The shrinking real estate pie
Realtor Notebook
By Teresa Boardman, Thursday, February 12, 2009.
Flickr photo by net_efekt.We like to fix things, but I think it is important to find out what is broken before we go about the process of fixing it. Are we trying to fix something that is unsustainable or should we be building a new real estate industry?
In my town a large Ford plant will be closing soon. The factory builds large Ford trucks and nothing else. Demand for the trucks dropped and remains at an all-time low. Apparently the factory cannot be retooled to build something else. They built a huge plant that employs a lot of people but it isn't sustainable because there isn't enough demand for the product.
The real estate industry is broken. We didn't break it -- we just didn't prepare for it. Just like the local Ford plant did not have the foresight to retool five years ago. The sky-high housing prices of recent years were not sustainable, and our industry built itself around money that isn't there anymore. We kept chugging along because money was cheap and easy to borrow.
We talk about commissions and compensation structures as we look for answers on how to build and grow a system that came into existence during the housing boom. A housing market with ever-increasing sales and prices is not sustainable.
Real estate brokerages are struggling to find ways to make money and stay in business, and some are going under. Agents are struggling to survive. Some are getting part-time jobs or leaving the business.
We are all fighting each other and consumers for a piece of a much smaller pie when we need to start looking for more pie or a different pie. How we split commission and our discussions about compensation have to do with how we split the pie as we all try to grab a bigger slice of a smaller pie.
The amount of money that we charge is driven by consumers and the economy. Our industry is adjusting and right-sizing. It is a painful process and we can't all win. When large companies stop making money they have massive layoffs and the pain is over fairly quickly for those who remain. In our industry, so many are self-employed. Instead of quick layoffs we will have pain for a few years as our industry shrinks.
In my local market, more homes were sold in 2008 than were sold in 2007. When I added up the dollar amount of all of those sales they added up to millions of dollars less than the dollar volume in 2007. Those millions meant less money for home sellers, real estate companies, mortgage companies, title companies and everyone else who makes money from home sales.
More money is what is needed to fix our industry, if fixing it is about sustaining the wealth that was created during the boom. If that is what fixing or recovery is about, I say it can't be fixed. The boom years were an anomaly that lasted a short period of time.
From my point of view as an industry insider, it is hard to imagine just what a recovery for the industry will look like. It won't look like it did during the housing boom. The industry will be smaller and have fewer players.
My own economic growth will come from finding new sources of revenue and from finding less labor intensive and expensive ways to sell homes. It is unlikely that it will come from getting a bigger piece of the pie that we are all competing for.
Teresa Boardman is a broker in St. Paul, Minn., and founder of the St. Paul Real Estate blog.
***
What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.
All rights reserved. This article may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of Inman News. Use of this article without permission is a violation of federal copyright law.
You must login or register to post a comment.
Submitted by Jon Querolo on February 12, 2009 - 11:46am.
As a twenty-five plus year Realtor I have never been more excited about our industry! I recently left the comfort of one of the largest real estate firms in the country to start my own brokerage. I agree with most of your comments EXCEPT the industry is broken...it is not and great Realtors will continue to be sought-after. The current economic climate will rid us of those who are not committed and pinging a sale here and there. That is a good thing. Where we used to have the top 20% doing 80% of the business my guesstimate would be you now have the top 5-8% doing 90% of the business. If those remaining 90% leave that is also a good thing and it will only make the industry more professional for the consumer (and those remaining Realtors benefit). Working Realtors, with large and or small companies, who focus on the consumer first and foremost and not what is good for themselves or the company will thrive! Email or call if you need a pick-me-up...
Submitted by Leon d'Ancona, B.T.L., M.T.L. on February 12, 2009 - 3:20pm.
Leon d'Ancona, B.T.L.,M.T.L.
President/CEO IMS Incorporated
WWW.Realestatestatistics.com
There is this fallacy that won’t go away about the 80 20 rule. Or 90 10 rule. Mr. Querolo Is amongst the mistaken. Here is why:
There were 13,292 Real estate professionals, who had 1 deal or more on the above mentioned MLS out of the 100,332 deals (listing and buyer ends)
90.88% of agents did 57,191 sales leaving the other 9.12 % with the balance of 43,141 deals. The truth is 9 % of agents did 43% of the deals,
Call it the 57- 43 rule
Submitted by Robert A. Hulme on February 12, 2009 - 9:24pm.
It's all about retooling as Teresa mentioned. We all need to adjust to an ever changing market to survive. I made a dramatic change and suffered for a little while, but now my business is starting to thrive, I anticipate 2009 being my best year ever.
Robert A. Hulme
Realtor, GRI, e-PRO
Prudential Utah Real Estate
Loan Officer
Mortgage Xpress
www.UtahCountyRealEstate.us
www.UtahHomesForSale.ws
801-885-2586
Submitted by Don Matheson on February 13, 2009 - 6:51am.
Teresa,
Always good food for thought.
Fighting to me is always the last option. Too mentally and physically exhausting.
What about retooling ourselves? What about improving our sales skills? What about improving our networking techiques? What about more face time and contact with our past clients and sphere of influence? What about increasing our knowledge, skill and service levels?
The amount of money any highly skilled professional makes is not 100% driven by the consumer and the economy. It's time to get back to the basics!
The consumers today are demanding and deserve more. We need and must deliver it. The sooner we take personal responsibilty for our own retooling the better it will be for one and all!!!
Don Matheson
www.azgolfhomes.com
www.scottsdalerealestate.com
Submitted by Valasie August on February 13, 2009 - 7:34am.
Our industry is broken indeed and the retooling for certain should have been done in 2005 at the latest. But here we are...the two big questions are who will do it first and do it best.
Valasie (Val) August
Managing Broker
Long and Foster Real Estate, Inc
Submitted by Kristin Noll-Marsh on February 13, 2009 - 8:20am.
How is "business" defined? By income or unts sold? Because a single agent can only handle so many listings/buyer cliets at a time before service suffers or he has to hire help.
Out of 100 transactions, 20 agents probably weren't selling 80 listings. They were probably selling 20 MORE EXPENSIVE listings.
If the industry loses 80% of agents and it's down to the remaining 20%, there is no possible way for them to manage that many transactions!
There are agents who have 10 transactions a year and have incomes over $200k and others who complete 20 transactions for $80k. I see what many top producers in my office do to service their listings and my $300k listing gets more service and exposure than their $800k property every time.
The "bottom" 80% WILL be thinned out, but only so far. Someone has to take those $100k
listings and buyers, because those far outnumber the $1 million listings/buyers and the top 20% just won't have the time.
The thing to ask is whether or not the industry can continue to support the top 20 making such incredibly high incomes for essentially doing the same thing that the other 80% do for much less.
There are many more agents making $80k a year vs. $200k a year. We're used to making less money for more work. If consumers demand lower commissions, it's the high-end agent who may be the one to leave the business, because they can no longer justify the high commissions to sustain their unreasonably high incomes.
The agents who sustain their incomes through the number of transactions and not huge commissions will be just fine.
http://bestmilwaukeehomes.com
http://blog.bestmilwaukeehomes.com