Real estate brokerage is no easy business, and it’s likely to become even harder in the months and years to come.
If we were Realtors, we’d be worried. Really worried.
The National Association of Realtors now numbers 972,000 members and the total is fast approaching 1 million. That means there are more Realtors in the United States than ever before and more are joining the ranks every day. More Realtors means more competition, and that means competition will be fiercer, more cutthroat, less ethical and at times even illegal.
More competition used to mean more realty salespeople chasing the same buyers and sellers with the same commission rate and essentially the same services. But today a percentage point or more has been shaved off that commission rate and the gentlemanly philosophies of “we all do the same thing” and “we’re all in this business together” are less often remembered, much less honored.
The housing market boom strengthened existing alternative business models and created opportunities for new ones. Many of these models are designed deliberately to put pressure on real estate commissions.
The Help-U-Sell fee-for-service model and the Assist-to-Sell discount model have prospered in this environment. Both chains have opened more offices in new locations and while not every office has succeeded, sellers have noticed and alternative brokerage for-sale signs have popped up in neighborhoods around the country.
Discount brokers and flat-fee MLS-only services have flourish on the Internet. A Google search for “MLS $499” returns plenty of examples: FloridaFlatRateRealty, MLSListingNetwork, Americas-Real-Estate, CharlotteFlatFee, Insight-Realty, GoneHomeMLS, and the list goes on.
For-sale-by-owner Web sites now have an established presence on the Web as well. Owners.com, ForSaleByOwner.com and the like are the online equivalent of the FSBO for-sale sign or newspaper classified advertisement, but with a difference. The Internet aggregates FSBO buyers into a market opportunity that sellers, mortgage lenders and the FSBO Web site operators can tap.
These alterative services won’t all survive, especially if the housing market softens. Nor will all of their customers successfully sell or buy a home without paying a market-rate commission or without a real estate broker.
But even if all the alternative business models eventually crash and burn, they meanwhile will put downward pressure on realty commissions. Sellers aren’t dummies. They know house values have skyrocketed. They can research their options, and they can do the math. Let’s see: 5 percent of $258,000 is $12,900. The flat-fee MLS option costs $499. Say, what? Yes, the seller will have to hold an open house and negotiate with the buyer. And maybe the sale price will be a few thousand dollars less than it would have been with the services of a broker. But the seller still will come out ahead financially when the transaction closes. And the savings mount for higher-priced house sales.
Brokers and salespeople face pressure on the expenses side of the profit-and-loss statement as well.
Consider Internet marketing. Start with domain name registration, Web site design, maintenance and hosting, search engine placement and a few Google adwords. Throw in a Realtor.com presence and it all adds up, doesn’t it? Realty pros aren’t buying every service in the online marketing store and these expenses can generate business that otherwise wouldn’t have been obtained, but each additional dollar comes off the bottom line unless it’s subtracted from elsewhere in the budget. Those who came late to the Internet marketing party have no presence online and the cost is now higher for them to make themselves known.
And by the way, those old-fashioned print newspaper advertisements aren’t as cheap as they used to be, now that publishers have discovered the housing boom and turned the real estate section into a cash cow.
Then consider the referral and lead generation fees that now are attached to a higher percentage of transactions. Whether the broker pays another broker, an independent relocation company, a franchisor with a leads-rich Web site or a so-called “third-party” lead provider, it’s still money out the door for a new necessity that wasn’t much of a factor a few years ago.
The Internet hasn’t disintermediated realty salespeople along with stock brokers and travel agents. Indeed, brokers and salespeople aren’t in danger of disappearing from their vital and crucial place in the home sale transaction. But 1 million competitors, alternative business models and Internet-empowered buyers and sellers will continue to put pressure on the traditional brokerage model and its hefty commissions.
So, how can traditional brokers and salespeople save themselves from the seemingly inevitable doom of harder work for less profit? Experienced practitioners have a significant advantage over newbies in the business. But beyond that, the solution is innovation. Rethink the business model. Create a new competitive advantage. Kill some sacred cows. Take a chance.
What’s your strategy for success?
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