Tech Revolution Makes Waves In Westchester Real Estate Industry
Technology is disrupting—and enhancing—the residential real estate industry in Westchester. But that's not the only challenge facing the county's real estate agents.
Illustration by Michael Austin/theispot.com
Technology has transformed many, many industries, but few in Westchester have faced as many digital challenges as residential real estate brokers. Not too long ago, agents and their clients learned of new homes for sale when printed listing books were distributed weekly. Today, property listings are delivered directly to potential buyers’ smartphones as soon as they hit the market. From ad-supported online services that estimate what your home is worth, to near-instantaneous listings and mortgage approvals, buyers, sellers, and their agents have more information, faster than ever before.
“The days of being the gatekeeper of the information are long over,” points out Leah Caro, principal broker and president of Bronxville Real Estate and president of the Hudson Gateway Multiple Listing Service. Today, she notes, “your value proposition is in the advocacy you offer to clients. Good agents do far more than just open the door; they bring expertise.”
A home is the most expensive purchase many people ever make (not to mention the source of their biggest tax liability) or the most valuable asset they ever sell, so uninformed decisions are unwise. That’s probably why consumers can’t (yet) buy a house with a one-click Amazon order, and do-it-yourself sellers often discover they get exactly what they pay for with no-cost online appraisals and low-cost listing services.
Given the size of the residential real estate business in Westchester, this technological disruption has caused some pretty big waves. About $5.6 billion worth of single-family homes, condos, co-ops, and two- to four-family homes changed hands in 8,609 transactions last year in the county, according to the Hudson Gateway Association of Realtors. While brokers charge various commission rates, the average is somewhere near 5 percent, so brokers generated about $280 million in gross commission revenue. Other services ranging from rental property commissions to property appraisals, tax appeals, mortgage origination, title insurance, and home warranties add significant additional revenue for many firms in Westchester’s residential real estate industry.
Along with the tech revolution came the growth of several major real estate firms, which are now better able to handle the expense of providing the high-tech tools agents need to compete. There were about 350 firms of various sizes (nearly 300 of them with fewer than four employees) in the county in 2013, according to Census figures. Together, these firms had some 800 employees and 7,500 agents (who are contractors, not employees). According to Joseph Rand, managing partner of Rand Realty, Houlihan Lawrence leads the county in sales and operates 19 offices, followed by Coldwell Banker (13 offices) and Rand Realty (eight offices), which essentially ties for the third-place ranking with Julia B. Fee (five offices).
“There is no question that larger companies today have the advantage,” says Rand, whose mother, Marsha Rand, founded the firm that has now sold $1.5 billion in homes and serves northern New Jersey and the Hudson Valley. Bigger companies can spread fixed overhead costs over a larger revenue base, which in turn allows them to make more investments to improve their competitive edge. One high-tech service Rand added this year is a 3D video system that uses a special camera, which lets potential buyers take a full-immersion virtual tour of a house, giving them an experience similar to walking through it.
Real estate firms sell plenty of home—and have an average operating profit of 26 percent—but they also have plenty of expenses. Here's a breakdown of expenses by percentage of gross revenue (after agent and other commissions). Source: US Census Bureau 2013
“We also formed a partnership with Collateral Analytics, a company that does automated valuations for banks and institutional investors that are more robust than the Zestimate from Zillow,” Rand adds. “The result is that homebuyers can plug in the address of any property in Westchester and get both our estimate and theirs. A small Realtor couldn’t even get an appointment with the company that provides the automated valuations, because those companies are looking for big firms that cover an entire area,” he explains.
Another large firm that’s investing heavily in technology is William Raveis, which started moving into New York from its Connecticut base about five years ago. Today it operates 11 offices in the county and plans to open several more in a bid to gain market share in the lucrative Westchester market. Lisa Hogan Theiss, Westchester vice president of business development, says the company is investing in smartphone apps to get agents away from their desks and into the field where their clients are.
“The smartphone has changed the game forever,” Theiss says. “We can now get every MLS listing on our phone. We have an app that allows us to communicate directly with our clients and watch what listings they’re looking at and saving on their phones. Our ‘Open House’ app allows the agent to register clients on-site, so they receive notices of properties that are new, price reductions, or properties that have gone to contract.”
But technology, as any truck driver who faithfully follows his GPS under a too-low overpass on the Hutch finds out, isn’t always a blessing. “One of the biggest challenges facing our business is that we compete with sites like Zillow, where the information isn’t always accurate,” Theiss points out. “Also, when it comes time to advise a seller about the qualifications of a buyer, they can’t offer that. When it’s time for a buyer to make an offer, it’s the real estate professional who can tell them about other offers on the property. It’s our job to educate and clarify.”
It’s that need for in-person service on a hyper-local level that keeps hundreds of small Realtors in business. Thomas Ralph, of New Rochelle, opened his brokerage in 1992, and, today, he works with his wife and two sons. “I am a big company inside a small framework,” he says. “When clients turn to an independent broker like me, they know I will be looking out for them 100 percent of the time.” While Ralph uses all the technology at his disposal, he is a believer in nitty-gritty hands-on service for both buyers and sellers. “Because I’ve been looking over the shoulder of the inspector on thousands of home inspections, I know what to look for in the heating system, the floor joists, the electrical system, the foundation, the chimney, the roof.”
Caro’s firm is small, too, at least in comparison to the largest in the county, but she feels technology combined with specialization helps her compete. “At the end of the day,” she says, “the seller only wants to know how you perform in their town, on their street, for their house.”
Many of her sales associates specialize in particular areas of expertise, such as senior specialists who are “in tune with how the ‘Greatest Generation’ sells homes they’ve been in for 30 or 40 years,” Caro says. The specialists help the seniors deal with issues like downsizing and including children in the decision-making process. Caro also has second home and international property specialists who can advise on everything from the tax implications of owning two (or more) homes to the intricacies of markets several states—or even continents—away. Technology makes such specialization possible, and personal service makes it happen, an approach Caro calls, “high-touch and high-tech.”
In addition to the cost of technology, other market forces are disrupting firms both large and small. “We’re challenged by discount brokers who charge a drastically reduced listing fee but don’t really provide any other service,” Theiss explains. The seller then has to show their own home and negotiate on their own behalf, something Theiss says does not serve the seller well: “Why would you want discounted service when you’re selling your most valuable asset?”
Another factor complicating the county’s residential real estate business is compensation for agents, who are subcontractors paid a substantial portion of the commission the broker earns on the sale of a home. Commission rates charged to selling homeowners aren’t fixed and can’t be, according to federal anti-trust law. As mentioned earlier, most Westchester firms are in the 5 percent range, which sounds like a lot of money when selling million-dollar properties. But half of that amount goes to the firm that brings the buyer, where it is split between the selling agent and the broker. The remaining portion is split between the listing agent and their broker.
“The real estate industry is one in which margins have become compressed,” Rand says. “Commissions in Westchester used to be higher than they are today, and the split between the broker and the agent isn’t tilted toward the broker anymore, so there is less revenue coming in. That leaves the brokers struggling to be profitable.”
The solution? “One way to improve profitability is to get more revenue out of each client,” Rand says. “Now, you can get your sale brokered, your mortgage, your title, and your insurance all in one place.” Rand Realty’s affiliate, Hudson United, is one example: It provides mortgage, title, insurance, and home warranty services. (They’re separate companies for financial and regulatory purposes.) Houlihan Lawrence, Coldwell Banker, and William Raveis are among the firms also running these additional profit centers. Another source of revenue is marketing newly constructed homes for developers. Houlihan Lawrence has a particularly strong division devoted solely to that function.
The residential real estate industry is trying to balance the advantages of technology with those of personal, hands-on service—a difficult act because of the nature of buying and selling homes. “As an industry,” Rand says, “we have oriented our business to provide service to people who want to buy or sell a home right now. It’s transactional.” Repeat business, in other words, isn’t generally a priority for real estate agents. After all, how often does a given individual sell or buy a home? That view is shortsighted, Rand says. “The way you build a real estate business is by making people evangelical on your behalf.”