Forget what you’ve heard about Millennials forgoing homeownership in favor of spending money on avocado toast. On the contrary, Millennials (21-38 years old) have become the largest share of homebuyers in the market (37%), according to the National Association of Realtors (NAR), and they comprise an increasing share of sellers as they look to sell their first homes and buy new ones to accommodate their growing families.
As more Millennials enter their 30s and soon their 40s, their share of the market will likely grow further, which will make a significant impact on the real estate industry, not just in terms of the types of transactions being made, but how they are made.
Being a generation that’s known to embrace early adoption of new technology and open access to information that puts power in the hands of consumers, while also being used to getting most of their needs met on demand, Millennials will drive a change in the industry where more transactions are efficiently facilitated by technology, fees decrease and agents adapt their services to fit a more digital environment.
Digitization brings democracy of information to real estate
The ubiquity of the internet and digital technologies like smartphones have started to democratize real estate information in the sense that anyone can quickly and easily see—often for free—what homes are for sale, what price trends have looked like, how they can maximize selling value, how they can get approved for a mortgage and more.
As evidence for how this availability of information online can cause a huge shift in the real estate market, look at the auto industry. Instead of having to rely on a sketchy used car salesman’s word about the reliability of a vehicle, buyers can use an online service like Carfax to easily verify a car’s history. And instead of having an uninformed buyer accept a dealer’s sticker price, that buyer can use an online site like TrueCar to get a better sense of what others are paying for the same models, thereby improving their ability to buy at a good price. Moreover, there are now companies like Carvana where you can quickly buy cars online, all of which gives more power to consumers to transact the way they want, rather than having the power be in the hands of a car dealership.
Similarly, in real estate, all of the information and access online puts more power directly in the hands of buyers and sellers as opposed to real estate agents. And as Millennials comprise a larger share of the market, this democracy of information through digitization only seems likely to increase, meaning real estate transactions will become more transparent and efficient through the use of technology.
In fact, approximately 98% of Millennials used a website as an information source in their home searches, and 62% first found the home they end up purchasing online, according to NAR. In comparison, 46% of those ages 54-63 found their home online.
Lower fees are on the horizon
In addition to Millennials driving the use of technology to obtain more information as part of the real estate buying and selling process, they also appear likely to drive down fees. This will be achieved through more usage of the flat fee model as well as pressure on real estate agents from digital competitors.
The flat fee model is often less expensive for buyers and sellers than the standard 5-6% agent commission, and the savings tend to be even greater with properties of higher value. Despite stereotypes about Millennials making frivolous purchases, they tend to be smart consumers who want to find the best deals. For example, 53% of US internet users ages 18-34 always look for a deal before buying online, whereas only 40% of those ages 55 and older do the same, according to a survey from RetailMeNot. So in cases where flat fees are less expensive than percentage-based fees, Millennials will find and flock to that option.
Furthermore, Millennials already prefer flat fee models in other areas of their lives, so adopting the same concept for real estate transactions will come to naturally to them. For example, ridesharing services like Uber and Lyft which are already ubiquitous with this generation, now offer pre-paid ride passes that provides even deeper savings for a flat fee. Millennials also take the same approach for clothing services such as Rent the Runway, where users can pay a flat monthly fee to rent clothes, rather than purchasing each item separately.
In real estate, full-service brokerages that charge flat fees, such as Home Bay, have gained in popularity over the last few years, as they save homeowners and home buyers money while making it easy and efficient to gain the services of agent digitally.
In addition to flat fee online real estate companies, other digital brokerages such as Redfin will likely put downward pressure on fees by charging low percentage-based commissions. These companies can use their ability to reach large segments of the market online and digital efficiency to reduce costs for consumers. As such, even if real estate agents maintain their commission percentages, they could face significant pressure trying to attract new customers as Millennials become a larger segment of the market.
This pressure from Millennials choosing digital options can be seen in a variety of other sectors, ranging from e-commerce merchants challenging brick-and-mortar retailers to online news publications making it difficult for print media to maintain their revenue. And perhaps more akin to real estate, Millennials are also flocking to digital financial services such as stock trading apps like Robinhood which offer free trades, as well as wealth management apps like Betterment and Wealthfront which tend to charge lower fees than traditional financial advisors.
Real estate agents won’t go away, but they’ll need to adapt
Digital real estate service providers are making it easier for Millennials to conduct real estate transactions, such as through the use of iBuyers who can make an instant offer to buy a home online, without needing to go through the whole traditional process of listing a home with a brokerage and having showings. However, real estate agents seem unlikely to disappear completely, as many real estate participants, including Millennials, prefer to use technology in combination with the services of an agent.
In some cases, that combination takes the form of using an online brokerage such as Home Bay where an agent assists but the user takes some ownership of the process. As such, some traditional real estate agents may find more success in their careers by offering their services through online brokerages. In other cases, traditional real estate agents might be able to still take the lead but adapt by being more digital-friendly, such as by offering the ability to make appointments online and using eSign software for managing paperwork.
Moreover, agents will have to prove their value more by going beyond what digital tools alone can offer. For example, agents may be less likely in the near future to attract clients by having knowledge about market prices, because as Millennials drive the use of online listing tools like Trulia and Zillow, that information will become more democratized. In fact, only 62% of Millennials rely on agent advice to determine their list price, compared with 75% of Baby Boomers who do so, according to Zillow. As such, some agents might find success by forming deeper relationships, such as by helping clients prioritize their real estate goals in accordance with their life goals so they can find the right home.
This change in service offerings can also be seen in other professional services industries such as accounting, where CPAs increasingly have to offer more than what tax prep tools like TurboTax can do, such as by offering more unique tax planning strategies. In wealth management, advisors have to offer more than access to investments, as digital financial tools make it possible for investors to take a DIY approach. Thus, some companies like Charles Schwab have made changes such as offering robo-advisory services in combination with guidance from a certified financial planner to help investors prioritize their goals.
Millennials Are the Present and the Future in Real Estate
With Millennials now the largest share of the home-buying market and an increasing share of the sellers’ market, real estate industry participants need to adapt now to meet this generation’s needs, while also planning for a future that is becoming increasingly tech-driven. Agents and online brokerages that embrace the preferences of this generation can stand out from the pack and perhaps better position themselves for the eventual rise of the even more digitally focused Generation Z.
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