The Road Ahead for the Real Estate Professional

The Road Ahead for the Real Estate Professional

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You will note in this blog post I discuss real estate commissions.  Any reference I make to sales commission is to illustrate a point or expound on my comments.  Remember, all real estate commissions are negotiable and are determined by the broker and their client in a bilateral agency agreement.

In my last blog, I wrote about how the real estate industry is evolving into a more consumer-centric one with new industry disruptors who are catching everyone’s attention.  I briefly mentioned how the role of the real estate professional is changing, and agents better adapt.  I believe the agent-client relationship will soon be morphing into more of one that has us as a “consultant,” “advisor,” or “shepherd” in the real estate transaction.  Let me use this post to expand a little bit more on how I see the future role for REALTORS® and how you can be prepared to make the transition.  Many of the comments in this post originate from my book, “Do You Have a Minute? An Award-Winning Real Estate Managing Broker Reveals Keys for Industry Success.”

First, let’s do a quick review of what is happening around us…

Know Who and What You Are Up Against Out There!

The New Competition is Attacking Your Commission and Your Services

Over the past couple of years, I have seen a real compression of real estate commissions paid at the closing table. More and more sellers want to negotiate with agents because they now have more options to get their home sold.  Many sellers are inundated by a wide variety of “never before heard of” companies offering a wide variety of brokerage services than ever before. These new players in the market are spending a great deal of money to advertise their property marketing options to homeowners – and sellers are seriously entertaining what these companies can offer them.

The New Players

The Modern Discount Brokerage (MDB) model is emerging to be a serious contender in the industry.   They are not the typical “$199” outfit that will list a property on the MLS, provide the seller with a cardboard sign, and tell them “good luck.” These new companies are very well organized, well-funded, and have the technology, systems, and processes in place to provide a full-service consumer experience at a much lower cost than the traditional brokerage.  MDBs are leveraging cutting-edge technology and well-thought out systems and processes to lower costs while providing a full-spectrum of services to consumers for fees well below traditional rates. They are very customer-centric providing user-friendly tools, virtual tours, simplified transaction management and innovative property marketing with the client in mind. In addition, they utilize a flat-fee structure designed to handle both sides of the transaction. 

There is also a new breed of homebuyers in the real estate marketplace, known as iBuyers. iBuyers usually consist of cash rich investors using automated valuation models (AVMs) and other technology to make quick offers on properties, will close in a matter of days – not weeks — and then resell them. They are growing because of the influx of venture capital and other investment funding. iBuyer purchases take place online and directly from the homeowner, usually at a small discount. Some will pay a referral fee, typically 1%, to real estate agents. Opendoor, Offerpad and Zillow are three of the best known iBuyers in the industry today. 

Two large start-up companies who arrived on the scene recently include Redfin and Compass – both marketing themselves as technology-driven businesses.  Redfin offers a 1% listing fee to prospective sellers.  Redfin’s large red billboards are now prominently located throughout the Greater Nashville area touting their 1% offer.  What Redfin doesn’t tell you about is that the real listing fee is 4% with 3% going to the selling broker.  And, what I am not entirely one-hundred percent sure about, but from what I hear from other agents, a seller gets what they pay for at Redfin in the way of limited agent and client interaction, no consultations, limited client advocacy, poor negotiating skills, etc.  Then, there is Compass.  Compass is a traditional brokerage touting their technology and “hip” management and marketing style.  They are recruiting top-producing agents in the market by offering them significant sign-on bonuses and other incentives to leave their current broker.  Many market experts throughout the country believe Compass will not survive in the long-term due to their sizeable debt load, lack of sustainable profitability and their inability to provide an adequate return on investment to those who are sinking millions – if not billions – into the company.  I believe Redfin is on much better financial footing than Compass, but we will just have to wait and see.

Traditional “legacy” brokerages are undoubtedly beginning their death spiral due to the new upstart competitors, like Redfin and Compass, and the cost to change their business models to be competive and profitable.  In the meantime, before those nails are hammered in these firm’s coffins, traditional brokers and their agents are going to be much more aggressive in competing with the MDB’s, Redfin’s and Compasses out there.  It is all about survival.  It may get nasty before all the dust settles.  REALTORS® need to be “locked and loaded” to take on the Realogy brands (Coldwell Banker, Century 21, ERA, Sotheby’s and others), RE/MAX, Keller Williams and other independent companies.  Trust me, it will be a battle for market share – or should I say retaining market share.  Get the popcorn out because it will be very interesting to watch.

Thoughts on How You Can Survive…

Agents Must Know and Communicate Their Unique Value Proposition

We real estate agents have done a poor job communicating our unique value proposition to the consumer. Whether we like it or not, the term “REALTOR®” no longer has the distinction it once had with buyers and sellers. We are seeing some consumers bypassing real estate professionals all together by going online to get available property information and attempting to manage their listing or real estate transactions themselves. How do you overcome this from happening to you?  You must sell your unique value proposition to your prospect and client base.

Remember, your value proposition is probably the most critical element of selling real estate especially as the market continues to evolve and adapt to numerous technological and generational changes. You are one of many real estate agents in your market. Your unique value proposition is what makes you stand out in the crowd. It differentiates you from your competitors and demonstrates how you are different, superior, and most skilled in offering buyers and sellers the highest service in the sale or purchase of a home. Your value proposition lies at the heart of how you market yourself and your services. It is the key to your success as an agent. If you have a strong value proposition, you will find that your business will grow as others will want you to list their home or have you assist them in finding their next one. What is your unique value proposition? Think about it.  Are you good at negotiating?  Do you have a knack for getting transactions closed without too much drama?  Can you provide excellent customer service by “picking up the ball and running with it?”  These are just a few basic ideas for a value proposition, however, take the time to develop a very concise one and then make sure you communicate it to your prospects as you seek out new business.

Tailor Your Service to the Client

Don’t be surprised to learn in the not-too-distant future that the traditional “six-percent” property marketing offering will be coming to an end.  With the consumer applying more and more downward pressure to lower real estate commissions, it is my belief agents will need to begin tailoring the real estate transaction in a way that best fits an individual client’s wants and needs.  In other words, a la carte options and specific pricing may need to be a tool in your REALTOR® representation toolbox.  You are going to have to “customize” the property listing or sales transaction, so it services the client and ensures a definite amount of financial return satisfactory to you and your broker.

Today’s consumer wants choices.  Some brokers and agents are now providing unique options for the various components of the property listing and the “contract to close” period.  For example, they provide specific costs for home staging, property brochures, professional photography and videography, marketing and advertising, open houses, etc.  And, within these various seller choices, agents are offering “good”, “better”, and “best” plans.  I have seen certain agents call these options “bronze”, “silver”, or “gold” packages.  By giving the consumer choices, they might be more open to working with an agent who can put together a custom plan that they want and like.  And, who knows, your particular menu of options, if developed correctly, may put more money in your pocket. 

You Need to Be More of a Consultant than a Salesperson

In the years ahead, I believe real estate professionals will still play a vital role in assisting a seller in selling their house or a buyer in purchasing a home. However, as I have said many times before, the job of a REALTOR® is soon going to change. We will become project managers, advisors, consultants and transaction facilitators (not the non-agency type) instead of the gatekeepers of the real estate transaction holding all the information the consumer is seeking. Agents will need to adjust their unique value proposition and their business plans to remain relative to the consumer’s real estate experience.

Can you adapt to the changes ahead?  If not, you need to get out of the business now and find employment that will allow you to support you and your family.  The future real estate market will require agents and brokers who can change with the times.  However, if you believe you can acclimate to the new real estate paradigm ahead, begin today by presenting yourself as a real estate consultant or advisor rather than a real estate salesperson. A consultant is a person who provides expert advice professionally.  The key words in this definition are “expert advice” and “professionally.”  Can you be a professional expert?  You need to answer this question honestly.  If you feel you need more education or expertise in a particular niche, such as luxury properties or new construction, seek out learning opportunities in the not too distant future ahead that will build your confidence in a specific area where you are weak.  Your principal broker or team leader can help you in this area. 

Get ready for what lies ahead for us.  It is going to be a wild and challenging ride, but also one that can be filled with new opportunities and professional growth for serious agents and brokers.  Increase your knowledge base, adjust your business plan, and begin accepting the industry transformation taking place NOW!  By doing so, you will be well-positioned to remain in this business for many years.  I am looking forward to it.  Are you?

-JMG

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