The Times They Are ‘a-Changin!

The Times They Are ‘a-Changin!

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In 1964, Bob Dylan wrote a song that became the title track of his album with the same name – “The Times They Are a-Changin.”  Well, that song represents what we see in the real estate industry in 2019.  As real estate professionals, we are in a whirlwind of transformation.  This post contains some of my thoughts of the revolution taking place in the real estate industry.

The one phrase I have quoted over and over throughout my life is a familiar one to all of us: “the one constant in life is change.”  This maxim may seem somewhat cliché, but, it really is true.  It  is especially true for those of us who make our living selling real estate.  And, have we seen change in this business!  I have witnessed more transformation in the real estate industry throughout the past two years than I have over the almost seventeen years I have been a REALTOR® and broker. Leading-edge technology, new and innovative brokerage models and venture capital infusion are creating a paradigm shift for how property is transacted throughout the United States and North America. 

New trends are emerging every day in how our country sells and purchases real estate.  REALTORS® are discovering managing their buyer and seller clients today is much different than just a few years ago. Real estate agents and their brokers must not only know what is happening around them, but they also must anticipate what may occur in the months and years ahead.   I feel the subject of what lies ahead is so significant that the last chapter of my book, “Do You Have a Minute?”, was written to prepare agents and brokers on how to survive and persevere in an ever-changing real estate world. 

New Players

The disruption taking place now centers around the introduction of innovative technology – especially artificial intelligence – and  the creation of new agent-centric and internet focused brokerage operations created with billions of dollars in venture capital and private equity money.  In Inman News, the leading news source for our industry, articles appear regularly on new companies funded with the money and know-how to compete with the likes of the “big guys” of the industry such as the Realogy franchised brands, Keller Williams, HomeServices, and RE/MAX…just to name a few.  These companies are technology driven and are unconventional in the way they operate their branch offices and supporting their agents who sell residential real estate. REALTORS® and their brokers need to sit up and take notice.  If they don’t, they may soon find themselves out in the cold without any purpose for existence.

I can write quite a bit in this post on how new start-up companies such as Redfin, Compass, Opendoor, eXP, and others are spending millions of dollars on new technology.  I could also share how these companies are recruiting top agents from traditional brokerages with sign-on bonuses and large commission splits as well as taking the spotlight as presenters at conferences such as Inman Connect or the National Association of REALTORS® meetings and annual conferences.  However, I am limited in time and space to lay everything out for you regarding these new “mavericks.”  I do, however, want to briefly convey four key points on how agents and the brokers overseeing them can embrace – and survive – all that is occurring in the industry now as well as in the future.

How to Adapt to Industry Changes

The following four points contain my opinion and suggestions on how we all can come to terms with what is transforming our industry and stay around to talk about it.  Again, these ideas come from me – others may have different views on how to navigate through what is happening to our profession.

Accept the fact your client knows more about the real estate market now than any time in the past.  Whether you like it or not, your clients are now in control of how real estate is transacted because they have most of the property information at their fingertips.  Buyers and sellers are increasingly utilizing the internet via their laptops, tablets, and smartphones to locate properties, find an agent, get comparable market analysis on their home, receive an offer from an iBuyer like Opendoor, and much more. Buyers now find prospective homes long before they contact a REALTOR® and sellers utilize internet sites such as Zillow, Trulia, and Realtor.com to determine what the value of their home is on the open market.  Can you say “Zestimate?”

Agents used to control all the information regarding properties for sale because they had the one source their clients didn’t have – the Multiple Listing Service (MLS).  That all changed a few years back when our data became available to the world via Internet Data Exchange (IDX) agreements between the MLS, individual brokerages and real estate websites.  Unfortunately, we gave our information away – and, that horse has left the gate and is not coming back.  The consumer will never give it back.

Your competition – such as Compass, Redfin, and Opendoor – are well funded and “in it for the long-haul.”  Investors who fund new real estate companies are disrupting the industry with big-time money.  Venture capitalists (VC) are investing billions of dollars in real estate technology and the companies utilizing that technology.  Yes, that is billions with a “b.” Why?  The real estate industry has become fragmented.  Long-standing and well-known real estate brands such as Coldwell Banker, Century 21, Realty Executives, Re/Max, ERA, etc. are having a more difficult time recruiting the technology talent and lack the tech infrastructure needed to compete against companies like Redfin and Compass.  And, because their business model is that of a traditional, percentage-based brokerage with significant overhead expenses and sizeable agent commission caps, they are much slower to modify their businesses to the trends now shaping the real estate consumer’s experience.  The result:  there is no longer one major player in the industry – like Realogy or Keller Williams – leading the way. 

VC and private equity money are creating new business models that are very attractive to agents and their businesses.  Today, investors are more than happy to put their money in real estate because of the success the startups are having in building and growing their brands.  The cracks forming in the foundations of well-known brokerages are increasing and, soon, many of the renowned real estate brands will be traveling down the road to extinction. 

If you are part of a traditional brokerage and your broker/owner is not willing to change with the times, consider finding a new broker.  I believe that traditional brokerages are now, or soon will be, in the sunset of their life.  Leading real estate industry experts agree that the traditional brokerage model is dying and will not be around too much longer.  What is causing their death?  These companies – and their management – continue to operate and compensate agents as if it was the late 1990’s or early 2000’s.

The traditional real estate company’s primary operating income is derived from agents sharing a percentage of the gross commission income (GCI) with the broker when a property closes.  And, most of these brokers require agents to work under compensation agreements where the agent agrees to share between ten and forty percent of the GCI with their broker. The annual “caps” – or total amount paid to the broker – range from $16,000 to $24,000+, depending on the agent’s individual compensation plan.

Why does the agent give up such a large percentage of the commission paid at the closing table?  The broker’s share of gross commission pays the overhead of the company.  Expenses have increased and brokers have to pay them if they want to maintain their offices, training programs, and support services. Most traditional brokers have ongoing monthly outlays for multiple well-appointed offices they own in high-traffic areas, in-house marketing and graphic design departments, and administrative personnel who will handle the input of listings in the MLS, “contract to close paperwork,” closing details, etc. for the agents. Unfortunately, with the onset of technology, the increasing compression of selling commissions, the licensing of millennial agents, and several consumer-driven factors, I feel this model is probably no longer sustainable much longer.

As a side note, my company, Benchmark Realty, LLC based in Franklin, Tennessee, does not face the challenges of the traditional brokerage.  We are well-positioned to traverse through the industry chaos and upheaval that is happening.  Benchmark is a fee-based company whose revenue comes from the fees we charge our agents in three simple comp plans.  Within this structure, we are still able to offer multiple locations, more technology-based tools and broker support and professional development than most traditional brokers in Middle Tennessee.  Several years ago, our CEO and management team saw the changes “coming down the road” and strategically positioned the company so we could continue to grow and prosper.  Benchmark is one of the few companies that will continue to thrive and do well as we see the industry evolve.

Your role as a real estate professional is changing, and you better adapt.  REALTORS® no longer control the real estate transaction from beginning to end.  We’re involved, but we don’t control it.  As previously mentioned, buyers and sellers have the information that we used to govern.  In my book, I summarized how I see the agent and client relationship shifting:

“I believe agents will still play a vital role in assisting a seller in selling their house or a buyer in purchasing a home. However, in the years ahead, agents will become project managers, advisors, and transaction facilitators (not the non-agency definition) instead of the ones who are considered the gatekeepers of the real estate transaction holding all the information the consumer is seeking. Agents will need to change their unique value proposition and their business plans to adapt and remain relative to the consumer’s real estate experience. I believe as time goes on, we will eliminate a large number of agents from the industry due to their inability to accept the changes ahead and the new reality we all will face.

All that is going on right now in real estate can make one feel quite uneasy and question whether or not they should stay in the business.  If agents, brokers, and brokerages are not willing to change, they will be left in the dust by those who acclimate to the new way of selling residential real estate.  My encouragement to you is to carefully look at your business plan and your unique value proposition and make the changes needed to be successful – and profitable – in the years ahead.  Reach out to your principal broker or team leader to assist you in developing a strategy that will ensure you are still selling real estate in the next decade and beyond.

-JMG

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