The Changing Face of Real Estate Companies in Ontario
Lately I have been thinking about how real estate brokerages in Toronto will change over the next few years. My company is expanding into new markets so I have been thinking about what makes a strong company and what are the factors that make some companies successful and others failures. I’m not simply talking about the selling process. After all, for the last 10 years, we have been in a healthy market. It has been easy to sell properties and easy to build real estate businesses. A strong market has consistently generated sales and those sales have kept brokerages financially fit. But when the market becomes more balanced, or when the rules of how MLS is accessed are changed, we are going to see a shift in the Real Estate profession.
First. Like natural selection, many agents will not be able to understand or adapt to changes and they will reluctantly leave the business. A large percentage of agents have not lived through a balanced or difficult market. They have only seen the good times. I could forecast a 10% decrease in the number of agents in Toronto.
Second. Organized real estate will continue to raise the educational bar for licensing agents. More regulation will discourage part timers. I could see another 30% who will probably park their licences or simply let them lapse. Having fewer agents will put a larger financial burden on existing agents, and further weed out those who just don’t have the money to pay into the system. The end result will be fewer and better agents.
Third. Newer agencies, those established within the last 3 years, will probably suffer significantly because they may have not had time to build a war chest for leaner times, or perhaps they simply thought that the good times would never end and had no backup plan.
Fourth. Older agencies, near the tail end of their lifespan, will probably pick a slowdown in sales as an excuse to gracefully exit the business. They probably own the buildings they are in and may simply find it more profitable to rent or sell their locations.
Fifth. Many good real estate companies with a solid agent base will not have anticipated the significance of how the internet would influence how properties are traded. These companies continue to spend their advertising dollar on newspapers rather than beef up their online presence. They will be behind the eight ball while other companies demonstrate their value added services, not just to buyers and sellers, but to agents. If agents are not given the very best in technology, training and support, they are likely to seek different companies. That may force mid sized companies to downsize.
Sixth. There will be a rise in the number of discount brokerages; as well many midsized agencies will be forced to discount commissions in order to survive. What most fail to realize is that when the market is more balanced, or even tips in favour of the buyer, it actually is harder to sell properties. It takes longer and costs more money. This is actually the worst time to consider being a discount broker. Becoming a discount brokerage is a one way street. Once you offer discounted services, it is next to impossible to become a full service brokerage again.
Seven. A significant shift in power within the real estate community will be created. As companies close, consolidate, wind down or simply lose their edge, agents will transfer to companies that are competitive, relevant, have cache and a history, and have excellent technical and office support.
So who is likely to survive and grow? The million dollar question. Certainly the large regional chains will survive. They have money and resources to ride out a real estate market slowdown. They can tighten belts a little here and there. The multinational companies should survive as well and continue to prosper but, afraid to lose stock value, they will download the costs of staying prosperous to the agents who work for them.
Overall, the barrier to entry for new agents will continue to rise. Many part-time agents will leave the business. The cost of being an agent will increase significantly. There will be fewer privately owned single office brokerages. Multinational companies will continue to grow but the cost to agents will increase. Smaller multi office boutique players should benefit from market changes provided they keep lean and invest in a strong online presence and use the power of the latest technology to add value to the selling process.
Finally, it goes without saying, but being successful in the real estate brokerage business means being able to adapt quickly and not second guess your decisions. Above all, this is a service business. If a brokerage decides to remain and prosper as a professional, full service business, then the agents working for that brokerage must have the tools to guarantee professional service to their clientele. This will be achieved through solid management; agent support, training, and a strong internet presence are the keys to success.
At this piont, I have a responsibility to tell you that the opinions expressed here are mine and mine alone and may not represent the opinions of Bosley Real Estate.