The National Association of REALTORS® legislative meetings event is a great annual milestone to appreciate the changes happening in the real estate industry. It prompts an interesting question about identifying catalysts that are driving change.
cat∙a∙lyst noun a substance that increases the rate of a chemical reaction without itself undergoing any permanent chemical change.
- A person or thing that precipitates an event
There are many pillars of change happening in the industry today, some more significant than others, driven by very different catalysts. The shape of change is defined by the role in the industry. The primary roles that we track for WAVes of Change are Agent, Broker, Team, MLS, and Association of REALTORS®. Surrounding this group is a vast ocean of technology companies that contribute to the methods that enable these groups to manage change.
Changes for Agents
- Migration to Teams (Consolidation)
- Adoption of client relationship management software
- Predictive Analytics over Advertising
The biggest change that we have observed to real estate agents is the creation of agent teams. Teams have a lot of variability in the way they are constructed and managed, but there are two key facets that seem to be common. The first is economic; teams leverage their significance to negotiate lower expenses than individual agents ranging from commission rates to shared technology and marketing. The second is specialization; teams allow individual agents to focus on what they do exceptionally well, ranging from listing presentations to marketing, to buyer representation, to transaction management, etc. In a way, teams are like a sub-franchise of the broker.
Agents have also made an impressive effort to manage their clients better with CRM software. Today’s leading CRM solutions have seen massive growth in adoption over the past 5 years, allowing these solutions to become more diverse in their feature set and flexibility.
An emerging area of change is taking place in how agents market their services. The age of dependence on third-party advertising websites to promote properties is beginning to show signs of weakness. So many agents jumped into these advertising programs that it diluted the effectiveness. Today, most agents report getting a very small number of leads and face rapidly increasing prices. Most agents surveyed indicate “it’s just not worth it.” As such, agents have gone back to farming a specific neighborhood or market segment. The difference in farming today versus five years ago is that farming is digital. It is happening on social media sites or via predictive analytics that score the likelihood of a person to transact. Digital farming is not an exact science, but big data and artificial intelligence are making it easier and more effective than other forms of marketing.
Catalyst For Agent Change
The catalyst that is a common driver for these changes is an improvement in income rates to agents. CRM and Predictive Analytics allow more effective marketing that costs less. Teamwork drives higher productivity and greater income.
Changes for Brokers
- Systems Integration
- Data as an Asset
- Syndication Strategy
The brokerage business is quickly changing in the amount of complexity. The old days of sending an agent to the REALTOR® Association office to pick up a forms packet to do a transaction are long gone. Today’s brokerage of any size is likely to require a dozen or more SaaS software solutions, along with the awareness of how to use them.
Up until a few years ago, brokers were managing multiple logins, and each software solution had its own database. Today, all systems are integrated. The modern brokerage has a private intranet (back-office) for staff and agents. All of the software solutions are tied into that back-office solution through single sign-on. Most recently, Application Programming Interfaces (APIs) have enabled these software solutions to talk to each other, so changes to something like a customer record or the roster will populate across all systems.
Brokers are also beginning to understand that data is an asset of the brokerage. The more information that you are able to collect, the greater the opportunity for harvesting new business opportunities from past successes. With the development of big data solutions and artificial intelligence, the future value of broker data is forecasted to be enormous.
Another significant shift in strategies related to listing syndication was started by the Fair Display Guidelines. These guidelines are undermining the business model of third-party advertising portals. When advertising listings on portals were free and the listing agent received inquiries from consumers, these sites were fine. But today, listing displays are biased to advertisers, listing display is not consistent, ads for competitors are on broker listings, leads are directed away from the listing broker, listings are being repurposed, re-syndicated, and the broker is losing all control over the data that they are supposed to supervise for the seller. The days of spray and prey syndication are over. Brokers are reading the “term of use” that the advertising portals require and weighing them against the benefits. For an ever-increasing number of brokers, the business value of syndicating to portals is diminishing. (Which is probably why portals are switching from selling advertising and leads over to selling referrals or becoming online brokerages).
Beyond systems integrations that are driving new brokerage solutions, data as an asset strategy that is driving projects like Upstream, and changes in syndication strategy that are driving projects like the Broker Public Portal – we are seeing massive consolidation. REALOGY was the first and most significant driver of consolidation, creating NRT through the acquisition of their largest franchises in major cities to create the largest brokerage in the world. Berkshire Hathaway led the second wave through the acquisition of large independent brokers (mostly drawing from the pool of firms that make up The Realty Alliance and Leading Real Estate Companies of the World). Howard Hanna has pursued consolidation through organic growth and some excellent independent powerhouses. Compass has grown through the acquisition of both agents (new strategy) and brokerages. HomeSmart and eXp have grown through the development of a business model attractive to agents. The midsized broker is disappearing from the real estate landscape and small brokers are becoming irrelevant because they cannot keep up.
Catalyst For Change
The common catalyst for change is being driven by the complexity of technology. Although technology adoption has long been a driver of productivity, today’s technology is significantly more difficult to configure, secure, and deploy. Small firms without IT professionals struggle to keep up.
Changes for MLS
- Increased DOJ/FTC scrutiny
- RESO Adoption
The structure for operating an MLS is well curated. There is more collaboration among MLSs than any other segment of the industry – and the Council of MLS has grown its best practices in substantial ways. There is also a constant interrogation of the model rules for MLSs created by the National Association of REALTORS®. It is a genius architecture that allows competing MLSs to collaborate like a cooperative. No doubt, there have been times throughout history with an isolated MLS or small group of MLSs that have failed in their duty to fairness – sometimes shunning new business models and at other times withholding data from their participating brokers. It has drawn the scrutiny of the Department of Justice and the Fair Trade Commission. It feels to me like these two regulatory groups are sitting on the shoulder of our industry looking for ways to impugn at any turn.
Only a few years ago, there were more than 1000 MLSs. Within a year or two, that number was reduced to about 650. Some major consolidations took place in California (CRMLS), along the Mid-Atlantic Corridor (Bright MLS), and in the Midwest Yes-MLS and others). I think that a lot of the early thinking about MLS consolidation should be credited to Anne Bailey and the COVE group. Cove group members have driven consolidation in their businesses by offering better services (often significantly better) at lower or much lower costs. The days are numbered for any small MLS charging $75 per user per month. We are seeing some regionals charge wholesale rates between $12 and $24 per member per month. Some Association owned MLSs are providing full services to REALTORS® for $25 or lower. Consolidation is not over.
The Real Estate Standards Organization (RESO) has done a spectacular job of improving the minimum standards of our nation’s MLSs. RESO is driven by a great group of executives from technology firms and MLSs who have plotted a reasonable speed of standards adoption.
Catalyst For Change
Like brokerages, the complexity of the technology used to offer MLS services, coupled with lower prices for larger MLSs, are the catalysts for change. Large MLSs have demonstrated the capability of offering more services at lower prices while delivering higher satisfaction ratings.