The Passing of an Era
The 1970s must have been wild times in the real estate industry. At the start of the decade the industry found itself in the middle of an interesting business model shift. Old school Realtors didn’t like the new franchises. They fought tooth and nail against “big business” getting into real estate. While franchising wasn’t new in other industries, the founding of Century 21 in 1971 and the development of RE/MAX, shortly thereafter, cemented franchising’s place within the industry with an almost cult-like zeal. By 1977, the US had 5,000 independently owned and operated franchises. Obviously, the old guard wasn’t very successful at holding big business at bay.
In 1978 the average age of a real estate sales agent was 42. This makes perfect sense as the boom in franchising was driven by people who were in the prime of their professional careers. Interesting to note, agents during this time were working with buyers and sellers who were basically their same age.
By 2000, the average age of a real estate sales person was 50. The age delta between agent and customer (buyer/seller) is skewing older, but not so much that it leaps over generational divides. At this point, a little age can be viewed as bringing wisdom and experience.
In 2012, the average age of real estate sales person is 56. Obviously, the age delta continues to widen but more importantly, perhaps for the first time, we have agents and buyers/sellers who, for the most part, are of different generations.
Is it fair to say many consumers would prefer to have business relationships with people closer to their own age? Probably not, but today’s Generation Y’s are all hitting their 30s and are the prime age to be in the market for real estate. In choosing a real estate agent, do Gen Y’s really want to work with their Mom and Dad?
Generation Z is probably ten years away from being considered real estate purchasing prospects. It’s pretty easy to see that, for the sake of the entire industry, the average age of real estate sales people must come down. It doesn’t take a genius to realize, the industry can’t continue its current path. Real estate desperately needs younger agents.
Not so Groovy Anymore!
Before everyone rushes out and begins recruiting high school graduates, realize change will not be that easy. What makes anyone think new Gen Y agents will embrace, in any significant numbers, the business models and practices of their grandparents. That’s right, both the agent/broker, and agent/Realty Board business models are rooted in the wild and wooly days of the mid 1970’s.
Arguably the single largest contributor to the aging agent workforce can be found in the disconnect between the business models and messages of the 1970’s with the younger sensibilities of the Internet-enabled, turn-of-the-century agent. Desk fees, franchise fees and the concept of a commission split are all artifacts of the double-knit era. All of those ideas made perfect sense in 1974. Few of those ideas make much sense in 2013. Today’s young professional, “thinks” very differently from the young professionals of 1974.
Today’s younger agents represent the real estate industry’s first generation that is truly technology and information driven. Previous generations didn’t have much in terms of technology and industry information was far from being open and readily available. While the grandparents of today’s younger agents may not have, “trusted anyone over 30”, it appears the generational malaise and distrust has shifted, i.e. the Occupy Movement, from the individual to the corporate institution.
Tell a young person today they have to pay $500 dollars a year to join various Boards or associations and they will ask you, why? If the response to this question is filled with flowerily language and “marketing-eze” that does not readily demonstrate value; it’s a pretty good bet they are not going to buy into whatever is being sold. I am not saying those in 1974 didn’t question authority, they are famous for it after all, but there really weren’t any alternatives for that generation. It was, what it was. Today we have options.
Today’s agents, in some markets throughout the country, are no longer forced to join realty Boards. They are willfully giving up their ability to use a capital “R”. Today’s agents have a wide variety of commission splits, from the truly oppressive 50%, to the easy to digest, flat-fee. Agents who don’t want to pay franchise fees don’t have to. They simply don’t join a franchise; there are plenty of independent Brokerages.
The want for change is clearly evident. Need more proof? Spend any amount of time on Activerain or other electronic realty communities and follow the industry-related threads and blogs. There you will find not only an overwhelming amount of frustration and negativity but also a strong chorus for change.
Change – From Where?
Everybody talks about change because it makes for such wonderful rhetoric. But truth be told, very few people, particularly in real estate, have the power to affect even the slightest change. In theory, sales agents can create change, but in all practicality they are powerless. Agents are powerless, in large part, because the nations largest industry group who speaks on their behalf doesn’t like change.
Brokers can create change. As a matter of fact, most of the non-technical changes the industry has seen in the last few years, come from regionally focused, community involved, independent Brokerages. It’s at this level in the industry where the debate on change is most active. The industry has plenty of 1970’s style brokerages still feeding off the 50% split with a side order of franchise fees. In what hurry are these brokerages to make any change? The demographics tell us these types of brokerages skew older, and who wants to “rock the boat” at that stage of their career? Younger brokerages looking to create new or alternate types of business models are unfortunately hampered by the brokerage business models established generations ago.
As it has in the past, data, or rather access to data, can change everything. But, who controls data? If MLS informational capability were ubiquitous, independent, free and open to everyone it would significantly change the face of real estate. Will it happen? Not a chance!
The United States has roughly 900 independent MLSs throughout the county. The fractured landscape of the MLS industry ensures promoting a more unifying and open approach would surely be an uphill battle. If only agents and brokers had an industry trade group that would help promote their interest over that of the MLS companies. That would be helpful. That would also be virtually impossible. In the United States, the National Association of Realtors (NAR) owns 80% of the country’s MLSs. Do you think that is a conflict of interest? Well, if you agree with NAR, there is no conflict.
A free and open approach to MLS data is in direct conflict with business interests of the MLS companies. We may have needed 900 MLS’s at some point in our past, but we also used to need a telephone cord. Does that mean we should require all new cell phones to be “attached” to something? Change in how the industry looks at access to MLS data is not welcome. And, considering 80% of the country’s MLSs are owned by NAR, change isn’t likely to happen.
Are you Kidding Me!
If you think any significant change is coming from NAR, you may want to look at their most recent selection as their President for 2013. Is he the harbinger of change? From NAR’s million members, and tens of thousands of career professionals, NAR taps the guy who the Santa Ana bankruptcy trustees claim diverted and concealed over $500K before filing for a 13.2M bankruptcy. I am sure it’s a simple misunderstanding sensationalized in the press. But, somewhere, in some boardroom, members of NAR were saying; “that guy who filed for bankruptcy taking more than $13.2 million dollars of other people’s money, I think he’s our leader!”. Could there have been a candidate with more “good old boy network” stink? Again, if you are trying to recruit younger agents, is this the candidate you run out there to inspire and lead a younger generation?
In the near term, the average age of a real estate agent will continue to rise. Every day there are tens of thousands of baby boomers either retiring or looking for part-time opportunities. Since getting a real estate license is extremely simple, look for a lot of younger senior citizens to sign up. It makes fiscal sense for the retiree and the real estate schools would certainly be on board with a surge of retirement-age students. All that said, it shouldn’t be much longer before the average age exceeds 60 years. At what point do you begin to wonder if the demographics of realty offices will begin to mirror the demographics found in those temporary H&R Block offices staffed with Nixon-era CPAs?
While the short term may see a rush of new senior-aged licensees, a longer view does have the average age of sales agents eventually receding. Not to be crass, but those responsible for how the real estate industry still operates will, at some point, all die. And since, the current industry has failed miserably in attracting younger agents, the entire industry will experience significant constriction. Retirement is going to cost the industry 100,000’s of agents in the next 10 years. NAR is already beginning to deal with the loss.
NAR admits their membership numbers have fallen below one million members; down from their high of 1.4 million members in 2007. NAR blames the industry slow-down and agents leaving the industry for the drop in their membership. Oddly, or rather as expected, NAR doesn’t even acknowledge the number of active agents working within the industry who simply elect to no longer pay their dues as a potential reason for their membership loss.
It is impossible to hide from it, but the aging workforce tells us change is on the horizon. Changes the industry took on during the early 70s steered the industry on a good course for over two generations. One can only hope today’s industry, and whatever changes they take on, will fair as well.
Change will need to come from the outside, and in the case of the real estate industry, that means from sources away from NAR. NAR is not going to change and will spend whatever it takes to fight change. It is extremely difficult to get away from NAR as they have their fingers in virtually every aspect of the industry. By design, they have made change extremely difficult.
Where the next wave of business models will come from is unknown, but one interesting glimpse of “potential” change comes from the recent announcement of RealtyTrac’s newest brokerage program. They are selecting exclusive brokerages around the country to work the sales side of their information company. Why is this significant? When was the last time national brokerages jumped to another’s snap? Especially jumping to the snap of someone not associated with NAR. An information company having the power to affect real change within the real estate industry is an exciting new dynamic. And, the fact this industry power player is not beholden to NAR brings both hope and optimism.