8 min read · May 18, 2023
There’s no denying – the real estate market is changing, and this isn’t news to either sellers or buyers.
Recently, however, the underlying tectonic shifts have been further intensified by the pandemic, rising interest rates, and the shifting role that agents play in real estate transactions. Some experts have even characterized the industry as entering “survival mode”, with brokerages choosing to focus almost exclusively on core competencies at the expense of innovation.
Nevertheless, unorthodox solutions are beginning to take shape – be it in the form of brokerages that prioritize technology above all, or firms that place the agent’s needs front and center. To probe these and other challenges, we recently hosted a panel discussion titled: Are you ready for the changing real estate industry?
Exploring this contentious topic were the following industry professionals:
Sam Sawyer, the host of the event & CEO of Pinnacle Realty Advisors, began his real estate career at 19 and quickly climbed the ranks, co-founding The Collective brokerage and later becoming VP of Real Estate Operations at ZeroDown. A National Association of Realtors “30 under 30” honoree, Sam now leads Pinnacle Realty Advisors’ nationwide expansion from Austin.
Tim Herman, co-founder & CEO of UpEquity, is a former US Navy fighter pilot who spent a decade flying F/A-18 C/E and F-35 C jets. While serving, he honed his leadership skills and developed a passion for real estate investing. After a brief stint at Harvard Business School, Tim launched UpEquity, where he has been CEO ever since.
Eric Eckardt, a founder of Veracrest and author of The Digital Homer Seller, is a top real estate executive with 20 year’s worth of successful exits and successfully launched companies. Recognized as a Powerful Leader by SP200 and as a Game Changer by REAL Trends, he’s held top positions in many prop-tech companies.
Mindy Wardlaw, is a Pinnacle Realty Advisors member with 20+ years of experience and a truly unique perspective. Mindy was in the top 0.5% of the National Association of Realtors & served as NWLAR President. She is also a series 7 licensed Stockbroker and financial planner, Dave Ramsey ELP, and has a degree in Psychology & Marketing.
Here’s what they told us.
As Timothy Herman, CEO of UpEquity, pointed out – the American real estate industry has a persistent supply problem that goes all the way back to 2008-2010.
The collapse of the housing market, which unfolded in those years, was further exacerbated by the cascade of bankruptcies that rocked the construction industry. The recent push for smaller units could allay the shortage to a degree, but the overall situation is unlikely to improve until the supply of houses rebounds. Widely discussed in the turbulent years of 2020-2021, these problems have remained with us to this day.
As interest rates continue to rally, Herman explained, demand for housing goes down, and supply is tightened even further. In addition, most sellers, despite being reasonably confident in their ability to find buyers, are increasingly anxious when it comes to finding a replacement home.
In fact, the situation has gotten so bad that, according to a recent Housing Wire report, as many as 40% of consumers are driven to tears by the grueling process of casting about for a new residential property.
Commenting on the above trends, Herman emphasized that, since home ownership is key to accruing and retaining generational wealth, the “American Dream” should be made accessible once more, rather than given up altogether.
His overall point was that buying is always preferable to renting. Taking a 30-year fixed-rate mortgage as an example, the buyer’s monthly payments will remain stable over that entire period, as opposed to rents, which are likely to go up over time no matter what happens.
“Fixing your payment is a good move for you economically. If interest rates stay high, you were better off buying today. And if they go down, you can refinance. For this reason, talking to clients about home ownership is still a good idea, regardless of where the rates are today or where they might go tomorrow,” Herman said.
Eric Eckardt, for his part, noted that since 2015, over $50B of institutional capital has flown into the ecosystem. Some of it went to more traditional firms, while the rest was funneled into challenger brands. Historically, the management style of brokerages has been the main contributing factor to unfavorable unit economics and flagging capacity to generate cash flows.
This, in addition to high fixed operating costs, 25-30% lower sales volumes, and mountains of accumulated debt, is increasingly driving investors to seek businesses that are already profitable – or on the way to profitability.
“There’s a good deal of slack in the marketplace, along with some macro headwinds on the way. Covering high operating expenses and servicing billions of dollars’ worth of accumulated debt will be challenged even further by declining transaction volumes. This is why I think it’s so important to build models that will still be viable 5-10 years from now at minimum, while providing agents with all the tools, platform services, and leadership they’ll need going forward,” Eric said.
Furthermore, all participants agreed that venture capital’s recent push for technological innovation has become excessive. The idea, prevalent among many, that realtors will soon be automated out of existence – just like traditional stockbrokers were replaced by online trading experts – is a little histrionic.
“Anyone familiar with this space knows how difficult it would be to automate a home sale. There’s no doubt that some processes can be improved and streamlined with the help of technology. However, at the end of the day, people still want to talk to an agent – to have someone capable of helping them make sense of the transaction,” Sam Sawyer explained.
Even though online property listings had already become publicly available in the late 90s, for a time, real estate agents managed to retain their role as “gatekeepers”. Today’s buyers, though, are highly educated – and many of them know more than one realtor. To stand out, agents must be able to offer a wealth of additional practical advice and services.
“You have to be knowledgeable because selling a house is so much more than opening a door – you have to be able to assimilate them into a community and make them feel comfortable,” Mindy Wardlaw said.
Basically, agents must have all the answers, from best deals on repainting a house to what traffic conditions prevail at what times of day.
Another big change is the increasing obsolescence of the office model. Since there’s no longer a reason for clients to come into the office and see listings, renting brick-and-mortar premises is becoming difficult to justify from a business perspective.
As Mindy noted, agents should want to be spending as much time on the field as possible, showing properties and talking to clients in person or over the phone.
The last change we’ll mention here is the importance of social media. Unlike in the recent past, it’s become very difficult to tell whether an agent is a beginner or an industry veteran judging simply from their social media campaign. This necessitates agents to work extra hard to stand out, as their achievements and experience aren’t readily apparent – at least not to the same extent as before.
Beyond joining an online real estate brokerage offering flexible and up-to-date services to its agents, the panelists offered up several other key points and suggestions.
Tim Herman talked about the importance of removing contingencies. Given current market difficulties, clients are often reluctant to sell their homes as they are scared of not being able to find other suitable properties.
According to Herman, brokerages should, therefore, partner with private equity firms. This would enable them to offer more flexible deals to clients, giving them enough time to find a new home and then arrange for the sale and purchase to take place on the same day.
The panelists were also in agreement on the need for cooperation. Building upon Tim Herman’s point that we shouldn’t view the real estate business as a “zero sum game”, Sam Sawyer commented:
“As the industry changes, no single company in any industry could ever keep up with the pace of change and build and launch everything internally. Like you said, we’re trying to find awesome companies like yours that can help our agents and find ways to work together”.
Both Tim and Mindy concurred that brokerages like Pinnacle do a great job at discovering and vetting the various tools and services that agents need, which helps them focus on what they do best out in the field.
The “winning together” approach is also superior because it allows market players to cooperate on software development, and bases itself on revenue sharing, rather than commission splits.
In addition, since agents must now be “their own CEOs,” real estate platforms can be very useful for guiding new agents and showing them the ropes.
For instance, Mindy talked about how young realtors often prefer to communicate with clients via text, instead of over the phone, which is detrimental to their performance.
She also emphasized the importance of using a quality CRM to:
This is otherwise impossible given the number of clients that experienced agents have.
All in all, we found the event to be pretty inspirational and insightful, with the discussion stimulating some valuable food for thought. Our industry is changing and it’s essential that all of its stakeholders, especially brokers, keep up to speed. We here at Pinnacle are on hand to help you do just that.
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