An exchange with Mike Farmer in the comments section of this post over on Homegain triggered some thinking on my part. The Reader’s Digest version of what went on before:
- Louis thought there was too much hype about marketing, and not enough attention on the craft of being a realtor.
- I responded that one reason was that there isn’t much of a craft to being a real estate broker, and that the ones I respect were more of a consultant than a realtor.
- Mike thought it presumptuous of someone who has never brokered real estate to reduce the job of a realtor down into only brokering deals, adding:
The advent of the information age doesn’t make agents and brokers less useful, but more useful in a more sophisticated market where information needs to be filtered through specialized knowledge to create a competitive edge for consumers. Not only as consultants do we earn our money, but through all the actions taken to create profitable and hassle-free transactions. However, I wouldn’t mind sitting in a cozy office and giving advice all day.
- Whereupon, I responded that filtering information through specialized knowledge is the essence of consulting, and clarified that pure brokerage — matching buyers to properties — is not valuable in the Internet era.
But that raises a related set of questions.
- If “brokerage” (herein defined as “matching buyers to properties”) is the business that realtors are in, then what are their future prospects, if any?
- On the other hand, if “brokerage” (herein defined as “matching buyers to properties”) is no longer the business that realtors are in, then what is?
As to the first question, in my mind there is no doubt that the purely transactional brokerage is going the way of Republicans in academia: rare, despised and getting hounded out of existence. The one thing that the computer is insanely good at doing is matching things up by a whole matrix of qualitative and quantitative metrics. Really, when you think about it, a realtor even in the pre-Internet era derived much of her value from being the human operator of a computer network — the MLS. (Well, at least starting in the Computer Era — I know some folks still remember the Book.)
The analogy I drew was to the travel industry. There is little doubt that the traditional travel agency business of booking tickets for consumers was decimated by the Internet. This little study (PDF) by the Small Business Administration was written back in 2001, but remains illustrative, since that industry was getting hammered right from the start of the Internet era. (A funny stat: the SBA study in 2001 estimated that only 30% of travel will be booked online through 2005; according to this article, quoting Forrester Research, 68% of travel was booked online in 2005.)
I think Mike agrees with that big picture statement: if you are in real estate, but all you’re doing is putting listings into websites, and putting up yard signs… your future looks dim indeed.
But I don’t believe the future looks dim for real estate, and for realtors. If anything, I think the future looks bright. It requires a fundamental shift in thinking about what service a realtor actually provides, but that shift has been ongoing for at least a few years.
Go pick any random agent website and read about their self-description. It usually says something like, “I’m an expert on the market. I can help you understand what to do, what not to do, avoid mistakes, and maximize your sale price. Or, if you’re a buyer, I can help you get the best deal possible with the minimum of hassle.” (That the last two statements are in conflict is another matter for another day.)
So let’s agree that pure transactional brokerage is probably not the business that most realtors are in today, shall we? (There is an exception for ultra high end real estate, by the way, as there is in any brokerage type of industry — see, for example, private placements.)
Because that still leaves the more interesting question. If brokerage is not the actual business, then what is?
Is it Sales & Marketing?
A good argument can be made that it is — but what do you do about buyer representation then?
Is it Project Management?
Many agents I’ve personally spoken to over the years thought this was one of their biggest jobs — making sure the transaction goes through smoothly. That requires coordinating a whole bunch of people, most of whom don’t work for the realtor, like attorneys, appraisers, inspectors, mortgage brokers, etc. etc. to get the transaction done. That sounds an awful lot like project management.
Is it Psychological Counseling?
A few agents talk about how their value is in making clients feel better about the process. Assuaging their fears, having tough talks with them to bring them back down to earth, instilling sanity, etc. Buying a home is a pretty stressful process — selling one, even more so.
Is it Financial Planner?
The purchase of a home is usually the largest investment any family makes — a strong argument could be made that the realtor’s actual business is financial planning.
Is it Consulting?
While the term “consulting” is often too-broad, in this case, I mean specifically that the realtor has specialized knowledge and training unavailable to otherwise intelligent and highly accomplished laymen. For example, a heart surgeon is probably pretty darn smart and knows a lot of things. But he doesn’t know squat about land use regulations, mortgage financing, and the effect of termites. Nor does he know much about what’s going on with the market, what is and is not a fair price, and so forth. The realtor does (or should).
Never having been a real estate broker myself, I really don’t know the answer. I can prognosticate and opine, but that isn’t the same thing as an answer. If you are a realtor, I would love to get your take on this, and perhaps I can formulate an answer at the end of the learning process.