Before the COVID-19 outbreak, commercial real estate brokers heard a lot about the death of their profession. Online marketplaces were going to disintermediate real estate, cutting out the dreaded “middle[wo]man.” Brokers were going to be obsolete thanks to new internet platforms (or was it AI or blockchain?). Now we are living in the COVID-19 landscape, where brokers are not even able to meet with clients or give walkthroughs. Yet, the broker remains, still working to make transactions happen even in this brave new world.
Commercial brokerage, as transactional as it is, presents a great opportunity to peer into the future of real estate workflows. On the investment sales side things are crystallized down to their purest forms: one buyer, one seller, one or two brokers and one property, with the potential to transform individual sales into long-term pipelines of opportunity. And the business is at a crossroads right now. While it is easy, even obvious to ask the question of whether brokers will be around in the future, it is tougher to ask the more nuanced question of “what will brokers look like in the future?” It’s harder still to try to answer it. Let’s start by looking at the impacts of technology on the work world writ large.
According to Aaron Graham, National Land Realty’s Chief Innovation Officer, “An Oxford University study predicted that 86% of real estate agents would be replaced by robots over the next 20 years. The truth to this statistic remains elusive. However, regardless of the actual number, the question is, will you be part of the percentage pushed aside, or will you be a part of the elite portion who are taking the time to learn how to stand out, stay relevant, and remain valuable? If we can better serve clients by providing what they need on a personal, emotional, and technological level, while saving them time and money, we become invaluable.”
It’s the personal and emotional elements of that question that provide the most fertile ground for brokers to explore. Listing sites may be able to provide access to plenty of properties, and databases of owners may allow investors to search for off-market deals themselves, but brokers’ deep expertise in the art of the transaction allow them to help people who may have primary careers in other fields, or even real estate professionals with other focus skills, successfully navigate the process of investing in property.
It’s those personal and emotional elements that computers will find harder to replace. Even when behaviors or “tells” during negotiation might be recognizable through computer vision, there would be little way to bring such technology into vogue without video recording every interaction between buyer, seller, and broker. Despite society’s trend towards less privacy, such an intrusion is difficult to imagine ever being widely accepted. Even if it were, humans are uniquely qualified to determine emotional causation and correlation. The difference between genuine and nervous laughter, for instance, might be hard to explain on paper, but would make a world of difference in the context of deciding whether to be more aggressive with a purchase offer or hold steady.
Other brokers are picking up on this trend, as well. According to Beau Beery, a multifamily real estate broker with Coldwell Banker Commercial, “Our role will never go away primarily because buyers and sellers are emotional creatures. There is no way remotely the full number of deals would get done if there wasn’t someone in the middle stopping people from killing each other.” This is the reality of the buyer-seller relationship: even if agreeable terms are within grasp, human nature, communication snafus and other obstacles can make success hard to reach.
Pulling from the world of residential real estate, where the National Association of Realtors keeps excellent statistical records, the average home listed for sale by owner in 2018 sold for $200,000 versus $280,000 for properties represented by brokers. It’s tempting to say that delta might be smaller in the commercial world, where plenty of professionals have experienced being on one or both sides of a transaction, or may have even repped some themselves in the past. But even if the gulf were smaller, investor-sellers and investor-buyers must answer the question of whether the time commitment and stresses of handling the transaction themselves are worth saving a few points of commission fees. As someone who has seen transactions both on the principal and broker side, I would opine that the time spent coordinating due diligence alone should be enough to make owners think twice before eschewing the broker representation.
Once again, this points to the helpfulness, and indeed integral nature of brokers as transaction advisors and not marketing drones or bird dogs. Beau added, “There will never be a time when our worth in this field, of sourcing, listing, buying and selling deals will go away. Our skill set will continuously have to evolve but if sellers try to do everything themselves, they will leave a lot of money on the table. Good brokers know what people will pay, when to call bluffs and when to offer more.” But if real estate brokers are “emotional guides” to the transaction and beyond, their roles will surely morph in the future.
Brokers will likely see an increasing amount of time dedicated to helping their clients make decisions, not just execute on them. Buyers and sellers will be more likely to trust their brokerage professionals if they know they will get good advice for their particular situations, and not just hear the advice that will result in a transaction. One easy way to do that is for brokers to spend time using their skills to help clients, existing or prospective, in situations where there is no direct opportunity to gain a sale. This will likely be based heavily on particular skill sets from broker to broker. Have a past as a property manager? Why not volunteer to support your long-term clients with management advice? Or if you come from a background in enterprise technology sales, why not offer tech advice when applicable?
Bigger commercial real estate teams already see newer employees handling the Excel models and cold calling while leaving relationship building to the higher-ups. The trends we’re discussing are really just an extension of that. But the younger employees shouldn’t feel left out, either. To the contrary, the modern transaction landscape provides an opportunity for newer employees to reach out to their peers at client companies in a one-on-one manner, with less of the established perspectives and assumptions than their managers, and managers’ managers, may have programmed into them.
The world of brokerage is evolving but it is far from over. Instead, it is morphing and revealing a new face, one that puts an emphasis on the people in the transactions and not the banality of the deal. Frankly, it’s a new world we should be happy for.