years. So I would, I’ve told my clients that too, I’ve advised my clients over the last 10 years, just get leveraged. Just get out there. Buy and get leveraged. And that’s exactly what I’ve done for myself, you know, bought property after property. And I’m taking a step back right now, and I’m going to watch the market.
I would like to ask one Selling Sunset-related question before we wrap up. Brokers Ryan Serhant and Bess Freedman recently engaged in a debate about whether or not real estate reality TV shows are good for the industry. Serhant thinks they help make real estate more accessible to the public, whereas Freedman believes it’s sensational and often objectifies women in the industry. Where do you both stand?
MF: No one’s telling us what to wear. There are certain agents that are willing to wear a bit more revealing and over-the-top outfits — that’s up to them if they want to do that. And there’s some of us, I wear stuff that’s more boring, but it’s what I’m comfortable in and it’s not as revealing, the skirts aren’t so short. But we wear whatever we’re comfortable in. We all have our own style and our own taste, and I think I dress pretty much on a daily basis like I do on the show.
JO: Like almost every argument, I think there are points that can be made on both sides. It’s usually not black and white. There’s not one right answer. I agree with Ryan in as much as I think it makes real estate more glamorous and more accessible. And I think it has encouraged many people to join the industry. Mary and I have people that come up to us, literally every day, telling us that they got into real estate because of the show.
MF: But you’re right, Jason, it is glamorized on the show because they don’t show, like, all of the inspection process, like when you have your head up a chimney trying to see what the inspector’s talking about. They make it look like you just come, in some really high Louis Vuittons, and you’re like, ‘Ok I’m here, I just sold $2 million.’ It’s not really that easy.
JO: You know what I find very interesting, is that when I was a lawyer for many years, there were shows about the law that were equally, if not more unrealistic. For example, Suits — and yet, when I was a lawyer, I was stuck in an office reading interrogatories and it was not so glamorous … But I never saw anyone criticizing how those shows glamorized the legal profession, so I do see some hypocrisy there.
Will there be more seasons of Selling Sunset?
JO: We’re currently in talks with Netflix about a potential season 6 and 7, but nothing’s been finalized. But Selling the OC [which features agents from the brokerage’s Newport Beach office and does not yet have a final premiere date] is coming soon.