Disrupting the Real Estate Sales? Will RE Agents be extinct?

96 Replies

I am curious on what BP members think the impact that growth in real estate investing, wholesaling, and direct-buy practices is having on the old agency-model of buying/selling? Has anyone come across any articles or research on the subject?

I heard, about a year ago, that 38% of all residential real estate transactions occur without involving an agent. This is a big number but I have been unable to find any supporting information.

Of course, there are some areas of the country that still operate like it is 1990 and agents/brokerages are just terrible. I was in one market where NO agency would accept any paperwork that was not originated on the state Association of Realtors forms/documents. Not even LOI and other docs we, as investors, use and rely on. Based on observed changes, are these folks dinosaurs destined for near-term extinction or will there always be a big part of the RE industry operating this way?

Thoughts? Empirical evidence of information? Opinions?

92% of transactions are run through agents. 8% roughly do not involve agents, and half of those are family to family sales. 

If no agency would accept your paper work, maybe the problem then was on your end and not on the 100% of people who were in agreement to not take your paper work. 

Russell Brazil, Real Estate Agent in Maryland (#648402), Virginia (#0225219736), District of Columbia (#SP98375353), and Massachusetts (#9​0​5​2​3​4​6)
(301) 893-4635

I've seen this question time and time again and as a real estate agent myself I believe agents would never disappear. With the peek of the technology boom in real estate it still doesn't change the fact that real estate is an interpersonal/relationship-based business. In fact there are still older real estate agents that don't use email, the internet, or text messaging and they still are conducting business. How? or Why? Well people still want a physical human being to help them in their home buying/selling process. 

@Russell Brazil - I always appreciate feedback but maybe need to add something to clarify. The paperwork I use is the same paperwork used in other markets with no issues. Done be a respected RE Attorney who actually was on the Commission and drafted the state's own forms. Example: I have a Letter of Intent that I use. It is not binding but is a BIG help to everyone to get to basic terms (price, closing time, contingencies) before time/effort is spent on a longer (22 pages) and more formal (combo of 36 initials/sigs) Purchase and Sale Agreement. Its a pretty standard tool with investors. In this single area, agents won't even accept it to pass to their clients. As an investor, I make many initial offers and only a smaller percentage is accepted. That is why we use the LOI.

In Orlando and Jacksonville, it seems to be based on the brokerage as to whether they will work with any docs other than their own. In Maryland, its the same. I used my own docs for a few deals and closed one, but also had a few cases where agents looked at me like I was a Martian when I handed them my own paperwork.

In Ohio, I once used a paper towel at a lunch to hammer out an LOI on the spot. I got the signed paper towel back the next day and we went on to do the Purchase Agreement. I wouldn't do that all the time, but had already gone through 5 LOI's that morning (1 of which closed) and then promptly dropped my folder in a mud-puddle losing my remaining copies.

The 92% figure helps me with perspective, thank you. Can you please share the source?

When you hand someone a contract not on a standard form, you are handing the seller a bill. Here, hire a lawyer at $350 an hour to interpret this contract....or you can put it on the standard forms for that area like everyone else does. When I buy a property in Massachusetts, I dont use a Maryland contract, regardless of who wrote it and how good it is.  I dont even use the same contract in Western Maryland as I would in Eastern Maryland. I use the contracts that the agent wants to see them on, not the one I want to see them on.

8% is a well known stat. Google 8% fsbo and you will find 100 different sources quoting that stat.

Russell Brazil, Real Estate Agent in Maryland (#648402), Virginia (#0225219736), District of Columbia (#SP98375353), and Massachusetts (#9​0​5​2​3​4​6)
(301) 893-4635

Thanks for pointing that number of 8% our @Russell Brazil . I did search it and read quite a few items that include the number. But, it is statistically incorrect to say that 8% of real estate transactions do not involve agents. It IS correct to say that 8% of people looking to sell their homes do not use real estate agents; that is an important difference.

And with all due respect to the many professionals in the RE space that do their jobs well, every reference to the number I found was provided by either an association for realtors or a realty company. It might be 100% accurate? But I cannot accept it from sources that have a vested interest in it any more than a research survey showing soda is good for your health that was sponsored by Pepsi or CocaCola. 

Any independent numbers or reports you know of? I have no agenda, just genuinely want to know.

@Chuck Kramer

I don't think RE Agents will be extinct, on the smaller investment size they may be dwindling, but retail homeowners need help since they are only transacting a couple of times in their LIFE. 

That's just the SFR side of things! There are so many more niche's in real estate, I would not want my pastor looking, negotiating, inspecting, paperworking (lol) a new church site by himself...

Deren Huang, Real Estate Agent in OK (#173779)

Thanks @Noel Challenger ! I totally agree that people want, and most need, that human touch on such an important transaction.

@Chuck Kramer The vast, overwhelming majority of licensed real estate agents are either part time or retired.  I seem to remember something above 80%.  In my opinion, many treat real estate as a hobby.  

Those of us who are full time (or more) in the business are not going away any time soon.  There's just too much local knowledge that doesn't lend itself to automation, meaning that those who rely on Zillow, Trulia, Realtor and other online resources, etc, just won't get the same level of service that they will from someone with boots on the ground.

I spend an enormous amount of time talking clients OUT of properties.  I do that because that's what I'd want someone to do for me - and I have the kind of detailed local knowledge my clients need to make good decisions. 

Here are a few examples:

I know which part of a place like Brockton is in the war zone and which part is really nice - and I know it down to the street level.  

Likewise, I know that many (perhaps most) of the cottages-cum-year round homes in Pembroke were built on insufficient foundations.  Placing a cinder block on the sand doesn't cut it.  The tilting floors are a give away.

I know that you don't want to be to the northeast of a cranberry bog as pesticides sprayed by helicopter are carried by the prevailing southwest winds.

It's that level of detail that automation just won't be able to replace.

I agree that the old school style of brokerage with the big office with plate glass windows on Main St might want to re-think things.  The high overhead used to be justified as walk-ins were a great source of business.  People passing by would see your listings plastered up against the big window and walk in.  In 1985.

Now, in 2018, people are sitting on their toilet, flipping through Zillow.  The plate glass window and the $10K / month overhead is no longer necessary.  In fact, smaller brokerages like Zip (now owned by Coldwell), eXp and smaller brokerages like mine are "cloud" brokerages.  Wherever my cell phone and iPad are, there's my office.

Things have changed and serious agents have and will continue to adapt.  But we're here for the long haul.

Charlie MacPherson, Real Estate Agent in MA (#9532146)
781-412-4151

@Charlie MacPherson Great answer and information! 

Are you familiar with Zillow's coming experiment in allowing buyers to purchase right off of Zillow without their own agent?

In an era where people are wanting free or much lower cost services via online and automation, is this a real threat?

I am thinking about how technologies have severely disrupted industries like the recording industry, cable TV, auto sales, taxi/limo services, food ordering and delivery, investing, etc. We older types cling to them - largely because we value the personal interaction, but millennials are consistently eschewing the old ways for the new and are the largest demographic.

@Chuck Kramer   I have, but Zillow is simply not going to be able to provide the same kind of service that a good buyer's agent can.  Same goes for Amazon.

No doubt some people will be just fine.  It's when things get wrapped around the axle that those buyers will need a good, experienced agent to bail them out or to hold a tough deal together.

Still the smart agent will diversify their income.  I'm doing flips, selling residential real estate and brokering businesses.  That prepares me for the market taking another nosedive or for a major disruptor like Zillow or Amazon.

Charlie MacPherson, Real Estate Agent in MA (#9532146)
781-412-4151

Amazon changed retail drastically .   It wont be long for Real Estate 

@Russell Brazil   since I got licensed in 1975 I have seen a lot of coming and going. I remember when Help U sell was going to change everything :)

If Zillow goes into selling real estate then they will have to also be licensed brokers in each state and have the same compliances that brokers have.. they can't just be some massive wholesaler LOL

that wont fly.

as for wholesaling this I think is really going to take a hit.. at least the way its done states are cracking down .. and actually going to start following the laws on the books.

here is a little snippet of a conversation I had with my state of Oregon department of real estate investigator this week

The Agency is well aware that unlicensed “wholesalers” are rampant in our jurisdiction. Addressing the problems is like trying to put out small individual fires in a forest that is burning. The Agency’s investigations are complaint driven, so we rely heavily on the public, and our licensees to bring these individuals to our attention"

So as long as Zillow or anyone else who for compensation is going to bring two parties together is properly licensed then its all fair and the market will decide.

@Chuck Kramer To draw a small parallel of the extinction of dinosaurs, look at the recruiting industry.  When Monster.com came out (and tons of other online job boards) it was going to "kill recruiting agencies" and "kill recruiters".  Who would need them?  Candidates will just beat a path to their door.  Years later it was LinkedIn.  Monster.com didn't work but now everyone would be on LinkedIn and, again, recruiters would be devalued and go the way of the dodo.  Sure there are shifts in markets (recruiting and real estate) but the large recruitment agencies still exist and do well, they still get 25%-33% fees, and really the "model" hasn't changed a lot.  Now the talk is about is about AI or machine learning algorithms to predict everything from "fit" to when a candidate will be open to leaving their current company.  What has changed?  Well, it's really easy to spam job applications now.  

How does all of this create a parallel to real estate?  Well, it's super easy to spam out low-ball offers.  If these new wholesale-ish products from Zillow (and others) take off then it will be even easier.  Right now it's easy for anyone to find out contact information, find a listing realtor, make all of those inquiries through Zillow, and toss out a verbal offer.  You can do the same through fsbo sites that have been around for years and years as well.  But the net result is that while "leads are increased" the "quality of leads" likely hasn't moved.  So an owner selling ends up with a bunch of white-noise.  Post something on Craigslist and see the quality of interested buyers that come in.  

What is going to happen is a good amount of confusion for anyone going through the buying and selling process.  Do they want to get an instant offer on Zillow?  Do they want to sell it themselves?  Do they want to use a realtor?  Do they want to sell fractional ownership (start-ups are entering into that space now)?  And all of these questions will come up during the 5-6 times they buy/sell a home during their life.  

So they'll likely (in almost all cases) seek out the "dinosaurs" that do this stuff all day...everyday...and look for guidance...guidance that will cost them 6% on the sell-side.

That said...I really want to call @Russell Brazil a "dinosaur"...just once...just for fun...

--------------

Not for nothing, but Russell is right about the desire for standardization. Let's say that I am an owner (which I am) and I wanted to sell. The last thing I want (no offense to your practice) is someone writing out LOI terms of a paper towel, signing it, handing it to me and expecting me to equate it to a generally accepted contract that's legally enforceable. Okay, that's a little hyperbolic as I know it's not your "standard procedure".

But the last thing I want my realtor to tell me is:  "I received an offer but it's not the standard contract language that we use in our state, let me read over this and get back to you."  That just makes me think: a.) what's in the contract that the buyer might be hiding, b.) I should probably read this contract myself, c.) I should probably pay a lawyer $500 to read this contract for me, and then d.) start asking myself why a buyer who was serious didn't use whatever is "standard" for the region/state.        

Originally posted by @Matthew Paul :

Amazon changed retail drastically .   It wont be long for Real Estate 

Retail was not a licensed profession.

Professional licensing is designed to protect the public. I don't see public protection schemes being replaced by unlicensed technology. 

I could be wrong but thinking for a minute here and I'm not able to come up with a licensed profession that has been completely replaced by the internet or some other technology. Stock brokers and insurance agents still exist and the good ones do quite well. 

Maybe you can think of one...

Originally posted by @Tom Gimer :
Originally posted by @Matthew Paul:

Amazon changed retail drastically .   It wont be long for Real Estate 

Retail was not a licensed profession.

Professional licensing is designed to protect the public. I don't see public protection schemes being replaced by unlicensed technology. 

I could be wrong but thinking for a minute here and I'm not able to come up with a licensed profession that has been completely replaced by the internet or some other technology. Stock brokers and insurance agents still exist and the good ones do quite well. 

Maybe you can think of one...

 8% of retail sales are online.  Amazon is an amazing company, but let's keep it in perspective.  Even Amazon realizes the market for retail is still largely not online as they opened a bunch of store fronts in the past couple weeks across the country.

Russell Brazil, Real Estate Agent in Maryland (#648402), Virginia (#0225219736), District of Columbia (#SP98375353), and Massachusetts (#9​0​5​2​3​4​6)
(301) 893-4635

@Tom Gimer  The concept of Amazon 15 years ago was unheard of .  Same with Uber which has hurt the  licensed Taxi industry .  I am a state licensed professional contractor , but I compete with unlicensed hacks and illegal aliens .      We have the wholesaler who is selling a contract , not the property . This is walking such a fine line . The consumer goes for the best price . 

tThings change over time  Some individual will come up with a concept that puts a hurt on agents and saves buyers and sellers money . Its only a matter of time . it wont be next week or next year . 

Originally posted by @Jay Hinrichs :

@Russell Brazil  since I got licensed in 1975 I have seen a lot of coming and going. I remember when Help U sell was going to change everything :)

If Zillow goes into selling real estate then they will have to also be licensed brokers in each state and have the same compliances that brokers have.. they can't just be some massive wholesaler LOL

that wont fly.

as for wholesaling this I think is really going to take a hit.. at least the way its done states are cracking down .. and actually going to start following the laws on the books.

here is a little snippet of a conversation I had with my state of Oregon department of real estate investigator this week

The Agency is well aware that unlicensed “wholesalers” are rampant in our jurisdiction. Addressing the problems is like trying to put out small individual fires in a forest that is burning. The Agency’s investigations are complaint driven, so we rely heavily on the public, and our licensees to bring these individuals to our attention"

So as long as Zillow or anyone else who for compensation is going to bring two parties together is properly licensed then its all fair and the market will decide.

 Zillow cant even exist as a company without real estate agents.  #1 source of income for Zillow is selling leads to real estate agents. And Zillow get's it data from those real estate agents. A few boards have actually stopped syndicating to Zillow in a mini rebellion.  Their leads are extremely expensive, and low quality. They are going to need to start playing even nicer with agents to continue their business.

Russell Brazil, Real Estate Agent in Maryland (#648402), Virginia (#0225219736), District of Columbia (#SP98375353), and Massachusetts (#9​0​5​2​3​4​6)
(301) 893-4635

@Andrew Johnson   we just got an offer on our land In Rohnert park from a developer out of sacramento.. it was a customized contract that they put together.. not on CA standard forms .

but it gets the job done.. I countered it with a letter .. not a standard counter offer form..

it all works.. contracts are contracts..

although I have written many a contract in my land days on the hood of my Toyota 4 runner LOL..

but it was a custom land sale form that my dad created in the late 60s .

Originally posted by @Matthew Paul :

@Tom Gimer  The concept of Amazon 15 years ago was unheard of .  Same with Uber which has hurt the  licensed Taxi industry .  I am a state licensed professional contractor , but I compete with unlicensed hacks and illegal aliens .      We have the wholesaler who is selling a contract , not the property . This is walking such a fine line . The consumer goes for the best price . 

tThings change over time  Some individual will come up with a concept that puts a hurt on agents and saves buyers and sellers money . Its only a matter of time . it wont be next week or next year . 

 There are already business out there that save buyers and sellers money.  The problem is every recession half of discount brokerages go bankrupt.  Redfin is a good exampple...and they lose $3,000 on every transaction they do.  At some point they have to actually make money and stop taking angel investors money to survive.

Russell Brazil, Real Estate Agent in Maryland (#648402), Virginia (#0225219736), District of Columbia (#SP98375353), and Massachusetts (#9​0​5​2​3​4​6)
(301) 893-4635

@Jay Hinrichs Maybe your story is illustrative of one of the differences.  You and the Sac-town guy were having a "developer-to-developer" conversation.  In essence, you speak the same language but maybe with a slight difference accent. 

I think mine is driven from the "amateur" perspective.  I think I know a decent amount about real estate but I wouldn't be comfortable doing what you did.  It might also help that (if memory serves) your wife is a realtor.  Maybe that's a moot point, who knows :-)  But let's say I classify anyone with my experience level (or less) as "amateurs".  That's a really broad group of people that might have hesitations around customized contracts that would disproportionality value a standardized contract that my expert (i.e. realtor) has dealt with 100 times before.

But I do 100% agree that contracts are contracts.  There can be 1,000 ways to get the job done.  But I still think if I were looking at something "non-standard" for a sizable transaction I'd go down the lawyer route.  And if I didn't do it often I don't know that I'd have a "go-to lawyer" to review those things.

So then I'm back to find a lawyer, pay the lawyer, try to comprehend whatever the lawyer finds (or doesn't), etc.  And I do think that for the purposes of real estate transactions that a ton of people use realtors and their standard contracts, processes, etc. as a "stand-in" for a lawyer.  Just my gut feeling, no data supporting it!

Now if I was selling land for $5K a pop (I know that's not your game but some people do it via Craigslist) then I'd care less, a lot less, and might be groovy with anything DIYish.  So...there I am...now presenting myself as a hypocrite :-)

@Charlie MacPherson Agreed. But the way I read your reponse, it is thta the smart agent is prepared to leave, or minimize, the residential RE market.

@Andrew Johnson Funny that you called out the recruiting industry as I have a lot of experience with it in the mid-Atlantic area. Its dead there. Completely dead. Recruiters have become contractors and subcontractors across the board. Even the old “employment agencies” are long gone. It cou,d be said thatbghey were dinisaaurs and evolved into birds ;)

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