Marc and I spent the past two days in Chicago. A marvelous city! Big, grey and stolid but laced with flavor like a well-marbled steak.
It’s like Manhattan without the bravado and San Francisco with substance.
I hated to leave.
Anyway: Our trip was filled with great discussions with smart people. One stuck with me as I enjoyed a few internet-free hours on the flight home.
This particular debate centered on the following question:
“Have we reached the end of the real estate story now that FSBOs and discounting have lost their menace?”
Pull back a minute. Above the clouds of the market contraction and beyond the blinking lights of Web 2.0.
Here’s what we see this spring of 2009:
• Realtors sell about 85% of homes
• They are paid a commission that averages somewhere between five and six percent
• Most people report satisfaction with their Realtor, but hold the profession of real estate in low regard
Now imagine it’s the spring of 1993, two years before Netscape went public. What do we see?
• Realtors sell about 85% of homes
• They are paid a commission that averages somewhere between five and six percent
• Most people report satisfaction with their Realtor, but hold the profession of real estate in low regard
Methods have changed. Markets have changed. The balance of power between brokers and agents has shifted. Consumers have access to enough data to choke a horse.
But the basic structure of this business remains remarkably intact.
There are two possible conclusions to be taken from this:
A. Real estate is exceptional. The complexities and emotions that characterize the real estate transaction will forever shield it from structural change. Bill Gates, Barry Diller and about a billion dollars in VC have been thrown against the barricade with no transformative impact. The story is over.
B. We’re due for a cataclysm. The forces of change, of technological innovation, of inchoate consumer frustration, are stacked high against the dam of Real Estate As We Know It. It will not – it cannot – hold. The story is far from over.
My dinner pals were in the “A” camp. I argued for “B.”
I think it’s foolish to assume that we are not going to see major structural change in real estate brokerage. I say that without judging the value of what we have, without a set view of what a good Realtor ought to be paid, or if a Realtor must be used at all.
Right now we are bobbing within a small eddy on a river of generational change that will soon carry those who made their mark in the 1980’s – and who still dominate the industry – out to the sea of retirement.
Moreover, I do not think we have begun to feel the broad impact of social media in our business. We have merely glimpsed the uneven efforts of early adopters. I talk to some who think real estate blogging’s best days have already passed. Really? Communicating value and knowledge with intelligence in a democratic medium that rewards excellence is not a fad. It is, practiced well enough a widely enough, a force that will corrode the old value chain.
This went on for an hour or so. It’s an old debate, perhaps tired. But it remains important. For even if you are in the “A” camp – that real estate will remain fundamentally unchanged – you better plan for “B” just in case you’re wrong.
Where do you stand?
The takeaways
As you can see, this is not one of those “top ten quick and easy things you can do right now” posts. But I guess these are the takeaways:
1. If you’re a broker or an agent, do not think things will settle back to normal once the market comes back. Think long-term, assume your value will continue to be challenged on a dozen fronts, and make moves now to adapt.
2. If you’re a technologist, entrepreneur, visionary broker or agent or investor, keep the faith.
Now it’s out of the clouds and back to work!
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“Enough data to choke a horse” Great metaphor. Even with all the data in the world realtors still need to provide against the old, pre-web2.0 model. They need to present the soft analysis, the ’story’ behind the property. Aspects like the feel of a place or the reputation of an area. Here in central america we’d love to get our hands on enough data to choke a horse. Here there’s little reliable data and all there is is the (often) soft, biased, hyped analysis from vendors.
The change is well underway. Technology has allowed any
intelligent,hard working agent to provide services that
originate and reside in a handheld device that more
than replaces the brokers office of the past. The only
real issue is being able to afford these wonderful
devices with their apps that keep improving almost each
day.The broker of the future will offer these tools
at an affordable cost and provide an environment that supports the agent and not just generates profits.
I believe that thousands of tiny changes will eventually expose a massive hole in the foundation of the real estate industry. It will crumble onto itself only to be rebuilt by the entrepreneurs of the future. This cycle occurs again and again in both business and life. Our debate should not be about if it will happen but about when.
Personally I don’t think we have reached the tipping point quite yet. I run two residential brokerages both with modern business models and I can tell you that while things are changing they are changing slowly. Both consumers and agents still have a long way to go before they are ready for a seismic shift.
Brian, excellent job. I read this post just after reading this Chris Brogan post http://www.chrisbrogan.com/empowering-versus-marketing/ about empowerment and see some synergies, especially regarding take-away number two. More technology companies need to focus on systems, applications, web design/architecture, etc, that EMPOWER brokerages and agents to do what they do best–engage clients directly. After all, real estate is a participation medium. Keep up the great work you and Marc are doing.
I hope that Brokers are reading this:
“1. If you’re a broker or an agent, do not think things will settle back to normal once the market comes back. Think long-term, assume your value will continue to be challenged on a dozen fronts, and make moves now to adapt.”
We’ve all heard the phrase ‘the grass is greener on the other side of the fence.’ For many brokers AND agents the problem has now become…when you get there, which is the ‘other side’?
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Great post! B has not come about and will come about by innovation. I am convinced it will only happen by the big hand of government. Any 1 of these 3 gov’t actions would be a E.L.E for the industry:
1. Irs removes the unique self employed exemption for agents. Result: 70-80% of current agents are not employable and new big companies are created to consolidate markets.
2. The mls is forced open or the cooperating commission model disallowed. Result: without protected buyer agency commissions, commissions can now drop below 4% and do.
3. Banks are allowed to enter real estate. Result: game over for almost everyone. Only the elite agents survive and are akin to a Merrill Lynch financial advisor in form and function.
I hope that I am not getting grouped into the dinner pals category…
I agree that change is coming and commend you for, as always putting it so eloquently. With that being said, I do believe that there are proponents of past days that will (or at least should) make it through the passing gates to this new era. We can only hope.
Thanks for continuing to keep it real.
[...] a look at what Brian over at 1000Watt Consulting had to say, I think he makes some great [...]
Good idea Brian, to pull back and try to see the very big picture.
After a long time dealing with the technology and change, I’d like to share an important truth I’ve discovered…
We tend to overestimate the effect of change of technology in the short term, and underestimate the change in the long term.
Think about it. This is what was responsible for dot-com boom and bust, and many other similar bubbles.
Everyone though bricks and mortar stores were doomed in 1998 and online shopping would be dominant. By overestimating the the short-term impact, dot-coms only allowed for a one-year runway, and crashed and burned. The few with a longer vision (like Amazon) were well-positioned to take advantage of the slower, but inevitable, change.
So you’re right, take care of business today but prepare for the change that is surely coming. The future will be a curious mix of advanced technology and business as usual. The best bet is to be aware and be flexible.
Best,
Bert
[...] The end of the real estate story? [...]
The consumer will drive change. Always has, always will. The most innovative broker in the world will fail very quickly if the consumer is not willing to take advantage of the innovation.
The trick for brokers and agents is to recognize and anticipate the changes ahead so that they can be prepared. Being 10 years ahead of the curve is no good, but 1-2 years could make you very successful.
In my estimation, the real driving force behind change in the industry will be generational, as you touched on. The generation of agents and brokers who stand to inherit our industry are very different in key ways from those who are on the way out. The same thing can be said for the generation of consumers that will be in the real estate market for the next 20 years or so.
The generational differences are more significant than they have been in the past because many of the differences are behavioral in nature. Consumers of my generation and the generation after mine behave differently than consumers in my parents generation. There have always been generational differences of culture and politics, but the differences in consumer behavior are larger now than ever before.
Bert:
Thank you for that. It’s an important insight and one that is definitely applicable here.
Real Estate is going to have to rethink itself if we want to shake the old stigma. Time for the M Realty web 2.0 real estate revolution.
The “network” will prevail at the expense of:
A. The Franchisor
B. The part time agent
Winners will be:
A. The consumer
B. Full-time brokers and agents who master social media
There will be a new, efficient web-enabled network which will grow and strengthen over time, utlimately replacing the inefficient and costly association agents and brokers currently have with their franchise or large, multi-state broker (see Theresa Boardman.
Small, smart, web-savvy and consumer-centric is the new big.
Social media will be the catalyst of this change.
Please keep in mind that just because someone is successful at blogging it doesn’t mean that they will be successful at navigating all of the complex issues that occur during a real estate transaction.
My feeling is that the only reason they have so much time to blog is that they have no business or clients to work with.
The average agent closes 5 – 7 transactions a year, no wonder they have so much time to blog.
We close anywhere between 30 – 70 transactions a year. That makes it a bit harder to spend all your time blogging.
Don’t get carried away with yourself.
?? what happend to my comment ?? It was published, but now it’s gone?? Moderation issue?
I’ll try again…
The “network” will prevail at the expense of:
A. The Franchisor
B. The part time agent
Winners will be:
A. The consumer
B. Full-time brokers and agents who master soical media
There will be a new, efficient web-enabled network which will grow and strengthen over time, utlimately replacing the inefficient and costly association agents and brokers have with their current franchise or large, multi-state broker.
Small, smart, web-savvy and consumer-centric is the new big.
[...] The end of the real estate story? [...]
As the Broker/owner of a 4 office Century 21 real estate brokerage, I am constantly studying the marketplace and trying to understand the changes occurring and those that are extremely likely to occur.
I would agree with Brian Wilson that some damage could occur to the industry as we know it now if the banks were allowed to be brokerages and brokerage sales using a no fee or very reduced real estate transaction fee as the marketing vehicle to gain mortgage customers. I do not believe Brian’s other two scenarios will ever occur especially the IRS change of the Independent Contractor status –which change, if it were to occur, would affect every door knocking or prospecting sales person who is paid strictly by commission generation.
Tim White’s suggestion that the real estate industry would prevail at the expense of the Franchisor (like Century 21) is also not realistic — I do believe that the industry will be better served at the expense of the independents who are least likely to have the financial or staff capacity to adequately train and be a lead generation entity. A true real estate Franchise (a franchise that isn’t agent high-split commission focused) is one that specifically focuses on the benefits and services that they deliver to the consumer via their franchisees as well as providing the franchisee the educational elements as well as requiring accountability of those agents insofar as to commitment and work ethic.
I believe that the low regard for Realtors or agents is the fact that the vast majority are ‘part timers’ and do not possess nor care to possess the necessary industry education and commitment required to be viewed as a true ‘professional’. Being a Realtor has been viewed is a social position (Harris tweed jacket and smoking a pipe). I believe that a more intensive licensing requirement is necessary (Massachusetts licensing is a 24 hour course) coupled with a strong requirement for additional and continuing education in areas that the agent wishes to practice plus a minimum industry work time is necessary to professionalize the industry and deliver the services that Buyers or Sellers find necessary for a successful transaction.
I would suggest that a vast majority of licensees practice real estate less than 24 hours a week. How is an industry professionalized and respected if the consumer believes that the person they are paying a significant fee for their most important purchase or investment is a ‘part timer’?
Bob:
Thanks for those insights. Could not each brokerage effect something like this by employing their own standards? I am not in disagreement with you on licensing, but why wait for that?
Brian
I believe the RE consumer is segmenting into 3 groups.
1. A full service full commission.
2. A party that investigates, lower commissions
3. The Costco client
1 and 2 will pay a full commission, however, if not enough value is built with 2 they will go to a discounter. 3 will never pay a full commission as they do not see the value in it. There are plenty of all 3, as a broker, I just need to decide who I want to work with.
Aloha,
Keahi
I’m ready! I agree that as the big name agents start retiring…and it will happen soon as more and more of their clients start downsizing and the new young generation of clients moves on to tech savvy agents…everything will change.
I’m ready for an independent brokerage in my city that understands how to add value, offering a menu of services for a reasonable fee and keeps commission splits in favor of the agent. A company that is ethical and operates in the client’s best interests rather than just looking to close a bunch of deals. Gone are the days that the broker makes a bundle on the backs of agents.
I’m also ready for the standards and annual fees for practicing agents to go up. Raise the cost of association and MLS membership, and time commitment to get your license, and the quality of agents would go way up. How about a 3 month course before you can get a license. It would eliminate many people that aren’t looking for a career, but rather an easy money hobby.
does anyone know of any real estate market where this “agent 2.0″ that we keep defining and talking about who blogs, works paperless,offices out of his car, etc… actually has the #1 market share in his/her market? i am not asking rhetorically.
I am 9 months new to the business. Don’t know much, I guess. But I do know how to work hard and do the best job I can do. As long as there are people like me in the industry, clients will pay full price for the knowledge, effort, and experience.
I have more experience than most of my clients, because I chose to work with mostly First Time Buyers. It makes sense, right? In a few years, I’ll move up. It’s a process.
In 5 years I’ll be a high-powered top listing agent in my early 30’s. All things go from Old to New hands. That’s Life. Embrace it or leave it to those who will.
[...] from 1000wattconsulting takes a peak at real estate past and present. He wonders if we have reached the end of the real estate story or not. This is a riveting post worth [...]
[...] brokerage model?, non-commodity goods, purchase cycle, Utah Dave by -Rob Brian Boero of 1000watt recounts a dinner conversation and throws down some challenging questions and assertions: This particular debate centered on the following [...]
[...] Boero of 1000watt recounts a dinner conversation and throws down some challenging questions and assertions: This particular debate centered on the following [...]
I’m jumping into this one late…but I have to throw my two cents in. I’v been a licensed broker in Portland, OR, for 5 years. My licensing required 120 hours, and 30 hours of CE every two years. Here in Portland there seems to be a widening gap between the old school agents and the new. The old agents are very ego-centric (platinum diamond multimillion president’s cirle) while the new agents are very client-centric and education oriented(service with a smile).
I recently switched brokerages. I left a very old school independent brokerage modeled after the franchise companies for a newer, younger more progressive also independant company. Good example of the difference, the old office many of the agents still carried pagers or even still used their home phone as their business phone. New office, we all have smartphones.
I will never pay a franchise fee because I’ve found that a well-known brand name really only helps you get in the door, but if the potential client doesn’t feel that you understand their needs or can’t trust you or is feeling “sold”, your done. We are in a “people” business, not a property sales business. In that regard there will always be the personal engagement element of our business. But even my baby boomer and older clients, dig it when I can whip out my phone or laptop and get information or communicate instantly. My 20-something clients demand/expect it.
I also feel that consumers in general want better quality face-time with the professionals they work with, because of the prevalence of the internet in day to day life. So not only do agents have to rachet up their tech capabilities, they also have to polish their personal skills if they expect to be competitive.
[...] Chapter” was in response to a post written by Brian Boero of 1000watt Consulting entitled, “The end of the real estate story?” Why do I feel the need to give you all of the information on where this info. came [...]
Very interesting take on the industry. I can’t help but think that a lot of this change will happen when the generation that pioneered a lot of this Real Estate game starts to pass the reins over to the Web 2.0 generation.
Yes, 85% of the homes may be sold by a REALTOR, but how many REALTORS make that sale? Are 900 out of 90,000 REALTORS selling all the property? Or has it leveled out now? With more accessibility to data I would think we should see a leveling out of number of homes sold per agent. The amount of work required to sell a home should also come down as it is no longer up to the agent to show a ton of homes to the buyer. Instead the buyer is researching homes before they ever find an agent.
Work less, make a bit less and are we in the same place we were in 1993? Maybe… but statistics can say whatever you want them to say. I’m more interested in the “Freakonomics” side of the Real Estate business. What’s under the covers that NAR doesn’t want us to see? What is changing and what could those changes be a catalyst for?
the white agency estate agents…
…Just another manic Wednesday, yes I know! Not the best lyric in the world, buts that’s the way it looks today, thanks for the insight I was looking for the white agency estate agents and found My MLS is broken. — The San Diego Home Blog.What a g…
When it comes to web real estate, you could say the same thing: location, location, location in search engines. Organic real estate on the web refers to the positioning your website has on the web landscape.
The change is well underway. Technology has allowed any
intelligent,hard working agent to provide services that
originate and reside in a handheld device that more
than replaces the brokers office of the past. The only
real issue is being able to afford these wonderful
devices with their apps that keep improving almost each
day.The broker of the future will offer these tools
at an affordable cost and provide an environment that supports the agent and not just generates profits.
[...] I’ve thought this for a while now. Because looking back over my thirteen years in this industry, it’s hard to identify fundamental change. [...]