NAR’s Black Swan Song (part 2 of 3)

Black swan song

There’s a fun little story in Nassim Taleb’s The Black Swan (and you should absolutely read this book if you have not done so) about how civilization in general (and various industry “experts” specifically) watch how things move along over time and usually draw the conclusion that everything will continue pretty much as it has (a trend line based on prior knowledge extended out over time). Then one day, all of a sudden a massive and perhaps deadly change occurs that no one thought would ever happen based on simply watching how things had been rolling along for perhaps a very long period of time (think of the world-wide economic crash from 2008). Anyway, enjoy Taleb’s story.

 

The uberphilosopher Bertrand Russell presents a particularly toxic variant of my surprise jolt in his illustration of what people in his line of business call the Problem of Induction or Problem of Inductive Knowledge…–certainly the mother of all problems in life…There are traps built into any kind of knowledge gained from observation. Consider a turkey that is fed every day. Every single feeding will firm up the bird’s belief that it is the general rule of life to be fed every day by friendly members of the human race “looking out for its best interests”, as a politician would say. On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the turkey. It will incur a revision of belief.[Taleb shows a time-line graph moving gradually left to right, slowly gaining slope until in an instant, on day 1001 of the turkey’s wonderful life, the line drops down in a straight line, signifying the turkey’s completely unanticipated demise.]Consider that the feeling of safety reached its maximum when the risk was at the highest! But the problem is even more general than that; it strikes at the nature of empirical knowledge itself. Something has worked in the past, until—well, it unexpectedly no longer does, and what we have learned from the past turns out to be at best irrelevant or false, at worst viciously misleading…On the one thousand and first day—boom! A big change takes place that is completely unprepared for by the past.

 

Zillow Sucks and Can’t Replace the MLS

You are right Zillow is not perfect, but they are smarter than you. They convinced you to upload information about homes you have listed for sale so they can attract buyers to their site. They then make tens of millions of dollars by convincing you and all the other brokers to buy advertising for a chance to work with buyers attracted to the homes you have posted at Zillow. You’ve got to admit it, you wish you had come up with this system.

Their success is all because they give buyers what they want. Do you? Why didn’t NAR and the MLS systems do this before Zillow? While NAR was digging in their heels and trying to protect their monopoly, it gave Zillow the opportunity to swoop in and innovate you half-way out of a job. Will you step up before someone else innovates you out of the rest of your job?

Zillow then attracts potential sellers of homes to their site with their AVM—which neither you nor realtor.com provides a proprietary automatic valuation at your own websites. And they again make tens of millions of dollars getting you and all the other brokers who offer the exact same lack of innovation to buy advertising for a chance to work with the sellers attracted to their site via their AVM and your listing information. Both of these scenarios happen because Zillow gives sellers and buyers what they want and you do not.

On the other hand NAR and your local MLS place very, very restrictive rules for using “their” information on your website (keeping in mind that “their” information are your listings which you paid to load into their MLS database that they are selling back to you via your IDX agreement—and then telling you that you cannot be innovative in creating services the marketplace really wants; you know, like Zillow and Trulia does). Even if all you wish is for your full contact data on your own listings at realtor.com they charge you extra money each month.

Hmm, did the part about your giving the MLS your information and then paying to get it back to try and get new business based on the information you gave them sound a little familiar—just think back 15 seconds ago to the Zillow paragraphs. Realtor.com also guts you and your fellow brokers for tens of millions of dollars for advertising at their site even though it’s not as good as Zillow’s, and all they are doing is publishing your houses from the MLS. Maybe you should have the name “cow” on your business cards: everybody is milking you.

Taleb’s “Black Swan” event is something you never expect could really ever happen based on your observations of the past (From NAR’s perspective this is an event such as the NAR/MLS system being replaced). They just can’t imagine their business model disappearing. Maybe you can’t either?

Whereas Malcom Gladwell in his book The Tipping Point (another you should own) states that you can see, or perhaps control, a multitude of small changes within the marketplace that cumulatively lead up to an “instant” massive change—the tipping point.

Ideas and products and messages and behaviors spread just like viruses do…We need to prepare ourselves for the possibility that sometimes big changes follow from small events, and that sometimes these changes can happen very quickly…The Tipping Point is the moment of critical mass, the threshold, the boiling point.

Don’t Worry Be Happy

If you could hold your commission rates steady and also incrementally increase your number of clients each year, maybe this entire current scenario would be tolerable. Maybe you could hack out a living until you are too old to safely drive people around in your backseat all weekend long. (A google car could perhaps help at that point—but will buyers even need you by then?)

But you have another problem: your real boss, the marketplace of home buyers and sellers, are making demands diametrically opposed to what NAR and your local MLS are allowing you to do. Remember, NAR and the MLS don’t want you offering sellers instant automated valuations or any other kind of “extreme” innovation with “their” data—that would go against the good-old-boys network they need to protect. Oh, but that is what sellers and buyers want—cutting edge stuff meeting their desires. And they all want complete information (and please far better home descriptions, far better photos, and far better video tours), along with complete control of the information and process.

But you’re not giving any of this to them, and you’re certainly not giving them anything exceptionally innovative in meeting their desires. Don’t believe it? Just take a look at the junk you are offering them on your own website via the IDX or RETS data you purchased from the MLS. (You know, the stuff you paid the MLS to give them, and then paid the MLS to get back from them.) Or you can simply look at any other broker’s site, as the MLS/IDX/RETS system ensures every broker’s website provides the exact same information, functions, search tools, and general look and feel. The only differences between the sites are the brokers’ headshots, which no seller or buyer cares about. That’s why the market runs to places like Zillow and Trulia.

Brokers are not even doing a good job with what they do have control over, such as describing within their remarks the emotional connections of a home that are really important to buyers (the brokers don’t even know what they are). Additionally somebody should just take away cameras from brokers—the pictures are terrible and don’t tell a story—they don’t entice anybody to act. And can virtual tours get any more boring? Buyers don’t buy a series of “rooms” zooming in and out or spinning around in slow-motion jerky circles; they are buying their future life experiences—you have to give that to them. The only future experience your tour is motivating is probably suicide due to insufferable boredom.

You had control for a long time, but your complacency allowed the innovators in—and they’re not leaving. You now have only two choices: servitude or remarkable innovation.

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NAR's Black Swan Song 1of3, 2of3, 3of3