Is The Real Estate Industry an Endangered Species?

You may have read “Freakonomics” authors Stephen Dubner and Steven Levitt article that appeared in the Boston Globe and New York Time yesterday – “If real estate is prospering, chances are your agent isn’t”. About the only part of the article that had any accuracy is that median income for realtor’s has fallen during the real estate boom to just over $49,000, that there are two many agents, and that technology is changing the landscape for buying and selling homes.

The authors begin the article insulting real estate agents by referencing a Department of Justice lawsuit likening real estate agents to cartels and mafia. They then go on to explain how a real estate agent only performs 4 real functions: Setting the price of your home, finding potential buyers, prepping and showing the house, and handling the negotiations and contracts. This whole process takes 40 hours, for which the selling agent and listing agent would receive $15,000 apiece on a $500,000 house, assuming a 6% commission.

By extrapolating the author’s numbers and assuming the median realtor has a 50/50 split with the house and has an average sale price of $500,000, the average realtor has 6.5 transactions per year. Or if you take their numbers and a 40 hour work week, the average realtor only works 6.5 weeks per year. So my question is what the hell are you guys doing the rest of the time?

The author’s also portrayed the real estate industry as “about to join the endangered species list”, due to the internet and on-line data. They incorrectly compared the industry to travel agents, and stock brokers, who were in some instances displaced by online do it yourself web sites. These are poor comparatives, as travel agents worked in non-critical, low risk transactions where the average time per customer was minutes. As for do it yourself stock trading, as soon as the stock market bubble burst, Joe Average “expert” stock trader quit trading, and licked his wounds, forcing many of the online trading companies to consolidate with larger full service brokers, or go bankrupt.

Instead of being viewed as a threat to the industry, real estate brokers should view the proliferation of online information and data as an advantage, not a threat. The need for expert marketing, pricing, counseling and handholding will never be displaced. You now have the luxury of more time (and time is money) as buyers can narrow down house choices prior to viewing them live. You can communicate with customers 24 hours a day by email, and they can respond at their leisure. Geography is becoming irrelevant. Customers can educate themselves, and verify information you provide. The difference is that the consumer will be more educated and informed (and sometimes misinformed). The key will be in maintaining expertise, and staying one step ahead of your customers, as they will be armed with information, knowledge, and questions for which you will need to be prepared.