Marketing

Why real estate will never change

Author
Brian Boero
No.
824
Date
10/04/13

It’s one of the conversations I have over and over.
The one about disruption.
How and when will the real estate business model be transformed?
When will the 500,000 knuckleheads keeping associations afloat but sinking the Realtor brand find something else to do?
When will brokerages without a compelling value proposition make way for those that do?
When will the fragmented MLS world heal?
Over the last few years, I’ve felt this time was approaching.
But it hasn’t arrived.
There are plenty of smart people who think it never will. People who think that what I have called “real estate exceptionalism” will forever inoculate this industry against the virus of change.
I don’t think I’m wrong, but I sure could be. So I thought I’d lay out the “no disruption” case I often hear for your consideration.
I’d love your feedback.
The consumer argument
Buyers and sellers have a sweet deal.
Sellers pay, but only on a contingent basis, and when they do it doesn’t really feel like paying. The money never goes from them to their agent directly, but through a third party who moves money around in a way that is largely out of sight. The law of contrast is in full effect here too. $60,000 is a lot of money; $60,000 in the context of a $1 million sale is still a lot of money, but it’s perceived differently.
Plus, one of the effects of the mortgage bacchanal of the early to mid-2000s was to dull our senses to how pros get paid because, after all, it was all funny money.
So why would anyone want to pay to list? To spend money up front at a time when they’re probably trying to conserve it?
Because it’s rational? Forget about it. Real estate’s emotional.
Buyers are removed from the act of compensation still further, with someone else paying “their” agent, with whom they have a most casual relationship.
And really: how many buyers who even think about the conflict inherent in their agent’s compensation believe that agent would deliberately aim to increase an offer by $50,000 just to pocket an extra grand?
Not many.
Imagine you want a child, but are having trouble, so you go to a fertility clinic and only pay upon conception. Wishful thinking. It costs a fortune, regardless of the outcome.
In real estate, that wish comes true.
The brokerage argument
How many brokers want to start making payroll every two weeks (especially in winter!) for all of their agents?
Almost none.
Better to “recruit it and forget it.” To set as many lines in the water as possible and hope for a bite. There’s some overhead associated with housing an agent, but it’s worth the bet that the friends and family roulette wheel will favor his or her number every once in a long while for a nice payout.
This model hasn’t been aging well, but trying to mitigate its weaknesses is more attractive than starting over. So most brokers will continue onward as they always have. Which means agents will continue to get paid the same.
And so on.
Agents
Hundreds of thousands of Realtors don’t even sell real estate. They’re assisting someone who does, recruiting, or maybe just watching a lot of daytime TV. If grandma’s place needs to get sold, they’re there, but otherwise they’re kind of not.
In some cases – RE/MAX, most notably – agents have at least some skin in the game. They’re betting on their own success with a monthly fee. But others don’t. They are creatures of opportunity that only emerge from the woods for an easy kill.
The issue, then, is that just like consumers and brokers, many agents find it easier to operate in the real estate world in a way that’s something less than “all in”.
Can you blame them?
MLS/associations
This group needs to keep the plates spinning at all costs. To manage to the lower middle and ferociously protect the cooperation and compensation model that is the linchpin of the whole real estate apparatus.
Self-preservation dictates sustaining participation in the status quo at maximum levels. Manning the ramparts with rules. Deflecting entreaties to innovation with parochialism.
There are some real profiles in courage in the MLS and Association world, but they are all too rare.
Dabblers
The bottom line: real estate as we know it won’t be disrupted because most everyone, consumers included, is, in a sense, “dabbling in real estate”.
And everyone likes it that way.
You may think this speculation is idle. But how you think about this question – as a broker, as an agent, as an MLS exec, or as an outsider looking to crack the real estate code – conditions what you do (and don’t do) every day.
I’ll continue talking about it, whether I’m proven wrong or not.