Hey guys, it's your friend Coby here. Have
you guys ever wondered if the job of being a real estate agent is actually necessary? Or if
Real Estate Agents will Become Obsolete? Well, today we are going to answer those questions.
These seemingly straightforward questions are tough to answer because a big problem arises:
getting unbiased data is challenging. Most of the articles written, videos made, or research done on
this question have been done by real estate firms, individual realtors, or the national association
of realtors.
Do you see the problem here? Most people talking about whether realtors will
be obsolete have a conflict of interest on the topic. Their livelihood depends on
realtors staying relevant. It’s like asking oil execs if clean energy will replace
fossil fuels. Regardless of what the data says, the oil companies will say ohh no, clean
energy won’t replace oil because of X reason, Y reason, and Z reason. People are known to twist
the truth if it helps them. For example, we now know that exon mobile scientists predicted global
warming with precise accuracy in the 70s, yet Exon proceeded to push back against the movement to
clean energy publicly for decades afterwards. Now I’m not saying that NAR or the National
Association of Realtors is hiding some study about the demise of realtors; I’m just saying that
when we address a question like this one, we need to do so in an unbiased way.
So today, I am going
to present you with research not just from biased sources but sources that don’t have a dog in
the fight, and then based on this information, you can draw your own conclusions. Now you might
be wondering what my biases are going into this, and I’ll tell you. Professionally I’ve worked
In the auto industry, at an investment bank, and in management consulting. I’ve bought
one house, in which I used a realtor, and I’ve renovated that house. So those
are all of my biases. If you like unbiased, well-researched videos about topics in business
and finance, you should definitely subscribe, I’ve made videos about the gender pay gap, the pros
and cons of cryptocurrency, and lots of others, and in all of them, I do my very best to present
the data in an unbiased, educational and hopefully entertaining way. Videos like this take a lot of
time and effort to produce, and by subscribing, you are making it possible for me to continue
doing this.
And if you are like dude, I’ve only seen a minute of your video, and you want me to
subscribe? I totally understand, and I encourage you to watch until the end of the video and decide
if you’d like to subscribe. And speaking of the rest of the video, here’s the game plan, We are
going to talk about each threat to the job of a realtor and if there’s a reason why that threat
will fail, then we will talk about the barriers that protect realtors from becoming obsolete and
if those barriers will stay around over the next couple of decades, So with that road map set let’s
jump into the threats to the Realtor Profession. Threat 1: I Buyers. The Threat of I buyers is
often the first thing that comes up when asking the question, will real estate agents become
obsolete? I-buyers are companies like Zillow, Redfin, Open Door, and Offerpad, who use
algorithms to guess the value of a home and then extend a cash offer to the homeowner.
Although
these companies get big headlines on websites like CNBC and the Wall Street Journal, their
actual market presence is fairly small. I buyers only account for about 1.5% of home purchases in
the US. So why is this the first thing that comes up when discussing the destruction of the real
estate profession? Well, I think it’s because it’s a tremendous pro-real estate agent case study.
Many Ibuying programs have not done very well, and almost none are profitable. Zillow famously
shut down its home flipping program after losing 881 million dollars in 2021. Although Zillow has
recently started offering instant cash offers for people's homes again, Opendoor facilitates the
transaction, and Zillow just gets a referral fee when a customer sells to Opendoor. But
the point is that the argument that “people are better than algorithms” looks obvious when
you see colossal companies like Zillow and Open door that are unable to design algorithms that
can correctly estimate home values in such a way as to make a consistent profit. These business
failures add credence to the safety of the real estate profession. But just as it’s probably
unfair to say due to one company’s defeat, the realtor profession is safe, it is also
unfair to say I-buyers will never have a significant stake in the real estate industry.
For comparison, in the automobile industry, Even as recently as 10 years ago, Electric
vehicles had less than a half percent% share of the US automobile market; in 2023, that
number is about 10%, and projections show it climbing exponentially into the future.
There’s a
real possibility that these companies will design an algorithm that can be competitive in the real
estate market and when they do, the ease of the transaction will lead to I buyers building a
strong market presence. But this threat only really becomes realized if artificial intelligence
and predictive modeling takes large steps forward. But, to be fair to the realtors out there.
I-buying will never threaten realtors who work with high-net-worth individuals and luxury
real estate. Ibuying programs are aimed at middle-class and starter homes that are similar
to one another. Once you get into the realm of multi-million dollar homes, the value offered by
Ibuyer technology disappears. It makes sense to make an algorithm guess prices for 800,000 homes,
but the competitive advantage of that technology falls apart when there are fewer homes with
more differentiating features. So to review what we’ve learned about IBuyer, they could pose a
threat to the realtor who sells starter homes and generic properties in medium-density towns.
But,
it will not get anywhere close to threatening the livelihood of the realtor in NY or LA selling
million-dollar apartments or beachfront homes. But while the news focuses on the headlines
of companies buying up properties because they are cool and clickable, they don’t talk
about how many of these companies are quietly offering lower-commission realtor services than
traditional real estate agents. For example, you can use Redfin as your seller agent for
just a 1-2% fee 1. This fee is about a third to half of the traditional 3% fee that sellers'
agents usually request. This 1%-2% difference can save thousands of dollars on every sale. And if
both the buyer and seller use Redfin’s service, you would save 3-4% of the home's value and still
get real estate agent-like services.
It’s pretty easy to see how these savings could lead to a
lot of cost-conscious consumers adopting this technology, and this is shown in Redfin’s
growth numbers. Over the last five years, Redfin’s revenue has 5X’d. It’s not unrealistic
to see that with such competitive pricing, Redfin or other similar companies
like Homie could grow to account for a reputable 10 or 20% of the
market over the next several decades. When you think of real estate agents
becoming obsolete, it makes sense to think of tech companies replacing them, but
there is actually a more concerning simple macroeconomic trend that could lead to a decline
in the realtor as a profession, and that’s the oversaturation of real estate agents.
Let’s
look at some numbers. Over the past 3 decades, the number of real estate agents has skyrocketed,
going from 766,000 in 2000 to nearly 1.5 million in 2020. The growth of realtors has outpaced the
growth of the united states population by a factor of 4. In the last two decades, we’ve seen a 39 and
36% increases in the number of real estate agents; this level of growth is just not sustainable.
At a certain point, there will become too many realtors for the number of homes that are sold
each year in the US.
Now you might be thinking, well, even if the growth of realtors is outpacing
the population growth of the united states, that’s ok if people buy and sell homes more and more
often. And you would be right, except according to NAR, we are actually seeing the opposite thing
happen. People are staying in their houses for lon ger. On average, people buy a home every nine
years compared to every six years in 2007. Now does any of this information mean that real estate
agents will go extinct? Frankly, I don’t think so, I just think you will see the growth of the real
estate profession slow and people will only stay in real estate if they are really good at it.
And
in my opinion, this culling of the industry would actually be a really good thing. Good real estate
agents are amazing tools for home buyers and sellers. Through amazing photos, good negotiating
and pricing a home properly, they can help sellers make more and buyers get the best price even
when accounting for their commission. On average, FSBO homes bring in between 5.5% and 26% less
than when using a listing agent so people usually aren’t saving much and sometimes even lose money
when doing FSBO when compared to just using an agent.
But as the real estate industry becomes
more competitive, Bad agents, lazy agents, or just not top-notch agents who don’t bring all those
benefits to their clients will be forced out of the industry. This would actually be a net benefit
to everyone who wants a top-notch experience when buying a home. So will the oversaturation of
real estate agents make them obsolete? No, probably not, but it will make the average agent
step up their game to attract buyers and sellers. If you are wondering if smart contracts
using blockchain technology will make realtors obsolete Most likely, smart contracts
will just reduce the amount of money and time spent on closing costs. Yes, the realtor
does help with paperwork so some people may choose to use smart contracts and go
it their own, but if realtors pass the time and cost savings of smart contracts on to
their clients, they will keep their clientele.
In my opinion, the greatest risk to
real estate agents is not I buyers, it’s not a rise in for sale by owner, it’s not
smart contracts, it’s A tech company like Zillow or Redfin using technology to act as the real
estate agent and facilitating the preparation, listing, negotiating, and closing of home sales
for less money. But even this “threat” isn’t much of a threat at this point. Despite their
presence in our minds, companies like Zillow, Open Door, and Redfin still have a minuscule
part of the pie when it comes to revenue from home sales. So with all this research, It seems
like the profession of real estate agent is pretty safe for the foreseeable future. Will the number
of realtors continue to increase at the breakneck pace of the last decade? I don’t think so I think
we will see a slowing in that regard, but unless a major entrant can really shake things up, the
momentum of people using agents to buy and sell their homes will likely keep agents as a central
role in the real estate industry for decades to come.
But if you have a source that proves this
wrong, I’d love to see it. If you think I missed something in my analysis, feel free to tell me
what I missed in the comments. I’m not perfect, and no one knows what will happen in the future,
so I’d love to see any information you think would add context to this case. Thank you, guys, so much
for watching. If you are still here right now, you probably liked this video or at least found
it informative, and I bet you like learning about the world of business, so if you want a weekly
well-researched video like this one, subscribe; I promise you won’t regret it. Thank you again
for watching, and I’ll see you next time..
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