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Will technology kill your real estate commission splits?

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One of next week’s “Provoke” panels at the Inman Connect New York conference asks the question, “Will technology kill your commission splits?”

You bet they will — if you’re not prepared to adjust your value proposition to fit the tidal wave of new artificial intelligence (AI) real estate tools that are already dramatically transforming our industry.

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The history of ‘technology replacing agents’

For close to two decades, tech gurus have claimed that advances in technology will increase the number of for-sale-by-owners (FSBOs) would drastically reduce commissions for most agents — and could even replace real estate agents entirely if sellers shift toward an FSBO mentality.

None of these predictions has occurred.

Instead, buyers often become so frustrated with all the online pictures, video and other data that they happily hire an agent to navigate the search process.

These technology advances have made it especially difficult for do-it-yourself sellers.

Because the big brokerages and premium agents snap up the top online real estate spots, FSBO listings seldom garner much attention. Technology has virtually eliminated newspapers as a means of marketing as well.

The result of this new technology has been striking: the 2016 NAR Profile of Home Buyers and Sellers reports that the number of FSBOs has declined from 21 percent of total sales in 2000 to only 8 percent in 2016, with half of these sales being intra-family transfers. In other words, only 4 percent of all sales were FSBOs who sold to a stranger.

How the agent’s value proposition is being transformed

The agents’ role as gatekeeper of the listing data has already been eliminated. As we move into 2017, AI will be making strides that will provide huge benefits to consumers while also substantially changing the agent value proposition.

For agents to earn their full commission in the future, they will have to redefine their value proposition for both buyers and sellers.

In 2016, buyer search tools such as Spatial Match and TLCEngine.com employed AI to evaluate hundreds of variables at a time to determine which houses are the best fit for buyers not only in terms of bedroom, bath and price, but also in terms of affordability, commute time and lifestyle. Buyers also can view a detailed picture of their cost of ownership now and in the future.

Moreover, technology is about to remove part of the “buyers are liars” issue when it comes to what the buyer really wants.

Like Facebook and other applications using AI feature recognition, tools like RealScout can now track the features buyers click on repeatedly as they search and then show them other options with similar features. Rather than relying on what buyers say they want, AI responds to how they act.

The result will be that consumers will be able to quickly narrow down which property is the best fit. In the very near future, virtual and augmented reality solutions will allow buyers to experience what the property is like any time of the day or season as well.

In terms of sellers, Zillow inserted itself into the pricing equation 10 years ago, and it continues to be a point of contention today during many listing presentations.

The next generation of AI-powered pricing tools is continuing to transform the pricing process. HouseCanary, Weiss Analytics — plus Zillow’s updated Zestimate program — not only give you more accurate estimates than ever, they also predict what the property values will be over the next five to 10 years.

Furthermore, the HouseCanary and Weiss Analytics tools also allow agents to use comparable sales that are several years old.

The algorithms update the values of every property in a given marketplace so the seller can see how their property compares to any other house in their neighborhood. They can also see if their home is predicted to increase or decrease in value.

The bottom line: The agent’s role in locating the right property and correctly pricing will be drastically reduced, if not eliminated entirely.

How to avoid technology killing your commission splits

There’s no question that technology will make the agent’s job simpler on the front end, and there may be downward pressure on commissions because of this fact. On the other hand, the real bulk of the work has always been on the back-end of the transaction.

Many owners tell agents, “All you have to do is to put a sign in the front yard.”

Sadly, our clients are woefully unaware of how much work the agent does to make sure that their deal closes above and beyond marketing the property, negotiating offers and keeping them out of legal messes by making sure that everything is properly disclosed and documented.

In fact, agents in certain parts of the country must take and document more than 100 different steps prior to closing.

This is where you must focus your value proposition for 2017 — on the problem-solving skills and experience that it takes to close the transaction.

To illustrate this point, a group of Japanese researchers who were attempting to create a robot intelligent enough to pass the entrance exam to Tokyo University made a fascinating discovery. According to Professor Noriko Arai, “AI is not good at answering the type of questions that require an ability to grasp meanings across a broad spectrum.”

Consequently, to avoid reducing your commission, embrace the coming tech changes, incorporate them into your existing value proposition, and then educate your clients about all the things you must do that the technology cannot do to close the deal.

That’s where your real value is.

Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, author and trainer with over 1,000 published articles and two best-selling real estate books. Learn about her training programs at www.RealEstateCoach.com/AgentTraining and www.RealEstateCoach.com/newagent.

Email Bernice Ross