The Danger Report

Danger Report

I have a copy of this year’s Danger Report. Danger stands for: definitive analysis of negative game changers emerging in real estate. The Danger Report is a yearly look at threats that could impact the residential real estate industry in Canada. Here is a summary.

 

Dangers impacting salespeople 

1. Commissions

Consumers are flabbergasted that sales commissions are so high. At the same time, many people feel that professionals should be paid on a fee-for-service basis like doctors, lawyers and accountants.

2. Technology

Young homebuyers are demanding more online interaction with real estate salespeople. Baby Boomer Sales People and those that are slow to adapt are getting pushed out.

3. Regulation

You used to be able to write up a real estate transaction on a couple of pieces of paper. Real estate salespeoples’ moral and productivity are suffering under government intervention.

4. Marginalization

Incompetent, poorly trained or part-time salespeople destroy industry credibility. Commissions reward sales not quality of work.

5. Commoditization

Consumers see no real difference between different salespeople and brokerages and sometimes select whoever is cheapest. Consumers don’t want another postcard or email marketing message. They want to work with someone who really cares about them

6. FSBOs and DIYs

The do-it-yourself model of selling a home makes up about 10% of the market. These services aren’t very good (yet). It is possible that new apps and platforms could be developed for consumers to make it easier to go it alone.

7. Pareto Principle

The 80/20 rule states that 80% of the sales are done by 20% of the realtors. With approximately 1600 real estate agents in Waterloo Region I’ve often marvelled that I see the same 300 over and over again. A recent study on sales and commissions found that 64% of the sales are done by just 4% of the agents.

 

Dangers facing brokerages

The traditional brokerage model is under a lot of pressure. Like the newspaper and other old industries, brokerages have overhead costs and inefficiencies that cannot compete with the emerging technologies. Conflicts are created because of the excessive fees agents must pay their brokerages while at the same time reduced resources are being offered to agents. It is a downward spiral.

Furthermore, real estate is becoming technology driven, but brokerages are slow to adopt new technology offerings for their agents and consumers.

Real estate teams are rushing into the void and are behaving as brokerages. Teams are becoming brokerages within brokerages and essentially eating their broker’s lunches. The brokerage model is broken and outdated and unchanged. It is time for a change. But what?

Of course, brokerages faced with these financial and other pressures are forced to add resources. But what are resources for a real estate brokerage? Real estate agents of course. So brokerages go on recruiting binges, hiring as many salespeople as possible, knowing that most will fail, but most will generate at least some revenue for the brokerage. Real estate agents are not employees of brokerages, so it costs virtually nothing for brokerages to hire as many agents as they can. It is all a big numbers game.

And the big brokerages still dominate the marketplace. They do not want to give up the power and dominance they have. Two-thirds of realtors work for the four biggest brokerages. There are more and more boutique and niche brokerage but we are battling against the big machine.

 

Dangers facing Real Estate Boards and Associations

When information travelled slower and more arduously than it does today, boards were the compliers and distributers of local real estate information. Boards were also where meetings were held and update courses were offered. All that is online now.

Real estate boards protectionism tendencies kept real estate local for a long time, but lately that is starting to crack too.

Frankly I don’t know what local real estate boards do. But I do know that they are the lowest tier of our governance structure.

 

Dangers facing the MLS

There are also dangers facing the MLS. Once someone figures out a way to get information about homes into the hands of consumers, the current system is going to fold up like a cheap suitcase.

 

Read the entire Danger Report here

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