1000watt blog

[Note: I wrote this piece for Inman's "Roadmap to Recovery" series last week. I am re-publishing it here -- Brian Boero]

Real estate and politics have a lot in common. They're big, complicated people businesses driven by sales and marketing.

But
there are other similarities that help explain the past 10 years in
real estate and suggest a model for change in the coming year.

The
U.S. Congress usually has low public approval ratings. They are
pitifully low at the moment. According to a recent CBS News/New York
Times poll, only 15 percent of Americans approved of the body's job
performance.

Yet time and again the same citizens who express
this disapproval send their own senator or congressperson back for one
more term. In most elections, more than 90 percent of incumbents can
expect to keep their seat.

The real estate industry also has low
approval ratings. Polls conducted by Harris Interactive place Realtors
below lawyers and car salespeople on a scale of trustworthiness. Often,
popular culture paints Realtors as glad-handing rubes just a step above
the dude pitching car wax at 2 a.m.

Yet consumers' satisfaction
with their own Realtor has hovered at or about 85 percent for years.
Ninety-two percent of buyers surveyed by the California Association of
Realtors in 2007 said they would use their agent again.

What gives?

The
political case can be explained pretty easily (and has been,
extensively, in a turgid body of literature I had to slog through in
graduate school). People hate Congress but keep their congressperson in
office forever because they get a selective benefit from doing so:
pork, focus on local interests, constituent service and the like. The
longer they stay, the more seniority they get. With seniority comes
more pork.

But what about real estate? What explains the disconnect here?

Here's
my theory: On the seller side, things were pretty rosy for a long time.
The outcome — a sale at a great price — was usually good whether or
not the listing agent was truly skilled. The thought process may be:
"Realtors may be knuckleheads, but my agent delivered a windfall."

The
buy side is a little trickier. Why would you love someone who helped
you pay too much for a home? Well, the services of a Realtor are "free"
to buyers. And in the afterglow of closing, the hard edges of the
transaction become blurred in the soft light of dreams. It just feels
good to move into a new home.

A model of change

In
politics, this pattern does break. It's called realignment. It occurs
every few decades when forces at play for years erupt and melt the
superstructure of the political system and the affinities that
sustained it. It happened in 1932, when the Great Depression forged new
coalitions and a Democratic ascendancy. It happened in 1968, when
backlash to social upheaval and liberal policy shattered them. Some
would argue it happened again two weeks ago.

My point? The
encrusted structure of a system, even one that takes on an air of
permanence, can, and likely will, fall when it's rocked hard from the
outside.

Real estate has just been rocked hard from the outside.
And in times like this, the happy buoyancy of a rising tide no longer
dulls the cognitive dissonance between loving your Realtor and disliking Realtors.

In fact, it becomes a problem. The problem drives behavior. Change happens.

Real estate realignment

The
signs are there already. According to the excellent 2008 home buyer
survey just released by the California Association of Realtors,
consumer satisfaction has dropped significantly — more than 20 percent
in one year. Consumers are taking a longer time researching the
process, picking an agent and shopping for homes. Too many in this
industry can't bear that scrutiny. The sustaining dissonance is coming
to an end.

The result will be a painful catharsis in 2009, the
outcome of which will be a real estate industry we thought would never
come about. We've talked a lot about change for the past 10 years and
marveled at new technology. But the basic structure of the business has
remained. In fact, looking back, our progress, while not insignificant,
cannot truly be called "revolutionary."

Technology has made
information more accessible to be sure. But the basic brokerage model
and agent compensation structure endured. The likes of Microsoft,
Yahoo, eBay, IAC, and a dozen others have flung themselves against the
barricades over the past decade, only to be chastened; "alternative"
models have failed to gain consumer acceptance commensurate to their
facility at gaining media attention.

The real estate industry as we know it has had many elegists over the years. All spoke too soon.

But I think it's different this time.

What remains

I
obviously can't predict what the industry will look like when we've
pulled through this realignment. But I think some broad strokes can be
seen from here, at the entry.

The center of gravity for the business, which has been shifting to agents for years, will become a landslide.

The
brokers that remain will be those that take a full-service approach to
both their agents and consumers, take full advantage of technology and
affiliate with or cultivate brands that have real meaning (as opposed
to simple recognition). That sounds like a fluffy platitude here in
late 2008, but it's amazing how few brokers have attacked this with
seriousness.

We will be left with a smaller industry of great
brands and great Realtors. I think they will get paid less per
transaction, but do more sides. Median Realtor income will rise.

At
times I look forward to 2009 with dread. I think a lot of people are
going to feel a lot of pain, and I hate that. But I try to look beyond
this, to help our clients look beyond this, in the hope of seeing the end of the storm.

---

Sign up for the 1000watt Spotlight e-newsletter
and keep up with the ideas, apps and people that are changing real estate.