Reader Question: Hi Monty. I recently read an article in the Wall Street Journal titled “Are Real Estate Agents Dinosaurs?” I am a real estate agent in Iowa. The article kind of scares me because I am fairly young and I didn’t realize the industry was in such tough shape. I am curious as to whether you agree? Pat S. – Des Moines, IA
Monty’s Answer: Hello Pat. You are the first to ask me about current events in real estate. I had not seen the article until you wrote. People have their own opinion, and I respect that fact. However, after reading the article, my opinions are decidedly different from the quotes in the article.
My focus is bringing attention to consumers on DearMonty.com about ways they can navigate the real estate process successfully, so I want to condition my comments as being strictly my opinion. I am not an expert on the future of real estate.
That being said, my opinion is the future of real estate brokerage is extremely exciting and very sound. You have nothing to worry about in this area. I believe there are a number of reasons for this.
According to the US Census Bureau there are 131,000,000 households in the United States. Sixty Five percent are homeowners so that suggests there are about 85,000,000 homes in the US with that number growing every year. As real estate is an “immovable object”, I do not see these homes going away as the typewriter did.
There are many studies and surveys published over the past 25 years concluding the consumer knows little about buying and selling their homes. Here are examples of an article and a study to consider. My own experiences in the field bear this idea out. I believe there is a variety of reasons this is true. All of these reasons lead me to believe agents will be in realty for a long time. Here, are some of those reasons:
- Most families only move 3 or 4 times in their lifetimes. I believe they do not remember the details of each experience exceptionally well. It is similar to learning to use a new software program, if you do not make the keystrokes regularly until they become rote, you forget them. Consumers turn to people who are doing this every day, not once every 7-10 years.
- The real estate transaction has evolved into a series of linked transactions that culminate in the passing of title. It is not just one transaction. There are multiple steps each of which involve conflicting skills sets. There are different levels of training and individual competency provided by vendors of the related services along the way. Real estate is a lot more complicated than it was in 1980. When a process is as complicated as a real estate transaction, most people seek help.
- While it is true the internet has allowed the consumer to search for data quickly, the unfortunate part of evolution here is the quality of the information. In my opinion, real estate information suffers from one of the largest information gaps on the internet. I believe much of the information is shallow, misleading and in many cases it is simply wrong. I believe this dis-information contributes to the continued “dumbing down” of real estate consumers. Simply stated, the real estate road to the passing of title is full of potholes and, when you hit one, they are often darned expensive and frustrating to fix. When people are not confident about what is going on around them, they tend to seek help from someone who does know.
These are just some of the underlying observations I have made that cause me to believe the brokerage industry is alive and well.
Regarding some of the comments in the WSJ article, I do agree the consumer has discovered the power of technology, but I see a different trend. Technology is helping the agents by providing them more time to focus on the customer. What I see happening is that when the consumer narrows the search down on the internet and contacts an agent, they are much further along in the process than in years past. Also, the agent can also deliver pinpointed reports to those customers in the blink of an eye, if the customer knows enough to ask.
Another change occurring in society is people being busy with jobs, children, community, sports, etceteras. They do not have the time nor the inclination to learn all things necessary to save a commission. When I have spoken with people who have sold without an agent many are not able to identify the savings, only the work. Consumers have always begrudged fees. Not just real estate commissions. I can think of many businesses where that feeling holds true. Currently, consumers may be more sensitive to commissions with all the real estate market correction publicity. But, I certainly do not see any shift in human behavior because of it.
Will commission structures continue to evolve? There have been many fee options in real estate for years. Every industry, including real estate has pressure exerted on it. It comes from competition, regulators, consumers and innovators. Most, but not all of them driving ways to improve both service and the bottom line. One of the beautiful features of free enterprise is constant change, so I expect over time agent pay will continue to evolve.
Will there be even more changes? Certainly. The agent ranks have traditionally fallen during recessions. Many people in the industry see falling membership roles as an example of Darwinism. Will innovation influence the length of ownership terms? Will technology advance to the point where one points a wand at a home, and it calculates an accurate range of value? No one knows what the future brings.
So for right now, real estate’s future looks extremely positive to me. I hope this gives you another perspective to consider, Pat. Thanks for writing.