Episode #15: What Town’s Demise Means For “Brokerage”

Reports of the death of “Brokerage” have been greatly exaggerated.

Despite what some people are saying, the shutting down of Town Residential brokerage in NYC does NOT mean that the end of “Real Estate Brokerage” is near or even close to it.

In fact, it is quite the opposite.

If you have any doubt, let’s look at these facts and recent trends:

• Almost all of Zillow’s revenue comes from real estate agents.  Their entire business model relies on agents and brokerage firms continuing to thrive and do well.
• Compass – a relatively new real estate brokerage  – is able to raise almost a billion dollars. If real estate brokerage was dying, would investors be putting hundreds of millions into it?
• The greatest investor of all time  – Warren Buffet – is investing more into brokerage.  Berkshire Hathaway Homeservices now is the #2 real estate brokerage in the USA.
• Zumper, the listings platform, recently got into brokerage by becoming licensed and hiring a bunch of real estate agents.
• Another brokerage – Redfin – just had an IPO within the last year and went public. Usually industries that have IPOs are thriving not dying.
• Gypsy Housing (yes the Facebook Group) has recently become a licensed broker
• Many, many new brokerages have launched in the last few years.
• Reality TV shows based on real estate agents (like Million Dollar listing) continue to be popular.

If brokerage was dying, would we see so much investment in the space right now?

Of course, all of this influx of investment and new competition has led to increased pressure on a real estate brokerage firm’s profits. When there is more competition, profits take a hit.  This is just basic capitalism at work. It also creates all kinds of opportunities, especially for agents, and especially for brokerage firms who are “leaning in” to the changes.

Let’s look at this a little further.

TWO MAJOR TRENDS HAVING DRAMATIC EFFECTS ON BROKERAGE
While “Brokerage” is still a healthy business, it IS changing.  There are two major trends dramatically affecting brokerage firms: the first (“Better Technology”) everyone seems to be talking about.  The second (“Agents as Marketing Machines”) very few are focusing on. Both of these trends are putting pressure on splits and commissions.

TREND #1: BETTER TECHNOLOGY
Better technology (artificial intelligence, new apps, better CRM software, etc) is allowing more players to enter the market, and with varying business models.  This puts great pressure on splits and commissions. The brokerage space along with their juicy commissions is also attracting a lot of VC money. VC firms and their companies have very high growth targets. To grow in real estate brokerage, you need agents.  The fastest way to get great agents is to acquire them as opposed to building them organically. This hiring frenzy is leading to even more pressure on splits.

TREND #2: AGENTS AS MARKETING MACHINES
Like never before in our history, agents have an unparalleled ability to communicate their message, craft their own personal brand, market their own listings, build their own audiences, and reach out directly to them using tools such as Instagram, Facebook, Twitter, enhanched email software platforms (CRM’s), etc.

Conversely – and possibly even more important – consumers also have an unparalleled ability today to find and reach out directly to agents whom they feel connected to.

For example, I am personally amazed at what is happening on Instagram and the agents’ ability to create interesting content by using Instagram Posts and Instagram Stories.  I only joined Instagram a few months ago (@philiphorigan) but wish I would have joined years ago. Real Estate Agents are using Instagram (and other platforms) to express themselves in such creative ways. Ultimately, it is the agent and the agent’s personality that wins the client’s business, and agents can showcase themselves like never before.

This is a really good thing and should lead to more efficient connections between agents and consumers,  Is there a better goal for brokerage firms then getting their agents matched up with the “right” clients?  By viewing agent’s “content”, consumers have much better information and better ways to evaluate agents than ever before.  This is a game changer and is not being talked about enough. Brokerages should be enabling agents to market themselves more effectively.

TO BE A SUCCESSFUL BROKERAGE
The successful brokerages have to make sure they are adding value to the agent, well beyond just showcasing the brokerage “brand”. Brokerages should be helping each agent work better with clients, as well as to help craft his or her own personal brand by using the latest technology tools and social media platforms available.  This way, agents can work with sellers, buyers, landlords and renters as efficiently as possible. Brokerage firms that recognize this and support this trend will continue to thrive.

WHERE DOES PREMIER AGENT FIT INTO THESE TRENDS?
It doesn’t.  Not at all. The implementation of Premier Agent by Zillow’s StreetEasy last year has nothing to do with any of these trends. Premier Agent has been around in other markets for a very long time. There is nothing new or innovative about it.  Rather, it is just an example of a monopolistic company taking advantage of its market position in a greedy and deceiving way, and the Department of State seems to agree.

Like I said many times before on this blog, when you take advantage of your customers, there will be huge consequences.  It seems the law is already catching up with them, and the Premier Agent program will be forced to change.  Ironically, if anything, Premier Agent is a HUGE step backwards in transparency. It is quite the opposite of these trends which are all about breaking down barriers. Premier Agent erects new barriers.

OKAY SO BROKERAGE IS NOT DEAD.  IS THE “TRADITIONAL BROKERAGE” DEAD?
While some people are tempted to say that “Traditional Brokerage” is dead, I wouldn’t even go that far. Let’s face it, to survive, “Brokerage” has always had to change. Judging from history, they seem to be quite good at it.  For example, can you imagine if in the years 1995-2000 “traditional” brokerage firms refused to embrace the internet and decided not to create a website with their company’s brand, listings and agents?

Of course not.  Most of them changed then, and most of them will change now.  And most of the brokerage firms around now will be with us for years to come.

NOTE: My new rental marketplace frēlē with the 4 point pledge is now in private beta and we are about to launch to the public.  You can access the private beta by going to the 4 point pledge at www.frele.com/pledge.  We will start to display your listings (for free) and you will start to get leads on your listings (for free) as soon as we get the green light from REBNY’s RLS.