-Paul Balzotti, owner and broker with John L. Scott Real Estate Bellingham on the industry changes and the new value proposition.
On October 1st, the Northwest Multiple Listing Service (which serves most of Washington state) will begin sharing the buyers agent commission split offered on listings to the public. The Northwest MLS is the first MLS in the country to start this.
The general public behavior when commissions start being posted on websites like Redfin and Zillow won’t change over night…but this is still something that will slowly but surely change the dynamic of the Real Estate transaction.
In addition to this change in the Northwest MLS, nationally Wall Street is spending millions trying to get involved in the Real Estate transaction through what is called I-Buyers. These are “instant offers”, with the biggest names involved being OpenDoor & Zillow. These are usually low ball offers with similar fees (or higher) then Real Estate agents charge.. So since they generally don’t pencil out. In fact 99% of the I-buyer offers on-line are rejected. Still, it’s a business of lead capturing for companies like Zillow. The model is: 1) Advertise “we will buy your house” 2) Collect consumer information. 3) Sell that information back to Realtors in exchange for 30-40% of the Listing brokers commission. And the bummer here is you have a middle man created where a middle man is not needed. And it’s taking money out of the local markets where these Real Estate transactions are happening.
In a nutshell, the average Realtor has anxiety right now about their business (Real Estate commissions) being in jeopardy, or at least being squeezed.
So you may be surprised to learn that as both a Realtor who actively sells, and a franchise owner of a Real Estate firm, I find all of this pretty exciting…Yes, I really mean it!
The Real Estate industry has been due for more disruption. It’s an industry where anyone can get a Real Estate license in a couple of months on-line for $500, then immediately get square in the middle of helping someone make the biggest investment of their life. So with the changes that have been happening and are happening, there is really 2 directions Realtors can (or will be forced) to go in:
About 20% of consumers want to pay the least possible for service. Right now, companies like Redfin have only about 3% of the market share. But this new lower fee, transactional model is poised to grow. And so many brokers will have to go into a low fee model to survive in the business. My prediction is more and more will actively choose to work in a low fee low service model, or be essentially pushed into a lower fees by doing 90% of their business by on-line referral (buying Zillow leads).
But research shows about 80% of consumers are willing to pay for premium service and expertise. Especially when it comes to Real Estate, where most consumers realize the lowest fee does not necessarily mean they will NET more money and a better experience. Most people understand that the Realtor you hire can effectively help you sell your home for more money, or negotiate better terms on your contract–and in fact also make the experience easier. Buying or selling Real Estate is unquestionably an extremely stressful and emotional transaction for almost everyone. That is not changing.
There is also a human and social element to how most of us do business. People want to do business with people they want to do business with. So when you have a relationship with a Realtor you know and trust, most consumers will continue to be willing to pay a extra to have that trusted advisor by their side.
The truth is, there is a lot of Realtors that have managed to still make a decent living, never really stepping up their services, or spending more money on their marketing. That’s just not going to be a sustainable way to do business anymore, period.
As someone who grew up with parents in the business, I have always looked at this industry with total esteem. I’m proud to be a Realtor, and I’m proud to be part of an incredible company with top notch brokers at John L Scott…And quite frankly, I hold many Realtors and other firms in my own community in just as high of regard. This is an industry with some incredible people in it, many who are passionate about making a difference in their clients lives. Many of these Realtors earn every penny of what they make. It’s a tough business with no benefits and no guarantees.
And while the cream usually rises to the top, there has been a lot of room in the middle for mediocrity. So what I love about the new shifts going on is this will in fact weed out many of the brokers that have not been adapting to industry changes.
Here is the new requirements of being a full service (charging premium rate) broker:
Hyperlocal expertise: Neighborhood comparable sales and automated home values (Like the Zestimate) allow everyone now easy access to the information on what homes are available (and solds). So as a Realtor today, you no longer need to share the information, you need to STUDY the numbers…AND be actively immersed in the market. You need to provide additional insight for your client. That is key to help the client make better decisions and negotiate.
Contract expertise: Sloppy contracts, poor transaction management, and just being responsive (but not pro-active) is no longer acceptable. Full commission service also demands contract expertise and being truly organized –with systems in place from list to close, or purchase to close.
5 Star Service on every transaction: Realtors have long thought that if they could write up the deal and answer the phone when the client called, they were really stellar at their jobs. Well that’s worth about 1% now, not 2.5 or 3%. This is now becoming even more of a SERVICE industry. The buyer and seller have the information and can automate more and more of the process. Therefore to be worthy of a premium commission, Realtors need to provide 5 star service, anticipate issues and get in front of them. Brokers must find meaningful ways to step up to enhance the experience and make the contract, the negotiation, and the sale process as stress free as possible for the buyer or seller.
Marketing: When listing a home, it’s now inexcusable not to be hiring a professional photographer and actively marketing the home to targeted buyers. Some brokers are still taking their own pictures and just listing the home, and maybe doing an open house. Social media marketing, target marketing, videos/drone when it enhances the listing…basically spending extra money and extra effort to truly market the sellers property… that is a requirement now.
New brokers will require more training before selling: New brokers have traditionally been “faking it until they make it”. That’s not going to cut it anymore, and it shouldn’t. Why has it been okay for Real Estate agents to take a Washington state license exam–where all they learn about is state laws….and have them out immediately working with buyers and sellers on the biggest investments of their lives? Yes, everyone is new at some point, and many new agents come in with incredible experience (former loan officers as an example). Some may be quick to figure it out. And many as newbies are super motivated and will provide incredible first rate service to their clients. Still these new industry changes will make it very difficult for these new brokers to charge a full commission without being fully trained first.
Technology will be more important then ever. Tech tools are enhancing every aspect of the buying and selling experience. Agents need to be keeping up with the latest tools, and mastering them to better serve our client’s. Being a “techie” is not really critical.. But being able to engage in the online and social media world will become more and more important.
So it’s exciting…because it gives us a chance to up our game. Without question, every bit of effort we put into additional training and additional services, will separate ourselves from the pack.
It’s going to be a chance to be part of the new movement of what it means to be a full service Realtor. The job has changed, and John L. Scott Real Estate Bellingham is ready to lean in.