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What's next? Five Trends for the Real Estate Consumer
1. More Online Video Watching - Less Driving
Broadband is mainstream. Today I personally don't know anyone sitting on dial-up anymore. My son will have a hard time believing that daddy used to sit on a 28.8kbs modem when he was young.
Video presentations are going to become much more common in the real estate industry during the next two years.
High-end productions like listing presentations made by companies like Inman stories are probably going to be reserved for upscale listings for now.
With the explosion of YouTube and easy to use sites like One True Media home owners and agents can make their own home grown presentations fairly easily. In the future agents will show up to shoot video in addition to digital pictures.
And "home made" productions can be even more credible and successful in terms of selling than a high end production one.
2. "Press 1 to buy, 2 to sell, 3 to get a mortgage and 0 to speak to an operator"
The use of call centers / contact management centers in the real estate world is increasing.
Good or bad? It's all in the execution.
If you can get a knowledgeable person on the phone right away at 10 PM on a Thu night while you browsed a house it's a good thing right?
But if you get put on hold for 15 min and get to an underpaid, tired customer service rep who is reading a script to you it's quite annoying.
With the real estate industry going online, call centers with rapid response and extended hours are part of the future.
3. You will find more salaried agents to help you than today
Commissioned real estate agents want the deal to happen. Sooner rather than later.
When you buy or sell they get paid.
Most agents are hard-working and very ethical. But with a system where it's in the agents financial interest to make the client close as quickly as possible you could encounter someone not so ethical if you are unlucky.
Salaried agents are part of the future. And companies that adapt that model have a distinct and clear reason why clients should trust them with their business.
4. Your transaction costs will be lower and more transparent
Yes, all those articles you read in the newspaper about discount brokerages and increased competition are true. The long-term trend is clear.
Transaction costs will go down when clients are doing more browsing and the agent does less driving. Consumers (and regulators) will become more educated and request better disclosures.
If the government required full disclosure of commissions in the title industry, consumers would not have to pay 80-90% of their title policy premium in commissions. And there is no good reason why anyone should pay more than $2,500 in commissions to a lender or mortgage broker.
Paying a percentage of the sales price to a real estate agent is a flawed model for sure, though I don't see that going away anytime soon.
5. You will probably live in a megapolitan area
In a very interesting article last year Business 2.0 reported that the biggest wave of development since World War II will turn America's major metro areas into giant megapolitans in the next 25 years.
What does this mean? Large cities will grow together and go from being metropolitan to megapolitan. In Arizona, Phoenix and Tucson will be united. Portland and Seattle are predicted to merge in 2030. Hope you like strip malls and chain restaurants, because there are going to be more of them for sure.
Comments
We couldn't agree more on your #1 comment. Hope you don't mind, but we have quoted you in our blog.
Posted by: VideoMagazine.tv | December 9, 2006 10:49 PM
You are completely right. We recognized two years ago that digital video was the wave of the future for Real Estate online and we just launched viewr.com as a Global View on Real Estate featuring real estate videos from around the world. --- Karl
Posted by: Karl Lingenfelder | December 12, 2006 07:49 AM
"If the government required full disclosure of commissions in the title industry, consumers would not have to pay 80-90% of their title policy premium in commissions. And there is no good reason why anyone should pay more than $2,500 in commissions to a lender or mortgage broker."
This is a good post and I was right with you until you went in this direction so I've got to defend title insurance agents and mortgage lenders.
Most of the premium in a title insurance transaction pays for the examination and clearance of title prior to the issuance of the title insurance policy. Bad actors in the real estate industry paying and accepting payola have created an impression that title insurers are overpaid. Frankly, more attention could be focused on the bad mortgage lenders, builders, and real estate brokers who demand cash from the title insurance transaction in exchange for no work or assumption of risk.
Legitimate mortgage lenders assume rate and credit risk. Origination departments operate at a slim margin, break even or as a loss leader to feed their security pools and servicing portfolio. Don't assume that the fees paid at closing are gravy, they are usually covering processing costs or helping to offset rate risk.
Mortgage Brokers need to make a living just like real estate agents. They are the salesmen who find your clients the appropriate financing and help you put the deal together. Are they less deserving of a commission than you?
Posted by: Diane Cipa, General Manager, The Closing Specialists� | December 12, 2006 09:11 AM
Hi Diane,
Thanks so much for commenting. Really appreciate it. :-)
I have the highest respect for title reps, mortgage brokers and real estate agents.
And of course... everybody deserve to make a living.
My personal opinion is that consumers pay too much in all aspects of a real
estate transaction today, including the real estate side. And disclosures could be much better.
How much is of course something that can be discussed.
According to this article from Money.com home buyers pay eight times the
closing costs they paid 40 years ago.
On the title side... correct me if I'm wrong but hasn't costs for title insurance
decreased dramatically in the past 10 years due to technology? I am not sure if this has been passed on to consumers?
This article from New York Times looked at the state of Iowa and how consumers
there pay on average 20-30% less than other states.
I am aware that this is also a legislative issue with many states actually setting the
pricing if my understanding is correct.
In terms of mortgage fees... $2,500 in retail origination fee and/or yield spread should be able to pay the bills for most brokerages. I just picked a reasonable number based on the kind of markup I've seen from wholesale rates from some serious lenders. Could be more or could be less.
It's a free world and a free market but it makes me really sad when I hear about $5,000-15,000 in origination or YSP. And the ones that are mainly hit by this are vulnerable people who can afford this the least.
My main point was and is this: Transaction costs are bound to come down in the future on all sides in a real estate transaction.
And this will hopefully in the end benefit the consumer while the industry should be able to still make a profit.
Thanks again for your comments.
All the best.
-Ola
Posted by: Ola Edvardsson | December 12, 2006 10:56 AM
Yes, it's a distinct possibility that the industry will move to the "salary" model. I'm certainly considering it myself for 2007-8. At least that way, agents will never go hungry. For shits and giggles see:
www.condometropolis.com/blog (It's the Onion for Realtors.)
Happy Holidays!
Posted by: Marcus Burke | December 12, 2006 06:20 PM
Great post. Very informative, factual and well written. It took a bit of courage to mention the rarely spoken of "yeild spread premium." I give a significant number of presentations each year to title agents. The audiences are stunned when the "yield spread premium" is mentioned in an open forum. Another "showstopper" for title agents is the revealing question: Do you have an owner's title policy on your own home? If consumers only knew?
Posted by: Ed Rybczynski | December 13, 2006 09:02 AM
Salaried agents? Can't imagine how that would work. So many of us gravitate toward the business in part because we love being self employed. If I had a boss, other than my clients of course, it would just suck the joy out of my job. :)
Posted by: teresa boardman | December 13, 2006 07:17 PM
Definitely agree with your points, especially transparency.
Besides transparency, I believe that videos will be one of the biggest changes to come and they will be an awesome tool for sellers and buyers.
Sellers could custom tailor their video to show off the best features of the house and from a personal point of view.
As for buyers, imagine how much time the would save if they could preview a property by watching a video rather than having to actually drive to and walk through the house?
Posted by: Danilo Bogdanovic | December 13, 2006 11:46 PM
Real Estate Video Tours are absolutely the next wave. I have been doing hi-def narrated video tours for a year now.... it's definitely the way it's going... whether you want to participate or not, it will definitely be a great way for agents to set themself apart from every other cookie cutter agent out there!
Posted by: Fred Light | December 15, 2006 05:13 PM