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.
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