Are Real Estate Agents Really Needed?

Yeah, we’ve heard this question once or twice. What do you think? Here’s what the Washington Post had to say about real estate agents recently:

On [August 22], the quintessentially mainstream American real estate brokerage–Re/Max–went public. The housing market is hot enough, its initial filing explained, that raising investor cash could launch it into markets around the country it hadn’t yet reached.

But wait–real estate agents? Wasn’t the internet supposed to drive them out of business?

The online age has been hard on all kinds of middlemen, after all. Travel agents, for example, rendered obsolete by Orbitz and Expedia. Soft goods retailers, for another, outpaced by Amazon. The effect should be similar with people who sell homes: What do they have but what they know? And what of that can’t be better figured out through unbiased, publicly available data, crunched and presented on Web sites like Zillow and Trulia for free?

And yet, real estate agents are still with us. Sure, their numbers declined during the housing crash, and haven’t quite recovered:

Overall employment in the real estate sector. (Bureau of Labor Statistics)

Overall employment in the real estate sector. (Bureau of Labor Statistics)

But the sector may have been overinflated anyway. During the boom, real estate was considered a fast way to make easy money, and the unserious didn’t survive when sales dried up. “I think it benefited the profession, because it got a lot of people out of it that shouldn’t have been in it,” says Lindsay Reishman, who runs his own brokerage in Washington.

And now, according to the National Association of Realtors, agents are as widely used as ever: 89 percent of buyers retained one in 2012, up from 69 percent in 2001. It’s the same on the seller side, where only 9 percent sold a home without an agent, down from a high of 20 percent in 1987. According to the Bureau of Labor Statistics, they made an annual mean wage of $51,170, which is down from a high of $55,000 in 2008, but still up from $42,000 in 2003.

There are a few reasons why agents are still around.

– The post-crash world is more complex: The housing crash and ensuing tighter lending standards, as well as the prevalence of foreclosures and short sales, have made the average transaction harder to navigate without expert help. Getting financing and negotiating tricky contracts, for example, probably shouldn’t be done on your own. “There’s always something doing down the pike that makes the process more complicated,” says Scott MacDonald, who runs a Re/Max brokerage in Chantilly, Va.

– The internet improves productivity: When buyers can find out the homes they want through online research, an agent has to spend less time touring them around. Then, they can just come in and help with closing, and pick up the same commission. Some sites, like Redfin, offer lower rates for less wraparound service–but even Redfin decided last year to flesh out its bare-bones model to cover more home tours, and increased rates for buyers. (That could change more with services like Jason’s House, which allows agents to bid on buyers who only need a few specific tasks performed).

– The internet increases agent leverage over brokers: In most states, agents have to affiliate with a brokerage, like Re/Max, Long & Foster, or Coldwell Banker. But when they can self-promote online, they don’t need as much in return. “As agents over time were able to market themselves directly to the consumer, that puts the squeeze on brokers,” says Reishman. “Agents are in a position where they can keep more of their money, because they’re not reliant on the brokerage to get their business.” To adapt and add value, brokerages have scaled back on their office space–more agents now work from home, rather than a private cubicle–and offer trainings to deal with different market conditions, like house flippers and investors.

– People still don’t trust cheap things: Buying a home is a big decision, and people don’t tend to want to take a risk on a cut-rate agent, which is why there hasn’t been much undercutting or negotiation of commissions. “I think it does take place, but at least my bet is that at the end of the day, this is the biggest asset they’ve ever owned, so if you can make people believe you’ll handle that process correctly, people are wiling to pay for it,” says Reishman.  “I’ve been thinking seriously about saying, my commissions are going to be 8 percent, and people think, this guy is really good!”

Posted in RE News.

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