1000watt Blog

Writings about real estate, branding, marketing, media and technology from the principals of 1000watt.

Where we’re at

Cycle

Yes, that’s about where I’d place us seventeen years into this online real estate thing.

The industry has yet to be truly disrupted.

You may be incredulous. But consider that the real estate brokerage model is fundamentally the same as it was in 1995, commissions haven’t moved much, and there are in fact more Realtors today than there were back in the mid-nineties.

Innovation, certainly. Disruption… not yet.

But what about seventeen years – or even five years – from today?

It is possible the basic structure of the real estate business will remain constant. But I wouldn’t count on it.

Online real estate’s first seventeen years marked the demise of the wall between consumers and information. That was enough to upend travel and stock brokerage (among many other businesses), but not real estate.

In the coming years, we will witness the collapse of the wall between consumers and each other.

That holds much more disruptive potential.

This is not just about Facebook. It is, believe it or not, bigger than that. People are sleeping in others’ homes instead of hotels, communicating without carriers and even picking up hitchhikers online with astonishing confidence.

How thick is the wall between a buyer and a seller, really?

Of course, finding a place to spend the night isn’t the same as finding a place to spend a life.

But is it different enough?

The demon of disintermediation is a hoary beast. And perhaps he’s through.

But, again, I don’t count on that. Our broker clients don’t either. They’re pulling stones from the wall now and laying down a road into the future.

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40 Responses to “Where we’re at”

    • Joel Hentges says:

      Yes the walls are coming down between buyers and sellers. I am primarily a listing agent for 32 years and believe finding a buyer for the house is 30% of what I do to earn my fee-we spend 70% of our time between offer and closing avoiding all the landmines so the transaction does not blow up. More and more people may find each other in the future but will they get the transaction closed-alot of buyers and sellers rub each other the wrong way. I am going to retire in 12 years so it will be interesting to see how things pan out.

  1. Jeffrey Douglass says:

    Brian, So many in our industry revel in the belief the industry as it was, will continue to be. Your graphic clearly points to that being a premature assumption. Legacy models continue to arrange deck chairs on the Titanic, happy in the status quo. Thanks for a reality check.

  2. Marta Walsh says:

    You have the red dot at 1.30 and in reality it should be closer to 4. There’s a fallacy with disruptive technologies that you recognize them as they happen.

    Last year NAR reported that 40% of buyers found the home they bought themselves online. That’s a significant disruption from 17 years ago. Sometimes maybe it just doesn’t feel it because most of the same players are still chugging along too.

    As the disruption continues people will see margins squeezed further. By 7 o’clock it will be fully apparent.

    • Todd Carpenter says:

      Hi Marte, Todd from NAR here. The stat you’re referring to comes from our profile of homebuyers and sellers. It states that 40% of respondents listed the Internet as the source for, “Where Buyer found The Home They Purchased.” Just 10 years ago, it was 8%.

      However, the “Internet” could be an iPad in the back seat of an agent’s car. Which is not really that different that an MLS book in the back seat. Despite the fact that more buyers use the Internet to help them *find* a home hasn’t had a negative effect on the number of buyers who use an agent to help them *buy* it. This is where the agent’s value proposition is strongest.

      All of the innovation and potential disruption has been based on finding a home. I personally don’t think the industry will truly be disrupted until a superior way to buy one is established.

    • Russ Bergeron says:

      Finding a house on the internet is not the disruptive force – you could always,and can find a home by just driving around. If those same people had said they found a real estate professional on the internet I would be more impressed. But most don’t – it is still a referral business, a relationship business.

      And of course you have licensing laws, etc. Without the kinds of restrictions we face (both legal and self imposed) you could eliminate the real estate professional pretty quickly. However, I contend you would merely replace them with lawyers.

    • Jacques Albrecht says:

      Russ, You are correct on many points except that the Internet is an increase in scale. Driving around to find homes signed for sale or going to open houses has always been possible but now all listed properties can be researched from the comfort of your computer. My position is similar to yours. The real estate agent, either representing the buyer or the seller, remains as a valuable resource if not actually becoming an even more trusted advocate negotiating and advising their clients on their most financially expensive transactions of their lives.
      The question is how do real estate agents best use the Internet and the listing portals to be selected as trusted advisers while still counting on the referrals that has been our strength.

    • Marta Walsh says:

      Finding the homes online is the disruptive force.

      The business models that eventually spring from this consumer empowerment are simply the biproduct.

      Yahoo was disrupted by Google when they chose to use them as their search provider. Not when Google eventually overtook them in market share.

      That’s why we are far father into the disruption cycle than everyone seems to believe.

    • Brian Hickey says:

      Russ,

      You touch on Brian’s point exactly – just how thick or thin is the relationship between a buyer and seller.

      The average cost to transact a $1,000,000 home is $50,000. If lawyers represented each the buyer and seller in the same transaction the cost comes down to around $1,500 – a $48,500 difference (savings).

      I think this is the type of factor that goes into disrupting an industry – that big ugly 800 pound gorilla (cost).

      Thanks,

    • Russ Bergeron says:

      We always tend to focus on the data as the disruptor. That ain’t it.

      How’s this to keep the conversation going? You don’t need real estate agents at all – you could just let escrow companies handle the transaction after the buyer and seller have hooked up on-line. Brokers make more money with their Escrow, Title and Lending companies than they do in commissions anyway. Throw in an in-house real estate counsel to cover your butt and you’re done.

      As to your comments on the size of the transaction impacting the decision as to who to work with, I think you are right on. I think you would find that those in the lower brackets need more assistance than those buying the true luxury homes.

      In many, if not most parts of the country today, housing prices are now down at, or lower than the level of a medium to luxury class car. Where’s all the angst over buying a car that there is over housing – and we buy a lot more cars every year than houses, and with a lot less paperwork – and then you just drive it away.

  3. Tina Fine says:

    Great Picture!

    There are no walls between buyers and sellers on homingCloud and I believe with the right type of platform and features to aid communication between buyers and sellers, alternatives to full service brokerage will succeed and still coexist with the status quo full service model as well.

    The following is written with levity…

    The demon of disintermediation is a hoary beast? no comment, hard not to take that personally as I am trying to disrupt the space and I just went to the salon.

    And why do you say “he” perhaps disintermediation/ disruption/ destruction is best brought by a “she”

    • Alon Chaver says:

      (Goddess?) Power to you Tina!

      But I don’t agree that “there are no walls” between buyers and sellers, nor with your hypothesis that consumers would be better off without professional intermediaries who can facilitate transactions.

      First, let me say (in full disclosure :-)) that I’ve read many of your posts and find them both thoughtful and well reasoned – I agree with many of them.

      The reason I disagree here is because (to use Brian’s analogy) I believe buyers and sellers are separated by powerful walls – built from “stones of ignorance” and reinforced by “irrationally predictable layers of concrete”.

      Local real estate professionals expertly tear down those walls, by providing efficient access to full and accurate (MLS provided) information, and by rationalizing the transaction process through trust-based relationships and common standards of conduct supported by brokers and enforced by MLSs.

      You can still find “buyer-to-seller” markets in most small communities, but without “trusted information intermediaries” who facilitate transactions, and market makers who facilitate fairness, they remain small and highly inefficient – in other words, they remain economically depressed and prone to fraud.

      Looking forward to (what I trust would be) your well-thought out response,

      – Alon

    • Jim Meader says:

      Tina

      The walls exist because of mistrust, which is part of any transaction be it a watch or car.

      Real estate is significant not because of the transaction, but because of the dollar amount. When you reach a dollar amount that is significant to any buyer, the doubt begins. This is where Brand comes in because If the Buyer believes the brand is quality they buy with confidence. The real estate problem is that there are few Brands that provide that kind of confidence.

      The concept that Sellers/Buyers will do everything in a trust worthy way is a bit polly anna, and given the dollar amount of any home you get to miss trust very quickly. So the concept of direct Buyer/Seller transaction that can work for everyone, I do not think is valid concept. The real estate agent can provide a bridge to gap this miss trust between buyer and seller, as an independent third party

      Can I say say just because you have a real estate license you are trust worthy, no, but theoretically they are at least trained in how to properly structure a real estate transactions.

      So that is why I think the real estate agent is significant, relevant, and will remain as part of the real estate transaction now and in the future

    • Brian Hickey says:

      Jim,

      What is the magic number where consumers feel the need for an intermediary?

      I can only comment on what we’ve experienced ourselves – but we have seen, and still see sellers very willing to connect with buyers directly in multi-million dollar transactions.

      In fact, it can be argued that the higher the price the more likely the seller is to “privately-place” their home/property to a buyer.

      In the upper-upper end, sellers may have works of art, expensive amenities and value their privacy over an open-house.

      Thanks,

    • Jim Meader says:

      The high end in our market ( Silicon Valley are just keeping the listing out of the MLS ) not driven by sellers but by agents wanting to control the sale data. This is supported by Buyers thinking they are getting something no one else has seen. Works in a short supply market like we are currently in but not always.

      I think they are missing out on the best price, but hey that is only 20 years experience speaking

    • Brian Hickey says:

      No question selling into a pool of buyers should garner a better price – I’m merely pointing out that the price of the asset does not necessarily mean that sellers want a traditional sales process.

      Thanks,

  4. David Pylyp says:

    Consumers are defining the value of a realtor with the ability to post a property onto the MLS. It is up to the individual realtor to articulate their value proposition and explain the added contribution they make to the house purchase process. While many homes in Toronto could sell themselves, it is the avoidance of penalties and expenses that makes the value worthwhile.

    My Lawyer, Stan Gelman said only last week, the perfect storm is here…. Greed from sellers to grab the perceived highest dollars, new paralegals looking to cut their teeth in court and unseasoned realtors who have never experienced a market downturn.

    Are the early adopters leading change or causing it?

    David Pylyp
    Living in Toronto

  5. Dan Stewart says:

    The necessity of professional salespeople is in direct proportion to the amount of risk present for the customer. If true disruption is going to take place, the risk for buyer and seller must be eliminated or greatly alleviated.

    It will be interesting to see if such a model can be developed. Imagine what it would have to look like…a real estate market with no risk, where buyers & sellers would be certain of getting the best price (at a particular moment in time) without negotiation.

    I’m confident that innovation will continue and our current model will evolve, although I can’t see a future where home ownership will be contracted within the “100% money back, cancel anytime” model that allows web based companies to grow sales without salespeople.

  6. Brian Hickey says:

    (Broken record, self-serving but relevant to the topic)

    Local stand-alone marketplaces open to all market participants.

    All the bells and whistles: email alerts, lead gen, fsbo, full service, half service, commission, no commission, online, offline – 100% transparency.

    Full disruption – http://teardowns.com/

    Thanks,

  7. Kathy Howe, Sedona, AZ says:

    Actually Brian, I would have thought that “organized” real estate would have had more “changes” by now. Perhaps the economy slowed down the morphing. whatever the eventual outcome, the consumer will be better educated, more independent, and certainly someone who can appreciate what real estate licensees do to make the transaction work. My 25 years in real estate have been quite a ride, and I’m looking forward to the next 25…

  8. Alon Chaver says:

    Love your thought provoking post(s) Brian – keep keeping us on our toes :-)

    I agree that some people can (and perhaps increasingly will) transact on their own, but think Russ is spot on – this is a relationship business and there are good reasons why it has survived (and I believe will continue to survive) in this form.

    So why do we need a trusted relationship to transact?

    For the same reasons most people (inc lawyers) don’t represent themselves in court in a “life-changing litigation” or tend to their own health (inc doctors) when going through a “life-threatening event”.

    In terms of one’s financial health, buying/selling a house can make or break one’s financial future.

    Because the real estate transaction is too critical and too emotional (not to mention complex and risky), most of us need a trusted guide…so I agree with Russ that if real estate professionals are eliminated “you would merely replace them with lawyers.”

    That being said, I would love to hear your thoughts about the stones your broker clients are pulling from the wall, and the direction of “the road to the future”.

    thanks again for the post!

    – Alon

  9. Brian Hickey says:

    If the brokers are building their path to the future with stones they better do it quickly…… because the portals are paving their’s with gold :)

    • Alon Chaver says:

      Well said, though I don’t know if I’d want to drive on a road paved with gold…slippery slope at best.

      But I bet some of Brian’s customers are finding cost-efficient way to co-opt the portals and get traction moving forward :-)

      – Alon

    • Brian Hickey says:

      Seems like we have been waiting years for the brokerage side to come up with something (anything) to offset the progress of the big Internet guys –

      I’ll still go on record as believing the biggest opportunity to disrupt residential real estate today is for Zillow (they are clearly the front-runner) to flip on the brokerage switch……..I can see the model clear as day……lights out today’s brokerage – turn on the solar powered Z.

      We are talking about real disruption/destruction – right?

    • Alon Chaver says:

      I tend agree Brian, but think that agents will still need local brokers to help them manage the business end of their (relationship based) practice and support their transactions.

      If Zillow continues to solicit agents directly and to offer them “full-service business platforms”, Franchisors and “Big Box brokerages” who merely provide similar service platforms to agents (but no leads) may be disrupted.

      I find it interesting Zillow is primarily making deals with premier independent brokerages (it would not be a disruptive threat to them if the hypothesis above is correct), but Trulia (which remains focused on disrupting traditional media) is making deals with both brokerages and franchisors.

      Historically once brokers and franchisors catch on what the “disruptive front-runners” are doing, they generate enough friction to tie them up in knots.

      Remember what happened to the “(MSFT) Lion coming over the hill”? or how far Ian Morris got after leaving MSFT to form HouseValues (now MarketLeader)…no longer a “horse in the race” for dominance by most accounts.

      As Russ points out, there are good reasons why it is not easy to disrupt this industry. So, if Trulia can stay focused on disrupting “old media” and on working cooperatively with both brokers and franchisors to deliver transparent lead generation, Zillow will probably succeed in getting all the “disruptive glory”… but Trulia will have the last laugh.

      Do my 2 cents make sense?

      – Alon

    • Brian Hickey says:

      Not sure why I spend so much time on my vision regarding the real estate opportunities for Z, T, R, AOl, eBay, Yahoo! or the rest in the race – I guess I just see what a great opportunity they have to really disrupt the industry – I would be totally surprised if they are not responsible for its destruction.

      Can’t really see the disruption coming from in-house – the model is just too ingrained in what’s familiar, plus the crash of the traditional brokerage would be so expensive to dismantle that it can’t even be considered in their meetings regarding change and innovation.

      Unlike yourself, I do not know anything about the individual strategies for any of these Internet Portals – so I can’t comment to some of your points.

      But, I see any of them operating a viable information collection and dissemination operation that provides enough services to satisfy both buyers and sellers. The result will be efficiencies and consumer-centric services that the traditional agencies simple can not compete with………we’ll see.

      Appears to be a no-brainer. The question is will it (the real disruption) some from a front-runner or dark horse.

      Thanks,

  10. Jim Bilbao says:

    Yes buyers know more than they used to to be better prepared to buy direct from sellers. And yes the same is true for sellers. Counterpoint: neither one has the ability to tour the comparables without a Realtor to open doors. Without touring, how confident should either side be about negotiating well? Stakes are pretty high. And price isn’t usually the only negotiable. How many cycles of experience has either side had lately to justify confidence? And It can be helpful in negotiating to have recent experience from the perspective of the other side. How many consumers do? Stakes are pretty high. We can all learn how to do minor surgery on ourselves or each other on YouTube, probably even figure out anesthesia, good enough. If that’s true, should we look for surgery partners on Craigslist to barter with? I fully agree there will be disintermediation, of lots of Realtor tasks. Consolidation comes after that – fewer Realtors doing more deals each, at lower cost per deal. But I don’t see seller and buyers taking agents out of the picture. Stakes are too high. Technology isn’t enough.

    • Drew Meyers says:

      “Counterpoint: neither one has the ability to tour the comparables without a Realtor to open doors.”

      I hope that’s not all that’s preventing buyers and sellers from working together directly. If so, realtors are quickly going to get ousted. Technology can solve the opening doors problem more efficiently than it’s done now.

      “fewer Realtors doing more deals each, at lower cost per deal.”

      I think it’s already starting to happen (at least the more deals part, not the lower cost per deal) as realtors who now realize it’s not as easy as they initially thought to make money in RE exit the industry looking for the “easy button” to making a living. Looking forward to this trend continuing.

    • Bryan says:

      Brian great post. It was extremely thought-provoking.

      I think the change is forcing real estate agents to focus on, what should be their core competency, adding value to a real estate transaction. The real estate agents will continue to be viable as long as they add value to a real estate transaction (off setting their cost of involvement). If they don’t add value or their value can be replaced by technology then they are in big trouble.

      Again great post!

  11. Rob Scaralia says:

    The consumer has wrestled us out of the driver’s seat and is now driving the bus. In the late 90’s they drove it straight through the gates and overtook all the listing information we as an industry had ruthlessly guarded. The very word disintermediation by definition meant a death sentence. The good news today is we have a role. Our challenge Mr. and Mrs. Realtor is to understand how that looks and how that needs to act if we want the consumer to give us a seat on the bus.

  12. Greg Fischer says:

    There are some great posts here. And some of the writing is very sci-fi. I do love this thread because it makes you consider the possibilities of change that the industry will face in the future and there will always be value in this kind of debate. I believe that brokerages and agents have a long-term future, our service is simply not going away. Neither are attorneys or accountants. As an aside, retail clothing stores continue to open and expand during the apex of online shopping (look at lululemon). However, the way in which you “stay on the bus” in real estate is where I personally believe the disruption lies. Simply put, outstanding service providers will run the future. With housing information now at arms length – the customers choice is narrowed down to which agent/brokerage providers the most value and expertise to their transaction. Poor and mediocre agents will be switching industries as market-leaders increase the distance between them; by increasing their value proposition and quality of services offered to their clients.

  13. Charlie Dresen Steamboat Real Estate says:

    “Haunting post.” Seemed like an appropriate way to begin this thread. I can’t argue with this assumption but lord knows I don’t trade stocks anymore online. Sure there’s tools to do it but that’s a lot of money. Something to be said for expertise.