Editor’s note: Inman News founder and Publisher Brad Inman invites you to join the discussion around his recent piece, "Real estate disruption may not be what you think it is." Submit your own guest opinion piece to firstname.lastname@example.org.
I recently read Brad Inman’s post on what he sees as the beginnings of disruption in the real estate industry. I also read the guest post by Joseph Rand, which took the point of view of the broker in this disruption process. Admittedly, I view things from the perspective of being an agent and not a broker.
Portraits image via Shutterstock.
Of the two articles I think Brad may have hit better on a point that Joseph sort of glossed over -- the role of individual agents in the disruption of the industry.
Both Brad and Joseph seem to believe that individual agents add value, but both take for granted to some extent that they will always just be there, happily fogging mirrors (from Joseph’s piece) and toiling away for the leftovers of fees and whatever split of the commission that they can get from the broker.
Certainly, I agree with Joseph’s points about the misplaced focus of broker-centric business models on recruiting and lead generation. It’s all about the money that they can wring out of those new recruits before they wander off in disgust about not getting rich in real estate.
Having worked for over 12 years in classic broker-centric agency settings, I have no experience with so-called agent-centric business models and I have yet to hear about a customer-centric brokerage that was anything more than window-dressing on the same old business models. Everybody seems to be talking about becoming customer-centric, but it doesn’t appear that many new ideas or changes to accomplish that change in focus have been implemented widely yet.
One thing that I think both articles missed are the changes that are needed in the underlying real estate laws in most states. Those laws codified the control of the brokers over the marketplace and individual agents, much like laws that supported unions and closed shops gave control over workers to the unions. No union card, no work. In real estate it is "no broker, no work." Both were and are wrong and need to be changed.
In Michigan, the state Legislature recently passed the so-called "Right to Work" act, which ended the era of closed union shops. They need to look at the real estate industry with the same thought in mind.
Why? Because the original premises for the laws mandating the broker-agent relationship have changed over time.
Some states, like Indiana, have recently made changes in their real estate licensing laws to try to accommodate the needed changes. In Indiana, every licensed real estate agent will be a broker after taking more classes, passing a test and serving a reasonable apprenticeship under an experienced broker, if they are not already experienced agents.
Looking at the model that I’m more familiar with -- the original broker-owner model -- the role of supplying a liability umbrella may still be there, but it is a role that could be quickly made obsolete by the insurance industry, as Joseph pointed out.
The training and supervision roles still have some value but diminish as the agent gains experience.
The back-office paperwork support is going the way of paper itself and again diminishes with increased agent experience.
The brand umbrella and marketing support, which is still used as the guise for much of the fee-based revenue that the brokerage may collect, is less and less important as the agents do more marketing through newer channels such as social media.
And the old-fashioned "desk fee" is surely passé in view of the recent trend towards agents moving to home offices and going mobile and paperless.
Still, there are services that the brokers render in the process that individual agents would be hard pressed to do on their own, so there is still a value there. The question is how much are those services worth and how will they be paid for -- fees, splits, what?
What needs to be reviewed and changed is the old-school commission split that the brokers take from the agents and the fees that they charge; both basically extracted from the agent for the privilege of doing business.
There are apparently agency-centric models that move more of the commission to the agents, but brokers still get a hefty portion for roles of declining importance, especially where experienced agents are concerned. I believe that there are a few examples of agent-centric brokerages moving to a form of a la carte fees for brokerage services, but that appears to be a very nascent movement. Perhaps that is the future for brokerages.
The future for individual agents seems assured, but not yet clear. Will they be working directly with or for large portals or national real estate companies? Will they still be working in some capacity or relationship with a broker? Will they evolve into roles of being more like transaction coordinators?
I don’t know, but I don’t see them leaving the picture. Current real estate laws and practices aside, it's the agents who really "own" the client relationships and the listings. The agents do the real work out in the field and will continue to be the one resource in which the individual clients see value (how much value and at what cost is yet to be determined).
For most real estate clients the broker is that "man behind the curtain," who is never seen and with whom they certainly don’t identify.
As for brokers: I think they will have to rethink their value propositions. What value will they add in the future for the agents? What value, if any, do they really add to the sales and how will that change in the future? Will they evolve or just go the way of the dinosaur? How can they stay relevant and justify whatever fees or commission splits that they still get in the future? Is the a la carte model for services?
I believe that the key thing that brokers have to realize and deal with, in order to stay relevant, is the fact that they must evolve to provide services to agents and the end clients that are perceived to be worth what they are charging in fees or commission splits.
As laws change, agents will eventually be able to make the choice of which broker to affiliate with (not serve under) based not just on raw costs, but on perceived value of that relationship. To a certain extent that has always been true, but when the laws change and disruption occurs, the contrasts between business models will become starker and the brokers’ perceived value to the agent and in the process will become the defining choice.
The brokers who figure out how to change their business models first stand to win against the rear-guard brokers trying to stand pat on the old models.
After a 30-year career in the IT industry, Norm Werner has been a Realtor in Southeastern Michigan for more than 12 years and currently is an agent for Real Estate One, Michigan’s largest real estate company.