Real Estate Market Disruptors
Technology has changed just about every facet of our lives. From how we purchase products to how we get information to what it is to be "social" in today's' world.
With closing costs, staging, agent fees, and other expenses, selling your home can cost over $10,000 easily. For many home sellers, the biggest expense when selling your home is the Realtor’s commission.
Traditionally, a seller will hire a real estate agent to work with the buyer’s agent to sell the home. When the house closes, the seller’s agent receives a commission. Although there is no “standard commission” traditionally, the average commission on a house is 6% with 3% going to the buyer’s agent and 3% going to the seller’s agent.
This is a large sum of money that is taken out of the home’s purchase price. If there were no real estate agents involved in the process, theoretically, the seller would be able to keep that money. But although that seems to be the case in theory -- there is a ton of value by hiring a Realtor.
Technology is Changing the Real Estate Industry
Now, we are in a new era of real estate. Technology has created new ways for houses to be marketed and sold. Think of how Airbnb changed the hospitality industry. About 74% of buyers will use the internet to search for a home to buy, according to a 2018 report by the National Association of Realtors. Even Facebook has become a massive player in the home buying process.
However, even with these new digital platforms, the traditional way of listing and selling a property is still the leading way to sell a home. As homebuyers continue to use the internet to gather the data and information they need, the job of the real estate agent is changing.
Real Estate Disruptors
This shift in how homes are being sold is known as a “market disruptor.” Technology is becoming a huge disruptor in real estate. According to Realtor Magazine, the following companies are expected to become huge real estate market disruptors:
- Amarki: a seamless, automated marketing platform that helps real estate professionals integrate their systems in one place
- Curbio: a solution to help agents deliver results for home sellers through ROI-focused, pay-at-close renovations
- Evocalize: a platform that aims to simplify digital marketing tasks and help brokerages and agents deliver highly personalized social media advertising
- Kleard: a safety and productivity app that provides real-time verification for open houses and showings
- RateMyAgent: a digital marketing tool designed to help agents easily collect, share, and promote verified client feedback
- reConsortia: an open, crowdsourced referral consortium that sets out to build transparency, enhance professionalism, and provide an improved customer experience
- Staging & Design Network: the first-ever online shared rental pool for home furnishings built for the real estate and home staging communities
“The future of [the real estate] industry is increasingly dependent on fast, seamless adoption of technology that benefits home buyers, sellers, and investors at every step of a real estate transaction,”
says Mark Birschbach, senior vice president of strategic business, innovation & technology of the National Association of Realtors.
“[These companies] are positioned for rapid growth within the real estate, finance, and home services spaces, which will help them expand into other verticals and benefit the overall real estate industry.”
Alternative Real Estate Brokerage Models
Alternative real estate broker models are also disrupting the industry. Discount real estate brokers and agents are expanding and increasing in popularity. Types of discount real estate brokers and models include:
Low commission (percentage)
This type of broker (a.k.a the 1% Listing Broker) works for a 1-2% commission. This is much less compared to the average 3% commission. These brokers offer the same (or very similar) services as traditional agents. Also, their commission rate is set upfront so there are no surprises. This may sound like a deal that’s too good to be true, but it’s not. One-Percent Listing Brokers are able to offer this great deal thanks to technology making it easier to sell homes faster and with less work; so less effort is needed on the broker’s end.
Low commission (flat rate)
A low commission broker offers you a flat rate fee, instead of a commission when selling your home. This fixed dollar amount typically ranges from $3,000 to $6,000. Sometimes you may be required to pay part of the fee upfront. This will be used to cover initial marketing and administrative expenses. The rest of the flat rate will be due on closing if the entire amount was not paid upfront. Keep in mind that in this case, you will still be responsible for paying the buyer’s agent fees, which can be as much as a commission percentage.
Hybrid refers to the Hybrid Model from the 1970s, which has since evolved. In this model, brokers and agents may offer variations of a low commission percentage, combined with a low commission flat rate. When considering a hybrid model, be sure to carefully read the details of your agreement to ensure you are paying a fair price.
In this model, a real estate agent agrees to sell your house for free so long as you agree to buy a house through them. The amount of the discount applied on the listing side can vary. In most instances, the seller will need to sign a buyer representation agreement with the listing agent.
No commission (Flat fee MLS)
An MLS is short for multiple listing service. This option is good for a seller who just wants their house listed on the MLS and other real estate databases and sites without having to pay for the additional services a real estate agent offers.
This option is also referred to as a “no commission” deal. It also allows sellers to still list their house as a “For Sale by Owner” listing. With this model, sellers usually save the most money. Although this gets your home listed in the MLS, the homeowner still must handle all other aspects of the real estate transaction.
Buyer rebates are also called commission rebates. With this model, the seller gets a portion of the agent’s commission returned to them to use typically toward the down payment, closing costs, mortgage points, or even cash if allowed by their bank. Please note that buyer rebates are only legal in 40 states, so check your state’s regulations to verify if this is an option for you.
These options may sound too good to be true, but these discount broker services are legitimate ways to sell your home and are becoming the norm in the real estate market. They are not scams, but are instead a way that technology has been integrated into real estate.
Other Disruptive Factors
Another significant market disruptor is margin compression. Margin compression happens when the cost to make a product or deliver a service rises faster than the sales price of the product or service. This puts pressure on profit margins.
In the real estate industry, technology is increasing competition to sell better products for less money. Sellers are becoming hip to the internet and social media marketing such as Facebook Advertising and ditching traditional methods of selling their homes.
Younger agents are realizing this and learning how to “do more with less.” They are applying the low cost high-value principle to their real estate tactics. Many of the tech-savvy real estate agents are leveraging digital marketing techniques such as search engine optimization.
Market disruptors like these are changing the game when it comes to buying and selling homes. This doesn’t mean that real estate agents are becoming obsolete; but, in a world full of technology and innovation, real estate is finally starting to catch up.