Brokerages And Teams Are Adapting To Challenges

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FIRST PERSON | IGNORE THE NOISE

While it‘s essential to pay attention to what‘s going on, for the most part, leaders need to ignore the noise and formulate their plans for remaining viable and competitive going forward.

I don‘t recall a time when there were more challenges to the residential brokerage industry, nor when more broadcasters were talking about them constantly. Among the big topics: The advance of technology and the massive amounts of capital flowing into real estate tech; the rise of the iBuyer phenomenon; the moves by Zillow and Realtor.com away from an ad-based revenue model to referral-fee based systems; litigation in the form of challenges to the ’cooperation and compensation system,‘ as well as continued challenges to the independent contractor system for the employment of agents; the rapid growth of teams, and the challenges of low inventory and reduced affordability leading to declines in existing home sales.

In our 33 years of reporting on real estate brokerage industry trends and news, I don‘t recall this much noise all at once. Not that the noise is unimportant, for these issues are having impacts on the brokerage business, but it does seem that too many brokerage leaders are following that old maxim of “when all is said and done, more is said than done.” There is too much talk and not enough focus on how to adapt to these challenges.

I have heard numerous experts who are far smarter than I share with audiences of brokerage leaders, agents, and teams, that the fundamentals haven‘t changed that much. From our research with Harris Insights, we know:

  • Housing consumers still prefer using agents, even Millennials and Gen-X.
  • The majority of housing consumers still find and select an agent based on a relationship, whether direct or via referral.
  • Housing consumers respect the commission-based compensation system where everyone gets satisfied when a closing happens.
  • Not all agents make their decision on where to work based on what the commission split or fee system is (otherwise they would all work for the lowest cost brokerage.)

We know all these things. What else have we observed? Based on the performance of brokerages ranked on the REAL Trends 500 and Up-and-Comers, we know:

  • A majority grew their closed sides over the past five years above the rate of growth of existing home sales.
  • Many did so organically—that is without an acquisition.
  • Through our extensive valuation work, we know that, while brokerage gross margins have declined, they don‘t have much further to go downward.
  • Profit margins have shrunk but remain positive for leading brokerage firms.

So, while the voices talk about all that is going on, leading brokerage firms, agents and teams are still growing their businesses, serving housing consumers in much the same way they always have and are adapting to the new challenges facing the brokerage industry.

While it‘s essential to pay attention to what‘s going on, for the most part, leaders need to ignore the noise and formulate their plans for remaining viable and competitive going forward.

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This article originally appeared in the October 2019 issue of the REAL Trends Newsletter. It is reprinted with permission of REAL Trends, Inc. Copyright © 2019. To read the rest of this issue & more, please visit our Real Trends page online.

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