By Basab Dasgupta
Growing up in India, the concept of a real estate agent as a profession was unknown to me. Most people lived in homes they had owned for generations. Others built new homes from the ground up by hiring construction people. No one sold the home they were living in and bought a different existing home, for the sake of making a profit or convenience.
The situation in India has now changed with hundreds of high-rise flats being offered by builders and promoters. They have their own sales staff to show the property, handle the associated transactions, and paperwork.
Fortunately, I had to deal with a real estate agent much later in life, when we were finally ready to buy a house of our own for permanent settlement in the USA. Many aspects of these agents surprised me. Most agents were attractive women who'd drive us around and show available properties. Although I could do the driving around myself, the agents had access to properties through “lock boxes,” and they possessed thick books with information about all available properties for sale – the so-called Multiple Listing Service.
Furthermore, they could narrow down properties to investigate based on our preferences (size and age of the home, number of bedrooms and bathrooms, lot size, etc.) and provide prices of comparable homes. The agents also served as counselors for our personal situations by discussing items like the quality of schools, commuting time to work, nearby shopping, etc.
I have been surprised by the amount of money they make by doing what seemed to be a “fun job”, including driving around the city, interacting with people from all social strata, and looking at properties with a wide variety of characteristics, none of which require significant physical exertion or mental stress.
The main requirement for becoming a real estate agent is passing a comprehensive exam, periodically administered in all cities throughout the country. Several preparatory books are available for this exam. Based on such books, it seems that anyone with some common sense and the ability to memorize would easily pass the test.
There is no need to go through formal training or hands-on experience by working with an agent or any other educational qualification, such as proficiency in math or computer literacy. One can be a high school dropout and still become a real estate agent. Not surprisingly, many Indian Americans without strong academic credentials become real estate agents, especially in areas inhabited by a large Indian population.
Being mathematically inclined, I decided to evaluate the profession in terms of cost/benefit analysis. Consider a home with a selling price of $400 K (approximately the median price of a US home) and assume a total commission of 6%, which is usually equally divided between the seller’s agent and buyer’s agent (although this split has been made more negotiable recently). 3% of 400K would be $12 K.
The agent does not get the entire amount as he/she must pay the broker. Even then, the agent could net about $9K. If the agent can help clients buy or sell a home about once a month, that is a decent annual income of close to $100K, without any formal education.
A real estate broker (an individual or a real estate company) is more than an agent. An agent cannot work by himself/herself but must work for a broker who has more education, more experience, more legal authority, and supervisory capabilities. An agent could become a broker after a few years of experience by passing a more comprehensive real estate examination. A broker works with a legal counsel and an escrow company. In exchange for supervising agents, the broker takes a sizable cut from the agents’ fees, typically 20 to 30%.
After I moved to California, I got more interested in the activities of agents. Here, investing in real estate is a common pastime because of rapid appreciation in property values. During the boom periods, houses almost sell by themselves. Since the median home value in California is almost 2.5 times compared to national average, the potential of earning more than $20K per month exists.
I also learned that there are additional chores for an agent than just showing homes. An agent working for a seller should hold periodic Open Houses, over the weekends for a few hours, whereby anyone can walk into the home being sold and check it out. There is also the responsibility of preparing flyers with photos and various documents.
With the advent of the internet, the need for an agent is definitely on the decline. There are several real estate websites offering photos and most of the relevant information about the homes in the market; some even offer a video tour through the home, three-dimensional images of floor plans, and an aerial view from a drone. As a result, potential buyers can surf through dozens of homes on the computer and narrow their interest list to a select few for physical visits. The internet also facilitates the preparation and signing of all documents and speeds up the price negotiation process.
It is becoming increasingly apparent to everyone that the remaining functions of a real estate agent can be handled by AI-assisted humanoid robots, from showing the property (perhaps even using driverless transportation) to answering questions about it. A broker might be able to drastically reduce the number of agents working for him/her by deploying such robots. If that allows them to reduce the sales commission, the clients will embrace the robots with open arms. Many agents are in denial about this possibility, probably by overemphasizing the human relation angle between the agent and the client.
One important service that a broker provides is legal protection in case something goes wrong, such as misinformation or damage to the property. However, such service can be provided by an attorney at a fraction of the commission fee.
A recent trend in many real estate companies is having a “broker within a brokerage” concept; an experienced broker, well-known in the community, forms “groups” consisting of six or seven young agents. The head of the group attracts clients through his name recognition and various ads, but he/she then delegates the routine work (signing all forms, holding open houses, showing properties) to the younger, inexperienced agents for a nominal fee. This may be a precursor to deploying humanoid robots to do the routine work.
Frankly, I am surprised that the transition from real-life agents to AI robots has not started to take place already. Reasons could be initial investment as well as hesitation in introducing such a radical concept. Bobby Bryant, founder and CEO of DOSS, a leading “Proptech” company that promotes digital technology in the real estate business, predicts that AI will eventually eliminate 80% of the agents (70% of whom are Caucasians); only the agents who can adapt to AI and effectively manage it will survive. I wonder if Indian American agents with presumably better command of math and computer software will have an edge in the future real estate business!
--------------------------------------------
(California-based Basab Dasgupta has a doctorate in Physics from the University of Wisconsin and has worked with Sony as Vice President of an operating division.)
