You wake up the next morning and enjoy a fresh cup of coffee. Before you finish breakfast, you ask your virtual assistant to order a CMA for your two new listings, contact an appraiser, make arrangements for an inspection, and send a thank you bottle of wine to your last client. You smile to yourself as you finish your croissant, knowing that your VA will make sure that each task is a job well-done.
After a morning jog, you jump on your computer to look for new leads. Your Facebook marketing campaign nets you two new prospects. And, your lead generation service just found you a new client in town looking to sell in the next few months.
Your daughter comes up and asks if real estate was always like this. “No, honey,” you say while reflecting on the past. Your mind travels back to the old days.
“We used to make cold calls.”
“What’s a cold call?” asks your daughter.
“A cold call is when you call random people and ask them if they want to sell their home or buy one. You may not know these people at all and you would try to get them to hire you. Most people you call would either decline or hang up before you finish speaking. It was rough!”
“We’d also wander around public events handing out business cards and hope to run into someone at the grocery store who is looking to buy or sell a home.
Your daughter puts away her cellphone and stares at you with disbelief. “Wow, mommy, that sounds terrible!”
“It was. And when we weren’t making cold calls, we would drive around town with flyers and distribute notepads or pens on doorsteps. We’d look for bus stops to place advertisements. And sometimes we’d wait at our expensive real estate offices all day and answer phones, hoping that we’d find a new client during ‘floor time.’ It was agonizing.”
“Once we finally found a client, we’d take them around to 20, 30, even 40 homes before we hopefully found one that they liked. Before virtual tours, our clients had almost no idea what to expect in a house other than what they saw in a few small pictures. We wasted so much time!”
“And don’t even get me started on FAX machines!”
“What’s a FAX-” your daughter starts to ask.
“Shhhh, honey, it’s okay. FAX machines are gone now, they’re gone.”
After you drive your daughter to school (or, perhaps the car is self-driving, since this is the future!), you get a call from an online brokerage. They don’t have any physical offices, are high-tech, and take only a small cut from your commissions. They want you to jump ship from your traditional brokerage and join them. A year ago, you would have hung up without considering the offer. After all, you used to feel everyone needed an office and a big-name brokerage behind them.
Now, you’re not so sure.
You’re a top agent and you’re comfortable with technology. You don’t need the conference room, copy machine, or all the red tape. And, you’d sure like to keep your commission checks for yourself. Maybe it is time to consider the offer…
Don’t just hope for the best
The whole process of transacting residential real estate is nothing like it used to be. However, we still have too many agents, brokers, executives, and systems that are relics of the past.
There are still real estate agents who spend most of their time making cold calls, papering a neighborhood with flyers or business cards, and placing ads on bus stops and shopping carts. They’re FAXing out disclosures. They haven’t updated their website. They miss most of their inbound leads. And they keep track of old clients on outdated Excel spreadsheets.
These agents use “hope for the best” marketing. They hope that a home seller will see their ad at the grocery store, they hope that the next cold call will create a hot lead, and they hope that all their hard work will pay off.
How can these “hope for the best” agents possibly compete against a salesperson steeped in technology who can target a prospect like a missile? They can’t.
There are still brokers who believe they can charge successful agents high commission splits. They spend too much money on offices. And they waste too much time cultivating weak and underperforming salespeople rather than focusing like a laser on their top performers who bring in most of the business.
I have some bad news for these old-school brokers. Your best agents will leave, your underperforming salespeople will almost certainly not become rock stars, and you will never be able to charge enough for your photocopy machine to maintain your fancy office.
What’s more, too many real estate brokerage executives aren’t investing in technology. They’re not developing the tools and aren’t willing to purchase novel products from tech startups. They move too slowly when they finally embrace new technology. They maintain large portfolios of lavish offices and conference rooms even though clients would rather meet in their homes. They still cling to the belief that prospects choose an agent by their brokerage rather than the agent’s track record or advertising prowess. And they rely too much on their brand name and, therefore, don’t take seriously the threat posed by virtual or internet brokerages.
Brokers and execs will find that an increasing share of sales will be made by fewer and fewer top performers. Those elite agents will leave for greener pastures and smaller overhead at the online firms. These traditional brokers will be stuck with empty offices, high fixed costs, and a brand name that adds almost no value. If they don’t make some major changes, they may find themselves in the unemployment line next to executives from Blockbuster and Nokia.
Whether you’re an agent, broker, or senior executive: failure to adapt to modern technology will drive you into the ground.
Sometimes, when we are involved in a complex task day in and day out, we see things only from the inside. We assume things will stay the same, and we miss the change. After all, change appears gradual and peripheral.
It’s like looking at your kids. You don’t see any difference from one day to the next. But when your cousin Mary comes to town, she can’t believe her eyes. The kids have changed so much since her last visit! But you can’t see it. You were still focused on getting them to school and yelling at them to clean their rooms that you missed the bigger picture. You were too caught up in the day to day, and your kids grew up without you noticing.
Real estate has grown up too
The tools of the past like cold calls, untargeted advertising, spreadsheets, and ostentatious offices are worse than useless. They’re a waste, a drain. They suck your precious time and energy down a rabbit hole while you miss all the successful new tools and technology.
The game is changing and you’re missing it.
For years, we’ve had too many real estate agents. The trouble is, this is only going to get worse. As we discussed earlier, you’ll start to see the top agents vacuum up more and more of the deals. The power will increasingly focus at the top. In addition, as agents start adopting a more virtual presence, fewer and fewer agents will be needed to conduct the same number of transactions. They can, after all, be in more than one place at a time. Finally, a larger segment of homebuyers and sellers will start transacting using novel techniques which will bypass real estate agents entirely.
When you combine the preexisting excess of salespeople, the increased concentration of sales in the top echelon, and the decreased need for agents in the future, you’re going to have a lot of salespeople out of work and searching for a different job. The new reality will also squeeze brokers and brokerage firms as they squander valuable time and resources on folks who simply won’t make it.
The best-run traditional brokerages that invest in innovation and the top virtual brokerages will (likely) be safe. Internet brokerages have a marginal cost per associate of near $0. If an agent signs up with an internet brokerage and later leaves to become an artist or an accountant, the brokerage has lost little. However, when this same agent drops out of a traditional brokerage, the brokerage itself suffers from all the wasted effort cultivating this novice salesperson.
Taken together, the changes wro
ught by the combination of new technology, the consolidation of sales by the top agents, and the exodus of buyers and sellers from the traditional transaction process will be profound. Here’s what will happen:
● Agents: Salespeople will leave the real estate industry in droves. Although the barrier to entry in real estate is small, fewer and fewer people will be able to make a living as a sales associate. Those who do stay will find it increasingly difficult to work part-time. If they survive, they will likely be forced to become a top agent, take on a special niche, or find some technological trick to remain competitive.
● Top agents: You are the big winners. Your unmatched track record for closing deals and your sterling reviews are plastered all over the internet. Any homebuyer or seller who invests even 5 minutes researching their agent will stumble on you and insist on hiring the best. You’ll clean up the market as fewer and fewer prospects take a chance on an inexperienced salesperson and turn to you for security. Your mastery of technology and the automated office will enable you to handle more and more sales in less and less time. And, finally, your bargaining power with brokers and real estate firms will only improve. You’ll capture more of the market and retain a larger portion of your commissions. You will always be in demand, even in the world of iBuyers. Life is good for you.
● Prospective real estate agents: As the excess capacity of real estate agents becomes increasingly apparent, it’s likely that fewer and fewer folks will choose real estate as a career. Far too many new agents fail. For those who are still interested in real estate (and I hope that some of you will stay interested - since we need you!), perhaps you should consider a different approach and join or create a real estate tech startup, promote blockchain, or focus on a niche.
● Brokers: As the internet and virtual brokerages allow one broker to assist more and more agents, we also will likely need fewer and fewer brokers in the future. Brokers will also find it increasingly difficult to attract salespeople, since brokers will no longer be able to rely on their location, size of their offices, or their corporate brand name to attract teammates. It may easily become a race to the bottom for commission splits, and a race to the top for technology.
● Real estate brokerages: You’re no safer than the brokers. You cannot rely on your company’s famous name and respected reputation. Your prospects don’t care. Your large portfolio of offices will do you little good as most clients prefer to meet in their home or at a coffee shop, although I highly recommend you read Tony Vitale’s contrasting opinion. The trend away from offices will accelerate as Millennials gobble up more and more of the real estate marketplace. Consequently, your ability to squeeze high franchise fees from your brokers will evaporate. Unless you cut costs, embrace philanthropy, target a niche, and develop/deploy novel technology, you will face stiff headwinds competing against internet brokerages and the more tech-savvy upstarts.
● Homebuyers and sellers: Along with the top agents, homebuyers and sellers are the biggest winners. You can now research homes and neighborhoods from the comfort of your living room. You can easily identify and hire the top salespeople in their area based on past performance and online reviews. Rather than going to every single possible home, you will be able to tour properties virtually and reserve in-person visits only for the top prospects. And, most importantly, you will likely pay less and less to your real estate agent as real estate transactions continue to streamline.
Perhaps the most striking change of all will be the rate of change. Millennials love technology, they expect convenience and immediate results. They’re comfortable doing most of their business online and rarely feel a need to go out to stores or offices. They’ll expect virtual reality home tours, respond to social media advertising, and have no problem conversing with chatbots instead of real people. As Millennials represent a growing share of both the home transacting public and the real estate community, they will drive accelerated adoption of real estate technology and new business models.
As Millennials become real estate agents, they will naturally gravitate toward technology. Facebook, Snapchat, and Instagram ads will come natively to them. Using their phone to conduct business will be second nature. And, they won’t care about the old ways of doing things.
Millennial homebuyers and sellers will be equally irreverent to the old ways. They’ll expect everything on their phone (except actual phone calls!), won’t want to waste time on endless house tours, and they sure won’t pay a premium if their real estate agent hails from a famous traditional brokerage firm.
The path forward
To survive in the real estate business, we must adapt to these profound transformations or go extinct. Fortunately, the path forward is clear—even if it is not easy. Regardless of whether you’re an agent, broker, or senior executive, you must undertake three fundamental changes in order to survive in the new world of real estate. You need to embrace technology, expect lower commissions, and focus on winners/niches.
First, you have no choice but to embrace technology. It is well past the point when you can bury your head in the sand and expect everything to blow over. It ain’t going away. Now, you must learn to use the new tools. Social media marketing, chatbots, virtual and augmented reality, artificial intelligence, a real estate CRM, and lead-nurturing technology should become part of your arsenal. If you’re an agent or broker, I recommend that you start going to classes, read books, listen to The Real Estate Flash on your Alexa, meet with sales reps, sign up for blogs, and just try out various technological tools to see what works for you.
If you’re an executive from a large brokerage firm, the process of adopting technology is a bit more complex. I recommend that you attempt to create new technological platforms in-house, but also partner with tech companies and startups to explore emerging new technology. While you need an internal department that understands tech and works to integrate your tech tools, you also need the fresh blood and willingness to experiment that you’ll find with outside tech partners.
Your next challenge comes when you try to distribute this new technology throughout your enterprise. Do you force your different branches to use the new tools or make it optional? Do you purchase the new technology centrally or leave it up to the franchises? How do you review technological tools fast enough to get them in the hands of your front-line staff before they become obsolete? These are difficult problems and will require a high level of engagement from senior leadership. Consider working with innovative technological consultants like T3 Sixty for advice about how to spread technology throughout your organization.
Finally, we must all make peace with decreased commissions. The typical real estate salesperson’s commission of 5-6 percent originated back in the day when the transacting public was completely dependent on real estate agents. The average homebuyer or seller had no idea what their home was worth, had little to no idea about neighborhood comps, had no easy way of finding new homes, and buyers knew little neighborhood information such as school quality and crime rates. The public couldn’t access the MLS and could barely do any research. The public was nearly helpless.
Not anymore.
Now, the general public knows almost everything. They can do their own home value estimates. Heck, they can even ask their Alexa how much their home is worth![69] They know all the listed properties for sale in their target city. If a prospective homebuyer wants to see all the 3 bed / 2 bath condos over 1,500 sq. feet and under $800,000 in Long Island, they can do that in a flash. They know mortgage rates, crime rates, and all about that new shopping complex across town. In short, buyers and sellers can do almost everything themselves.
As a result, the transacting public will be increasingly wary of cutting their real estate agent into 5-6 percent of their deal. They simply don’t need to pay that much. And as the Millennials start controlling more of the purse strings, they will be open to new and creative ways to eliminate an expense they view as excessive. They simply won’t pay 6 percent commission on a routine transactio
n.
Therefore, real estate agents should expect that commissions per transaction will drop. This shift in commission rates won’t hurt top agents much, but it will profoundly impact everyone else. Agents lower down on the food chain will need to plan accordingly by either leaving real estate, lowering costs, or closing more deals. Under-performing agents will drop out of real estate as their income falls even further. The remaining agents will attempt to extract concessions from their brokers and brokerage firms.
Then, brokers will make less money per transaction, so they also will need to cut costs or increase sales. Brokers can accomplish both of those objectives by transforming into a ‘virtual broker’ with a mostly online presence. That way, they can manage more agents. Alternatively, brokers can convert their offices into a destination, as Tony Vitale suggests.
As for brokerage firms, their franchise fees will plummet. Brokers will no longer see the value in sending a bunch of their money to a franchise company. Brokers will realize they get little in return from the franchisor’s name, and they’ll insist on corresponding reductions in charges.
As the dominos fall, most brokerage firms can expect a drastic drop in revenue per transaction. As a result, they, too, will need to cut costs or increase sales. This will likely be achieved by shedding physical real estate, reducing employees, and investing in technological tools that will retain the best brokers. In fact, useful technology might be one of the few remaining carrots that most real estate companies will be able to offer their brokers.
All of these changes will ultimately accelerate the drive for more and more technology. The agents need tech to reach more and more clients since their revenue per client will drop; the brokers need tech to attract and manage more top agents and to cut costs; and the real estate companies need more tech to attract more brokers. In short, real estate technology will be weaponized.
Finally, professionals throughout the real estate food chain will need to focus on winners and niches. As discussed in the Agents chapter, the bottom 80 percent of salespeople won’t be able to tackle the top folks head-on. Instead, they should opt for a niche or angle—survival through specialization. Target a very narrow property type, buyer, geographic region, or area of technology. Own a small segment of the market and you’ll be okay.
Real Estate at a Crossroads Page 28