Marketing

Real estate and the reality of the irrational

Author
Jessica Swesey
No.
865
Date
04/29/14

To state the obvious up front: real estate is a funny business.

It’s the largest purchase most people make in their entire lives, yet brokers find it harder than ever to make a profit.

It embodies the American Dream, yet stands at the center of anti-capitalist protests in one of the few American cities where capitalism is not only alive and well, but soaring to the moon.

It’s a so-called relationship business, yet customers repeatedly are referred to as leads, prospects and unique visitors.

More real estate information is online today than at any other time in history, yet it’s still the most confusing transaction to navigate, arguably more so than 20 years ago.

The listing is the most prized currency of the real estate business, yet 90% of online efforts still target buyers. (I did see the news this week of Redfin co-founder’s new seller-focused brokerage, Surefield. Some interesting thinking and execution there and one to watch for sure.)

The majority of home buyers start their search online, yet almost no real estate brokers truly understand, test and use their web analytics to their advantage.

Plenty of housing markets across the country still suffer from recession and housing bust fallout. Meanwhile, quite a few have already surpassed pre-recession home value mania.

The long-term math shows that housing prices have grown at a compound annual rate of just 0.3% after inflation, compared to annual returns of about 6.5% in stocks during the same period. Yet, the majority of Americans still view homeownership as the best long-term investment.

The prevailing image of the real estate agent is a person who makes a ton of cash from a single transaction. Yet, the median gross income of a Realtor was $43,500 in NAR’s last member profile.

Clashing complexities

What does this all mean for those who make a living assisting buyers and sellers, writing loans or operating a brokerage? What does it mean for the entrepreneurs and engineers who right now are building something they dream is the next big disrupter – the thing that makes things better?

Like most things, there’s no one answer. My point here is that when searching for solutions to the industry’s problems – to consumers’ problems – we need to first consider these clashing complexities.

Real estate so often is an irrational transaction and industry. We’d be wise not to lose sight of that.

On the surface, like in many other industries, it may seem that solutions and true disruption will come from Seattle or Silicon Valley. It may seem that disruption will displace the current status quo – the existing structure of brokers, agents and commissions.

But it’s more complex than that.

Agents, for example, spent decades as the target of disruption, yet we’re in a place now where they hold a lot of power, and probably more so than 15 years ago when you think about inventory shortages, pocket listings and the challenges in the broker business model.

On the other hand, MLSs for the last hundred years served as the engine of the market and a core value of the agent’s offering to consumers, yet today are among the most embattled industry entities.

That’s just the type of clashing complexity that deserves more thinking.

Brad Inman last week wrote that real estate disruption may not be what you think it is. Looking at all the other funny things about this industry, I have to completely agree.