Is the Real Estate Industry Going to Be Different When We Recover From the Current Downturn?

It depends on who answers the question. Traditional real estate agents want to preserve the status quo; new entrants are trying to create a new game; and consumers want the best of both worlds: full service at discount prices. However, there is little doubt that the economic downturn is exacerbating the situation, but the reality is that it is only the tip of the iceberg. Prior to the downturn our industry was in the midst of a major transformation, as changes in consumer behavior and new technologies were driving innovations that we had not seen during the last 50 years. The truth is that consumer behavior impacts technology and technology impacts consumer behavior and as such cannot be ignored.
The economic downturn is going (and will continue) to impact consumer behavior. Our clients (and fellow neighbors) are experiencing the effects of the worst financial and economic crises since the depression of the '20s. The impact of these times upon our ways of thinking and behaving are impossible to determine, but a few patterns are emerging, among others:
1. Say goodbye to the equity-rich syndrome so prevalent a few years ago. Welcome equity preservation. Buyers and sellers will look at every single aspect of the process and seek ways to minimize transaction costs. Is the existing commission structure going to survive? It will not unless the role of the agent is changed. People are willing to pay for "value-added" support, but it will be up to the new breed of agents to convince the consumers.
2. Say goodbye to leveraging. Leveraging your life will no longer be possible as financing in every sense of the word will be available only to those who have the ability to serve the debt regardless of how low the rates are. How will this impact the number of agents? This translates into fewer agents, but those remaining will have a bigger slice of the pie.
3. Say goodbye to part-time agents. The days of part-time agents are gone, and this will benefit those individuals who are fully dedicated to the profession. This may be a good opportunity to raise entry barriers. Like in any profession, there are good agents and bad agents. However, it is too easy to obtain a real estate license, and traces of unethical behavior that are now found everywhere must be eliminated. This is the time to do it.
4. Welcome back savings. Saving will no longer be looked at as the exception, and people in general will have to work harder to earn less. The wounds of this economic downturn will be deep and will take time to heal. Living within your means will be the rule and not the exception. Consumers will be looking at every single economic and financial decision in their lives with a new set of glasses.
But in addition to the impact of the downturn on consumer behavior, the technologies around all aspects of our lives will continue to drive behavioral changes that will significantly impact the way real estate is transacted.
1. The Internet has leveled the playing field by making available to the consumer information and data previously controlled and limited by the agents. Consumers and agents will have equal access to the information, (which) will shift the control of the process to the consumers. Consumers will have instant access to property values and the tools to find the best deals in real estate.
2. The Internet will bring down transactional costs. Advances in technology and the ever-increasing sophistication of consumers are destined to change the way homes are bought and sold. Did the industry fail to recognize changes in the behavior and expectations of homeowners and investors? Today's consumers are tech-savvy, more independent, more sophisticated, more knowledgeable and want to be in control. They want to have choices. These choices will include but will not be limited to full service real estate, discount real estate and flat fee MLS options.
Almost every traditional brokerage house has a Web site that is mostly used to provide photographs and summarized property information. This is a step in the right direction, but not quite what the consumer wants.
Consumers want access to the same information and tools that professionals have. They want a buy-and-sell process that is easier, smarter, faster and cheaper. Consumers know that the Internet has made it possible to have access to information and resources that in the past only were available to professionals.
The Internet has also made it possible to provide these services at a fraction of the cost. Technology-based models are not a substitute for good judgment, but they are more efficient and transparent. These efficiencies result in lower cost of representation, and access to information and know-how that is completely unbiased and independent of the value of a property. Put another way, technology drives down the cost of representation.
The challenges in front of us are big and many. However, the future is as equally bright as the past. Those that understand the impact of the new technology on the consumer behavior will excel; others will fail, And do not blame it on the economy!
Mr. Iraola is a co founder and CEO of Homekeys.com a developer, integrator and provider of state of the art web-based information tools and services for the real estate industry.
Mr. Iraola currently serves on the Board of Directors of Central Hudson Energy Group Inc. (NYSE:CHG). He previuosly served on the Boards of Phelps Dodge Corporation , Southern Copper Co. and SWM.