In the Name of Service

While the real estate industry has never been drama-free, it’s extra saucy right now, and that will not likely settle down anytime soon due to the repercussions of the NAR settlement. And now, the infighting has begun. Brokers and agents are starting to sue NAR over membership requirements. Brokers and agents are suing websites, portals, and NAR over the allegation of promoting and selling ‘bogus’ online leads. A discount brokerage is suing NAR, and the complaint alleges that the defendants, including members, violated antitrust laws and conspired to boycott lower-commission competitors.

At some point, we will hear about more client/agent lawsuits that may erupt over compensation disputes. Issues around steering will likely create legal action. There is and will be a lot of finger-pointing. It seems people feel like they have to lay the blame for this mess somewhere. NAR needs a complete overhaul, and maybe these lawsuits will force that. Eventually, the lawsuits and the commission compression will coerce agents and brokerages out of the business.

While attorneys want to make a lot of money by retooling the practice of real estate, at the same time the government doesn’t want to kill the American dream. They want people to buy homes, and it has been proven that they need help doing so. Homeownership creates stability and drives the economy.

The illusion of riches.

The old saying, ‘You can’t get blood out of a turnip,’ applies here. Lawsuits may make people feel they are getting some redemption, but they typically only serve to make the attorneys rich. Will these suits change industry behavior? Absolutely. Unfortunately, instead of monitoring and evolving, the industry allowed outsiders to come in and change the model for us. But there is only so much money to go around. Contrary to popular belief, there aren’t coffers of riches in real estate brokerages' basements.

This is from an article in Housing Wire, “New data from real estate accounting software provider AccountTech shows that brokerages with profit margins of 3% or less run the risk of falling into the red with even a minor decline in commission rates. More than half of the brokerages analyzed had margins that fell between a 3% profit and a 3% loss. In its analysis, AccountTech found that the number of profitable brokerages analyzed rose from 60% in the full calendar year of 2023 to 62% in the first half of this year. For profitable brokerages, the average operating profit per agent was $294 per month, while for unprofitable brokerages, the average operating loss per agent was $214.”

Based on this study, it appears that about 38% of real estate brokerages are currently operating in the red. Many brokerages have tied in ancillary services and company-generated business lines that help support the business's brokerage side. But for those that haven’t expanded their service offerings, these stats say we could lose half of today’s brokerages with only a slight overall commission reduction. Maybe that’s ok in the grand scheme of things. It could be said that we don’t need as many agents or brokerages. But that means job losses…lots of them. Good support staff who work hard and are in it for the right reasons will be out of work.

Why we do this.

While the illusion of big money and a flexible schedule may draw people into the business, service usually keeps them in it. When you peel back the layers, the heart of real estate comes down to service. And that service translates into providing the American dream of homeownership. A home is where we raise our family and make our memories.

Investing in real estate makes sound business sense, and the byproduct is owning something we can call our own. It is an outward symbol of success and belonging. It creates a framework for our lives, with each memory tied to that place. I can envision my childhood home so vividly that it is as if I were there yesterday.

Nothing is more rewarding than seeing a family light up on a moving day. It may be the first time the children have their own rooms or a backyard to play in. People move for a variety of reasons, and many times, it is attached to a life-changing event such as a marriage, divorce, growing family, retirement, death, or a job. But whatever the reason, it starts a new chapter that will forever be a part of that family history.

Real estate agents are essential.

I wonder if people will have the same desire to choose real estate as a profession in the future. We have an aging agent population and the current environment will clean house of the hobbyists. It is up to us to help people see the value that real estate professionals provide. Real estate agents provide an essential service. There is a reason the percentage of FSBOs is very small. Very shortly after COVID began, most states deemed real estate professionals as essential.

We must find a better way to mentor young talent and give them the financial support they need to get started and build a solid practice. While essential services may typically fall into the ‘saving lives’ category, essential means necessary, and we need people to see the real estate industry as a noble and necessary profession.

What will the agent of the future look like?

One of the best things brokers and NAR can do right now is figure out a way to attract young talent to our industry and ensure they have what they need to earn a decent living wage. We have to eliminate the misnomer that practicing real estate is easy. It’s hard, but it can be gratifying. But very few young people have the means to live for a year without income and pay for their own benefits and business expenses.

A quote from an Oprah Winfrey commencement speech, “What will your essential service be? What really matters to you? The fact that you're alive means you've been given a reprieve to think deeply about that question. How will you use what matters in service to yourself, your community, and the world? Well, that's for you to discover.” It’s up to us to help young people see a profession in real estate as a viable path.

As new real estate company models begin to pop up, they will likely be low-cost for the consumer. That’s great, but if those who provide the service can’t live on that wage, we have a bigger problem. If the brokerage can’t make enough per transaction to offer support services like training, technology, accounting, marketing, and legal, agents will be left to fend for themselves, creating even more challenges for the industry and the consumer.

These changes mean stepping up professionalism and educating consumers about the value real estate agents provide. But to preserve this profession, our industry is tasked with rebranding so that young talent will choose this life of service. It’s up to us to help them see its value and provide the roadmap.

 "Clarity is freedom. Know what is important to you and it will grant you the freedom to ignore everything else."~James Clear, Author, Atomic Habits