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Real estate disruption won’t be what you think

By February 28, 2015 One Comment

Real estate disruption is inevitable, and the industry eventually will experience a massive overhaul. However, disruption may come in a form far different from what most people expect. Looking at the current state of the real estate business, there are a handful of major players at the corporate level that own pretty much everything in the industry, from brokerages to mortgages. The only thing that these conglomerates do not own is the agent and client relationship.

Currently, large companies allow real estate brokerages to operate on slim margins with the goal of incentivizing agents to push their clients to purchase ancillary products. In this scenario, the real estate agent acts as the lead pipeline for financial and transactional products. These ancillary products come in the form of appraisals, mortgages, title insurance, home warranties, home inspections and an endless number of fees associated with every transaction.

For example, Bank of America owns the appraisal company it uses. How is that even legal? (See for yourself here: Although many think that disruption to the industry will come in the form of eliminating the agent, a more likely scenario is that disruption will come in the form of real estate agent empowerment as agents transition into homeownership experts.

Empowering agents with the information and tools to help consumers save money at the point of close and sell their homes for top dollar brings relevance back to the agent. Disrupting the status quo will come in the form of decreasing closing costs, increasing the effectiveness of agent marketing and empowering the agent and consumer with the tools necessary to decipher an infinite amount of real estate information.

Ultimately, the market will decide the future role of the real estate agent. However, one fact remains clear: Consumers continue to demand a real estate professional to guide them through the property transaction.

Here are three additional insights into the future of real estate industry disruption:

1. The number of agents will decrease

Technology eventually will appeal to a portion of consumers who want to conduct their entire transaction online. Some savvy consumers will handle their own marketing, financing and closing, so fewer agents will be needed. However, agents able to prove their worth will continue to thrive because a majority of consumers will value the insights of a real estate professional.

2. Technology will put downward pressure on transaction costs

There are countless fees associated with every transaction: closing costs, loan origination, inspections, title fees — the list goes on. The growing role of data analytics will allow companies to make smarter and more cost-effective decisions regarding all aspects of buying, selling and owning a home. Increased efficiency will pressure companies to reduce cost to stay competitive.

3. Consumer behavior will continue to support the agent commission structure

Without drastic legislation and a sheer drop-off in consumer demand for real estate agents, there is no clear indication that the current commission structure will change. Consumers will continue to need a real estate professional to open the door, talk their ear off and handle the negotiation process when emotions fly high. Real estate is a relationship-based business, and until the relationship is taken out of the equation, technology will struggle to find mainstream adoption to replace the real estate agent entirely.

Will Caldwell, a San Diego resident, is the CEO and co-founder at Dizzle, a mobile real estate tech company that helps Realtors generate more word-of-mouth leads.

Email Will Caldwell.

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