“Because that’s the way it’s always been done.”
Anyone who has ever worked with me has heard me lose it when I hear this phrase. It is uttered everywhere I go and is usually spoken in response to my question, “Why does this process happen this way?” I’m used to it by now, and frankly, it is this kind of thinking that keeps me busy as a consultant or executive.
Over the years, I have found that people in leadership positions who answer my question with, “Because that’s the way it’s always been done,” have no business being in a leadership position. Leaders are supposed to lead, be the example, set the expectations and organizational structure and be the foundation during times of change and crisis.
This is that time.
The real estate industry as a whole has often relied on the thinking that the process has always been this way and will never change. Sure, there are companies that “innovate,” but typically it is in the form of creating a new model for a brokerage. This industry and its leaders need to start leading and accept that the business as we know it is changing.
iBuying meets changing market
As we navigate this temporary new normal brought on by the coronavirus, it’s important to examine the realities of how the real estate business gets done. Technology today has allowed buyers and sellers to access an unprecedented amount of information before ever really speaking with an agent. Companies like Redfin and Zillow have given consumers the information that we as agents used to provide.
Opendoor and other iBuyer programs have given sellers the option of eliminating the inconvenience of listing a property and entertaining buyers. As we’ve seen, sellers are willing to possibly place price a little further down the list in order to have the peace of mind that the house will, in fact, close escrow. Some of these companies, like Offerpad, will even move them locally.
The question of whether these models will survive and thrive, or lose momentum and struggle to maintain is one that will be answered with time for sure.
But the bigger issue now is whether the industry as a whole will remain in its current state and survive this interruption in the way things have always been done, or whether this will be the impetus for change. Perhaps it’s a combination of both.
I’m a big numbers girl, and my consulting company has afforded me the insight into a number of companies around the U.S. and how they operate. Spin doctors are always hard at work making things look rosier than they may actually be, but what I’ve found this week has been interesting.
My home base is Arizona, which continues to be one of the hottest markets in the U.S. In the past week or so, some of the companies I consult for have actually seen a rise in the number of new open escrows rather than the cancelation of transactions currently scheduled to close. Many of the agents have been remarking that their buyers are ringing the phones off the hook now since the iBuyer market has almost halted. Traditional buyers, at least in Arizona, have discovered that they are not in competition with the all-cash “close when you want” iBuyer.
I know it’s only really been about a week and that’s not a long enough time to evaluate a trend, but in some respects, this may be the opportunity for the traditional buyer to actually put an offer in on a listing and get it accepted.
Speaking of change… Hello, digitization
The governors of a number of states have met with and released statements regarding the real estate industry, and how much of a financial impact it has on the state.
The need for digital recordings to continue and property to be transferred is very important to the bottom line of many states. The business of real estate contributes funds necessary to provide programs for the continued health and safety of the citizens.
Mobile notaries are being dispensed by title companies and lenders alike, which is not the best solution since it also requires contact, but keeps social interaction to a minimum. The digitization of real estate may be in full force, and as a whole, it could change how things have always been done.
The difficult part in all of this is the basic fact that the purchase and sale of real estate is largely an interactive industry. Inspectors need to physically inspect, appraisers need to see it for themselves (although the drive-by appraisals that happened just a decade or so ago could certainly come back), buyers need to walk the property no matter how good of a video is created to market it, and most of all, both buyers and sellers need to actually move in and out of a home.
So where does that leave the agent?
As I mentioned in last week’s article, there are currently class action filings naming the National Association of Realtors and brokerages as defendants, that claim to seek relief from the way the industry operates. In a nutshell, the suits claim that the fact that the listing agent controls how much is paid to the buyer’s agent is detrimental to the seller.
I received a number of passionate emails about this, many of which were convinced that this suit will easily be dismissed. But it’s not being dismissed. Actually, on October 10, 2019, the Department of Justice filed a statement of interest in the lawsuit.
The reality is that this business/commission model hasn’t changed in decades. As many agents are taught in real estate school, commissions are not set by any regulatory board or agency. Listing agents and brokerages set the commission rates by what they charge to sellers.
The lawsuit alleges that because the listing agent determines what is offered to the buyer’s agent, capitalism and fair market competition have been stymied. The industry has seen listing agent’s fees reduced based on open competition from companies like the iBuyers, or flat fee commission brokerages instead of the more costly split commission brokerages.
Why the buyer’s agent fee hasn’t gone down is the question at heart, according to the allegations in the lawsuit.
Agents are not supposed to put their own needs above their client (part of the fiduciary duties owed to the client), but there are absolutely differences between what is supposed to happen and what really happens. The lawsuit has questioned whether a listing offering lower than the “typical” 3% co-broke has fewer showings than ones that do offer that co-broke. Although they are not supposed to, agents in many MLSs can search by co-broke and sort out those that do not offer a higher fee. Consumers don’t always know that.
As noted above, consumers have a lot of information available to them now that they never had before. They used to have to come to a Realtor for information, neighborhood highlights and crime statistics and simply to see what is on the market. The technology tools they can utilize today have created situations where the buyers can already know what neighborhood, school district, utility bill costs, where the nearest Starbucks is, and in some cases, the exact home they want to buy.
If that’s the case, shouldn’t the buyer’s agent fee be based on something other than what the listing agent decides?
Of course not, because this is the way it’s always been done. It would wreak havoc on society. Chaos would reign in the streets if we changed that. Pandemonium would set in. Who would survive if this tomfoolery ensues?
Let’s take a good look at those leading us through the current situation. Giving us guidance on how to wash our hands while continuing to do business as usual is not as helpful as actually figuring out how to change our business to accommodate and recognize the needs of our clients.
Leadership matters. Let’s stop accepting the answer, “Because that’s the way it’s always been done.”