The State of the Industry

An exclusive roundtable on where we are and where we’re headed
An exclusive roundtable on where we are and where we’re headed

By Maria Patterson

From new competitors to new agents to new consumers, there’s no doubt?change is upon us. In RISMedia’s newly released report, An Industry in Flux: Real Estate’s Leaders Weigh in on Where the Market is Headed Next, experts discuss the biggest issues and challenges facing today’s real estate industry. Following, an exclusive excerpt of the report and a forthright look into tomorrow?s reality.

How does the proliferation of new business models stand to impact the future of the traditional real estate brokerage?

Jim Sherry: Any industry with as many in-place players as we have tends to react very slowly. Traditional brokerages seem to be more focused on doing a better job on what they have always done than in looking for ways to innovate on their businesses to meet the evolving consumer’s demands. It will take a number of years, but many of the traditional brokerages will perish and/or emerge as vastly different businesses.

Alex Perriello: The marketing message of most of the new business models in the real estate industry is that they can save consumers money by charging lower commissions than traditional brokerages. Let?s face it, if someone offers a low commission rate and the house doesn’t sell, what have you actually saved? Most consumers will understand that?the higher fee may be well worth the investment.

Steve Ozonian: The Internet forever changed the way people approach the process of homeownership and that has allowed new business models to evolve. Some of those new business models, the ones focused on delivering better service and products to customers, are likely to survive.

Pam O?Connor: Competition is only a threat to non-performers. The Chick-en Littles have been touting their demise for decades, yet traditional brokerage firms still dominate the industry. Why? Because they understand?contrary to what the pundits say?the need for change. All of these ?new models? have one thing in common: they have forced good brokerage firms to rise to the occasion.

Brian Buffini: With all the changes coming at the real estate industry, I think the single most important question a company must ask itself is what kind of agents and customers does it want to serve. Any company that doesn’t have that clearly defined will continue to be tossed around like a sailboat in a storm.

Stefan Swanepoel: History has already validated that new business models can shape the real estate industry. Safe to say that models with a strong online ability, a strong consumer driven focus, offering a large selection of services and choice at a lower commission, will most likely emerge as a major force.

Harley Rouda: Information is everywhere now and services that provide consumers convenient access to data are important. However, consumers should be aware that data found on the Internet may not be complete, factual or timely, therefore making a knowledgeable real estate professional in a home-buying or -selling experience more valuable than ever.

Is our fear of banks and other ?outsiders? entering the real estate business valid? Should this come to pass, how would it really affect the traditional broker?

Bob Moles: I have never been one who thought that banks in the business is a bad thing. There are 26 state-chartered banks that can be in the real estate business and that’s not a detriment to anybody.

Dave Liniger: Banks controlled 80% of the real estate business in Canada when RE/MAX opened its first office there. Today, RE/MAX alone is approaching 40% market share in Canada and banks have less than 20%. Anyone who thinks banks can sell real estate more economically than real estate professionals is an idiot. When was the last time you got world-class service from your bank?

Ken Jenny: Be careful that you understand just who ?is afraid. NAR does not represent the impression of the brokers as it relates to banks in real estate brokerage. If banks are allowed into real estate brokerage…and I believe they should be?traditional brokerage firms will have the opportunity to exit with style. Enter the long-awaited bundled services offering the consumer has requested for years.

Alex Perriello: Let me ask you, when was the last time you or anyone you know bought stocks, bonds or insurance from a bank? Banks are good at doing one thing, and that’s banking. The bigger concern is that for federally chartered banks to get into the real estate business, our industry would have to be reclassified as a financial service and require federal government regulation and oversight.

Steve Ozonian: Personally, I’m tired of hearing about this issue. We shouldn?t be concerning ourselves that a bank?which is a loosely defined word these days?is going to have any more significant effect on the business than the large financial institutions that are already in the business.

Is the surge of new licensees into the real estate business creating industry overload? Should we have stricter barriers to entry?

Harley Rouda: Over the last five years, there has been no improvement in agent productivity and approximately half of all agents did one or no deals last year. On the other hand, low barriers to entry have allowed people to enter our business and make a decent living. Rather than stricter barriers to entry, making it tougher to keep your license may be a better way to eliminate part-timers and non-producers.

Pam O?Connor: Absolutely. Unfortun-ately, organized real estate’s revenue model is based on bodies (licenses), not performance. Until that changes, our own industry is in fact supporting a ?dumbed down? one-size-fits-all business model in which the consumer pays the same thing for the two-day licensee as for the seasoned agent.

Brian Buffini: Absolutely not! This industry needs fresh blood, insight and ideas. The barrier to entry needs to remain low, so that the promise of America can be fulfilled in such an entrepreneurial spirit. However, the standards to stay in the business need to be radically raised. Companies that tolerate non-producers in their culture unintentionally make that part of their brand.

Dave Liniger: Is the industry overloaded? Yes. As for barriers?artificial barriers should not limit competition, but most of us would like to see much higher standards set for those entering the industry.

Ken Jenny: It takes more than 600 hours of classes to be able to be licensed to offer a facial treatment to a consumer…and for a real estate license? The vague code of ethics in real estate should not be the justification for the lack of required training necessary to represent a seller or a buyer.

Jim Sherry: The problem in this area is that we do not offer a high quality service. The consumers have no guarantee that someone called a Realtor will actually know what they are doing. The number of Realtors would be significantly reduced by just demanding high standards of business conduct.

Stefan Swanepoel: There are unquestionably too many licensed real estate agents and the barriers to entry are unacceptably low. More extensive and higher quality education and training would be a positive step in improving the quality of entrant, the level of ultimate consumer service and the overall image of the real estate agent and industry.

Are the majority of agents equipped with the skill sets needed to succeed in this business? If not, what should we be doing as an industry and as managers to ensure their success?

Jim Sherry: If it is a majority, it is 50.000000000000009%. There are many well qualified agents in the business. Unfortunately, the consumers cannot tell the difference.

Organized real estate is intent on bringing in as many ?recruits? as we can. There is a place for anyone with a license and the ability to pay association and MLS dues. Give us your tired, your poor, your huddled masses, and we will find room on the wall for yet another license.

Brian Buffini: Management gets what management acknowledges. Man-agement focus needs to be about helping agents cultivate a long-term perspective toward their business by building relationships with repeat and referral customers. This produces agents that are building business for the future instead of encouraging the transient nature of the current real estate agent.

Pam O?Connor: Probably not. If we put the same effort into screening and hiring independent contractors as we do for salaried personnel, the productivity of our sales forces would rise dramatically and the damage done by incompetent agents would be largely mitigated.

Bob Moles: The short answer is no. Less than 10% of agents are doing 80% to 90% of the business. This speaks volumes. It’s incumbent upon brokerage firms to come up with innovative training programs to assist new licensees.

Dave Liniger: Absolutely not to the first question. Membership in the National Association of Realtors has swelled to 1.2 million. If you take out the real top producers who are each doing 20 or 30 transaction sides a year that leaves 400,000 to 500,000 licensees who are closing virtually no transactions. Basically, the non-producers are giving the true professionals a ?black-eye.?

Will there be an evolution and ?democratization? of the MLS systems? If so, what would the pros and cons be for the industry?

Dave Liniger: The consolidation of MLSs is continuing. Technology is making it possible to have major regional and/or statewide MLSs. These advances are an excellent benefit to top producers who used to pay several fees for placing the same listings in multiple MLSs.

Ken Jenny: The MLS industry is simply a travesty. The rules and policies of the MLS are outdated and do not match the need now for a more competitive sales environment. The objectives of the MLS industry have never been further away from the objectives of the residential brokerage industry. The data assets of the industry need to be owned, managed and operated by the rightful owners of the assets?the brokers.

Bob Moles: There are over 800 MLSs in this country. I don’t know how many we need, but I know we don’t need 800?it’s not a technology issue, it’s a political issue. We will see future consolidation that will provide better service to brokers, agents and ultimately consumers.

What will be the most significant changes to the real estate landscape as the market normalizes over the next few years?

Brian Buffini: As market times lengthen, cash flow becomes a significant issue for the individual agent. Agents need to be trained and supported in how to manage personal and professional finances so they can skillfully navigate the peaks and valleys of their income.

Terry Morris: While we may experience localized or short-term dislocations, demographics dictate that the demand for housing will continue to rise. Business pressures on small companies whose offerings are limited to brokerage will increase as consumers demand a more wholesome experience that wraps the entire transaction.

Jim Sherry: I think the bubble we all speak of is really an investor bubble. Many of the ?new breed investors? are not capable of absorbing the cash outlay that will be required to take delivery of these units and sustain them while they attempt to flip them in this much slower market. Another outcome might be the builders, in an attempt to keep the investors, reducing the prices to make staying with the investment less painful. In all these cases, the net result will be overproduction and lower prices.

How are the changing needs of consumers affecting how real estate business is traditionally conducted? How must real estate professionals evolve in order to meet the needs of contemporary consumers?

Terry Morris: At the heart of the current marketplace, a more-experienced, more-sophisticated consumer with a growing variety of choices is putting tremendous pressure on traditional real estate agents to justify their full commission. Agents themselves must be technology savvy, committed to quick-response communication, and believers in and users of the company?s own transaction-related services.

Steve Ozonian: Once again consumers have weighed in and, because of their use of the Internet, want information delivered directly to them. They want more and more choice and power related to decision making in the transaction.

Alex Perriello: Brokerage companies and agents need to change their mindset about providing information to consumers on the Web. I am appalled when I go on a Web site and see a $1 million property with one photo and two lines of copy. Ten-year-old kids selling baseball cards on eBay are doing a better job marketing online. Consumers want to see multiple photos, virtual tours, maps, and detailed property and community information. Providing that on every listing should be the rule, not the exception.

Brian Buffini: Years ago, we kept all the information, and for many people that became the value they represented to their clients. Today, the information is freely available. Agents must learn how to communicate their value differently.

Jim Sherry: The consumers want more data, which they are getting. They want more freedom to look at inventory, which they are getting. Real estate brokerages and agents must serve the consumer in ways more reflective of what the consumers want and demand.

Bob Moles: Consumers are expecting the Realtor to be more tech savvy.

The consumers are substantially younger and those folks are the ones preparing themselves with the use of technology.

What should we be doing?both as an industry and as individual professionals? to streamline and simplify the real estate transaction process for consumers?

Ken Jenny: Deregulate the business of real estate?take all control of the data, the technology, the consumer experience, the transaction and the professional standards out of the control of organized real estate?NAR, the state associations and the local boards.

Steve Ozonian: We ought to make the pricing models that we use simple to understand and offer transparency up front. We ought to make the cost of delivering the service a transparent event and then charge a fair profit.

Terry Morris: We are introducing a new transaction management system in which all documents are made available electronically from purchase agreement forward. This will tighten up the communication chain, saving time for our sales associates and customers/clients, providing timely awareness of the status of the transaction, and ensuring greater accountability to an on-time process.

How should real estate firms be realigning their marketing strategies?i.e., moving from print campaigns to online?to more effectively reach consumers?

Alex Perriello: First of all, you need to know where your business is coming from and then allocate the appropriate marketing dollars to the most efficient media outlets. With well over 70% of home buyers using the Internet to search for homes, it would seem apparent that the Web deserves a relevant piece of that marketing spend.

Pam O?Connor: Print is still a useful tool to drive consumers to Web sites, but simply advertising online and learning how to drive traffic online are only part of the challenge. Progressive brokers understand that the Internet is about marketing and customer service, not just technology.

Harley Rouda: Getting out of print is number one. A lot of agents in our markets are finding little return on print advertising. You have to go where the consumers are…and they’re online.

Bob Moles: We’re migrating out of print?about 30% a year over a three- to-five-year period?to online, and driving all print advertising to our Web site. Clearly, this is happening because the average age of the consumer of real estate is going down.

Dave Liniger: Successful real estate companies cannot disregard any aspect of lead generation. The requirement to utilize print, radio, television, mail-outs and online advertising has increased the cost of being in the real estate business.

Terry Morris: Real estate marketing has always been about exposing the seller’s property to the largest number of qualified buyers, which today is best achieved through the Internet. While print advertising still has a place in the media mix, outdoor, broadcast and online advertising are more effective and cost efficient at driving traffic to the Web site and building company image.

Jim Sherry: Consumer research. Know what the consumer wants and how they like to be served and do it. Know what is important to them; what makes you more valuable to them, etc. Most of our industry is inwardly focused. Little regard is given to what the consumers actually want and need.

If you could change one thing about the real estate industry overnight, what would it be?

Pam O?Connor: Impose much higher entry standards to qualify for a real estate license. This, coupled with intensive post-licensing education, would have far-reaching effects on the entire business in so many ways.

Terry Morris: The face we present to the consumer should emphasize our knowledge, our commitment and our integrity. Too often, it portrays real estate professionals as more concerned with the trappings of wealth than the welfare of their customers?which is not accurate.

Dave Liniger: Eliminate those 50% of the licensees who are not truly serious about this business and do nothing to improve themselves, the industry or the quality of their services.

Brian Buffini: I would love to see an industry at all levels that thinks and plans long-term relationally instead of short-term transactionally?from the company itself to agents to management to clients.

Stefan Swanepoel: That we as a fragmented industry cooperate more effectively so that we can collectively transform ?real estate agents? into a more respected, skilled and proficient profession.

Ken Jenny: More power to the brokers. They are the foundation of this business and they are the sole source of the organizations that are positioned to actually serve the consumer of real estate services.

Steve Ozonian: To get the industry to act like one industry instead of a bunch of different industries.

Harley Rouda: Convince every homeowner they live in the wrong house and need to move!

The above editorial is excerpted from RISMedia’s recently released report, An Industry in Flux: Real Estate’s Leaders Weigh in on Where the Market is Headed Next. For more information on receiving this report in its entirety, please visit rismedia.com.

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