Real Estate Industry in Chaos...Is There Opportunity?
The real estate industry seems to be in the middle of a perfect storm. And on the surface, there doesn’t seem to be anything good about this storm…or maybe there is. The market was already struggling due to the aftereffects of the pandemic and we are still recovering from the strain on the supply chain. Brokers and agents rode the unexpected wave that spurred people to move who had no intention of doing so only months before. Interest rates are continuing to rise and global inflation is out of check. The Sitzer/Burnett class action buyer broker commission lawsuit is in full swing and to top it off, the National Association of Realtors is being rocked by a very public scandal. Not a great day to be in real estate or relocation for that matter.
But when you look at these challenges from 30,000 feet you can see there might be some opportunity there. I’m not talking ambulance chaser stuff, but when we get lemons, let’s make some lemonade or at least rise above it and carry on and make some fundamental changes to the benefit of everyone involved. It’s time to rethink everything.
The economic struggle.
There is nothing we can do about what is going on in the economy, it will run its course and eventually will course correct…it always does. Of course, we don’t know when that will happen, so that is a little scary. Corporations are cost-conscious due to the uncertain economic environment and are still struggling with how to manage the new work-from-home situation. Transferees are hesitant to move. All of these factors have significantly slowed down relocation opportunities.
People aren’t really moving unless they have to. But eventually, people will grow accustomed to the interest rates just like they did in the 80s when they were 15%+ and people still bought and sold homes. Life goes on and people want to own a home. They downsize, they have babies, they get married and they get divorced, moves still happen.
The NAR debacle.
I have never been a member of NAR. I have had my real estate license since the late 1980s, but always used it in a capacity as an employee and hanging with my company. I have never practiced real estate in the open market or was a member of a Board or MLS so I was never an active member of NAR. So I definitely don’t have a peek behind the curtain of what the value is we get from that organization. Besides their lobbying efforts, I can’t see that it offers a ton of value. Yes, it sets ethics standards which it clearly didn’t think the people at the top needed to follow. It has bloated boards and committees that seem to be for show.
I know brokers can use the logo and there are tools, training, and products that members can access. And there is national advertising, but honestly, the general public doesn’t know if a real estate agent is a member of NAR or not, so what does it matter? I am pretty sure they aren’t offering any cutting-edge training or resources that couldn’t be had through a large brand or network. So this day of reckoning seems overdue. If I’m missing some great value, let me know.
It’s sad that the NAR employees had to be the ones to suffer through all of this bad behavior and The New York Times to bring this dysfunction to light. Our own industry publications were so scared or blind to put any pressure on the association that they were left unchecked for years. It is time for a complete overhaul of the organization and that means cleaning house completely. Start over as if it were a new organization for the current real estate environment and economic times. Look at the need and not in the rearview mirror. People can join if it brings them value, not because they have to. Create smaller committees that actually do something and hold the leaders accountable. And don’t make decisions based on a vote of the membership or at the sole discretion of the leadership, but based on what makes the most sense for the members for the future and those they serve. That means an exhaustive independent examination of what will move the organization and its members forward. I wish the person/people luck who take it on, they are going to need it.
The class action lawsuits.
The Sitzer/Burnett class action buyer commission lawsuit is wrapping up its second week. I’m not going to explain the case because I assume anyone reading this knows what it is about. But what is has revealed is that the public never has really understood how agents and brokers get paid and why. I can only assume the way commission is structured was created back in the day because it allowed the buyer, who often struggled to save enough for a down payment, would not have to pay for the agent’s services. The seller benefited from the proceeds of the sale, so why shouldn’t they pay the entire commission? If the buyer becomes responsible for their side of the commission or fees, it will put additional financial pressure on buyers for the short term furthering the already challenging market. Eventually, there may be a culture shift around the expectations, but it will be a long road at a difficult time.
I’m not sure what will change as a result of this suit, but something definitely will. If you look at other countries, they have wildly different pay structures for agents. I have always marveled at why an agent who sells a $100,000 house is paid so much less than one who sells a million-dollar house. They work just as hard. When we get to unique, very high-end, or hard-to-sell properties, I understand compensation differences. It’s probably not a bad thing that the entire compensation structure and how it is disclosed is being revisited.
The fact that several of the big broker defendants are settling tells me they are uneasy about the outcome and public perception. Since NAR is a named defendant, it doesn’t help the industry that they are a part of this suit considering the current optics around them.
The rough part is that the jury and the public are only seeing what is being portrayed as the dark underbelly of the industry at this point in the trial. The attorneys are showing videos of industry leaders talking about how to get a specific commission. Yes, the commission is definitely negotiable, but does the public really understand that, and if they do negotiate it, might they get subpar service or their property shown less? If we as an industry don’t do a good job of explaining why and how agents and brokers do what they do, then that’s on us. Some of the changes that are happening, such as not allowing agents to sort listings by commission amount, are positive.
There is a lot of internal material and training from a myriad of sources to support the dialog around trying to get a specific commission amount. But it makes good business sense, brokers want their agents to stay within what they perceive is the acceptable commission range. In defense of the practice, they can’t run a business if the expected compensation is suddenly cut by the agent on a regular basis. It’s tricky enough as it is based on varying price points of the homes sold. When dealing with independent contractors who have control of the fee structure, it can be hard to know how to project revenue as a broker-owner. I read many comments from the public on one of the articles about the suit, they were brutal. The public clearly doesn’t understand it or care how it all works. There is a perception problem out there and a lot of it comes down to the lack of transparency.
This may be the straw that breaks the camel’s back for many broker-owners or agents. If the compensation structure changes radically, it may be a long road to a culture and procedural change. And some may not have it left in them to weather these changes.
So what does this mean for relocation departments and the professionals who run them? Here are some strategies to get in front of what is going on.
There may be a lot of agents leaving the business. Make sure you have an effective license-holding referral company in place to keep them referring their past clients to your firm. The key here is ‘effective’, not just a place to dump licenses.
Create local affinity programs to tap into loyal members of organizations, associations, or employers. Develop comprehensive real estate solutions surrounding all aspects of the move for the group so their members have a trusted local advisor who will be transparent and offer rebates and discounts built in as allowable by law.
There will likely be many unrepresented buyers flooding the market. Train a group of agents to understand the available Housing Assistance Programs and various mortgage options. The more help we can offer buyers at this time, the better. Market those assistance services and educate the local media, particularly the first-time homebuying public, on your available programs to help consumers buy. Wouldn’t it be great if assumable mortgages came back? That would take an act of Congress, literally.
Broker-owners may sell or merge their companies. Make sure you have your resume and LinkedIn up to date. Ensure your department is doing everything it can to bring in new sources of business and referrals. Does leadership know the value you bring to the bottom line? Trim expenses to be as profitable as possible. You need to be ready, no matter what happens.
Educate your corporate and RMC contacts on this class action lawsuit and how the outcome may affect them. Are they prepared to completely change their policies to cover buyer brokerage fees? The reality is that compensation structures, agreements, and disclosures may end up varying state by state which means they will need our expertise more than ever.
Sadly, there are likely to be some relocation companies that may not make it. The challenges I have discussed above are weighing heavily on the RMCs. There have been lots of layoffs and we see them branching out into affinity and other business lines. I believe we will see some mergers and closures in the next few years. Don’t put all of your eggs in one basket. Make sure you get some from a lot, not a lot from one. And don’t let them come into your local market to create affinity programs. You are the local expert and should be delivering those services directly.
Ensure your place in the supply chain by ensuring your service delivery is rock solid. This is no time for mediocre service. People and companies have a lot of choices and know that others are vying for your business at all times.
Proactively speak with your relocation agent team to get their take and feelings about the potential changes to the industry. Brainstorm with them how to navigate and communicate with the relocation customers about how agents get paid and the value they bring.
Discuss with your local customer base how agents get paid. It is best to address the suit proactively than to act as if it isn’t happening. Transparency is key.
Think about what you will do if the commission pay structure changes. Plan for the worst and hope for the best. Services offered to the buyer will be more important than ever. It may mean more disclosures, buyer agency agreements, or commissions paid to the listing agent as a referral fee. Let’s face it, not every agent puts in the same effort to sell every house or with every buyer. We may turn to a more value-based pricing structure. By working with your attorneys and leadership, we can have a strategy in place that will keep us out in front of the competition if and when the changes do happen.
It is an opportunity for relocation departments and their leaders to become front and center in creating new sources of revenue and changing the way we interact with those buying and selling real estate. These challenges must be looked at individually and not based on the thought ‘How can we fix what we have been doing?’. We need to look to the future and reimagine how we do business to create sustainable revenue and income while meeting the needs of those we serve.
“The sprawling, powerful trade group can be secretive and cultish. If you don’t volunteer, you are shamed. Criticize the beast, and you are ostracized. Leaders and employees who speak out are often isolated and criticized for not following the NAR script. NAR has never faced more tricky market, political, and legal issues.” said Brad Inman, journalist, author, entrepreneur, and founder of several media companies including Inman News regarding the National Association of Realtors.
