Gearing Up For Summit

The Help-U-Sell Success Summit takes place next week in Las Vegas.  It’s an annual event where family members from across the country gather to energize and plan.  I love this meeting because it is the time when I get to interact with a sizable group of really good real estate people.

I’ve been working on my opening comments and it seems this year I have a lot to say.  I believe we are on the verge of big change in our industry.  I can see everything shifting rather quickly leaving all but the bravest and most forward thinking out in the cold.  I believe what happened in the securities business after Charles Schwab and what happened in the travel industry after Expedia Orbitz and Travelocity is about to happen in the real estate industry.

Empowered consumers, armed with information that used to be available only to Realtors and with increasingly intuitive tools are doing more and more of the job for themselves.

When Schwab put information and tools once reserved for stock brokers online for anyone to use, he also slashed commissions.  Because his clients were doing a lot of the work on their own, he started charging a Low Set Fee for trades.  The industry was transformed.

Not so in real estate.  Consumers have the information, they continue to get the tools and today do more and more of the work that goes into buying and selling on their own.  What hasn’t changed are the fees ordinary brokers charge.  My yoga teacher said it best:

I don’t know what our agent did.  We found the house, we negotiated the sale, we did all the running around.  She opened the door and collected a commission check that was bigger than our down payment!

I’m not saying Realtors aren’t important.  In truth, they provide a good and valuable service.  It’s just that the service provided is not worth 6% of the sale price.  With consumers increasingly able to do the work themselves we’re just moments away from the tipping point where they decide the good and valuable service real estate agents provide is not worth the price.

It  is then that ordinary real estate agents will become irrelevant.

Add to that dynamic the fact that affordability is becoming a huge issue . . . and you have a near perfect storm.

Affordability?  Yes.  Today, fewer Americans can afford to buy a home than in years gone by.  Prices have continued to slowly rise while median household income as fallen.  Yes, it has.  Today’s families earn less than they did 5 years ago and that fact has pushed many out of the housing market and  into the rental market.  In parts of California, fewer than 30% of the population can afford to buy the average home.

So on one hand we have these dinosaurs, these Realtors, clamoring for their 6%.  On the other hand, sale prices (which include that 6%) are getting out of reach of consumers. Something has to give.

My guess is that the guy who can’t sell his $300,000 house and  pay his $18,000 real estate commission will opt to get rid of the ordinary agent, drop the price to $285,000 and list with a Help-U-Sell broker charging, say, $5,950.  That’s how we make homes affordable AND restore the value-for-value relationship between real estate services and fees.

Coming Soon to a City Near You: The Affordability Crisis

It’s starting to show up in pockets across the country – growing pockets.  Most people can’t afford to buy a home.  We are becoming a nation of renters.

In parts of California, fewer than 30% of the population makes enough money to afford the average home.  The effects on the real estate market are predictable and real.

What has caused this situation?  Two things.  First, the slow but steady increase in values after the real estate collapse. After plummeting between 2006 and 2012, values have been rising.  We had a brief period of huge increases but that has settled back to a more sane 3% – 5% a year.

The other factor – the one nobody wants to talk about – is a corresponding FALL in wages.  All across the country, median household income is down from where it was five years ago.  Here, in San Diego, the decline is 6.3% – $61,426 vs $65,575 in 2009 – while in Phoenix the decline is closer to 10%.

The only metro with positive growth is Pittsburgh.  Those lucky Pennsylvanians experienced a 2.1% increase in median household income over the past five years.

It is an election year and it would be easy to become very political in a conversation about why wages in the U.S. are falling, but that is not our purpose here.

Looking forward you have to wonder if we’re not headed toward another drop in prices.  If people can’t afford to buy houses and houses need to be sold, something must give.

But this is also the type of climate that sometimes produces innovation.  Perhaps a new wrinkle in real estate financing will enable people making less to afford more.  That’s what happened back in the early ’80s.  Houses became un-affordable because of a huge run up in interest rates.  Lenders responded with Adjustable Rate Mortgages, marketed as temporary financing.

In addition, there would appear to be a big market for affordable housing, and the construction industry will certainly respond.

But for the average American needing to sell a house . . . the future looks murky at best.

Of course, the way to make your home MORE affordable is to reduce the price.  And one way to mitigate the impact of a price reduction on your net proceeds is to drop your high priced, percentage based real estate broker in favor of one charging a much lower Set Fee.  Clearly, a price reduction is going to hurt a whole lot less if, instead of paying your broker $18,000 to sell your $300,000 house, you’re paying a low set fee of, say, $4,950.  Where do you find such a broker?  At Help-U-Sell.  Use the link to the right to find an office near you.