The Power Shift in Mobility
Lately, there has been a lot of talk about transparency in the real estate and relocation industry. I like transparency. Anyone who knows me knows that I am pretty transparent. You pretty well always know where you stand with me, for good or bad. The changes from the NAR settlement and lawsuits have created a power shift, forcing more transparency around pricing and performance, ultimately leading to better service delivery.
Do the right thing for the consumer.
I have recently been traveling more, and a few things on a recent trip struck me. I was staying at a Marriott, and only one restaurant was open for breakfast. The breakfast buffet was $25, and every dish on the made-to-order menu was also $25. They made it pretty clear they were getting $25 a head no matter what. But what was particularly annoying is that they added a $4.50 ‘service charge’ and had a line for gratuity. Literally, the only thing the waitress did was bring the bill and a glass of water. I got everything myself. So, it’s not $25. It’s that plus $4.50, plus tax and gratuity if you choose to offer that up. Not very transparent.
Uber is another one that has upped their game on junk and hidden fees. I have noticed that sometimes when I try to call an Uber, it requires me to ‘schedule’ it even though I want it right now. That way, they can charge a scheduling fee even if it is four minutes after the current time. They not only charge the actual trip fare but also a booking fee, scheduling fee, ‘Access for All’ fee (whatever that is), airport surcharge if you are going there, and, in California, a CA Driver Benefits fee. Then, of course, the tip is calculated on all of the above, not just the trip fare. So, my 17-mile ride to the airport was $34.14, but it cost me $80.67. Not ok. I am definitely switching to Lyft, which may not be much better. Until they get more competition, they will continue to gouge the consumer because they can.
Not long ago, I passed through the Houston airport on a connection. I hate going to that airport because I always feel it is out of the way to anywhere I am going, except maybe Houston. But I had a long enough layover to grab some food. I quickly realized that every single sit-down restaurant in my terminal was managed (and I think owned) by the same restaurant group. The prices were all artificially inflated because they had no competition. I stopped at several restaurants to find one that wasn’t ridiculously overpriced. I would pay $18 for a tiny, watery, spicy margarita and at least $24.99 for a very average small flatbread or any like entree, no matter which restaurant it was in. The consumer literally has no options for a reasonably priced meal at a sit-down restaurant at that airport. Conversely, I paid $14.99 this week for a fabulous flatbread, similar in size, at the Detroit airport because there was competition.
We could all list many more examples like the ones above. The airline industry has become the latest target of government oversight regarding hidden and junk fees. It is a 106 billion dollar industry in the US, and even though we have a choice between several airlines, all airlines have established very similar models and pricing without any previous oversight. They brought it on themselves. Companies know when you don’t have a choice, and they take advantage of it.
The irony of it all.
I guess that is why I find the accusations about agents and how they are compensated ironic. The plaintiff's attorneys used words like ‘cartel’ in their case. That one made me laugh out loud. There are 1.5 million Realtors in the US, which equals about 1.5 million ways each agent might price and articulate their services. While brokerages may set parameters or exception rules by which they would like the agents to operate, the agents typically do whatever they want because they are independent contractors.
You can throw a rock and find a discount brokerage or agent willing to handle a real estate transaction for significantly less than what is average in their market. I understand that a home purchase has a far greater price point than an Uber ride. However, the buyer has never had to worry about compensating their agent in the past, so there was no need for a discussion about it. That, unfortunately, made buyer’s agents a bit lazy regarding how they articulated their value. They just didn’t need to do it. The transparency regarding who pays what is a healthy dialog even though it is putting a huge strain on the buyer pool, which is already struggling to afford homeownership.
The trickle-down effect.
The lawsuits and the NAR settlement have a significant trickle-down effect on the mobility process. Honestly, it is not so bad that it will ultimately reshape the industry. I don’t like that the buyer has to come up with the funds to pay their agent, and everyone may make less money, and it may cost the corporation more to relocate talent. But I like how it is changing our industry to be more transparent and engaged. We have pulled back the veil of secrecy and are back to working as a team.
Here is what I have observed. The power has shifted:
Our industry association, WERC, has begun engaging more actively with suppliers again. I don’t think any supplier group, particularly Relocation Directors, will dispute that their voices had all but been ignored unless you were a sponsor. The conference sessions focused primarily on content for the corporate attendees, much of which was centered on international mobility. Very few representatives from brokerages were attending. They would fly in and out for RDC. Let’s hope this isn’t just a situation born out of crisis. I hope the suppliers will remain a part of the discussion and the subcommittees will continue. We are a much healthier and well-rounded industry when all parties matter equally and have a voice. That’s the way it was at the beginning of my career. It certainly feels like the new leadership is taking the organization in the right direction.
Relocation Management Companies provide a critical service in the mobility process. There is more pressure than ever on them to have counselors who can effectively explain to the transferee what their policy does or does not include and how it might affect their homebuying process. The RMCs must also effectively counsel their corporate clients on the potential land mines ahead. Ongoing engagement with their preferred broker network is vital. With the changes from the settlement, their revenue model no longer makes sense. Instead of continuing to charge the corporations for services rendered, competition forced them to undercut one another throughout the years until no fees were charged. Some even share revenue back to the corporation. Instead of charging for their services, they continued to raise referral fees to the real estate provider. Some referral fees are so high that they are approaching nearly half of the transaction revenue with minimal effort or liability on their part. It’s time for the RMCs to revisit how they price their services, particularly since we will likely see some commission compression affecting their revenue.
Corporations weren’t really concerned about how the revenue flow worked with their down-line mobility suppliers, and I understand why. As long as the RMC did their job, it wasn’t their concern about how everyone got paid. The corporate representatives need to understand exactly how each party gets paid and what they do for that. Their budget and the need for exceptions depend on it. That means having open dialogs about where the money goes so they can protect their suppliers, transferees, and budgets.
Support services like settlement services/closers, lenders, and tax advisors are critical in this journey. They are all affected by the settlement changes and will be vital in helping us gather data and maneuver through the changes ahead as we settle into the new normal. They will probably identify trends before any other providers as they will have a cross-section of patterns representing various clients and markets. We need to engage with them and listen to them closely.
Transferees will experience frustration and anxiety if a clear roadmap isn’t laid out for them before the relocation process begins. Corporations must be prepared for failed moves and elongated home search timeframes if they have not created clear policy and exception scenarios. We might start to see commission negotiated as part of their job offer in the interview process with new hires. We must preserve the employee experience and get the best talent, even if it costs more to do so.
Real Estate Agent selection has never been more critical. It is time to stop messing around with the requested agent situation driven by the transferees. If they haven’t already done so, Relocation Directors should evaluate and trim their agent teams and engage with them one-on-one to ensure they are up for the task of articulating their value and what that is worth and then delivering it. The need for professionalism has never been higher.
Relocation Directors and Brokerages are bearing the brunt of these changes. RDs and their staff must carefully facilitate the new processes with the RMCs (and their clients), the transferees, and agents. Many have had significant budget cuts and staff reductions during the last several years. The good news is that people are turning to these professionals to determine how to navigate these changes. Trends won’t likely be nationwide; they will be market-by-market or state-by-state. That will reinforce the need for continuous communication with all stakeholders. And I have to say all brokerages aren’t the same. Some may not make it through all of this. Commissions and revenue will likely be affected at a time when knowledgeable staff who can guide everyone through these changes is critical. RDC is working double time to engage and inform their members. You can’t go wrong with an RDC member.
There has been a power shift to distribute the duty of care equally among all providers. It’s time to openly engage in a collaborative way as we navigate the uncertainty ahead. If we are flexible and open-minded, we just might reimagine our industry for the better.
I hope you will let me know if I can help you in any way, no matter what sector you represent. As a neutral party, I have gotten excellent feedback on the presentations I have given on potential solutions and repercussions from the NAR settlement changes. I’m here to help.
