Slumping real estate markets can lead to a higher dropout rate among real estate agents and higher marketing costs to lure buyers to a for-sale home – and there’s also the potential to prop up the shrinking real estate commission rate.
Bob Moles, chairman of Intero Real Estate Services, a fast-growing, three-year-old real estate brokerage based in Cupertino, Calif., said that while there has been a general downward trend on the average commission rate that agents receive in real estate transactions, a market downturn could temporarily reverse that pattern.
“When and if the market cools, you have an opportunity to reverse that trend for the period the market cools,” he said. The rationale: “When the market is a little tighter, people pay a little bit more to sell their homes.”
Historically, home sellers have paid about 6 percent of the sale price of their home to the real estate agent who listed the home, and listing agents have typically offered roughly half of this amount to any agent that brings a buyer into the transaction. During the past few years, commission prices have dropped to the low-5 percent range, according to surveys by RealTrends, a real estate research and information company.
Moles, who spoke during an Inman News audio conference Wednesday, also said that he is very optimistic that the real estate market will continue to be strong, based on underlying demographic trends, even if there is some slowing. “I don’t see anything nationally that would be cataclysmic. I still think we’re living in very good times in real estate. I’m very optimistic in terms of where the market is and where it’s headed.”
Kenneth L. Jenny, managing director and CEO for tranCen, a residential brokerage services company; and James Harrison, president and CEO for REInfoLink, an association-owned regional MLS that serves a five-county area in California’s Silicon Valley, also participated in the audio conference, titled, “Managing to a Slower Housing Market.”
The speakers noted that it’s natural to expect some shakeout in the number of active real estate agents if the market slows, and companies and individual real estate professionals should focus on monitoring the money they spend on marketing and the value they receive in return.
“We all know that volume covers up a multitude of sins in our business,” said Jenny. “We really need to look at profit per transaction…the return you’re getting for the up-front fees. We need to pay more attention to the cost of acquiring leads.”
Some companies are encouraging agents to collaborate with them in pooling advertising budgets to expand their buying power, Jenny said. In a changing market, it’s important for companies and individuals to consider many media when developing an advertising strategy – both online and offline. Real estate agents can get ahead in a down market by making a case to their consumers about the skills and services they bring into transactions.
“Sometimes we discount our role in the industry as professionals. It may serve you well to make consumers aware of the role you really play,” he said.
Harrison, who has previous real estate experience in Texas and in Virginia, said that it wasn’t uncommon for membership in real estate organizations to drop dramatically in a major downturn, and it’s good for organizations to have contingency plans in case things get bad.
He said he’s heard stories about real estate agents trading in their Mercedes for Buicks during a previous real estate market crash.
“If we have a big economic downturn it will affect how many people are paying dues in the organization,” he said. “You have to realize that the ride’s not going to last forever. We need to take a look at what we’re doing for our customers and reengineer our services.”
Moles said agents need to be “on top of their game” in a changing market. “You have to be educated, you have to be trained.”
Participants also discussed some other pressing issues in the real estate industry, such as industry ownership and control of property information and the U.S. Justice Department lawsuit against the National Association of Realtors.
While the Justice Department lawsuit contends that the Realtors trade group has adopted a policy for Internet property listings that is too restrictive, Jenny said he believes that the real estate industry is one of the most competitive industries in the country, and that real estate companies should decide the fate of their property listings data. “It is pretty much in the hands of industry as to how that data is managed,” he said. “It may be time that industry takes control of data management and not the professional association.”
Jenny said that most property listings are displayed on several Internet sites, and the real estate industry should take care to make sure that the property listings always lead consumers to the agent or broker who is responsible for the listing.
Harrison said, “The public has the impression that all (property) data belongs to them.” Multiple listing services should not be considered as hubs for public access to data, he said. “We need to refocus on what our value is. I’m a big fan of controlling the data and controlling the use of the data,” and in synching with the interests of the brokerage community, he added.
MLS data has been misused in some cases for purposes other than promoting an agent’s listings on the Internet, he said.
Moles said that issues of data control strike at the core of the Justice Department lawsuit against the Realtor trade group. The MLS data is not “just a public utility that anyone can tap into. We think we should have control of data that is authored by the brokerage firms,” he said.
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