Covid 19 is going to kill the real estate industry as we know it. Sounds crazy right. It’s now April 2022 and the darkest days of Covid seem (hopefully) to be behind us.
Though many agents complain about the market with a lack of inventory of homes and tons of frustrated buyers, there are many agents that have had an amazing two years.
The productive Realtors are producing more than ever through this pandemic. So when I say Covid 19 is going to kill the real estate industry you must be thinking I’m nuts. But I’m not. There are many reasons why it is going to happen which when looked at individually is not so obvious, but when you look at as a whole are quite alarming.
The problem with the current real estate market
The first problem in our current real estate market is incredibly low inventory. Many people who are now working from home would love to upgrade their house but there just isn’t much out there to buy.
Covid 19 shutdowns have created major supply chain issues that are dramatically affecting the housing market and making it to where new construction homes cannot hope to fill the gap.
Lumber prices skyrocketed, which dramatically increased the cost of new construction. Everything you need from shingles to plumbing supplies is more expensive and not in stock.
The fear of being unable to find a home stops people from selling who would like to move because they know they won’t find anything they truly want to buy. All of these issues coupled with very low interest rates are naturally causing home prices to skyrocket.
There are a ton of Realtors
The one thing that seems to be in abundance is Realtors. There is definitely not a supply chain problem with bringing new Realtors into the world. Every year we set a new record for active Realtors in the United States with several states adding 7-10% more Realtors per year every year.
The reasons why are simple. It’s fast, cheap, and easy to become an agent. You can do it from your house and everyone has been stuck at home for two years. If you Google “Groupon real estate license” you might be shocked at what you find.
In many areas, you can spend 140 dollars and two weeks of your time and then we have a brand new Realtor.
More real estate agents than homes to sell
While the market of homes to sell is down tremendously to well below a million, the amount of real estate agents available to sell them has exceeded 2 million. The supply of homes to sell is cratering and our supply of agents to sell them is shooting to ever higher peaks.
But where are all these agents going?
The evolution of real estate brokerages
More real estate brokerages are going virtual or close to it. The big shiny real estate offices are a bygone of the past just like the big shiny Sears, Kmart, and JCPenney.
Many top real estate companies have virtually no brick and mortar locations at all and those that do are definitely limiting their expenses. The goal of these new virtual real estate companies is to use better commission splits and lower caps for agents to lure in more producers.
The reason many of those agents remained at their old companies was the plush office or the office environment, but Covid 19 killed those things. Agents and companies across the world were going virtual whether they wanted to or not and I know many agents that now love that freer work lifestyle.
Problems with remote agents
But other problems arise out of that freer lifestyle. Agents that are now operating remotely, away from the office and the watchful eye of their broker and judgemental eyes of their peers are starting to make some choices that are pretty taboo.
They are lowering their commissions!
Listings are absolutely gold right now and the impossibly low inventory of listings and agent competition is fierce which has turned many agents into the dreaded “discount agent.”
Agents right now will say and do almost anything to get a listing because it will sell immediately and being laden with buyers who must see houses immediately and write an offer that is competing with a dozen other offers is not how you want to live your life as an agent.
The consumer is contributing to the change
The public is leveraging this situation pitting agent against agent to see who will emerge and earn their business and often that competition between agents ends at their fees.
The first to get slashed was the buyer’s agent’s commission but inevitably listing agent’s commissions have started to fall as well. Many of these newer real estate companies are flat fee per transaction so they get the same fee from their agents regardless of if they charge 3% or 6%.
For the agents that still have traditional percentage splits, the new virtual brokerages have amazing splits and low caps so they can actually afford to charge less and have the same bottom line. The new companies are seemingly a lot more tolerant of “discounting” as well as they are out to grab the market share of business from the old guard as quickly as possible.
The federal government is getting involved
Also, the government is taking dead aim at the real estate industry and the higher commission model that we have all lived in forever. On July 9th, 2021 President Biden wrote an executive order directing the Federal Trade Commission to do this, and I quote:
“To address persistent and recurrent practices that inhibit competition, the Chair of the FTC, in the Chair’s discretion, is also encouraged to consider working with the rest of the Commission to exercise the FTC’s statutory rulemaking authority, as appropriate and consistent with applicable law, in areas such as: (vi) unfair tying practices or exclusionary practices in the brokerage or listing of real estate and any other unfair industry-specific practices that substantially inhibit competition.”
If I could sum that up in a word it would be OUCH. Federal entities have been locking horns with the National Association of Realtors (NAR) for quite some time now with both sides filing suit against each other.
Why does the government care?
The reason is in part because in many developed countries around the world, commissions are much lower than in the United States. In the UK for example, some companies charge less than 1% with 1 to 2% being the norm.
The real estate brokerage industry keeps getting leaner and more efficient but all of that savings and profit always winds up going to the broker or used for lower splits and caps to lure in more agents. That money never does seem to trickle down to the client, which many are taking notice of, notably the federal government and the public as both should.
It’s supposed to be a free market, but simple economic principles do not apply when it comes to real estate commissions and that is the problem. Seemingly everyone spent lockdown getting a real estate license. There are more agents than houses to sell and yet commissions have barely budged.
There’s no need to market a property anymore
Combining all of these issues is bad enough but the nail in the coffin is the fact that homes are flying off the shelves and agents don’t even have time to market them.
Open houses and broker tours were effectively banned due to Covid 19 and yet houses sold faster than ever. The public is watching the housing market intently, I get asked about it daily.
I can literally put a sign in the ground of the home with an almost unjustifiable price and immediately get activity on the home and several offers. It’s pretty hard to look your client in the eye and tell them the expert marketing you did got them 12 offers the moment it went live on the MLS.
Anyone with a pulse and a license can sell listings over asking price right now with zero marketing effort.
I have had countless people tell me their house is going to sell immediately and simply ask how much to put their home on the MLS. Can you really blame them?
Final thought
Every single issue above serves to devalue the real estate agent in some way shape or form.
The real question is, when the market shifts, and it inevitably will, will there be a demand for more open houses, print media, and broker tours?
Or, has this crazy market lowered the public’s perception of the marketing abilities of Realtors and changed the landscape forever?