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.