I sat a lot over the holiday break — on couches, at tables, in duck blinds. I had a lot of time to think about the year ahead.
It’s going to be interesting. Rates are going up, a brain surgeon will be running HUD, technology is getting weird, and some structural changes that have been brewing for the last decade are kicking into high gear (more on that below).
What follows are just three of the things that rattled around in my head during my time off. Take them for what they’re worth: loose threads of thinking that may or may not tie to anything, eventually, but will help (at least me) process what comes in 2017.
The team phenomenon might be a weakness
I know. Teams are the future. They are the present, really — the new atomic unit of real estate services. They are efficient, manageable and seem to be perfectly timed to the prolonged bloom of new real estate software.
On the other hand…
Could it be that teams, for all their nimbleness and smart division of labor, are just a short-term hack to a business model in need of deeper realignment?
What I mean by that is teams have extended the service delivery chain in real estate brokerages at a time when the amount of money in commissions has remained more or less the same.
In 1970, the real estate brokerage service “stack” looked like this:
Broker > agent
In 1990 it looked like this:
Franchisor > Broker > Agent
In 2017 it looks like this:
Franchisor > Broker > Team > Agent
Sweeping generalizations here, yes, but the big picture is that there are more mouths at the real estate services table, but the amount of commission dollars with which to feed them has remained more or less the same.
You can stretch the food a bit further with franchise or broker “lite” models, but it’s still a strained situation that seems in some ways vulnerable.
I also wonder if the very efficiency that makes teams work right now is also a long-term weakness. The rainmaker/buyer agent/TC pod fueled by online leads captured, scored, routed, incubated and dripped upon can be a lean, mean machine.
A machine that could be replaced.
It strikes me that the old-school top producer — a referral-driven creature dependent on a smile more than systems — may be more enduring in an age where artificial intelligence and machine learning seem poised to vanish millions of jobs.
Let me know why you might disagree with this. I know it’s a bit contrarian.
Zillow is remaking the real estate agent in its own image
Two quotes from Zillow’s Q3 earnings call have stuck with me.
First this from Spencer Rascoff, speaking about their Premier Agent business:
“…this is something that has been ongoing over the last two years, where we’ve been focusing on upleveling our Premier Agents and by extension upleveling the real estate industry overall, focusing on great agents. And, as I’ve mentioned, great agents are gaining share from hobbyists and Zillow Group is a big contributor to that. So, getting more of our leads in the hands of agents that already perform high lead conversion is the single best thing we can do to improve our overall lead conversion.”
Then this, later in the call, from CFO Kathleen Phillips:
“…New sales to existing advertisers made up 71% of total bookings in the third quarter. Year-over-year growth of the agent advertiser cohort that spends more than $5,000 per month was 80% on a total dollar basis, and 79% in advertiser count. Churn in this cohort continues to be minimal. We continue to support more agent teams and independent brokers who buy advertising at much higher levels than the average. We are accelerating the broader trend across the real estate agent population of higher producing agents gaining market share from those who are less productive.”
In order to grow, Zillow has to get off the hamster wheel of selling stuff to semi-professional agents that move in and out of the business — and in and out of ad contracts. They have consciously focused on creating a cadre of perhaps, ultimately, 75,000 high-producing, big spending agents and teams they are betting will gradually consume share from non-Zillow-powered agents over time.
Zillow is creating a new kind of agent. Their kind of agent. A Zillow Premier Agent fed on online leads and increasingly fused to the Zillow brand and Zillow software.
If you think my first thought in this post conflicts with this, you are right. Zillow has executed brilliantly in the direction of the team and tech-savvy agent phenomenon I describe above, and it’s played out well to date. Long-term, I am not so sure.
“Knowing the market” is changing
Good agents know the market inside and out. They are in the MLS all day, create a ton of CMAs, go on tour and generally have their fingers on pulse of what’s happening.
In the past 15 years, lots of software has been created to help agents communicate market intelligence to consumers. Market Snapshot from Move, Altos Research, 10K Research, Smartcharts, Trendgraphix and others come to mind. These are great products, but I think we’re headed to something deeper.
We’re headed to a place where agents will have to know who is going to sell and who the buyer is before they head into transaction mode.
SmartZip has been been using a predictive data model to identify possible sellers for several years know. This is just the tip of the iceberg, though. It’s going to get more sophisticated more rapidly this year as machine learning continues to be deployed against age-old real estate problems.
There are two new, slightly under-the-radar startups blowing this wide open right now. They’ve made me realize how fast we’re moving towards a world where real estate prospecting, farming and sphere marketing can be dramatically more efficient.
The flip side of this is buyer data. Conventional wisdom is that great real estate agents, and great real estate companies, are built upon listings. Makes sense. But leveraging buyer data — knowing where the buyers are, what they want, what they don’t want, and which agent they are working with — is a powerful thing. It’s listing presentation gold and, I would suggest, holds the potential to make deals happen faster and with less stress.
Buyside is a company that’s making a big bet here. There will, no doubt, be more coming.
Pre-transaction market insight is going to be a significant thing going forward.
OK, that’s it for now. I’m headed to Inman New York in a couple weeks and hope to see many of you there.
We’re off and running!
[Disclosure: 1000watt has performed work for Buyside]