Last year, there were about 6.5 million closed home sales in the US. If you assume 80% of those deals were properties listed in the MLS with broker representation, that works about to about 5.2 million "commissionable" transactions.
With an average sales price nationally of about $400,000, and using a conservative estimate on gross commissions charged, that works out to about $100 billion in real estate commissions paid to the 2 million or so licensed agents in the US, or about $50,000 per licensee before expenses, licensing fees, transactional costs and broker splits.
The reality is that the average real estate agent earns about $30,000 a year, which is one reason real estate is the ultimate revolving door business. While appearing fun and glamourous from the outside, in real life it's an endless grind of showing properties (often at the direct expense of your spouse and children), competing for listings, solving problems and managing emotions, made far worse by the historic inventory plunge triggered by the loose money Fed policies enacted at the onset of the pandemic.
Nationally, 50% of licensees will quit in their first year, and nearly three out of four new agents will not renew at the end of their first three or four-year license cycle.
Zillow has significantly altered its business models over the past few years, transitioning from an advertising platform to a lead generation service to a brokerage company to a home flipping service, with disastrous results.
They saw that $100 billion in commissions just hanging out there, like a giant piece of candy just beyond their reach, and fell of a cliff in pursuit of it.
Like their home flipping competitors Open Door and Offer Pad, Zillow thought if they just bought enough market share, they could eventually make people comfortable with selling directly to them, buying directly from them, financing with them and leveraging a host of affiliated businesses like insurance and contractor services to take over the world.
In pursuing this strategy, they alienated the agents who advertised with them, alienated the brokerages that used to partner with them, alienated the home sellers they lowballed, and alienated home buyers dumb enough to overpay for smoky, dirty, overpriced properties with bad carpet that became the expectation when you saw a Zillow sign in the front yard.
They also announced they will lose more than $550 million in the second half of 2021 alone, which tanked their stock by more than 20% when the announcement came at the beginning of November.
As referenced earlier, Lennar is now one the builders who have declared war on brokers and commissions. And no, they don't plan to share those savings with you. Lennar has actually doubled down on attacking brokers by partnering with Open Door, hoping that when you walk into that sales office unrepresented and find out you need to sell your home in order to be a non-contingent buyer for one of Lennar's new builds, you'll chop off your right forearm and sell directly to Open Door (at a steeply discounted price) to satisfy the contingency.
Again, all well and good. I'm all for different business models. Seriously, it's a marketplace and ideas and models should be in competition with one another.
But if you're going to try and squash me, it's hard for me to offer a hearty endorsement of your product when your business model involves removing the experience, commitment and fiduciary expertise of good brokers from the transaction so you can sell directly to consumers who have no idea how many hand grenades are buried in a 50-page builder contract (written by the builder's attorneys).
So it's a marketplace, and if you want to destroy me, don't expect me to offer a recommendation to my buyers.
I've said for a while that a great die-off is coming in the real estate world, and it has arrived since March of 2020. For both agents and brokerages, if you don't have a compelling value proposition, you are headed for extinction.
And that's okay too. Again, I'm all for markets and a competition of ideas and services. Let Open Door and Offer Pad buy crappy homes and slap lipstick on them. Let builders roll the dice on letting unrepresented buyers sign one-sided purchase agreements that strip away their rights without disclosure or understanding. Let consumers decide what works for them.
Zillow discovered that chasing what looked like $100 billion in low hanging fruit ruined their brand integrity and threw their company into organizational chaos. I wasn't the only one who noticed that when Zillow started flipping homes, their appreciation estimates went from some of the most conservative in the automated arena to the most aggressive.
It's hard living through disruption, but Americans in all walks of life have been going through it for 21 months now. Real estate is no exception. If you think an honest, experienced broker adds value, then hire one. And if you don't, call the 800 number on the post card in your mailbox and give away 10% of your equity to someone who isn't based in your community, will provide little or no service and has no regard for your best interests.
