REAL Trending Episode 66
The Trend Towards The Unbundled Brokerage, A Supreme Court’s Decision And It’s Impact On Housing And A Message Of Gratitude.
From REAL Trends, the trusted source for real estate industry news, this is REAL Trending, episode 66. We’re breaking down the events of the week, and showing how they impact brokers and agents. I’m Steve Murray, President of REAL Trends. Today, we’re going to discuss the trend towards unbundled brokerage, and what it means for incumbents, an interesting Supreme court case, and its impact on housing, and notes about gratitude for a great 2019, and a hope for a better year for all in 2020. First, a quick message about an upcoming event.
The Unbundled Brokerage
One of the great trends of our time, of course, is the entry of all kinds of new models and the growth of others that have been with us for years, many of which are lower costs, but really what’s happening from our point of view is, we now we’re in an era of the growth and expansion of unbundled brokerage. A little context. Historically, brokerage companies offered office space, management, technology, marketing, education and other support services and in return, agents paid a graduated commission plan, and they paid lesser amounts, the more productive they got. But nonetheless, in return for those commission splits, even some capped plans, the agent received the whole bundle of services.
Now we’re seeing the growth, and have seen the growth for years now, of companies charging a very low monthly fee, a very low transaction fee, and almost all the other services are purchased a la carte. Now on the one hand, part of the cause has been the abundance of alternatives to the services offered by brokerage companies in terms of particularly technology marketing and education. There are simply numerous suppliers outside of the brokerage that can supply many of the basic needs that agents may have in those areas and they can be purchased a la carte, or on an as needed basis. We’re seeing the growth in the agent counts across the country in many markets of brokers that are very low cost, very low basic costs and where they do offer some services, particularly technology on occasion, most of the other services agents simply buy on an as needed or a la carte basis.
Now, my comment on this is it’s a fast growing segment of the industry and it can truly be said that the number of agents or the percentage of all agents in the industry who 20 years ago, their first move would be to a bundle brokerage package. Well, the percentage of agents looking to that first clearly has declined and the percentage of agents who are looking for a la carte has clearly increased. This is particularly important in light of the two key points. One, 60 to 70% of all realtors in this industry are doing fewer than let’s say arbitrarily four transactions a year. We’re off a little bit, but that’s a basic picture. Secondly, traditional bundled package brokers made some significant earnings on those very same agents doing one to four transactions per year because the marginal cost of those kind of agents was not significant to a brokerage company.
It’s important for all brokers therefore, to conclude what kind of brokerage are you going to be? For those who offer a bundled package, there is still a very bright future even though the percentage of all agents who might choose to be part of that program or use that kind of a program has shrunk. There’s no question about that, but that doesn’t mean there’s not a profitable business to be run there and one that can be pursued vigorously. Not everyone needs to be offering an unbundled package to be successful.
Supreme Court Case
Secondly, interesting court case. Supreme court made a decision this week not to review a decision by the appellate court from the ninth circuit. The ninth court is generally California, Washington, Oregon, Idaho, Hawaii and Alaska. It may also include other states, but primarily the west coast. The case was decided by the ninth circuit which said in summary that cities and counties and states in their jurisdiction cannot bar homeless families and people from occupying or sleeping on public sidewalks and parks, et cetera, unless the city has done all it can do to provide shelter for those same people. Essentially, if you don’t provide enough shelter for homeless, you cannot then bar them from sleeping on sidewalks, to put it simply. The Supreme Court chose at this time not to hear an appeal of that decision by the ninth circuit or ninth appellate court in California or in the Western U.S.
If you stop and think about that for a minute, if that decision becomes a national decision, then cities and states and counties are going to have to work far more diligently to build and equip shelters for the expanding number of homeless people who cannot afford or don’t choose to want to afford or don’t want to be in shelters. They’re going to have to find a way to build shelters. They’re going to have to find a way to equip them. It’s no longer going to be, geez, we’re pouring money into it. We wish we could have more. If you don’t do it, then you will end up as some cities have, with thousands of homeless people living on your sidewalks, which is not a good thing for cities, states or even for our country. It’ll be interesting to see the impact on home construction, multifamily and low cost housing if cities and states and counties are now compelled to figure out how to shelter homeless, especially if they don’t want them sleeping on the sidewalks.
Message of Gratitude
Lastly, a note about gratitude. 2019 was a good year in housing and housing sales. It was not a great year for the business of brokerage. It was a very tough year for the business of brokerage given the abundance of new forms of competition and aggressive recruiting of top performing agents and other factors. Nonetheless, total residential gross commission incomes will still be above $70 billion and it was important to note that we’re seeing the signs that whether the brokerages are local or regional or even some of the national brand companies are all beginning to understand that the way it used to be is not the way it’s going to be going forward and are making substantial changes in their approach to business going forward. Whether that is investing substantially in new technology platforms or in the case, for instance, of Realogy spinning off the Cartus business. 2020 will be a great year, but before we go there, a word of thanks for a great year in housing sales and a solid year for the brokerage industry.
Learn more about industry trends, marketing and technology strategies, as well as listen to past real trending on Apple podcast, Spotify, Google Play, and more. Visit www.realtrends.com/channels. This has been Steve Murray.