Over the next few years, real estate professionals will have to rethink how they do business as home sales ease from record levels and interest rates rise. Steve Ozonian, home-ownership executive for Bank of America, and HomeGain CEO Richard Sommer during an Inman News audio conference on Thursday discussed some of the upcoming changes for the real estate industry.
Ozonian foresees a downward pressure on commissions, and predicts more broker consolidation than in the past few years. He believes the number of real estate agents also will drop as business declines.
“Rates are going to cause everyone to hunker down and determine how they’re going to run their companies in a very different market than what we’ve had over the last three years,” Ozonian said.
“If you’re not seriously into the business and have not armed yourself with the right tools and working 10-, 12-hour days as most good agents do, you’re not likely to make it through a tougher market where it’s harder to get business,” he added.
Joining Ozonian was online real estate company HomeGain’s CEO Richard Sommer, who said some top-producing agents likely will survive the downturn and may even increase their business because they already have marketing dollars working for them. It will be more difficult for part-timers to succeed because they’ll need a certain amount of critical mass in their pipeline to weather a slowdown. Inman News publisher Bradley Inman is also the founder of HomeGain.
Brokers also will feel more of a pinch on their ever-shrinking profit margins. It will be a challenging time in general, Sommer said, but the good news is that more brokerages are forming affiliated business arrangements with title and mortgage companies. Those partnerships will help increase profits.
“We’ve only seen the tip of the iceberg so far in how much affiliated business arrangements are going to grow,” Sommer said.
Sommer also foresees a faster transformation from offline to online marketplaces as consumers increasingly rely on the Web in the home buying process. More realty professionals are moving online as well, he said.
Despite an expected increase in affiliated partnerships, neither Sommer nor Ozonian believes banks are seriously interested in getting into the brokerage business.
“I can only think of a few players who might even be remotely interested in entering that space,” Sommer said.
The National Association of Realtors fears banks will try to enter real estate brokerage if legislation passes allowing them to do that. But Sommer, who left IndyMac Bank this year to head HomeGain, said most banks make money from their partnerships with real estate brokers and don’t want to do anything to harm those relationships.
Ozonian said Bank of America has no plans to cut the real estate agent out of the home buying transaction, adding that he’d leave it to the lobbyists to fight the legislation battle. Ozonian’s assurance came despite worries about the bank’s new Real Estate Center site, which links prospective home buyers to broker Web sites that list houses for sale within certain markets.
In 2001, BofA launched the Home Solutions Web site, and had a multi-year marketing agreement with online real estate giant Homestore. Under the agreement, Homestore was to provide property listings and other information for the Home Solutions Web site, but Homestore pulled its listings a week after the announcement.
Under BofA’s new Real Estate Center site, the bank does not display actual listings and instead is partnering directly with brokers who want to participate, Ozonian said.
Ozonian and Sommer also discussed mounting tension among brokers over data ownership and security. Ozonian said such disagreements are likely “to be a hot potato for some time to come.” There is no clear answer on how to resolve such issues, but shaking things up is healthy for the industry, he said. Ultimately, it should lead to better models and better ways to serve consumers.
Sommer said the broker tension in Chicago is an example of data ownership debates he believes are going on around the country. This year, three large brokers in Chicago pulled listings from specific offices out of the Realtor-operated MLS to list exclusively with a smaller, broker-owned MLS–where the brokers would likely have more control over their data. Brokers in Chicago also demanded their Realtor-operated MLS shut down public access to the MLS Web site because they felt it directly competed with their own sites that display for-sale homes.
The two also offered their thoughts on the future of paperless real estate transactions and commission pricing.
Sommer predicts the industry is about five years away from fully paperless real estate transactions. The servicing side of mortgages has led the way in that regard, but the purchase side doesn’t have all the players working together yet, he said.
And, they both said, fee-based real estate service pricing won’t replace commission-based pricing anytime soon. Some companies may opt for a pricing structure that lets consumers pick and choose, Sommer said. And Ozonian sees the bundling of services together into one price as becoming more commonplace.
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