Forget about the new commission rules, AI and Clear Cooperation: The biggest challenge the residential real estate industry faces today are Realtor associations, multiple listing services and brokerages that depend on inexperienced agents to generate profits.
That’s according to Side co-founder and CEO Guy Gal — whose company serves top-producing agents and teams exclusively.
The real estate industry has a lot of incentive to keep deals flowing to inexperienced agents, Gal told Inman CEO Emily Paquette at Inman Connect San Diego Thursday.
Inexperienced and part-time agents provide the vast majority of dues collected by Realtor associations and multiple listing services. They may not be as productive as full-time, veteran agents, but when they do close a deal, they pay a bigger share of their commission to their broker.
“A part-time agent in a traditional brokerage is paying 50 [percent] to 65 percent of their commission to that brokerage when they close that one deal or second deal or third deal of the year,” Gal said. “A top-producing agent is paying maybe 10 to 20 percent of their commission.”
The result?
“You have an industry today where, instead of everyone conspiring to move more transactions into the experienced hands, they’re actually conspiring to move transactions away from the experienced hands into the part-time hands — for no other reason than it’s just more profitable,” Gal maintains.
While you often hear that “20 percent of agents do 80 percent of the deals,” Gal said, that’s not true. “Nearly 70 percent of transactions are closed by part-time agents … doing two, three, maybe four deals a year,” he claimed.
Many of those agents are not experts, and are not devoted to their clients, Gal said — and that reflects poorly on the industry as a whole. “It creates low consumer confidence in the industry, and it undermines the integrity of the industry,” Gal argued.
Alluding to the debate over NAR’s Clear Cooperation Policy (CCP) and private listings, Gal argued that “a lot of things are not broken, and a lot of the things that people are solving for are not actually things that need to be solved for.” People have been successfully selling homes off market for 100 years, he said.
“I’m not sure there’s a particular need to address that programmatically, in the way that maybe some folks in the industry are,” he said of brokerages that have launched private listing services.
Similarly, Gal sees AI augmenting agents, not replacing them.
“States will not license AIs as fiduciaries; you can’t suspend the license of an AI,” he said. “You can’t hold an AI accountable. So AI will work in the loop, with agents, to augment how they serve” clients.
In regard to the commission lawsuits that have upended the traditional business model by prohibiting listing brokers from making offers of compensation to buyer brokers through the MLS and requiring agents to sign contracts with buyers before touring a home, Gal was similarly contrarian.
“The commission lawsuits are, in fact, a gift to the industry,” Gal insists. “They have already done more to raise professional standards than anything that the industry has ever done for itself.”
Top producing agents have “a lot of experience explaining the value they create to a client, and they have a lot of experience getting a client confident and comfortable signing a piece of paper that makes them their exclusive representative,” Gal explained.
To a top-producing agent, having to sign a contract with a buyer before touring a home “might be a nuisance. But to part-time agents, it’s existential. Because part-time agents for the last 100 years have been trained by traditional brokerages to sell ‘free’ and ‘no obligation,’ and they can’t do that anymore.”
Some of the real estate industry’s biggest institutions and corporations “are investing every dollar they have, doing the very best they possibly can to steer clients away from the good agents to the less experienced, more casual ones,” Gal warned.
While there’s a “well capitalized” effort to preserve the status quo, “it pales in comparison to the physics of what real estate’s Mother Nature really wants, what the consumer really wants, what markets and communities really want,” Gal said. “They want value much more than they want low cost.”
Agents and teams working with Side “haven’t seen commissions contract at all, whatsoever,” in the post-commission lawsuit environment, Gal claimed, because they have “a lot of experience explaining the value they create to a client.”
But Gal sees no room in the middle.
“You can either be very low budget, low cost, low service, DIY,” he said. “Or you can be premium — not by price point, but by approach, service, support and ability.”
