A short while ago, I wrote a fun column about real estate brokers’ (and agents’) market share in Wilton Manors, Florida — keyed to the iconic HBO series “Game of Thrones.”
Truth be told, I could have chosen just about any city in South Florida. The observations and lessons would have been just as valid.
Now, with the passage of time, we have had a couple of new brokerage companies and franchises enter the WilMa market space. New agents get licensed daily.
Has anything changed? And what does it mean for people looking to buy and sell, and for the agents and brokers working to become part of that process?
First, look at Chart One. It took a fair bit of manipulation to create, but it shows the market shares of all companies/brokerages with respect to all sales of single-family homes, condos, and townhouses in Wilton Manors in the last year. (I’ve included both the listing company/brokerage, and the selling company/brokerage, as usually these are two different organizations. Restricting to “just listing” or “just selling” does not materially affect the result.)
Academic experts in business strategy and competition, such as Michael Porter of Harvard Business School, generally define a “fragmented market” as one in which the aggregate market share of the top four firms is less than 40%. As you can see, Wilton Manors real estate meets that textbook definition.
The top four brokerages/companies comprise 30% of the 2019 sales market. More than 200 separate brokerages had at least one sale in WilMa in 2019 (representing either a buyer or a seller). The median number of sales for a particular broker, was one.
No, I’m not going to “name names.” The market leaders know who they are, and what their market shares are relative to the whole. They can use that information (or not) in their marketing as they see fit.
Of course that degree of fragmentation persists to a greater degree if you extend it down to the individual agent level. There, the top four agents had 9% of the market (not just listings; representing buyers and sellers). More than 400 separate agents were involved in representing a WilMa buyer or seller in 2019. As was the case with brokers, the median number of sales per agent, was one.
So, what does it all mean?
Whether as broker or agent, there are only three sustainable and sensible strategies for succeeding in a fragmented market — two of which apply solely to corporate entities.
First would be consolidation — growth through acquisition. Persuade other brokers to join forces with you — under your corporate banner.
Second would be to become the low-cost provider — compete on price.
The third — applicable to both agents and brokers — would be subject matter expertise through building and defending a market niche. This could be a particular neighborhood within a city, or type of home, for example. It could also be a demographic or psychographic niche — clients in a certain age group, perhaps. First time buyers. International customers.
The niche most agents appear to use, is that of themselves and their personal services as the brand. This can work, though from the perspective of strategy it usually works only for a time, and can be outflanked.
And for the customer — those who are buying and selling homes? Why should they care? Well, this fragmentation has existed since long before I arrived I the scene here in South Florida. Its persistence is somewhat amazing to me.
In such a fragmented competitive field, the question of who is the “best” agent or company becomes both highly subjective and difficult to assess. The best people, the best broker? That well could be someone you have never heard of who is stifled among a lot of noise.
If I had to make a prediction that would be of most relevance to the customer, it would be that in the near future we will see two things occur.
First, I believe the degree of competition is so immense here that there will be downward pressure on commission rates. Without possessing a meaningful, sustainable competitive advantage, a service provider will eventually become viewed as a generic commodity. Value, yes. But at a lower cost to the end user.
The other thing will be some sort of new product or new means of delivering the service. Frankly, I’m surprised this hasn’t happened yet. Inevitably, the product offering will be redesigned or reconfigured in a way that will provide a large first-mover advantage to the creator. Everyone else will then be playing catch-up.
Customers will vastly benefit. But many brokers and agents will become casualties on the corporate battlefield.
James Oaksun, Florida's Real Estate Geek(SM), is Broker-Owner of New Realty Concepts in Fort Lauderdale. In addition to having degrees from Dartmouth and Cornell, he is a Graduate of the Realtor Institute (GRI).
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