The Demise of the Real Estate Brokerage Industry?
By Neil B. Garfinkel
Partner in Charge of AGMB's Real Estate
and Banking Practices
I have been representing and working with the real estate brokerage community for over 23 years. Arguably, this is the most interesting and exciting time in the industry. I simply look at my clients (existing and new) and I notice the many ways that they are innovating and changing. They are exploring old and new business models, pushing boundaries, and I know that their futures and opportunities (and those of the industry as a whole) are going to be quite interesting.
These changes have also created uncertainty in the marketplace, leading to much discussion and speculation (and many headlines) about the condition and viability of the real estate brokerage industry. In some cases, we have seen companies either close their doors or merge with other companies because of their inability to sustain their businesses. Similarly, to the extent available, we have seen disappointing earning reports for many of the leading and larger companies. And, anecdotally and more broadly, we hear of the struggles of many smaller to mid-size real estate brokerage companies.
However, to paraphrase the great American author, Mark Twain, I believe that the rumors about the demise of the real estate brokerage industry are greatly exaggerated. Set forth below are my reasons for this belief.
1. Change and Competition
Change and competition are good. They force companies to innovate and explore new opportunities. Companies that embrace these opportunities will be leaders and will find ways to survive. Companies that rely on existing models and belief systems without a plan and view toward the future will not be able to sustain their current businesses. Over the last 23 years, I have seen companies come and go; some have unsuccessfully tried new models and others have simply been resistant to change and have lagged behind. But, the idea of real estate brokerages going out of business is not new and certainly does not suggest that the industry, as a whole, is doomed.
2. Follow the Money
Recently, there has been a huge investment of capital, talent, and resources in the traditional "brick-and-mortar" real estate brokerage business model, as well as the many ancillary businesses that support this model. It is hard to argue with the resumes and successes of many of the leading players, companies, and investors in the real estate brokerage businesses today (i.e. Warren Buffet and Berkshire Hathaway, Rupert Murdoch and News Corp., Howard Lorber and Vector Group, and Masayoshi Son and Softbank). I certainly have no reluctance in following these visionaries as they expand and grow the real estate brokerage industry.
3. Information Overload
The role of the real estate broker has changed. Consumers no longer need to contact real estate brokers in order to find out what properties are available in a particular location. There is now an abundance of resources available to consumers as they engage in their search for properties to purchase or lease. This plethora of information creates "paralysis by analysis" for the consumer. Thus, the very important and necessary role of the real estate broker is now to assist the consumer in sorting through all available information in order to navigate the complex process of buying, selling or leasing real estate.
4. The Emotional and Tactile Experience
Buying, selling and, to a lesser extent, leasing real estate is, and always will be, an emotional and sensory experience. Couple the emotional and sensory experience with the financial and long-term commitments associated with real estate transactions, and you understand the compelling and continuing need for the consumer-real estate broker relationship.
Technologies, such as virtual reality, cannot replace a consumer's need to touch, feel, and experience a property. Furthermore, real estate is a voyeuristic experience. The consumer craves the ability to see how others live, to visualize how they would live in a property and, ultimately, to immerse themselves in the real estate experience. The real estate broker is an integral part of the consumer's experience.
While I do believe that the rumors of the demise of the real estate brokerage industry are widely exaggerated, I do not believe that real estate brokers can survive without taking very important steps to ensure their future viability. In my next article, I will set forth these steps.