The N.A.R. has been releasing their annual surveys over the last couple of weeks. The big kahuna was the 2013 Profile of Homebuyers and Sellers, linked here:
Watch the first minute of the video and you’ll see why N.A.R is doomed, and must be oblivious to the threat of the younger upstarts like Zillow.
Their audience is an older group, however. Today, 11% percent of all realtors are under 40 years old, and 44% are over 60 years old!
A quarter of the realtor population is over 65 years old!
The business hasn’t changed much since its inception, but if there was ever a time that was ripe for revolution, this would be it. Many, and probably most, of the agents in the business today will be leaving over the next 5-10 years!
What’s going to change?
N.A.R. and the national franchisors aren’t going to rock the boat, because the current commission-based sales package works well enough for them.
What could change the process? The auction format.
All we need is for a few celebrities to successfully auction their own home, and then become spokespeople for the home-auction reality-TV show!
Those in the business would be slow to adapt, so it would take an outsider like auction.com to elbow their way in and try to take over. But with most agents on their way out, now would be a good time for a revolution!
Here are the realtor stats from the N.A.R. website:
In 2012, the typical agent had 12 residential transaction sides – up from the previous year when the typical agent had 10 transaction sides.
- Additionally, 24 percent of residential brokerage specialists had at least one commercial transaction side in the last year.
- The typical agent had one transaction side involving a foreclosure and one transaction side involving a short sale.
- The typical agent had a sales volume of $1.5 million in 2012, up from $1.3 million in 2011.
- For the third year in a row, the difficulty in obtaining mortgage financing was the most cited reason for potential clients being limited.
- The typical property management specialist managed 49 properties in 2012 – the highest number on record in this survey.
- The median gross income of REALTORS® was $43,500 in 2012, up from $34,900 in 2011.
The system for selling houses is absolutely in the stone ages, it’s insane.
Your challenge to going to a full-blown auction, is that resulting speed of the market’s value judgement is terrifying to sellers.
Your typical seller isn’t psychologically prepared to deal with the speed and have an irrational fear that they are leaving a huge amount of money on the table. They can better cope with the slow message the market sends about their property’s true worth over the months and months while their property sits.
So there’s going to be a huge resistance going to an full-blown auction format.
What might work better is taking smaller steps to improve the system and make it more auction-like. For example, let’s have total transparency about offers. In a multiple offer situation, let all buyers see the other offers and have a reasonable amount of time to respond. All of this should be integrated into the electronic system.
I think it would work best if the existing structure takes baby steps in the right direction. Little by little improvements. One day we can look at everything and say, yeah this doesn’t suck any more.
Agreed, those associated with anything called ‘auction’ will forever be stained with ‘giving it away’.
You are right about the stone ages.
It happens in virtually every multiple-offer situatiion that the listing agent won’t answer questions, won’t pick up the phone, and won’t give anybody anything on the other offers.
The opposite of transparency, unfortunately. It would never occur to them that transparency is good because they have never heard of any other way – because nobody is leading the industry.
Can you believe that in 2013 there are no C.A.R. forms for bidding wars? I’ve never seen any guidance or recommendations either.
Jim,
First of all – congrats to you on definitely NOT being in the “Stone Ages”. You are an excellent resource and you provide sound advice.
I think the biggest problem with the Industry is the modus operandi of hoarding information to the point that there is a huge asymmetry. There’s a lot of obfuscation and confusion throughout the entire process, shrouded in fog and uncertainty.
This is particularly the case for younger people with limited resources, no experience and shrinking prospects (compared to earlier generations).
An epiphany I got from while reading the article/your post: The reason why this “Rube-Goldbergesque” process/industry hasn’t been devoured in this Internet era is because younger people, who do all of the heavy lifting in startups/entrepreneurial ventures, simply haven’t had the deep level of experience/understanding necessary to seek out and transform it.
i.e.: There are no “Steve Jobs” types that have set out to make an “insanely great” experience that removes the clunkiness and redundancy.
A giant opportunity worthy of my full attention!
What we have now is a double blind auction process controlled by the agent. Information asymmetry exploited for a fee. Transparency reduces that advantage. Thus transparency will be fought.
A whiteboard auction model could work as long as there are protections against straw bidders and all the other pitfalls of auctions.
How about an online bidding platform where all offers are submitted directly, and then a highest-and-best round that only the sellers sees. Then they select the winner from that pot.
A registration process and/or deposit might slow down the phony bids.
As usual Jim you are spot on target in your analysis. I also agree that the traditional model’s days are numbered. I’ve also taken a good look at the realtor demographics and as you mentioned, many realtors are older and really not in touch with the reality of the role of technology in today’s market.
From a fundamental level, look at the role technology has played across just about every industry. Remember the days of paying upwards of $100 just to trade some stocks? Now we pay $6 to trade thousands of shares.
Remember paying a travel agent to book an airline ticket and getting up-charged by these travel agents? All vanished.
There are so many examples across a wide range of industries. The same thing will eventually happen to the traditional commission structure of realtors.
It’s NOT a question “if”. It’s only a question “when”.
The realtors that acknowledge and plan for this and even embrace this change in dynamics and disruption in the marketplace will be the ones that make the most money in the future. They will be the successful ones in this market place that most certainly WILL get disrupted in the future by technology.
Jim, I’m guilty of turning 60 this year myself. Of the 70 odd regulars at my bro5er’s meeting five are 40 or younger, maybe five more are in their 50’s and the rest are 60 or older. I’d love to see the biz change, it growed like topsy and it isn’t very functional. Need I mention Realogy? Their whole business model is built on the current system where 90% of agents do 2 transactions and are out of the biz in 2 years…they have a LOT of clout. After 3 plus years I’m making a decent living and having a blast doing it, thanks to the advice you gave me early on!