Are real estate brokerages going the way of the dodo?

Panelists agreed that two of the largest threats facing brokerages are shrinking profit margins and AI technology. That doesn’t mean brokerages are imminently at risk.

“I think the real estate agent remains at the center of the transaction,” Dwiggins, the co-CEO of NextHome, said. “So much of what we do today is being a therapist, helping the customer work through a very emotional and infrequent transaction — they are going to want somebody to guide them through that process. I am not going to solely use AI to sell my house or buy a house.” 

Despite this, Dwiggins does feel that the role of the agent in the transaction will evolve long term. The agent’s role isn’t the only thing Dwiggins sees evolving, he also believes how brokerages make money will also change over time. 

“Ancillary services is where things are going to go,” Dwiggins said. 

However, the pathway to success with ancillary services is not wide open, as major industry players like Rocket and Zillow have made it widely known that they want to create end-to-end transaction platforms. 

“If you look at the Rocket investor deck on the Redfin acquisition, they want to take $40,000 in costs for consumers and cut that to $20,000,” Dwiggins said. “People are having to have dual incomes if they want to afford anything, so that is enticing, but where are those savings going to come from? Broker compensation.”

In a world where agents are making less money per transaction, Dwiggins believes brokerages will either have to share more of the commission with the agent or perhaps even go to a 100% commission model. 

“Brokerages will have to make that money somewhere else,” Dwiggins said. “I don’t think this will happen tomorrow, but sometime over the next three to five years you are going to see consolidation, not just among brokerages, but also among services.” 

O’Koniewski, the CEO of Leading Edge Real Estate, had a different take, believing that a company could still succeed by focusing on what it does best.

“I am the epitome of failure when it comes to ancillary services,” she said. “I had some JVs and those didn’t go anywhere and an insurance company that did nothing and then I got some great advice from my attorney who said, ‘Linda you are great at selling real estate, focus on what you are good at.’” 

Regardless of what strategy a company chooses to pursue, McClelland believes brokerages need to focus on profitability and not just growth.

“You can’t take growth and cash it in at the bank if there is no profit there,” the president of Local Realty said. “I think there is this big misconception that growth is the main thing we have to do. I believe we have to build brokerage companies that are profitable and have revenue lines that make sense and are durable.” 

Unlike Dwiggins, McClelland does not believe agents will remain the center of the transaction, as he sees too many other people involved in the transaction vying for more of the money. 

AI Agents? 

While McClelland sees a shift in the agent’s position in a transaction, he does not believe that agents will be replaced by AI. However, he does feel that agents and brokerages who don’t use AI will be on a similar trajectory to dinosaurs. 

“Zillow and Rocket are forcing us to evolve our businesses, but if we have to be focused on our businesses,” he said. “If we look at our businesses on our profit and loss statements the top two lines are facilities and people and AI can really impact that second line of people — how are you going to create efficiencies with AI?” 

Dwiggins agrees that brokerages need to focus on using AI to increase efficiencies, but he does concede that abilities of AI technology may make it hard for new agents to break into the business. 

“I saw some stuff the other day with AI that blew my mind,” Dwiggins said. “There is no scenario where the new licensee coming into the space will be able to do comps or write an offer with the best terms to the same degree AI can, but from a broker standpoint, I don’t think there is one sacred cow of what AI can do. I think they should be exploring everything and how adoption could help with efficiency.” 

Although no one believes brokerages and agents will become extinct, they do feel that companies like Zillow and Rocket will become the most influential and the largest industry voices over the next decade.