As Mark Twain once famously said, “the reports of my death are greatly exaggerated.” Much is written about the disruption of the real estate industry and the desire of technology related real estate companies to cut out the real estate agent from the transaction. There is no question that a number of companies and business plans wish to do just that with the help of private equity financing.
As we start a new decade, a quick look at other industries that have faced disruption may provide some perspective and guidance.
There has been an explosion of websites around the travel industry – Travelocity, Expedia, Kayak, Priceline, just to name a few. Information for travel related decisions are at everyone’s fingertips. So, what impact has that had for travel agents? According to the Bureau of Labor Statistics Occupational Outlook Handbook, Travel Agent jobs are expected to decline 12% over the next 10 years. Between 2000 and 2014, the Bureau of Labor suggests approximately 40% of Travel Agent jobs were lost. A vacation or business trip represents a one-time event, for which a few thousand dollars will be spent with no lasting impact if things don’t work out that well (other than first world complaints). With the ease of information access and the relative low and short term risk, it is not surprising that most consumers have opted to plan their own trips.
Another industry that faced disruption is stock brokers. Up until the late 1970’s it cost the typical investor over $100 to make one trade in a particular security. Charles Schwab came along and put massive downward pressure on these commissions. Then came the online brokerages, like E*TRADE and Ameritrade. Today, stock trades can be made for as little as $4.95 per trade and some brokerages have even moved to no commission trading. Online brokers also make information readily available to consumers to research and analyze investing/trading decisions. So did stock brokers/financial advisors go the way of the travel agent. The same Bureau of Labor Statistics Occupational Outlook Handbook predicts that financial advisor jobs will increase 7% over the next ten years. Many “stock brokers” are today’s “financial advisors” and are advising consumers and executing trades for them. Indeed, the results of the 2019 Wells Fargo/Gallup Investor and Retirement Optimism Index survey show that most investors (84 percent) feel financial advisors will always be needed and will not be replaced by automated investing technology. Unlike a one-off trip, one’s financial position is quite important, can have life long consequences and while the information may be at hand for one to do it themselves, many are just not inclined to do so given the risk of mistakes, lack of discipline and loss of objectivity.
Between these two, the real estate agent is more synonymous with the financial advisor than the travel agent. Indeed, The Bureau of Labor Statistics Occupational Outlook Handbook predicts a 7% increase in real estate agents over the next ten years, the same as financial advisors. While housing information is readily available online, many consumers do not have the time or inclination to do it themselves and most don’t realize that property identification is only half the battle, getting from contract to closing is equally as important. Additionally, the cost of a mistake can be high. In fact, if a mistake is made, not only does a consumer have to live with it, they must live in it! For most Americans, the equity in their home represents the majority of their overall net worth. This transaction is simply much more significant than planning and taking a trip. Recent studies confirm this. For example, a new Harris Insights housing consumer study, which was underwritten by the California Association of Realtors, The CE Shop and REAL Trends, shows a full 90% of consumers use real estate agents to buy and sell their homes. This is a survey high and is up 5 percentage points from the last study in 2014 and up 9 percentage points from the first study conducted in 2001.
Disruption is going to occur in the real estate industry and real estate agents will have to show real value to consumers in the years to come. However, the articles and prognosticators predicting the death of the real estate agent are greatly exaggerated.