Stepping out of the spin zone – Part I – What ails the real estate industry?

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December 17, 2010
Real Estate Issues
Stepping out of the spin zone – Part II – One possible solution to what ails us.
December 21, 2010

The Spin ZoneThis is a post that I was initially going to put exclusively on a forum for real estate professionals.  Real estate services are far from what they should be in many cases.  I decided to post these concerns here in the hope that it will create more transparency and afford the public an explanation  – if not apology – for some of the “salesy” stalking behavior that agents tend to engage in.

In truth – I have written on this topic before:

Face to Face vs. In Your Face

Is the service provided worthwhile or necessary?

Given the monumental changes that the internet has created in the way we do business,  this question needs to be addressed up-front.   To this I can say “YES” – without a doubt.  There are so many moving parts to a real estate transaction that consumers have no idea just how much they need us.  Particularly in these difficult times – getting transaction to a closing table is an obstacle course that is tough enough for seasoned agents to handle.  It is small wonder that so few FSBO’s actually succeed.  Further, the emotional and financial stake that buyers and sellers  have in the transaction also  exacts a toll and can create stalemates and kill deals.  In a market that is largely stagnant,  this  can cause a home to linger on the market for years.  If the market is depreciating – this can cost sellers dearly.

 

Is the real estate industry broken?

I would say that it is.  But everyone has their own definition of broken.   These days saying something is “broken” has become something of a cliche.  Sometimes it seems as if  everything is broken in one way or another.  The banking industry is broken,  Wall Street is broken,  the federal government is broken….and the list goes on.

I define an industry  as “broken” when its primary  focus diverges substantively from its primary mission.  The real estate industry is first and foremost a service industry.  Its primary function is  supposed to  be to facilitate the sale or purchase of a person’s single biggest investment – their home.   That should be the primary mission of agents, brokers and brokerages.  But given the fierce competition within the industry this isn’t the case at all.

The elephants in the room on this issue are…..

Serving or Self-Serving

“We are in the lead generation business!”

How often have I heard that phrase? Every DAY since I got my license it seems – well – almost every day.

Real estate strayed from its primary function long before the market tanked.  Right now what I see is an industry focused inward in a Hobbesian “each against all” mentality.   Agents glom on to every prospect they can get their hands on. Brokerages glom on to as many agents as they can get their hands on.  For brokerages its long been a more the merrier world in which keeping the rank and file nice and hungry and on low splits boosts their bottom line.  Agents are being moved around like chess pieces in this current market.  One brokerage recruits agents from a faltering brokerage.     In our present market – brokerages are luring agents  right and left with whatever it takes to fill their offices.    If you have a license and can fog a mirror – you can find a brokerage that will take you. In fact, you are likely to find multiple brokerages willing to take you – even if you haven’t sold anything in over a year.   But what happens to quality control in a situation like that?

At the level of the individual agent – things are not any better.  Everyone is clawing all over each other trying to grab hold and hang on to any business they can get their hands on.  Newer agents work overtime trying to peel clients away from long-time practitioners.  Long time agents spend a lot of time disparaging newer upstarts that are hurting their bottom line and the dabblers are everywhere.   But do they add value?  No – probably the opposite.  All seem to tout the virtues of their brokerage even though agents who do this have often been flipping brokerages like people flipped houses during the boom.  I have mentioned this as a potential red-flag when agents  start every sentence with “My brokerage offers….”

The growing lead aggregation business.

The problem continues with lead aggregators. It started with CARTUS – back in the day.  Someone told me they used to charge 25% fee?  Now they want an extortionary bites of the pie  and even if the client found you themselves – they insist on huge chunks of commission or they won’t play ball with the client’s relocation fees.  I’ve seen posts where its in the 40% range.

Then there are the neat sites like Home Gain where they have a website with tons of links so it ranks high. Sites like this promise to hook up a consumer with their preferred list of agents.   So the consumer heaves a sigh of relief thinking that these sites are actually filtering out the  noise and referring them to the best and brightest.  They sign on and find themselves inundated with either buyers agents or offers of a CMA.  Selection? What selection?  Most of these sites simply  grab any agent willing to fork over 30% of their commission for a shot at a lead that has been sent to hundreds of other agents.   What does this accomplish for the client?  In most cases it actually selects for agents who are in dire need of business whether they be good, bad or indifferent.

Now Listing Book seems to me to be poised to try and capture leads with a blog site.   Since when is an IDX a lead aggregator?

Here is the bottom line. It takes a mountain of time, effort, negotiation, leg-work, money and patience to shepherd what amounts to a raw lead into  a  client and then to a closed sale.  Consequently – When  a raw  lead becomes worth 30%-40% of an agents commission – even if only new agents or underperforming agents –  you have a serious structural problem.

The angry real estate consumer…

To the average consumer this is  just a big mess. As long as brokerages bring in anyone the gray matter of an insect or better -choosing an agent will be a crap shoot for the general public.    Its difficult to tout the value of having a “professional” handle such a large transaction – when agents are crawling all over each other in a very unprofessional way acting like sharks who are looking at consumers as if they were “chum.”  The consumer feels like they are the bait in a feeding frenzy.

Put yourself in the shoes of the consumer for a minute.  They are bombarded by pitches and salesy behavior.  I’m not just talking about mailers – People calling them, knocking on their doors, relentlessly pursuing them after they attended an open house.  I am meeting major resistance at open houses about giving up information – even an email address.  I’m sorry, my client has a right to know who went through their home!  If there is a problem I need to know who went through their home.  So I’m turning people away who won’t cooperate.  This stymies sales and creates nothing but problems for buyers  just trying to get a feel for the  market.

These are all symptoms of serious issues within the real estate industry.  They have a direct impact on real estate services.  In my next post – I will suggest a potential solution.  Sadly, the powers that be have no real incentive to enact change.   The status quo is all too comfortable for large brokerages and NAR.  Any major changes would require a substantial grass-roots effort so I’m not holding my breath.

Further Reading:

Face to Face vs. In Your Face

“Lead Generation is what selling real estate is all about, plain and simple.” (Seriously?) – Jennifer Allan

If Tomorrow Never Comes – John McArthur

 

© 2010 – Ruthmarie G. Hicks – https://thewestchesterview.com –  All rights reserved.


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