What a fantastic read for consumers AND real estate agents.... the burden is on all real estate agents to educate the public, if survival remains an option in the future.....
I am going to get nostalgic for a moment. When I was young, I loved watching Bugs Bunny, Daffy Duck, Porky Pig, and all the other Looney Tunes characters from the golden age of animation. Looney Tunes is still around on TV, but the shows produced from the 1940s, 1950s, and 1960s are far superior to what we see today.
Some of my favorite Looney Tunes episodes were the many battles and escapades between Bugs Bunny and that famous rabbit hunter – Elmer J. Fudd. One phrase used by Bugs over and over when Elmer would try to catch that “rascally rabbit” for his rabbit stew dinner was “You know, this means war!” Bugs was always ready to take on Elmer whenever he felt threatened. Bugs Bunny always seemed to win.
So, why am I writing a real estate blog with an introduction talking about cartoon characters? Shouldn’t I be discussing topics centered around real estate? Well, as I peruse the headlines on Inman.com, RISMedia, and other news outlets over the past few weeks, I feel we could be heading toward a showdown like Bugs and Elmer involving a few industry players as well as consumers in preserving some of the fundamental cornerstones of our profession. Redfin, Zillow, Opendoor, and others are attempting to change how properties are listed and sold. Lawsuits have been filed by consumers attacking our compensation, especially commissions paid by sellers and earned by buyer agents. Like Bugs Bunny, we might be coming to a point where some in this business might begin screaming, “This means war!”
I don’t think any of us are going to grab our favorite firearm and go after those who are attempting to change the way we do business. But if agents who have been in the industry for any period of time are going to remain in it and survive, they must wake up and realize some companies are working diligently to disrupt our business and how we work with prospective buyers and sellers.
I recently wrote in a post on my personal blog how a consumer in Minnesota had filed a class action lawsuit against the National Association of REALTORS® and several of the larger real estate companies including Realogy, RE/Max, Keller Williams, and others. Since then, additional lawsuits cropped up from consumers in other parts of the country challenging how compensation is shared in a transaction with a buyer representative and the impact it has on the seller’s bottom line. I am expecting more of these suits to be filed as well as others attacking our current methods of real estate practice.
The New Paradigm
I believe we may be finally reaching a point where we, as real estate professionals, are just now realizing we have done a very meager job of informing and educating the consumer – and the media – on the benefits of a buyer or seller utilizing our professional services. Over the years, we assumed our industry was safe and far from being dismantled and turned into something entirely different.
The real question we must ask ourselves is a simple one: “Is it too late to change the perception the prospective home buyer or home seller has of us?” Maybe yes, maybe no.
Unlike many sectors of our economy, real estate is an essential foundational component to economic stability and prosperity in the U.S. Real estate effects other industries such as construction materials, furniture, and appliance manufacturers, carpet mills, insurance brokerages, and numerous other service providers. It has always been a reliable gauge for how well the stock and bond markets perform, employment numbers, and other financial indicators. Our contributions as those who “steward the land” have enabled families to live the American dream and support the growth and flourishment of cities, counties, and states nationwide.
Surviving the New Reality
Since the early twentieth century, our breadth of knowledge and expertise have assisted millions and millions of consumers make the right choices when buying or selling a property. However, our survivability will be tied to how well we are willing to adapt and accept the changes that are taking place now and in the future. Technology, “out of the box” thinking, and large sums of venture capital are driving the changes we are seeing. These new realities are not going to go away. They are here to stay. REALTORS® and their brokerages must be willing to embrace and adapt to what is happening if they want to remain in business. As the saying goes – “you have to play to stay.”
There are those in the industry who want to radically change how REALTORS® and their brokers represent consumers, market residential properties, and manage the real estate transaction. They feel the current way of how we do real estate in this country is broken and not consumer friendly – thus the lawsuits and online portals attempting to replace the hard work of the real estate professional. In their eyes, interpersonal relationships and “hands-on” work are not needed as technology can accomplish what we are paid to do. So, what is going to happen to REALTORS® as the industry evolves?
In my last blog post, I talked about how an agent’s role in a transaction will change to that of a consultant or shepherd of the transaction and buyers and sellers will choose exactly which services they want from us to assist them in selling or purchasing their home. We are already seeing this trend beginning in certain parts of the country, especially with firms like Redfin who are utilizing technology and agents who sit in cubicles to initiate, manage, and close a transaction. Also, the direct online buyers, known as iBuyers, are attempting to lure home sellers by eliminating the listing agent in selling a home but instead utilize their services. iBuyer companies, such as Opendoor, Zillow Offers, and others, claim they can provide simple and easy solutions for sellers who want to quickly sell their homes at a competitive price with fewer hassles. Time will tell if these companies can survive long term – especially if the economy goes into another period of recession.
Buyer Representation is Under Attack
Buyer representation, as we know it, is under ever-increasing attack by not only attorneys associated with the recently filed lawsuits but some of the large venture-capital backed companies who want to do everything they can to remove the buyer’s agent from the transaction.
The Latest Announcement: Redfin Direct and Online Buying
Redfin recently announced the launch of their new online buyer program called Redfin Direct in Boston. Briefly, this program allows buyers to make offers on Redfin-listed homes online, directly through the company website. There is no buyer’s agent involved and the listing broker – Redfin – assists unrepresented buyers through each step of the home purchase. They provide a questionnaire for buyers to complete when they want to make an offer. Redfin says the questionnaire provides detailed information on how to make an offer, order an inspection, work with a lender and to close the transaction with an attorney/title company. If a buyer wants to have the home inspected, they contact the listing agent so the inspector and buyer can have access to the house. All the paperwork goes directly to the listing broker, Redfin. The buyer is dependent on the listing agent to ensure everything in the transaction is in order. Knowing how Redfin operates, I expect they will continue to expand Redfin Direct in major markets throughout the country.
The issue I have with what Redfin and other startup companies are doing by eliminating buyer representation is the buyer has no one to speak for them in the transaction. Buyers are without a professional agent who can advocate for them, especially during the critical stages of the deal. Certain phases of the transaction are full of “drama” including the post-inspection period when repairs need to be negotiated with the seller or during the pre-closing period when issues pop up at the final walkthrough and need to be addressed before everyone sits down at the closing table. Buyers are going at it alone and without professional guidance and counsel.
In the online buyer option such as Redfin Direct, who do you think is going to ensure the seller’s needs will always come first? Who owes the loyalty and obedience to the party in the contract who has an agency agreement with the listing broker? It will always be the listing agent and listing broker. These folks are driving the transaction. In my opinion, this is dangerous and creates serious challenges for the buyer from contract to closing. Redfin defends the non-buyer rep arrangement by stating today’s consumer wants other options when buying a home and should be able to navigate the various steps with little to no help from a broker. Long story short – they do not need a buyer’s agent. But I believe buyers do need representation.
Buyer representation is a hallmark of what we do as REALTORS®. In Tennessee, before 1996, buyers were forced to work with an agent under the listing broker to help them buy a property. Many within and outside the industry felt buyers were at a serious disadvantage and needed formal and legal buyer representation. As a result, in 1996, our state created our current agency law, and it created an official buyer agency designation to guarantee home buyers had someone who truly represented and advocated for them. It changed how agents worked with buyers and provided them with someone who could be able to “go to bat” without worrying about upsetting the seller and listing broker who previously were the source of their commission. What Redfin and others are creating with online home purchasing is taking us back to the “good old days.” The listing broker controls the entire transaction. We will have to wait and see if Redfin can gain traction in other markets with this new home buying option.
Defending Our Work as Real Estate Professionals
If we want traditional buyer representation to continue, agents are going to have to wage “war” against those who wish to destroy it. There are a large number of agents and brokers in this country who devote a significant amount of time and energy working with buyers. To wage battle against companies like Redfin, an agent is going to have to know and convey their unique value proposition to the consumer. A buyer or seller must understand we know what we are doing, and they can be confident in our ability to get the job done.
I have written in previous posts on this blog as well as in my book, “Do You Have a Minute?” your value proposition is probably the most critical element of selling real estate. This is especially true as the market continues to evolve and adapt to numerous technological and generational changes. Those who can communicate their value proposition to the client will be more than likely remain in this business in the years to come — those who can’t will die on the vine.
The pressure on the industry to transform itself will continue in the foreseeable future. Lawsuits will continue against the large national brokerages and NAR. Startup companies with lots of venture capital will continue to pop up and provide new “solutions” for the consumer – especially the homebuyer.
It is my belief the buyer representation side of our business is vital to protecting the consumer and their interests as they set out to find a new home. For this piece of our business to continue and endure for years to come, REALTORS® must be willing to fight for their existence as buyer agents. I am hopeful there will be an effort to preserving buyer representation soon. We all need to be ready to step up and do what needs to be done to keep it around. If we don’t, online buyer portals like Redfin Direct will be the “go to” place for buyers to purchase their next home. We might find ourselves sitting out in the cold, wondering what happened.
John M. Giffen, CRB, CRS, GRI
Principal Broker / Benchmark Realty, LLC