Don’t Fall For A Brokerage, Fall In Love With A Team

Don’t Fall For A Brokerage, Fall In Love With A Team

Homebuyers and sellers should choose an agent or team to work with based on track record, local knowledge, and personal rapport. Well-funded “mega brokerages” that invest heavily in marketing directly to consumers are no replacement for the service and expertise that the best agents provide.

How did we get here?

Americans today live in an age of monopolization. Household brands like Amazon and Netflix — backed by substantial capital investment and broad technological efficiencies — have gobbled up, displaced, or driven out of business smaller competitors. 
Real estate, the world’s largest asset class, has also been affected by this phenomenon. Most of the capital and technology investment has flowed to a few residential “mega brokerages”, leading to a wave of mergers and acquisitions across the industry. Before raising $370M in Series G funding at a $6.4B valuation in July 2019, Compass acquired 16 brokerages/ancillary companies. (They then added a 17th in November.) More recently, The Corcoran Group — part of the publicly-traded holding company Realogy — announced the creation of Corcoran Global Living, born from the acquisition of two well-known players on the West Coast: Zephyr Real Estate (formerly the largest independent brokerage in San Francisco) and Oliver Luxury Real Estate (which had operated in Lake Tahoe and Reno).
Compass, Realogy, and others seek to build market share in the country’s most desirable regions. Compass specifically has been open about its desire to create “an operating system for the real estate industry”. This implies a broadening of revenue-making opportunities beyond the traditional brokerage model, which is solely dependent on commission splits from each affiliated agent’s transactions. 

What does this mean for you?

Only time will tell how and where the scale of Compass’ ambitions will be felt by homebuyers and sellers. For now, financing programs like Compass Concierge and Compass Bridge Loans replace the role banks and other lenders have always served in transactions. In theory this could mean a streamlined experience when it’s time to list your home. But in practice it means that you are expected to work with Compass’ preferred vendors. Meanwhile, those not used to delayed reimbursement from Compass may balk at covering all costs up front. The bottom line is that you are given less choice.
Economics 101 tells us that monopolization leads to reduced competition. As a result, the victors of the system to set their own prices. While some downplay the harm this trend portends for consumers and other stakeholders, prices for services provided by these companies have gone up at rates that significantly exceed inflation: 

Year Started Original Cost (Adjusted for inflation) Actual Cost In 2020 Premium Over Inflation
Amazon Prime Membership 2005 $79/year ($103.95/year) $119/year +14.47%
Netflix HD/Premium Subscription 2011 $7.99/month ($9.13/month) $15.99/month +75.14%

It’s true that Amazon and Netflix offerings are capital intensive. However, the pace of these price increases is striking. And while you may love being a Prime member or having a Netflix subscription, this is exactly what both parties are hoping for. By getting you hooked on their services, these companies can compel you to stomach further outsized price increases down the road.

What you should do

Buying or selling a home is one of the biggest, most complicated, and most emotional transactions a consumer will make. As such, choosing which agent or team to partner with is of paramount importance. Consumers should consider the following three things when making this choice:

  • Track Record

For sellers, does your agent/team have a record of listing properties for higher prices and more quickly than local benchmarks? And for buyers, has your agent/team demonstrated an ability to have offers accepted at the lowest possible price? In either case, do they have a clear roadmap for each stage of the transaction?

  • Local Knowledge

Is your agent/team deeply familiar with the area in which you’re looking to sell or buy?

  • Personal Rapport

Do you like your agent/team? Are you confident that they will be able to communicate with you effectively through the ups and downs of the process?

You’ll be in good hands if you’re able to find an agent or team that checks all of these boxes. These capabilities matter much more than a brokerage’s efforts to gain market share, build a consumer brand, or offer financing solutions. While superficially appealing, these attempts to win over potential buyers and sellers do not serve your real needs, and have the effect of limiting your choice down the road. You’re better off working with the best agent you can find.
Get in touch if you’re looking to buy or sell anywhere in the Bay Area!

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