Meet Glenn Cohen in person at the Real Estate Connect Conference in July in San Francisco, where he will participate in Meet the Leaders.
Have the red-hot market and huge commission checks slowed changes in the practice of residential real estate brokerage that would benefit consumers?
Yes.
While I respect the financial success of today’s big brokers, I also believe all that success may have made it easier for the industry to avoid change and sometimes improvement. Here are three important changes I thought would have already happened by 2004:
Innovation focused on consumers, not Realtors
With the exception of a small few dot-com survivors, any substantial business model changes have been focused on the real estate agent, not the consumer. Yes, buyers get to view all MLS listings online in one place (although usually without multiple pictures or virtual tours), but aside from that, not much else has changed for the consumer.
Instead, most real estate broker innovation has been focused on agents and their all-important commission splits. Whether it’s RE/MAX International with its 95 percent-100 percent concept, Keller Williams or Exit Realty, it all seems to be about the commission split or multilevel marketing. Meanwhile, home sellers are still paying 5 percent-6 percent of the house price to sell their home with most firms.
We also now see more lead generation and referral companies. They seem to offer some small consumer benefits (e.g., a rebate or shopping card), but they are focused mainly on selling that lead to the realty salesperson. They are yet another middleman.
New ways to divide the commission, multilevel marketing, lead generation, virtual office Web site (VOW) rules and even the National Association of Realtors’ relationship with Realtor.com are all innovations, but do they benefit home buyers and sellers?
An integrated technology platform for consumers and agents
Fewer than 10 percent of home sales transactions utilize some form of online transaction management system, and the vast majority of those only kick in after the purchase contract has been signed, according to the technology providers. How about a corporate-wide system with one common database for every customer entry and interaction that would serve every workgroup and service provider who touched the transaction? This system would begin with the customer’s first contact with the brokerage firm and monitor all activities throughout the transaction.
And how about one fully integrated or coordinated system for brokerage firms that also own their own mortgage and title/closing services companies? What if that same system could provide real-time feedback to buyers and sellers? That would be amazing! It hasn’t happened yet, primarily because the franchise and independent contractor structures of the industry don’t promote or allow this level of integration. Interestingly enough, this type of system could benefit both real estate brokers and consumers.
Real estate brokers welcome banks into the business
A basic tenant in real estate is “the more buyers, the better” because demand enables sellers to get higher prices for their homes. Currently, the brokerage industry is in the middle–or perhaps at the end–of a roll-up strategy primarily by Cendant Corp’s NRT brokerage ownership arm and to a lesser extent HomeServices of America and GMAC Home Services. It appears that public company accounting somehow allows for higher prices for the traditional brokerage agency’s services.
Banks entering the business would only create more competition for those brokerage firms that seem so willing to be sold. It’s unlikely that banks would build real estate operations from scratch. More likely they would be aggressive buyers of existing companies. Even more important, new competitors would generate competition and motivate industry improvements and benefits for consumers. Why not roll out the red carpet?
OK, so the housing market is red hot and has been for a decade. And yes, the future is a little less certain now that interest rates are on the rise. But one thing is constant in life, and that is change; I just thought it would have happened a lot sooner in the real estate industry.
Glenn E. Cohen is a well-known real estate entrepreneur who pioneered the 2 percent commission model in the New Jersey and New York housing markets. He can be reached at glenn.cohen@gcohenco.com or (732) 747-4500.
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