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This is Part 3 of 3 on how real estate agents must fundamentally change their industry. In Part 1 we looked at how bad the situation really is. In Part 2 we analyzed how agents are failing to respond profitably. In Part 3 we look at how agents can create a profitable business by delivering what customers need in today’s world.

PART 3 – Is There Hope?

Thankfully, there is still a place in this world for a real estate professional. But, not for the same kind of agent that existed 30 years ago.

What’s left for the real estate agent to do?

The traditional value proposition for agents was:

§  We understand the buying/selling process

§  We understand the general legal and paperwork requirements

§  We know the neighborhood

§  We know how to negotiate

§  We know the best price

Websites like www.forsalebyowner.com walk sellers through the process and incorporate the state-specific legal and paperwork required for $199-$899…a far cry from the $10,357 an average home seller pays in commissions today. Basic level neighborhood information is available on both government and community based sites, as well as www.apartmentreviews.net and similar review platforms. The “best price” is being estimated by Zillow, Trulia, Hotpads and numerous others. But, nobody likes to negotiate in America so we’ve still got that one…or do we?

A comparison of figures released from FSBO.com and Realtor.org show that FSBO-sold properties are selling on average for about 2 percent less[1] so it appears agents are justified to ask for up to a 2 percent fee to handle just the negotiations. What about the rest?

Luckily, there are places we can still add value. Here are four questions clients ask and how we can respond profitably:

Read the rest of this entry »

This is Part 2 of 3 on how real estate agents must fundamentally change their industry. In Part 1 we saw how bad the situation really is. In Part 2 we analyze how agents are failing to respond profitably. Later, in Part 3, we look at how agents can create a profitable business by delivering what customers need in today’s world.

PART 2 – Why are Agents Responding So Blindly?

You know how technology has changed the landscape:

§  buyers and sellers create their own mediocre-quality CMA online;

§  they view thousands of available properties and sort by every imaginable amenity;

§  they use Google Earth to do a virtual “drive by”; and,

§  they quickly uncover what previous owners paid and mortgaged through public records.

§  they have neighborhood and crime data at their fingertips and reviews of city communities via social web-networks.

In the face of technology’s offensive into the real estate agent’s traditional space, we’ve responded with a remarkable lack of insight and creativity. Instead of asking how the customer’s needs have changed, real estate agents focus desperately on getting more leads as if pouring more water into a bucket with a large hole at the bottom will solve the problem. Agents spend increasingly-scarce dollars to:

1.      Pour more marketing leads into the “top of the bucket”. They’re adding ever-more leads into a business proposition that has ever-diminishing value to the customer. Agents compensate by doing more transactions each year just to stay on par. The ultimate conclusion of this strategy is to work harder for less money. This is not smart business.

2.      Get noticed on social media and become a “recognized expert.” Without changing your underlying value proposition to buyers and sellers, these are hours wasted. Enjoy watching your list of (non-paying) blog subscribers climb higher. Having a “voice” in a blog is not the same as getting paid to provide a valuable real estate product to homebuyers and investors. As a business owner, you must keep your eye on CASH FLOW and things that make your profit-per-hour go UP, not DOWN.

3.      Leap on technology that is new or cool. Agents post widgets on their websites with dizzying quickness. Having a cartoon character calculate mortgage payments is sure cute, but it’s not worth the $10,357 an average home seller pays in commissions. Website traffic is not the same thing as cash in your hand, which you get by providing real value, not cute gimmicks.

Sadly, agents will not find redemption in lead generation. As my grandma used to say, “You can’t make a silk purse out of a sow’s ear.”  It’s time to re-evaluate what agents can do for money.

Tomorrow we’ll look at how agents can regain their profitable business by doing things that buyers and sellers will not or can not do for themselves…

This is Part 1 of 3 in a series on how real estate agents must fundamentally change their industry to find profitability. In Part 1 we look at how bad the situation really is for agents. In Part 2 we analyze how agents are failing to respond profitably. And, in Part 3 we look at how agents can create a profitable business by delivering what customers need in today’s world.

PART 1 – Real Estate Agent Revenues Plummet 17% While Expenses Double

According to an article in Inman News on Aug 27th[1], real estate agents argue that an increase in the technology available to buyers and sellers is eating away at the traditional 6 percent commission. Are they right, and should they complain? 

How Bad Is It?

Recent SEC 10-K filings by Realogy confirm what agents across the country know already—that average real estate commissions are down from 6 percent circa 2004 to 4.96 percent in 2007. That tremendous downslide equals $2,169 less commission on each sale, or $729 less going into the pockets of each agent on each sale, not counting inflation.[2]  So, the average real estate agent’s salary dropped from $27,323 to $22,587 due to an inability to command the same commission split this year as they did in years past. That’s a 17.3 percent pay cut!

Viewed another way, the nominal revenue-per-hour for a real estate agent dropped from $13.66/hr to $11.29/hr.[3] Adjusted for inflation, its real value has dropped $9.99/hr![4] You can make more money working as a salesperson at Walmart, a security guard at the mall, or a waitress in a bar. Married agents with two children are actually below the poverty line.[5]

While agent revenues plummeted, fuel costs rose from $1.69 per gallon to $3.93 per gallon and agents are spending nearly twice as much on advertising to funnel leads into their sales bucket. Well, there’s a hole in this bucket, dear Liza, and it’s called the “Agents aren’t that valuable anymore” hole.

Contrary to NAR fluff, the agency industry as we’ve known it is dying. An agent’s recourse? Redefine the industry, change the product they deliver, or get out.

Tomorrow we’ll look at how agents have responded to the looming crisis by blindly flailing around the Internet…