The role of a real estate agent is changing as the Internet, new laws and the recovering housing market exert their influence on the industry. Competition is picking up, making it more important than ever for real estate firms to identify challenges to their business models and work toward solutions.
Increasing competition
A full 69 percent of all U.S. real estate firms reported that they expected increased profits over the next year in the 2013 National Association of Realtors Profile of Real Estate Firms. With this optimism present in the market comes the other side of the coin – increased competition. Two-thirds of responding firms says that they thought that they would see more competition in the next year as well – both from other real estate firms and non-traditional market participants.
Like in any industry, competition generally drives down the cost of the product. According to the U.S. Department of Justice, the most common incentives used by real estate firms to attract customers were fee-for-service arrangements and rebates.
Under a fee-for-service arrangement, a firm “unbundles” the collection of services that more traditional firms offer and charges a set hourly rate. For customers that need only a subset of real estate services, these arrangements can be quite attractive, potentially saving them thousands of dollars. Rebates are usually offered out of an agent’s commission and can be paid to the seller or the buyer.
This increased competition could explain why 60 percent of firms cited profitability as a major challenge over the next two years in the NAR study. As competition drives commissions down, some firms may have difficulty posting the same profits.
Other challenges
Local or regional economic difficulties were cited as a major challenge by 44 percent of firms, suggesting that the housing market’s recovery hasn’t happened equally in all parts of the U.S., NAR reported. Areas hardest hit by the recession continue to experience difficulties moving homes. By contrast, 42 percent of firms reported that they expected maintaining sufficient inventory to be a challenge over the next two years.
Markets like Houston – which has only 2.6 months’ supply, according to the Houston Association of REALTORS® – are experiencing record low inventory in response to real estate markets that are moving extremely quickly.
Moreover, NAR noted that another 42 percent reported that keeping up with technology would be a challenge in the coming years. Pressure on real estate firms to stay abreast of technological developments is mounting, as consumers gain access to information that previously was the exclusive domain of real estate agents. But, it is also helping to drive sales—10 percent of median sales volume came from firms’ websites overall in 2012. While social media only drove about 1 percent of sales overall, it drove 5 percent for firms with three or more offices, suggesting, perhaps, that the larger organizations are better at using social media tools.
The report also highlighted the importance to companies of acquiring and keeping high quality agents. Firms reported that 72 percent of agents had an academic degree, and more than 80 percent had a professional certification or designation. More than six in 10 firms reported that they provided training and education programs to their agents. While only 22 percent of firms provided health insurance to their agents – standard in a field that considers most agents independent contractors – almost 80 percent of firms provided errors and omissions insurance, which covers agents for professional liabilities resulting from mistakes made in the buying or selling process.
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