As it now stands, there are more real estate agents than homes on the market right now. Million acres reports:
At the end of January 2021, there were 1.04 million homes on the market in the U.S (down 26% from 2019’s inventory), the fewest homes on the market in nearly 40 years. Meanwhile, the National Association of Realtors (NAR) has 1.45 million members, 4.8% more than the year prior. To put it in perspective, that’s nearly 40% more agents hunting for deals than there are houses on the market.
Just keep this fact in mind and take a moment to think about how that impacts the day-to-day of agents. Would you be incentivized to share your property data with the wider market? Why? If agents aren’t willing to share their pricing data, doesn’t the market suddenly become inefficient? Kind of like…ummm….the housing market right now?
Traditionally, the MLS has been a beacon of hope for real estate agents and the consumers they serve. They have served as the regional source of truth regarding market data. Agents pay for membership or access to the data, and their service takes a 6% broker fee. You know, kind of like an online agent that helps all the agents communicate and get deals done. Karen Elmir, CEO of The Elmir Group, echoed this sentiment in a Forbes interview.
“In my opinion, the MLS is a powerful force for competition. The real estate market is competitive, and the business is unique in that competitors must also cooperate with each other to ensure a successful transaction. MLS systems facilitate that cooperation.”
It also, as I mentioned, can be trusted in a way that other listing services, Zillow, Opendoor, etc. cannot be.
“You don’t know who is entering the information in all these new apps coming out,” said Adam Kaufman. “In the MLS, the listing agent is required to input all the information, so you know they are going to make sure it’s accurate. The MLS is also regulated by a board, so typically all of the information is going to be correct.”
There you have it. MLS’s give the agents the much-needed information to properly compete for deals and best serve their clients. Seems legit, right?
The exact same line of logic extends to the agents themselves. They are the experts on all things regional real estate. They know the nuances of the specific market, the county rules you need to follow, the other properties also available, etc. Without them, you wouldn’t stand a chance at buying the right property.
There definitely is a massive amount of truth to that. Without working with agents and the MLS, it is very difficult for a regular person to be enough of an insider to know what they are really paying for. Therein justifying their existence.
The problem is, especially when there are more agents than homes for sale. It’s not obvious the MLS or agents are actually serving their clients. Rather, they could be charging insane fees because they can. With the internet being what it is, there’s no reason buyers can’t work directly with sellers, do their own online research, and complete the transaction themselves.
This begs the ultimate question, do we really need the agents and the MLS? At a minimum, do they need to get paid so much for information we should be able to find on our own?
Jack Ryan and Rex think this is a big problem. He has said in the same Forbes article referenced above:
“The buyer and the general public have other places they can go,” Butler said. “They can go directly to Zillow or Realtor.com because the MLS doesn’t have real relevance to them.”
“It’s amazing how smart the buyers are when they come to visit the home that we’re selling,” Ryan said. “They spend on average nine to 12 months looking for a home on their own. And then they call us if they want to see a home or email us or text us. They know why they want to move to a certain area, what block they want to live in, where the school districts are the best. They know what other homes are selling for what price.”
“They’re so educated. Agents are doing less and less every single year because most people are doing their search online to find a home,” Ryan said. “No one’s driving them around Austin, Texas, for eight weekends in a row for three hours a week and showing them homes. They’re doing all the work on their own for nine or 12 months. And they’re happy to do it on their own—they want to. What happens in the traditional process is you ask to list your home, and someone puts up a yard sign, and they put it on the MLS,” Ryan said. “That’s a very passive activity and most people—most vendors of products—don’t put it on a website and say ‘That’s enough. I hope someone checks out this website.’ What we do is much more than an agent does because we have PhDs from the best schools in the country predicting who we think within a certain radius or square mile or demographic is the best buyer for your home, and then dropping them a note.”
“We can tell that this person cares more about schools and pools, and this person cares more about kitchens than garages,” Ryan said. “And this person cares more about commute time. You can change the ad for all those different permutations for 50,000 different people. There’s just no way a human can do that. It’s just too complex.”
Do you buy that sales pitch? Do you think that data science and data collection from PhD’s is enough to completely replace the traditional dependency on agents and MLS’s? My gut tells me when you have more agents than available homes in the market than agents and the MLS info is becoming more and more available elsewhere, REX’s business model certainly has the potential for disruption.
With that being said, however, I have yet to really see the promises of big tech and AI to ever truly be able to replace human expertise. My good friends, who I’ve alluded to several times, just closed on their first house after a solid 18 months of disappointing failure. What was the element that finally got them across the finish line???…a good agent. They switched agents to get his experience and connections in the industry and it paid off. It also paid him, however, but he was the difference maker. When I asked my friend if he thinks they could have gotten the deal done without the agent, he said no chance. But it was the agent’s connections and reputation that made the difference. Not necessarily the discovery of the house or the agent’s business acumen. In support of Jack Ryan’s point, my friend did all of the market analysis and financial diligence on his own. It was the agent’s relationships and connections that made the difference. In other words, he, by virtue of his experience, had insider access only reserved for veteran agents.
When you look at it that way, the idea Rex is putting forth definitely has merit. If it is only agent’s network that justifies his job, maybe we don’t need agents or MLS’s anymore. Maybe their time is up. Let’s put the information online, have smart people use algorithms to find you the best deal, and then complete the transaction on our own.
With that said, however, it is still very unclear how data science and predictive analytics can gain enough leverage to replace an industry that is so deeply traditional and human-facing. I also know enough about business and human nature to simply dismiss the value of an agent’s network and connections. So many people say they need their network to get any business done. Maybe networking is the most important and valuable component to business and nothing will ever replace it.
What do you think about the current structure of residential deals? Do you think agents are invaluable? Is networking and relationship building the most important aspect of business? Could it ever get replaced by AI and ML? What about the MLS? Do they get paid too much? How would you change that?