In the movie Glengarry Glen Ross, known for Alec Baldwin’s iconic line “Coffee is for closers”, the different characters struggle to get the Glengarry leads. These are the premium leads collected by the broker and distributed to the best brokers in the company. If you haven’t seen the film please do so if only to see Al Pacino’s rant about the leads he received from the office manager, which, had it been conducted today in the real world, would have cost him his license.
Decades later, the old model of the “Glengarry leads” is being replaced with direct-to-consumer marketing platforms like Zillow, Street Easy (who is owned by Zillow), Realtor.com and lately, Localize.
The rise of these platforms is accompanied by a widespread speculation by outsiders to the industry (and in some cases by members of the industry itself), that the broker class is going extinct the same way travel agents have lost ground to websites like Kayak, Hotels.com, Hotel Tonight and many more.
In this paper, I will explain why this is not the case and why the rise of new technologies is actually an opportunity for the real estate sales profession to evolve.
Let’s start with a few main and obvious differences between the travel industry and the real estate industry:
1. Price points: Buying a vacation is a less impactful event on one’s finances than purchasing a home, which for most people represents the largest purchase of their life.
2. Complexity: Purchasing a house/apartment is complex for a couple of main reasons:
a. Multiple Participants: closing a sale requires multiple professionals cooperating in the process, including attorneys, mortgage brokers, property managers, title, sellers, buyers, etc. Each step of the process can represent a challenge and requires someone that can coordinate these different tasks and deal with challenges as they arise. A broker is like a conductor overseeing the different parts of the tune being played, and in most cases, a good broker has a set team of experts that he uses on a regular basis.
b. The Search Process: Buyers need to be able to purchase within their means, get qualified and in a city like New York, be approved by various boards. Looking at apartments for which one can’t be approved or get a mortgage for is a waste of time for everyone involved and takes a mental toll on the buyer/seller. The broker holds information that a software doesn’t have and can match a buyer with the right property based on one’s personal understanding of the needs of the buyer. For a seller putting a unit on the market, the broker assist, among other things, in making it look presentable, pricing it and builds a marketing strategy around the property, which is especially crucial when the market is more challenging.
3. Information: The real estate industry is moving from a previous environment in which buyers used a broker to find them an apartment (primarily due to the fact that they had limited access to information about listings) to a current environment in which buyers have all the listings presented to them online. After Covid 19 hit, a virtual tour of a property became more mainstream, which makes this point even more relevant. However, the abundance of information and the various venues under which it is disseminated to consumers create a new issue for buyers: how to sort through all the available information. Prospective Buyer & Sellers are presented with almost too much information and find that they need a broker to sift through all the “noise” and present them properties within the parameters that are best suited for their particular needs based on the specific information that is most relevant to their actual needs and capabilities. The broker in this scenario transforms from the gatekeeper of information to a guide through a multitude of data that is not always relevant to the needs and finances of a particular buyer/seller.
4. Cost of mistake: Looking for a vacation is less complex. The wrong vacation spot/hotel most likely won’t damage someone financially, whereas the wrong property purchase very well could.
As a result, I claim that the real estate industry is not similar to the travel industry at all but rather more similar to another field: Wealth Management.
Similar to trading securities, people today can buy stocks/options/bonds on their own, the rise of apps like Robinhood make trading accessible to anyone with a smartphone, but buyers of equities are presented with the same issue that a buyer or even seller of properties are facing in the real estate market: the availability of too much information. One can buy a stock for retirement purposes, for day trading, or as a hedge against inflation. Should one buy Apple, Amazon or maybe jump into the GameStop frenzy? Buying and selling of equities is complex and most buyers and sellers don’t know how to sift through all the data out there and how to align their financial goals with the type of equities that can support those goals.
As a result, wealth managers and financial advisors are still in business these days. Though their commissions have dropped compared to the 80’s and 90’s, the best of them manage more and more money every year.
This is where the rise of the consulting and wealth management aspects of real estate is coming into play and the rise of the real estate consulting or the wealth management aspect comes into light, which is in contrast with the industry that was prevalent in the Glengarry days. The broker as someone who opens a door, a gate keeper for an apartment access is being replaced by a consultant or a real estate financial advisor that is highly knowledgeable. The modern broker can cater to a savvy buyer’s particular needs, taking into consideration terms like ROI, NPV, amortization and long-term planning. If you don’t know what any of this means, then you don’t have much time to catch up. The tech meteor that is hurtling toward our industry will most likely wipe out most of the agents that can’t evolve their business.
The rise of these platforms is also creating a major change to the brokerages themselves. The numerous platforms allow an individual broker to market directly to a consumer. Zillow Premier Agent, StreetEasy Experts, Localize and Realtor.com allow the broker to directly control his interface with the costumer thus cutting out the middleman, the brokerages. The question of what I can do for the brokerage is being replaced with what the brokerage can do for me. The threat to brokerages is imminent and the majority of them try to protect themselves with draconian contracts including claw-back and non-compete clauses.
Those negative methods to restrict agents will not hold, and eventually most brokerages will have to become real partners with a good broker. Brokerages will have to regularly offer marketing dollars, access to clients and listings and team support. As the machines erode the brokerage brand name, replacing it with a platform, the individual broker can use the new systems to become their own brand. Very much like we don’t ask Alexa for a specific brand of batteries when we ask her to replenish our battery supply, the clients out there won’t necessarily care if Jane Doe works for Brokerage A or Brokerage B, since a tech platform like Localize and StreetEasy will be able to give her exact analytics about the specific broker’s performance and reviews.
In this environment, a critical skillset for broker is the ability to advise consumers on their real estate needs after building a financial strategy for them. Gone are the days when a broker just showed an apartment.
To go back to the travel industry, there is one common element to both industries: the barrier to entry. A low barrier to entry in the travel industry provided the consumers with low level service that drove consumers to seek an approach of “cutting the middlemen” and get a cheaper vacation without having to deal with low level service. Similarly, low level service in real estate, “bait and switch” tactics and a general feeling of bad service is driving the consumer to try and cut the middlemen. However, what’s easy to do in looking for a vacation is harder when it comes to stocks and real estate.
This point is what makes the rise of the consultant type broker more important and is also what drives the emergence of such services even in the battered travel industry. Concierge type travel services cater to the savvy/busy travelers who don’t want to deal with booking a vacation. They want a travel consultant to design their vacation based on specific parameters. These types of services are emerging everywhere right now and represent a renaissance for the travel industry. Similarly, it is my opinion that the real estate industry will evolve to create a new breed of a salesperson.
Warren Buffet famously said that “Wall Street is the only place where people ride to in a Rolls Royce to get advice from those who take the subway”. The issue is that to work on Wall Street a certain level of education is required, and the series 7 exam is one of the most dreaded exams out there. In contrast, in real estate a 72-hour course that costs $300 is the only thing that separates a real estate agent and a hedge fund manager that wants to buy/sell an apartment. And it’s not just the hedge fund manager, any entry level finance guy meeting with a real estate broker has an education advantage and has considerations that in some cases the salesperson doesn’t even understand. That creates an immediate issue that most brokers are trying to compensate for only with their outgoing personalities. However, when it comes to money and with the abundance of information, clients are less inclined to work with someone who might be a great person to have drinks with, but lacks the kind of understanding and education they require in order to be serviced the right way.
The information problem:
The amount of information generated these days is unprecedented in human history. We are constantly bombarded with information about politics, news, science etc. It’s hard to keep up. With that, we are also bombarded by not just professional opinions like that of scientists and journalists, but also by those of our own friend’s and family via social media.
In the past, we all either watched this network or the opposing network and that depended on our political opinions and in each network we had our favorite commentator. These days, we also have to take into consideration all the different opinions our friends & Family and even third parties we don’t know on Social Media have on each event. Social media algorithms make sure that these various opinions are in our face on a daily basis so that they can sell us more ads.
This makes our lives more complex as we need to sift through a vast array of information some of it factual, some of it anecdotal and some of it false. For example, Brexit. In order to form an opinion, I have to read what it is, what does it mean for me financially, socially and what does it mean for the country and the world from a few different aspects. I also have to decide if I listen to what my right-wing friend on Facebook just wrote about it or what did my left-wing mom just wrote about it. This creates a symphony of voices in my head that makes it harder to make a decision and decide where I stand on anything.
The emergence of direct to consumer platforms represents the same issues in Real Estate. When coming to buy an apartment/house what type of parameters do I take into consideration and how do I decide based on so many opposing opinions about it on social media. In addition, the ease in which I can invest in asset classes like stocks and digital currency raises the question of alternative use of funds.
For example, a couple looking to purchase a 2-bedroom apartment in Manhattan with a 2.5M budget can go into social media forums in which people hate Coops, prefer condos, like Brooklyn, think Manhattan carrying costs are too high or hear that their best friend just invested in Bitcoin.
In addition, looking through a website like StreetEasy they see carrying costs, certain complaints about a building, different units on the market, pictures that make it look large and more info and waste time going to open houses in buildings that will never work for them financially because they didn’t realize that the Coop requires 2 years’ worth of maintenance and mortgage liquid in the bank after closing, and they don’t consider 401K liquid so suddenly half their net worth is not considered as assets by the Coop. In short, a waste of time.
Let’s take this couple and make it even more specific:
Looking into a building, they see that the building has noise complaints, a social media thread that talks about how rude the building personnel are, someone complaining about high carrying costs. However, when they check another building, they see higher carrying costs yet no lobby attendant and no amenities and the difference is not clear to them. Should they think total price, Price per sqf? Carrying costs? Resale value? Schools? Location? Views…it gets overwhelming and that’s before they even think to use a bank for financing just to find out their beloved bank in which they keep all their savings and with whom they’ve been banking their entire life doesn’t approve this building or gives them a higher rate for financing, and to top all that the attorney they hired is telling them that he doesn’t like the financials of the building and that the board minutes reflect an ongoing litigation with the sponsor, is that normal? No clue.
This brings into consideration the next issue, time.
The Time problem:
We live in a world where we don’t have time to formulate a coherent argument, if we want to say something political, we use 280 characters (twitter). Want to see what’s going on with your friend’s kids without sitting with them on the phone for an hour, check out their profile on Facebook or their latest pictures on Instagram. Want to take a cab, can’t be bothered with the payment? UBER, Lyft. Want to read a book but get to the bottom line quickly, well there’s an app for that too. Want groceries or basics without going to the supermarket? Amazon is there and if you are too busy to check the weather forecast then just ask Alexa. We don’t even write texts anymore we record them on the go and send it.
So, in this type of world does anyone really want to sit and learn about the real estate market considerations, study the buildings and the different areas, coordinate the closing, do the board package? Probably not. Does a seller want to show his unit and follow up with the prospective buyers? Only real masochists will do it, most people don’t have time for it. The same way you really don’t have time to follow all the stats about stocks and the general stats of the market. You could, but you rather pay a professional to do it. But that guy needs to be smart and have the right credentials. Same for real estate. Come in the Real Estate Wealth Manager.
The Wealth Management Approach:
To be clear, wealth management type consultant brokers have been around forever. They have been walking around us for ages and their secret sauce was exactly that, real estate financial advising or wealth management for real estate. Not their cheerful personality. Some of them are not that nice in person, trust me I’ve met them. The ability to manage your finances when it comes to real estate is what matters.
In the last decade the need to become a wealth manager became essential for agents to survive in the industry. The need to show an added value is critical for agents contemplating entry to this industry in this coming decade.
This is not to say that celebrity brokers with high end status and a vast list of celebrity connections are not going to make money, however these type of brokers can also be consultants and even if they are not they will keep making money based on their connections and or social media exposure. This article asks you to assume you are not one of these brokers. If you are one of those, then you could have stopped reading way earlier.
A good sign that your client is looking at you in such a capacity is when your client is able to find the property he/she likes online by themselves and the broker is actually called into the transaction to facilitate the sale from A-Z, bring in the attorney, title and mortgage and consult on price, resale value, coop/condo board etc. This is the true measure of a broker. When you are being called in by your buyer or seller to facilitate the transaction when you sometimes actually didn’t even show the unit, sometimes the client saw the unit without you and then said, I have to call my broker and see what he/she thinks.
So what are the unique features a broker should have to survive in this consulting game?
Education is the main differentiator.
In order to be able to sift through information, a broker requires basic understanding about what drives decision making with sophisticated consumers. Game Theory, finance, accounting principles are all required to be able to work with clients. And as information becomes more available, even less sophisticated clients will require that level of knowledge to justify working with an agent.
To evaluate the best decision for their clients, brokers need to understand the main differences between buying real estate and buying stocks or bonds. This will allow them to evaluate their client’s behavior and to advise, for example, a finance guy in a language he/she understands and responds to.
For example, someone who comes to a broker and asks them if it’s a better decision for him to buy an apartment right now in opposed to invest the money in the stock market should be able to have a discussion with that broker and receive answers that the broker will be able to defend even if the client decides to conference in his wealth manager from a reputable firm. Buying real estate because the market is down and will go up is not an answer for which the broker is entitled to 3% of the sales price. Here is a little experiment for you. Ask yourself, can I hold a conversation if my buyer/seller puts me on a call with his accountant/wealth manager? If not, then you are a dinosaur looking at a bright light in the sky trying to understand what happens as a doomsday meteor is heading your way.
Understanding the different options available to your buyer/seller will also prevent the broker from wasting time with a buyer/seller that might end up investing his money in the stock market, hold on to it or decide not to sell/buy.
In my business I’ve already found myself more than once on a call with the buyer/seller and his wealth manager. The ability to understand the market and the dynamics is crucial. Phrases like time value of money, accumulated interest, NPV, ROI, amortization etc. are crucial to be able to hold such a conversation and make sure that you get the blessing of the financial advisor of your client. Can you understand what money printing is doing to the financial system? Do you understand cap rates? How is the bond market related to real estate? If this sounds like a headache, then step aside and let a professional handle the deal.
I recently worked with a hedge Fund professional that bought a Co-op unit. His financials were very complex as he had multiple streams of income. Understanding his finances and putting it in a way that is clear to the board was crucial. Most brokers think, well my client is worth over X millions of dollars, so the board will definitely approve him, but as you move west on the East side and east on the West side, it becomes crucial that your client’s finances will be presented the right way with a clear understanding to whomever is reading the board package how you got those numbers.
In truth, some brokers pay someone to do their board package, but the issue then becomes quality control. When you present your client with a hired third party that is only involved in putting together their board package, you are taking a risk that that third party won’t represent your brand the right way. More importantly, your clients may not appreciate having to share their personal finances with a third party, and that third party might also not have a clue about what it is that they are actually looking at.
To be clear, this is not to say that every agent should get a finance degree or an MBA (although it doesn’t hurt) but rather emphasize that education is widely accessible online these days. Understanding finance and accounting is what separates the consultant-type brokers from the showers. There are multiple courses available on investing and real estate finance online. None are too expensive. Reading financial newspapers and staying current on world events is a must.
This shift can also present an opportunity for brokers who are good at interacting with people and lack education to partner with someone who is more of a consulting type. Such partnerships can be very powerful in the years to come, and these days are already creating some of the most powerful teams in the city.
Connections & The One Stop Shop approach:
Much has been written on the importance of networking, so I won’t get into too many details. However, I will point out that financial institutions’ wealth managers have gone through the same process that the real estate industry is going through. Like I previously discussed, people can buy stocks on their phones these days; they don’t need a financial manager to know that they should buy an Apple stock.
As a result, the financial services industry is becoming more similar to the real estate industry than the travel industry. Wealth managers offer these days a wider range of services to become trusted advisors for their clients and helping them sift through all the noise related to the stock market.
Clients might think to themselves, what are my goals? what information is important to me as a buyer of stocks? what data points should I put more emphasis on? What is my time horizon and investment goals? What additional things should I think of? Insurance, wills etc. are all being handled by financial advisors as part of a “one stop shop” approach.
This means that wealth managers will charge less commissions, since everyone can trade stocks today based on publicly available information. However, due to their added value, the best ones will get more traffic to make up for the commission decrease.
This is exactly the same process that we currently see in the real estate industry, creating somewhat of a common denominator between real estate professionals and financial advisors, which could be a great basis for cross referrals between professionals form both industries.
The main hurdle for this type of cooperation is that a lot of financial advisors tend to look down on uneducated real estate professionals. They don’t speak the same language. In order for us to win their trust, cooperation and clientele, a high level of experience and education is required from the real estate professional. Partnerships with wealth managers are absolutely essential. If you can speak the language of the wealth manager, then you have already gained entry to be considered as a viable option to be used as a broker. This kind of a connection is more important than networking randomly in a bar.
Real estate market knowledge and experience is a given and this has been covered in other writings. However, the type of market I’m talking about is the larger market: financial, political cross-cultural and geopolitical.
Real estate doesn’t exist in a void. It correlates directly with these other markets, which makes it imperative for a broker to understand the various forces around him, both locally and globally.
The use of real estate as a hedge against stock market decline or political instability has proven to be the wrong strategy in 2008 but might turn out be a good bet in the Aftermath of the Corona Virus financial meltdown and the unprecedented financial stimulus that resulted from it. The decline of London and Hong Kong as real estate hubs for their own unique reasons represents opportunities that might be completely missed by a broker who has no idea what I just wrote. Understanding these processes is key to being able to provide a real advice to your clients and to be able to hold a conversation with a financial advisor.
A lot of people feel uncomfortable in the presence of a salesperson, I think it’s safe to say that being around someone who you presume has an ulterior motive (mostly interested in your money) feels a lot like being in the presence of a serial killer. You know that person has only one thing in mind.
Very much like the character of Patrick Bateman (Played by Christian Bale) in American Psycho, good salespeople observe and listen to their clients while they are looking for the right information that will lead them to the end result. A closing in the case of the salesperson and a kill in the case of the serial killer.
Hence, the “killer instinct” term associated with good salespeople. Very much like in the film, the salesperson might talk about his favorite music in a showing while taking cues from the potential reaction of his target. Patrick Bateman talks about Phil Collins as his intended victim doesn’t realize that in the meantime, he is putting a raincoat.
If you ever asked yourself why some people feel uncomfortable next to salespeople, it’s the idea that the person in front of you is faking a human reaction while he is calculating what’s the closest distance between you and the trunk of his car. In our case, the trunk is a commission check.
The best salespeople focus on financial advising while keeping their killer instinct intact and closing while giving the best possible financial result to your client. Aligning your killer instinct with the best outcome for your client can seem contradictory, however, the best of us have mastered this skill.
Some of the best salespeople out there are actually introverts. In my Opinion, the reason is that introverts are good at listening to other people. The Master/Blaster (Mad Max: Thunder Dome reference for anyone born after 1990) type teams where one is the brute force-extrovert and the other the quiet listening/thinking introvert can create very powerful duos. There are some good examples out there for those types of teams and they are very successful.
The rise of the machines has come to real estate, and their full powers have been realized over the last few years. As professional salespeople, our careers are living on borrowed time.
However, the change shouldn’t scare us. We are not the travel industry. Real estate is a complex, time-consuming asset class that requires professionals to manage. As a result, we will see the demise of the lower level service provider and the emergence of the wealth management real estate salesperson. The real estate consultant who is educated and knowledgeable will ease the client’s mind so that he doesn’t feel he might as well do the work himself. That agent can use the various platforms to build his own brand, and choose to partner with specific brokerages that align with his/her objectives and are willing to invest in him/her.
When you decide to enter the business, look at how much you are willing to learn and seek the right education. Better yet, seek a mentor that can help you build the experience and knowledge base without the need to pay for an expensive degree (although a financial degree is a major plus).
Very much like wealth managers, the future involves lower commissions, In that I have no doubt, but the ability to build a vast network of clients will compensate the wealth manager/real estate consultant with a higher volume that will make up for lost commissions. Eventually, this will actually accelerate one’s business.