Tue 12 Dec 2006
Russell Shaw writes brilliantly on Zillow and disintermediation of real estate agents by digging up some old quotes of by Rich Barton.
Says Barton:
““People want Realtors,” he said. “But is it rational to pay Realtors what they are paid?” He says he thinks they are overpaid because customers are doing more of the work themselves.
Zillow, for instance, has a number of other features that do the work of the agent. Someone wanting to compare properties can use pull-down menus to estimate the value of remodeling projects that are not reflected in the price. Because of the Internet, agents are spending less time with clients, Mr. Barton said. “Agents have to ask, What kind of value am I adding?”
Mr. Barton does not exclude the possibility that the role of the agent, and his site, may change.”
As Mr. Shaw points out, Rich Barton wants us all to earn less, but he is willing to let us keep our jobs. At least for the time being. That’s so nice, isn’t it?
According to this article in The Wall Street Journal,
“Mr. Barton said major change in home selling is inevitable over the next five years or so because “there’s an unsustainable disconnect” between the commissions charged by most agents and the value of their services.”
So they’re going to let us keep our jobs, but apparently, they’ll be the ones deciding how much we should make.
There are so many new real estate sites out there now. Some have ties to brokerages, such as Blue Roof and Redfin. Others are disconnected to any actual real estate sales, but serve as portal sites to sell advertising, such as Zillow and Trulia. Others are “skimmer” sites, that try to sell leads to real estate agents, such as HouseValues, Homegain and RealEstate.com.
Most of these new businesses are not started by real estate brokers or anyone actively involved in real estate. Or if they are, the founder/brokers are soon fired, asked to leave or bought out. Most of the founders and CEO’s are business school graduates, software engineers, venture capitalists or have backgrounds in high-tech. They had nothing to do with real estate and chances are don’t now either. They could just as soon be selling widgets as real estate, and the ads or leads they sell could be for cars or computers, just as easily as they are for real estate. Again, it doesn’t matter to them.
Taking a quick look at these companies information, 100% of them were founded by men, and, by looking at their mastheads and “about” pages, most are run by men.
And isn’t it funny that, according to the National Association of Realtors, a majority of residential real estate agents are women.
A lot of these women have entered the workforce after their children are grown. They are people-people, not strategists, not computer programmers, not business school grads. They are attracted to the business for a variety of reasons but if you ask them, a lot will say they like to “help people”.
So, I can just see these Real Estate 2.0 guys sitting around a table talking… “We went to Harvard Business School and are only making $XXK a year and these real estate agents just went to some public university or even worse, a community college, and are making just as much as we are! And most of them are the same age as my Mom! Let’s use our superior intellect and design a better website and skim their customers off the top and then sell their clients back to them, for a price!”
Are these business school and IT grads going to schlep around from house to house in the evening and on Saturdays and Sundays, in the rain, perhaps with the Buyers kids in tow, week after week, month after month, searching for a dream home? No. But real estate agents do it, and those business school grads and real estate repackagers and website designers and computer programmers want a cut of the agents labor.
What stupid women! Silly housewives! They should have been busy learning html and computer programming and search engine optimization and java script and stuff like that, instead of driving people around to look for their dream home!
These Real Estate 2.0 managers and CEO’s want a cut of the agents labor, in the form of commissions. But one thing everyone should keep in mind is that if you don’t make it worth an agents time to be available 24 hours a day to go run out and preview the latest listing or to write up a sales contract or hold a first-time buyers hand through the whole sales process, the good ones will leave the business and you’ll be left with those not up to the task.
One can’t buy a house over the internet like one can buy a book or a new IPod or a pair of slacks. Someone has to get the Buyer into the house, probably into lots of houses, over the course of many weeks or many months. They have to be tour guides, educators, counselors, financial advisors, entertainers, sometimes babysitters, negotiator, and friend to many people. To say that has no value is wrong.
The subtext of what these “real estate repackagers” are saying is that the average real estate agent makes more money than she deserves, and they want a cut of the pie. And they know how to get it, by building websites to lure the new, young buyers who are entering the real estate market and who are used to researching and ordering everything online.
I don’t have a ready answer to this or a solution except to urge active brokers to keep up with technological advances as much as possible. Inevitably, the wired buyer will migrate towards the wired agents. However, there will always be those who require and need the assistance of a warm caring “people-person” to assist them in an important financial decision. Agents have a responsibility to keep themselves educated to deliver service and value in this changing marketplace. The business may change naturally as the agents and the customers and clients move through life. The average real estate agent is right around 50 years old. Yes, about the age of someone’s Mom. And the business will change. But to continually harp on the idea that these women (and yes, I know, some residential agents are men!) don’t bring value to the real estate transaction is underestimating the value that many do bring through caring and compassionate assistance on one of life’s important decisions. I don’t want to reduce this to a sexist or ageist argument. It’s more about a morphing business culture in the face of technological change and how best to adapt to these changes. But none of these advances and changes exist in a vacuum and there are real world consequences and meaning behind all parties actions, and it’s just something to keep in mind as we move through the process.
December 12th, 2006 at 8:26 pm
To me they have been extremely sly. When they first surfaced at Inman Rich Barton said agents would be their customers so they should relax. I think he meant relax agents so it will become easier to become disintermediated.
December 13th, 2006 at 3:54 am
excellent post. As much as I believe that the Internet is an essential part of a REALTORS® marketing process, there is no substitute for the one on one interaction, that goes on between agent and client, when it comes to finding the right home for a buyer. This is also true for selling homes because there is so much more to selling a home than just putting up a sign and accepting offers.
Our jobs as REALTORS® is to make the process seem easy and stress free, even though we tend to work exceptionally long hours and with few days of, or holidays to speak of, and our stress levels can be very high due to the uncertain nature of the industry and how we are paid. There is nothing like knowing that, if you don’t bust your butt, you may not have a pay cheque for months, if ever, to increase your stress levels.
It is true that the general public is doing more of their own research. However, this often makes our job as educators even harder because of all the poor quality or incomplete information that is available, such as Zestimates that tend to be significantly over or under valued. There is much more to real estate than a few statistics that can be pulled up on the Internet, and tips that work in one area may not be beneficial in others.
Thanks for your great post:)
December 13th, 2006 at 4:05 am
About 6 years ago during the first Internet rage, the Internet was going to put Realtors out of business and everyone was going to go FSBO. The stats, as I understand it show that FSBO sales have remained at about 20%. You have your “do it your selfers” and your full service types. I think in many respects this will remain true.
However, I know my clients are all over these websites and they expect me to be also. So I agree, it is critical to stay up to speed on technology and Internet marketing and incorporate it into how we market - it is a basic requirement of being competative.
As an agent I have to develop new dialogues for selling against the Zillows of the world. For one, I see 10 or more houses in my area, Ann Arbor Michigan, a week, I know these properties and heighborhoods and factors which affect value and I can get a client up to speed and find an appropriate property for them in a hurry. I have a few war stories as well about people who bought homes “on the Internet” and now are not so happy when it is time to sell because they didn’t know to consider many facts that affect value.
So I am comfortable that real estate professionals that know their market and stay up to speed on technology do add value and are worth every penny they are paid.
Andy Piper, Ann Arbor Michigan
December 13th, 2006 at 10:39 am
I agree that some of the “feminine” skills are underestimated by the tech heads.
However….
I’m 36. What the hell is a housewife?
December 13th, 2006 at 10:31 pm
A housewife is what we would call a “stay at home mother” today.
I could go on about the masculine/feminine debate but I belive that kind of talk just continues to divide the genders and perpetuates stereotypes.
I know plenty of business men who are sensitive and caring and plenty of businesswomen who are intelligent and agressive.
IMHO the tech heads aren’t missing feminine skills, they just like to converse in their own language. Case in point. Go read the latest post by Galen on raincityguide about his new deal ShackPrices.com and then watch Ardell jump into the boy geek party.
I heart tech geeks.
I believe the path away from agent disintermediation by tech companies includes reformulating the value of the real estate agent as a professional.
This means:
Raising the barrier to entry by requiring higher educational standards
More continuing ed
Higher prescribed agency duties
Higher prescribed ethical duties
Strong statement of required fiduciary duties
A clear statement of value for the consumer is the light.
What leader(s) in the industry are going to step forward and lead the way? Maybe it will be the bloggers.
Down the other path, I see lots of ways for consumers to do most of the work themselves and then hire a very inexpensive “agent” to be available to show the home(s) and an attorney to pull together the paperwork…because attorneys have all of the things I listed above.
December 14th, 2006 at 4:27 am
Well well, I cannot help but feel that this article is more of “these evil Real Estate 2.0 people” are want us to work for free, or put us out of business.
Frankly, this is nonsense and completely misses the point!
The average real estate agent for one is not making that much. Take $39K to $49K average (depending on whose stats you read) in self employment income, before any expenses, taxes, etc. and in reality the average real estate agent is earning $25-35K.
The average agent also does 6-8 transactions a YEAR. In many markets there is one Realtor agent for every transaction per YEAR (such is the case in Sarsota, FL for instance).
Now, if an agent worked in an environment where that agent would be able to do 6-8 transactions per MONTH, or more, should that agent be paid 35K/month for the same amount of work?
Wake up call, please. There are way too many agents (of course NAR doesn’t mind, its better to get dues from 1.5MM agents then from 150K agents after all) and it is inevitable that this industry will work a lot efficiently in the future where we do not need as many agents.
We as Realtors are supposed to be consumer advocates. Well, what happened to that? How can we justify charging the consumer 2 or 3 times as much as we did just a few years ago for the SAME WORK. Yes, we still charge the same percentage but in terms of $$$ the amount has gone way up. Sure there’s more competition and the average Realtor does fewer transactions in many cases, but that doesn’t mean zip to the consumer who is paying.
I think as professionals we can either stick our heads in the sand and pretend that progress isn’t coming and lie to ourselves in a futile attempt to make ourselves feel better, or we can see things as they are and ask ourselves, ‘how can we create more VALUE FOR THE CONSUMER’ to justify our existence in the years ahead?’
How about a solid strategy that benefits the conumer and yourself, rather than just bitching and moaning. Heads off to Zillow, Redfin and others. Yes, I am a Realtor, but I am also first and foremost a consumer advocate and what the consumer is getting today in terms of value for actual $$$ spent is just not sustainable.
Here’s to Real Estate 2.0. Either get with it or find a new job. It’s really everyone’s individual choice.
Thomas Heimann, President & CEO
Bravo Real Estate
December 14th, 2006 at 7:34 am
Real Estate 2.0: Revenge of the MBAs?…
The national avarage pay for a real estate agent is somewhere around $50,000.00. Hardly competitive with the six and seven figure salaries and bonuses paid to those who have taken the time and effort to procure an MBA or some……
December 14th, 2006 at 8:50 am
Yes, I understand that statistically, the average real estate agent makes well under $50K a year. However, in a few pockets of the U.S., where home prices are over $1M, they may earn more than that. These few agents at the top of the heap, colors the impressions and gives a false idea of what agents really make. I get the feeling that many of the new Real Estate 2.0 firms are started without a good knowledge of what sales agents and brokerages do and how much they earn in different parts of the country.
Important to note too, is that with many agents, there success is due to almost a cult of personality. This is difficult to duplicate with a computer program.
December 14th, 2006 at 9:00 pm
On the MBA vs. real estate dichotomy…an interesting trend, at least in our area, is that some folks with MBA’s, plus backgrounds in consulting, investment banking, corporate finance, etc., are entering the real estate business…as Realtors! In our office here in Palo Alto, CA, of the ~100 agents, there are about 8 or 10 with that profile.
Since real estate is, for most people, not their first job out of college, they inevitably bring some of their past life into the trade. Ex-contractors bring in-depth knowledge of home building; ex-lawyers have a more in-depth understanding of real estate law; ex-teachers bring good skills in explaining and guiding; MBA’s bring a deeper understanding of the financial aspects of real estate.
December 26th, 2006 at 3:48 pm
I am primarily and investor but bring in 6 figure commisions each year (OK the last year).
I find that people that were successful in their other carreers will be successful in just about everything else they choose to do.
They make good agents and good investors and good anything else they put their mind to.
MBA doesn’t mean more money
According to William Danko (the millionaire next door) it means less.
THos who earn 100K per year plus are in the top 10% of incomes.
The richest people in america are small business owners… NOt graduates.
June 13th, 2007 at 12:29 pm
[…] Mr. Barton has been quoted saying “major change in home selling is inevitable over the next five years or so because “there’s an unsustainable disconnect” between the commissions charged by most agents and the value of their services.” But, I’m glad to see he’s paying a 2.5% commission on the sale of his $2.8M home. […]