- With 2020 quickly approaching, Business Insider is polling experts to find out what finance and real estate will likely look like a decade from now.
- Real estate agents have, so far, largely avoided being replaced by technology, even as human brokers in areas like travel and stock trading disappear.
- Clelia Warburg Peters, president of Warburg Realty and a co-founder of pioneering proptech VC MetaProp, has a has a three-tiered vision of what the future of brokerage will look like, differentiated by the wealth of the seller or buyer.
- The experts who spoke to Business Insider largely predicted that there will be fewer agents, lower commissions, and more services like title and mortgage brought directly to the transaction by brokerage.
- Read more BI Prime stories here.
Real estate agents have, so far, largely avoided being replaced by technology, unlike many human brokers in businesses like travel and stock trading.
Venture money has been pouring into iBuyers that make automated cash offers on homes, and startups looking to put a new twist on old brokerage models. But iBuyers made up only 0.2% of the US real estate market in 2019.
Real estate agents are still here, even if their jobs have changed with the advent of social media marketing and online listing platforms. Clelia Warburg Peters, president of Warburg Realty and a co-founder of pioneering proptech VC MetaProp, thinks that change has been slow in real estate brokerage because of the high stakes that come with selling or buying a home.
"People have been less willing to experiment with new models here than in many other areas of their lives," Peters told Business Insider.
But that will change by 2030, experts say, whether by the force of venture money or consumer demand as more of life becomes entirely digital. Peters has a three-tiered vision of what the future of brokerage will look like, with those tiers differentiated by the wealth of a potential home seller or buyer.
A three-tiered brokerage market
The lowest tier will be the most disintermediated by tech. iBuyers are the most obvious example of this now, but experts imagine that other tech-disintermediated options could exist in 10 years.
The middle tier, comprising the largest portion of the market, will be brokerages that continue to use agents, but will use specialized labor and more technology to lower commissions and sell many more homes per agent.
The final tier, serving the most expensive homes in every market and most of the most expensive markets, will be closer to the more traditional brokerage model, though new models and technology will impact this space too.
These tiers will cause some large changes to real estate brokerage. The experts who spoke to Business Insider largely predicted that there will be fewer agents, lower commissions, and more services like title and mortgage brought directly to the transaction by brokerages.
Replacing agents with technology
While many of the experts we spoke to were skeptical about iBuyers when they first hit the market, most agree that the technology is here to stay. Peters predicts that between 10% and 15 % of home sales will be made by iBuyer and other tech platforms by 2030.
These platforms, which trade convenience and a guaranteed sale for high fees and a potentially lower sale price have had success in Sunbelt cities in the US. Experts expect them to expand, though to remain most successful in the Sunbelt.
Other platforms, which may not even exist yet, could create more accurate underwriting models and renovation plans that could potentially lower their cost to the consumer or increase their geographical reach. They could also partner directly with institutional investors in single-family rentals, like Invitation Homes, which would bring more of the nation's homes onto the rental market.
Steve Murray, president and owner of Real Trends, a real estate research and consulting company, said that advocates of the iBuyer think that by making the transaction faster and simpler, they could lead to a higher volume of sales.
"It could influence the number of people who are buying and selling," Murray said.
While some experts think the future is bright for iBuyers, others point out that the model hasn't weathered an economic downturn.
"The companies are taking a massive amount of balance sheet risks with these assets of single family homes," Ryan Freedman, general partner at Corigin Ventures, said. "When the value of those homes change, I'm not sure how that plays out for these companies." Corigin is an early-stage venture firm that invests in real estate tech startups.
Kurt Ramirez, general partner at real estate and built world tech VC Nine Four Ventures, has seen iBuyers start to bundle other services, like title, escrow, and mortgage into the transaction. This will become more prevalent, and will allow iBuyers to increase their margins.
While this tier seems to promise an agent-free future, Dror Poleg, author of Rethinking Real Estate and the co-chair of the Urban Land Institute's Technology and Innovation Council, has seen iBuyers start to employ brokers, especially for the selling side.
"They're finding that they can't do it all on the computer," Poleg said.
The assembly line comes to real estate
The second tier, which Peters predicts will serve the majority of home buyers and sellers, takes its cues from the assembly line.
These brokerages will employ agents as employees, instead of freelance contractors, and will chop the agent job into multiple different roles. They will also use technology to standardize tasks and lower the amount of times that agents spend looking for potential clients.
Ramirez said that these brokerages aren't the first to use division of labor in brokerage. Traditional brokerages have been increasingly turning to agent teams; according to the National Association of Realtors, 26% of agents were on agent teams in 2018.
These hybrid models, most easily demonstrated by Redfin, will be different than traditional agent teams because of how they use technology to lower the cost of each individual home sale.
Prevu, a New York based brokerage, does this by skipping traditional marketing, and instead marketing online. Clients' relationship with the company is kept online for as long as possible, making agents more productive.
As natural language processing and machine learning becomes more advanced, it is likely that these hybrid models will rely more and more on technology, improving their margins.
They will also likely improve their margins by bundling the transaction with home insurance, title, and mortgage, according to Peters. These savings are what allows these brokerages to have lower commissions, a trend that could continue as their margins get better.
Thomas Kutzman, co-CEO and co-founder at Prevu, believes that this increase in efficiency will significantly cut the number of real estate agents.
"There will be drastically less real estate agents overall capable of doing 10-to-20 times more deals per year than the average agent in the United States today," Kutzman wrote to Business Insider over email.
Real estate brokerage as a craft
Just as the assembly line and robotic manufacturing has not totally ended the market for craft manufacturing, the traditional model of brokerage will likely continue to exist in 2030. Just like craft manufacturing, it will be for the most expensive part of the market, where complexity makes a technological solution more challenging.
Warburg Realty's Peters said that traditional real estate brokerage will become a "private wealth management-style service."
Rethinking Real Estate author Poleg sees the transformation as similar to what's happened with "travel agents and stock brokers," where the only who aren't replaced by technology will be the ones who work in specialty markets.
These agents are likely to be today's top performers. According to Real Trends' Murray, sales are already being consolidated to fewer agents.
"The really good agents are picking up market share," Murray said.
Experts were unsure if commissions will compress at this tier. Peters said that she believes it will stay the same, while Murray said that commissions have been slowly decreasing since the 1990s, and likely will continue to shrink.
As in the other tiers, agents will bundle more services into the transaction.
Ryan Gorman, the incoming CEO at Coldwell Banker, highlighted the brokerage's RealSure product which will allow brokers to offer their clients cash offers that are valid for 45 days while they test the market and their own rent-to-own program with Home Partners of America. SoftBank-backed brokerage Compass offers a popular Concierge service, which is another example of this.
"The best products truly grow the market," said Gorman. This view suggests that iBuyer-like services could allow traditional brokerages to retain some of the clients that would have otherwise gone to lower cost services.
Even if the traditional real estate agent will survive, the brokerage model could change. Traditionally, brokerage services are bundled together. If an agent works for Compass, they use Compass's marketing, Compass's transaction tools, and Compass's branding. They pay for this by splitting their commission with the company.
Newer models, such as the startups Real and Side, are ushering in something that could be called brokerage-as-a-service. These companies provide white-label brokerage software and support, with high commission splits for agents and a light touch. While they're still technically brokerages, they are asset-light, brand-free, and tout their ability to turn a real estate agent or agent team into its own small business.
For an entrepreneurial profession like real estate agent, the appeal is obvious. Murray said that he sees this approach "accelerating" and that it may become more popular by 2030.