I’m a full-service agent running a full-service brokerage, and I’m posing a question to you: If a market force required that we lower commissions to be competitive, how would you react and adapt to stay in business?
I just finished reading “The Everything Store,” a book about Jeff Bezos and Amazon.com. It talked about how Wal-Mart and Amazon have pounded retailers, wholesalers, manufacturers and anyone in the consumer goods business into the ground.
Are we naïve enough to think this won’t happen to us? Is our value so clear to consumers that we can hold firm on our commission structure? I hope so. But I’ll still plan for a time when the real estate version of Amazon comes along and tries to pound real estate into the ground.
Who’s gone first?
Based on this scenario, we see small local bookstores (and large chain bookstores, eventually) going out of business. I expect this to happen in real estate, too.
When this shift happens to real estate, low-producing agents will be the first to go. These are agents who are trying to make a living but just aren’t successful in today’s market. If commissions were to drop, they wouldn’t be able to hold on; they would need to merge into a new business model or leave the business.
Here’s what that new real estate model might look like in Denver, where I work. If we count all the agents who are actively selling houses but who close 10 or fewer transactions each year, the total could be approximately 8,000 people based on the following stats from Denver Metrolist.
NOTE: This list includes only agents listed in Metrolist for sold transactions under a listing agent, selling agent or co-listing agent.
Shifting job descriptions
One of the reasons why Amazon and Wal-Mart have been so successful lowering consumer prices is their efficient business models. How efficient is the real estate model? From personal experience, I would say it’s very inefficient. Each of us is tasked with marketing, finance, prospecting, customer service, transaction management, negotiation and many more jobs.
These tasks are all important, but it’s not possible to be good at all of them. So, what can we do? The answer is specialization. Everyone in the hierarchy of real estate will need to specialize. The agent will specialize in lead conversion, advice, consulting and decision-making. The marketing director will handle lead generation, branding and growth. The transaction manager will coordinate the details of the transaction. And the brokerage will be tasked to oversee this efficient machine and continuously improve.
Here are some other areas where agents might choose to specialize:
The consumer experience expert: From the public’s point of view, this is the typical agent who gives advice, answers questions and guides the process from start to finish. Although this role oversees the details of a listing or buyer transaction, the consumer experience expert will not be the primary person handling the behind-the-scenes details. The shift here will be from the “do-it-all” agent to more of a “consultant and project manager.” Many of the details can be handed off to support staff, leaving agents the time and resources to focus on what we do best. We can handle more clients, take more time off and still net the same annual income.
Outsourced detail manager — one or many: Freeing the primary agent from the little details of a typical day in real estate is the key to success. This role could be performed by a full-service brokerage or an advanced transaction management company. The agent would need to have trust and confidence in this entity to handle the details and provide a system for communicating the status of these details.
Support team: In the new model, the support team handles all the details and systems, allowing the agent to focus on client relations, advice and guidance. The support team would be made up of licensed and nonlicensed staff members who each would specialize in a specific task or duty. New agents most likely would enter the business in this role and “graduate” to being a primary agent when their experience and knowledge reaches a tipping point.
What about commissions?
With more people in the mix, commissions will need to be shared to a greater extent than they are now. The primary recipients of commission will be the brokerage and agent. The brokerage will be responsible for staffing, overhead, accountability, marketing, lead generation, branding — and proving its value in order to recruit and retain agents. The agent will be responsible for customer satisfaction, lead conversion and revenue generation in order to show the brokerage a positive return on its investment.
Real estate is a service job, and with any service job comes inefficiencies. Even if a major market shift doesn’t happen in the immediate future, we should try to increase our productivity by asking for help.
Each of us can appreciate his or her special way of doing things, but the idea of specialization is as old as the Industrial Revolution. If we plan on surviving for the long term — and thriving once the Amazon model of real estate arrives — then this is an idea that must be embraced.
Greg Eckler is a former computer programmer who brings a fresh, analytical perspective to real estate. He founded Denver Realty Experts LLC in 2013.