Study Reports that Local Competition among Real Estate Firms Is Intense

A recently published study by Steve Sawyer of Penn State University confirms what most agents already know - that competition is fierce. The study analyzed 12 local markets that represent 800 of the largest metropolitan areas and was based on local MLS data, interviews, and secondary sources.

The study found some interesting results. Though there has been substantial growth in each of the 12 markets, in 10 of the 12 they studied, the percentage of market share held by top firms is shrinking.

What Clients Value
Some real estate agents hold tightly to the notion that the broker owns the listing. It seems to me that this is completely driven by fear - that if agents and brokers no longer have control over listings, they won’t be providing anything valuable and therefore will be cut out of the process. I’ve argued against this in numerous other blog posts, but I want to point out something that comes directly from this study (and Sawyer’s previous studies)

We highlighted that real estate agent’s are less valued for their information control than they are for the professional contact and their ability to bring parties to a fruitful transaction (the closing).

Clients don’t find you valuable because you have access to the MLS and they don’t. They find you valuable because you help them navigate through large amounts of information, negotiate the transaction, and get them through closing and into their new home. They value you for the consulting you provide. For how smooth you make their transaction. For how much less they have to worry about now that they have you to handle it.

Clients Are More Knowledgeable
Something that is changing is that clients now know more about the real estate process thanks to the internet. This should be good news for you because you’ll have to spend less time educating them about the process and more time working with them to buy or sell their home. As Sawyer notes:

Consumers are more knowledgeable regarding house prices, brokerage alternatives, and their expectations for services provided by real estate agents.

Competition Is Fiercer In Smaller Markets
Here’s a bit of bad news for agents in smaller markets. The study found that smaller markets (in terms of population) are seeing the least growth relative to annualized dollar volume sales increase. Yet these areas are more concentrated with a large number of agents competing for business. But there is some good news for the local guys. Independent firms often have a larger market share than the larger franchises within these markets.

In Larger Markets, Franchises Are On Top
At the other end of the spectrum, in larger markets, the franchises usually have the most market share.

In seven of the 12 markets, and in the two largest markets (as a function of population, sales and units sold), franchised firms have larger percentage share of the local real estate market than do the other locally-owned firms.

FSBO and Discount Brokerages
Agents will be happy to learn that the researchers found no evidence that sales of either were increasing.

Interviewees noted that FSBO and discount brokerage sales were not growing - even in the fastest growing local markets. In most cases, the FSBO sales would not enter the MLS data set that we used. It would be hard to claim that FSBO sales have risen given the growth of the 12 local real estate markets. The discount brokerages involved in these areas provide for a trivial percentage of the total market share.

You can download a PDF copy of the study from Realtor.org (556 KB).

Tags: real estate