Is a lack of innovation a threat to real estate brokerage firms? What becomes the differentiator when all brokerage firms have a certain level of technology?
Real estate brokerage firms are constantly looking ahead to determine the next threat to the industry. Right now, that seems to be a constant push to outdo the competition with the best technology. “The current environment of brokerages, franchises and companies trying to outdo each other with the best technology ‘secret sauce’ is entertaining,” says Dave Collins, a loan officer with Movement Mortgage and past COO of ERA Franchise Systems.
Sure, there’s a lot of talk about real estate technology used as differentiator when it comes to brokerages. There’s also a lot of money being funneled into brokerages on the basis that the company will thrive because of its technology. But, what happens when everyone has the same technology? What happens when the infrastructure is built? What becomes the differentiator then?
Real estate is and always will be a relationship business. Innovation—technology or otherwise—is good, don’t get me wrong. But, to me, the differentiator is the strength of brokerage leaders to build relationships with agents, and the strength of the agents to build relationships with homebuyers and sellers.
A Lack of Innovation?
I recently featured an article by a real estate industry executive about how the desire for commission compensation has squashed innovation in the real estate industry. He says, “As an industry, we can’t seem to respond to both lower commission compensation expectations and the convenience of the consumer. We know there needs to be change but seem impotent to innovate. The industry has traditionally been sustained by headcount. The more licensees/sales associates, the better. That’s the mentality of state real estate commissions, real estate trade associations, and even brokerages. The industry takes no position on the low-to-no producer, we only want our annual and monthly fees. Until this mentality changes, there will be no diffusion of innovation in the real estate industry.”
“The idea that there [hasn’t been] innovation is crazy,” says Lance Hanson, broker-owner of RE/MAX Concepts in Des Moines, Iowa. “Commissions have come down virtually every year for the last 20 years.” He’s right. According to RealTrends data, we’ve set a new, low average national commission rate, in the range of 4.9 to 4.94 percent, down from 5.40% in 2012.
In addition, a low bar to entry can be a key driver in this low-to-no producer. Mike Runyan, another RE/MAX broker with RE/MAX Exclusive in Gig Harbor, Washington, says, “The real estate industry’s greatest threat is not Amazon, technology or lack of innovation. The greatest threat is how easy it is to become a real estate agent and how easy it is to hang your license with a firm that has few standards yet charges the agent very little to operate.”
At Your Service
“As your article points out, there have been discount brokers around as long as there have been discount plumbers, electricians, dentist, architects, and lawyers. I do believe full-service brokers could do a better job of selling the quality of their services. However, having worked in the luxury resort niche for 37 years, this clientele is used to the best service in just about every category of their lives,” says George R. Harvey, Jr., broker-owner of The Harvey Team in Telluride, Colorado.
Hanson notes that, with regards to innovation, everything from lock-box technology and signing and storing documents to online marketing and legal forms “that require an abundance of additional training for agents to understand and use properly,” prove that innovation continues. “The companies working to take the business away want to skim off the top and help themselves with no concern for the safety and pitfalls that sellers put themselves in,” says Hanson. “This is hard work with long hours with people’s lives both financially and socially on the line.”
The Industry’s Greatest Strength—Relationships
Again, the industry’s greatest strength is not innovation in the form of technology. It’s the ability of brokerages, agents and teams to build and retain relationships in their local marketplace.
According to Harvey, “With the advent of Zillow and other technology companies, the real estate industry seems to be trying to ‘out do’ each other with who has the best technology. Humans are not android creatures and the level of emotional and professional skills that a broker brings to the transaction is of high importance to a certain segment of real estate sellers and buyers.”
He notes Zillow’s entry into the brokerage market in the last few years. “They are going to go through one heck of a learning curve managing brokers. Just look at how often top teams jump around different companies and franchises—many times back to the same one they just left. If it’s one thing I’ve learned in my practice it’s that information is easily transferred, but professionalism, experience and wisdom is not.”
So, once more, the industry comes down to relationships. “We are people driven in our actions,” says Doug Palin, Sr., Realtor Emeritus with RE/MAX Equity Group in Vancouver, Washington, who runs an office of 150 agents. “The idea of burying ourselves in new tech things is repugnant to most sales-oriented personalities. We are salespeople and function our best when we are face-to-face with clients.”