Sunday, December 14, 2008

How Real Estate Agents Can Survive

A listener to my radio show, Dierdre Reen, asked me, "What do you think real estate agents need to do to survive?"

Of course, the decline in home sales is hurting real estate agents but even if housing sales increase, real estate agents are at risk of becoming dinosaurs.

To survive, they need to make two major changes:

1. Align the agent's and the customer's interests: Agents' interest is in closing the deal, not in getting the buyer or seller the best price. Those competing motives could be eliminated if agents were paid a fee, whether or not a deal closed.

2. More important, it's too easy to get a real estate agent's license--just learn the rarely useful facts tested in the licensure exam. For Realtors to add sufficient value, they need real expertise in finance, psychology, construction, design, law, negotiation, etc., only a very low-level of which is covered in the real estate licensure exam.  Many if not most agents are woefully deficient in many of these areas. Without solid skills in all those areas, ever more sellers will simply advertise their property on the Net and hire a stager to put lipstick on their pig. Both buyer and seller will hire pay a lawyer a couple of hours fee (which comes to far less than an agent's commission) to negotiate the deal and review the mainly boilerplate paperwork. 

The real estate industry survived for a long time by telling sellers, "Pay me 4 to 6% of your property's sales price or I won't be able to offer buyer's agents enough money to show your property." But the Internet--e.g., Zillow is making that sales pitch ever less compelling.

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