The Death of the Traditional Real Estate Brokerage
I foresee in the not-so-distant-future, a world where there are no more brick and mortar real estate brokerages.
It's just getting too expensive for everyone involved: the brokerage, the agent and the customer.
The stream of income required to cover the expenses of a traditional brokerage is actually quite high. The overhead costs of brokerages are essentially paid for by their agents in the form of monthly dues, commission splits and other offerings such as lead referral fees, marketing or transaction management.
Here's a very simplified version of how the Traditional Real Estate Brokerage Model works:
Brick and mortar office/physical location
Overhead that includes rental space and office staff
All meetings are in-person
Franchise fees for many name brand brokerages
Monthly dues needed from agents
Agents have higher expenses in the form of commission splits, monthly dues and transaction fees
Of course, this model is based on the current commission model, which is 6% - comprised of 3% for the Listing Agent (aka Seller's Agent) and 3% for the Selling Agent (aka Buyer's Agent).
A commission model, by the way, that is being tested by savvy consumers negotiating lower commission structures.
It's also a model that's really hard to explain to our clients. From a seller's perspective, we are charging an incredible chunk of their net proceeds. From the buyer's perspective, many have an expectation that part of agent's commission should be credited or rebated back to the buyer at closing.
Often, our clients don't understand how expensive it is to be an independent contractor, and also, how little net the commission check ends up to be. Our clients may not realize that the commission check goes directly from the escrow company to the brokerage (not to the agent directly), and the agent gets paid after the brokerage takes their commission splits and fees. After the brokerage takes their cuts, some agents are left with as little a third of the commission paid to the brokerage at closing of a transaction.
And it's with those net proceeds, the agent must still pay their professional (marketing, website, CRM's, brokerage monthly fees, insurance, etc) and of course, their personal bills. Their profit margins are getting smaller and smaller.
So what is the solution to this dilemma that I believe all real estate agents will face? And what is the solution for our end, user, the people that want to purchase or sell a home? How can we live in a world where we both make a living and still provide exemplary service to our customers?
Here's a solution for a real estate model that I think we will see more of in the future:
Low overhead in that the brokerage is a virtual office
Shared, some-time office use at a physical location - "a home base"
Support staff, both in-house and outsourced
Continued, education and training through on-line or streamed office meetings and coaching/mentoring meetings
Lower agent monthly dues
Agents keep more of the net commission commission because of lower fee structures and higher commission splits
This model already exists for business owners that are cognizant of the way many people work (virtually, from home), or are just trying to stay within a budget. Although I would argue that anyone with a smart phone, computer or tablet is already virtual.
There are many other facets to this conversation that I didn't delve into today, like the Redfin model of business, the flat fee commission model, or the most nerve-wracking to me - where the seller pays a small fee to have their listing up on the MLS (I've already heard of horror stories where the seller has no idea of how they aren't being protected and have lost tens of thousands of dollars).
But I digress.
I really could go on and on, as I am really passionate about advocating for both the agent and the client. In my opinion, no brokerage model works well without proper support and training for the agents. The end goal is not to just make a living, but to make a living serving our clients well. It's be about services to the agents so that they can better support their clients.
What does the future real estate brokerage look like to you?
Kristin Bushnell is the Designated Broker of Bushnell Real Estate Solutions and Co-owner of Bushnell Craft Brewing Company in Redmond, WA.
If you are ever interested in chatting about real estate, contact me at email@example.com or call me at 425-559-1355. I'll buy you a beer, and we can chat about real estate until your heart is content.
On a side note, I recently started a Facebook Page called Real Estate Brokers of Washington. Check it out and Like it - I would love for real estate professionals to join this group to discuss real estate in Washington!