NAR’s Black Swan Song (part 3 of 3)

Black swan song

So let’s set aside for a moment the fact that lots of sellers are playing with values at Zillow while ignoring realtor.com, and talk about home buyers for a minute. What are home buyers telling you?

Forty-three percent of home buyers found the home they actually purchased themselves on the internet (2013 NAR profile of home buyers and sellers). Brokers only found thirty-three percent of the homes buyers actually purchased. The marketplace likes controlling their own destiny—how about you?

So what—43% of buyers found their own home—you (brokers) were still used in 88% of total real estate sales (2013 NAR profile of home buyers and sellers). What do you care if the buyers do the work as long as you get pulled in later and paid?

Think of Gladwell’s Tipping Point: lots of “small” things cumulatively adding up to create a massive change seemingly “all at once”. Brokers got paid half of the time for not finding a home for the buyer. This should scare you comatose. That tipping point mechanism has already tilted strongly away from the NAR/MLS model you rely on. What is your plan when the final cataclysmic event occurs—NAR’s Black Swan?

But you’re okay right? Jumping back to home sellers, that same NAR survey says only nine percent of sellers were for-sale-by-owners. So the sellers are still on NAR’s side even though they spend all their time on Zillow!

Really? Pretend you are not a real estate broker (whoa, hey, your blood pressure just dropped 25%) and imagine yourself a home seller for a moment. You know how buyers find homes has tipped: 43% of buyers find homes themselves on the internet while 33% of brokers find homes for them, and that skewing trend is gaining momentum. How long do you think sellers will keep paying both the listing agent’s and the buyer agent’s commissions, totaling possibly 6% of the value of their home, knowing the buyers are out there finding homes all by themselves? Perhaps four to five years—let’s call it 1,666 days. And that time period is only because of the legacy of the whole NAR/MLS system. The irritation building up in the psyche of the home sellers writing the checks is another “small” event pushing the tipping point. When somebody offers a better solution, they will run to it.

The market is ready to jump—no, many of them have jumped; it’s just that you are still getting paid anyway. The avalanche has started and will only build up force. Listings do not have to be in the MLS for a home to sell. Listings do not have to be in the MLS for a home to sell. (The first time I said it just did not sink in with you.) All they need to sell is to be on the internet—ideally offering better descriptions, pictures, and videos than those presented by brokers through the MLS. That shouldn’t be difficult.

Oh no, did anybody tell NAR all this was happening? Wait, NAR told us (2013 NAR profile of home buyers and sellers)—but NAR is in denial. Why? They have tunnel vision because such a high percentage of buyers and sellers are still using brokers to write up the deals. They interpret that action as affirmation of NAR’s value. It’s not; it’s additional weighting of a tipping point. Now knowing how buyers really find homes, how long will sellers cough up six percent commissions to have a broker write up a deal? Now knowing that just being on the internet sells a home, how long will sellers hire brokers? The market is just waiting for someone to give them a better option.

Think about Taleb’s turkey story, and mix that with Gladwell’s tipping point concept where lots of small things add up to make a huge impact that appears to take place all at once. The NAR monopoly has had a many decades run, but now you are figuratively on day 950 of your turkey’s 1,001 day life. If you close your eyes you’ll feel safe because you won’t sense all the small changes going on around you. It works for NAR. Then “all of a sudden” how homes are sold will tip—seemingly in a moment, and you’ll be the turkey (Taleb actually refers to humans in this situation as “suckers”, not turkeys).

Remember what happens at realtor.com when a potential seller plugs in an address and asks for a value? They get a form telling them to contact a realtor. Below is what happens 5 seconds later at Zillow (where those potential sellers immediately jumped to from realtor.com). Think of lots of “small” things like this building up in the marketplace, then one day what appears like an instant change that no one saw coming happens. And Zillow is now old stuff—it’s been out there for nearly a decade.

 

Time is on my side

 

But This Time It’s Different

To demonstrate how the marketplace always eventually gets what it wants, please answer these questions. When was the last time you dug through the “yellow pages” to find anything? Did you use the internet or a travel agent to book your last flight? Do you drive downtown to your stock broker to make a sale or purchase—or hit the internet and pay $9? When was the last time you read or purchased classified ads printed in your local newspaper? How many hours did you spend last year at a store perusing music CDs? Oh, you’ll like this last one: when was the last time you used an MLS book to find a home? An innovative solution to market desires always wins.

I know, but real estate is different. It’s not. Just ask your stock broker, travel agent, or a president of any giant music label. Stock brokers once had the monopoly on information about stocks. Travel agents once had the monopoly on information about booking travel. Recording labels once completely controlled what music got recorded, who was promoted to the status of being a star, and what price CDs (cassette tapes, 8-track tapes, and records) sold for. The “Bell System Companies” used to have a literal monopoly on phone service in the US (land lines). Now who even cares about land lines?

So what’s the good news (for brokers)? The NAR and MLS systems will probably be able to hold back against the desires of the marketplace for another 4-5 years; probably. But watch the erosion of NAR’s influence, the MLS’s power, and your own importance in the marketplace during that time. And be conscious of each additional “small” event further weighting the tipping point toward an “instant” change. The 4-5 year time period is not a promise—it’s a guess. NAR’s Black Swan could hit at any time.

What’s the bad news (for brokers)? The change will happen; the tipping point will occur; lots of somebody’s will be turkeys (suckers).

Contrary to what NAR and your MLS are telling you, the marketplace is actually in charge and they don’t care about the realtor system or the rules holding you in a vice. They will run to the services of whoever gives them what they really desire. And everybody wants your job. (Well, everybody wants to replace you; nobody really wants to be a broker.) Imagine if Google sent 100 of their most imaginative and expert marketers and programmers on a three-day event to invent something to replace the MLS. Do you think Google could offer something superior to the MLS? Do you think the marketplace trusts Google’s stuff enough to use it? This could happen tomorrow.

You’re right, asking if the 100 best people at Google could replace the MLS system in three days was a stupid question; Google would replace the MLS within the first 24 hours, and the last two days would be a beer and pizza fest.

This moment you may still have a chance to innovate based on what the market desires; a year or even a few months from now that opportunity may be closed off by someone acting before you did. You’ll have to substantially change how you provide services, how much and how you get paid, and tolerate thrashings from NAR, the MLS, and your fellow brokers. But they will not survive and you will. And you’ll actually love what you do a lot more when the market loves what you offer.

Affectionately,

Demon of Marketing

Comments

    • Demon of Marketing says

      Hi Katharina, thanks for commenting. Every day I see new automated and electronic and internet based solutions to very old problems in real estate. I don’t think the industry will recognize itself within three years.

  1. says

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      HI, thanks for your kind comments. from the home page you can sign up to be notified of all new articles. we do not spam or sell your information to anyone, nor do we bother you ourselves. if you work in or are researching the real estate industry it’s simply my goal to apprise you of what will happen along with what is already happening in the industry. few practitioners look ahead past the closing date of their current home sale. this allows all kinds of innovative “outsiders” the opportunity to take control without the current but fleeting leaders to be quietly overthrown until it’s too late to effectively do anything about it. take care.

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  3. says

    I am a reluctant real estate broker. Maybe not reluctant but an uneasy one. Its funny how easy it can be and how incredibly hard it can be all at the same time.

    You make a lot of great points and you’re basically speaking my language, and maybe some of my doubts come from my lack of articulation in my marketing messages because I have been thinking and saying these things for years, yet struggle to be busy.

    RE struggles all come down to the amount of leads you have. I got into real estate becasue I pursued a degree in Visual Communication and I learned quickly that most agents and brokers had zero to offer anyone, and yes a virtual tour is a joke. Yet, something stupid like a virtual tour is still touted by agents today, and these agents have more business than me. How? Leads.?

    I shoot HD walkthru videos myself, stedi-cam, DSLR, post produce it with Premier Pro, music tracks purchased, the whole nine. But talking about how great RE video is for a seller and how great I can shoot video doesnt matter to a seller, they dont care. They love my videos but they dont care to be sold on it.

    I mean I get it, they want a buyer not a video but the video brings the buyer so I have to educate them on why they should like video….ugh

    I shoot pro pics too and navigate my way around WordPress enough to take a template and make it into my own “feel” Before that it was Dreamweaver creating websites from scratch.

    Graphic Design from scratch? No problem. I can do that too. I do all of these things well, and how about some blogging? No problem.

    How about a 5 step Expired or Seller Farming campaign deigned from scratch by yours truly. Got it.

    Zero leads…

    Dont worry my point is coming,

    I am 33, and when I was 28 maybe 29 I got my real estate licence, and I was interested in RE mainly because of the uncapped income potential.

    I am from upstate NY but at the time I was living in PA, Harrisburg to be exact. I was fortunate enough to leave Century 21, who wanted to put stings on me like a puppet and work for mom and pop broker who taught me more in 15 mins than 6 months at C21.

    He was cool enough to let me try out my business model via a DBA so to speak.

    So here I am, a licensed RE Salesperson, hanging my license under a broker at his independent firm and he lets me market to sellers under my company name and logo “Tru Tour Real Estate Marketing”

    You see, I created a video service for agents, doing complete walkthru videos w stedicams, something of value, and called them Tru Tours, truly a virtual tour Id say…this is the common way to do RE walkthru videos these days, if youre savvy enough.

    So I would sell these “packages” Video of your home, pics, MLS listing, basically a glorified a la carte model like ForSaleByOwner does, except I was local and doing the media.

    Needless to say I got some sellers on board and sold a couple houses this way, and the state was on me fast. Dept of State rep knocking on my door doing an investigation that I was practicing RE without a RE license.

    They thought I was charging commissions at closings at just a marketing co.

    Needless to say they had nothing on me. I was simply doing flat-fee listings and the video, Tru Tour aspect was just that….but like you say, step outside their rules and they will jump on you.

    I was able to offer this as a brokerage years later in NY. and it does work, people were finding me, but the fact that in my local market, 90% of the home sellers here are willing to pay 6% commissions so why was I taking it on the chin?

    I search my mind everyday for the best, structured model that can drop that “bomb” on the industry as you call it. I still think flat-fee, a la carte type models are the best answer…what else is there besides eliminating the industry all together?

    • Demon says

      Hi Ryan–a lot to cover here, but let me try. The “unlimited earning POTENTIAL” hook has been used by franchises and brokerages since they posted this on cave walls using dinosaur blood. Glenn Kelman of Redfin did either an article or blog post on the subject and called it something like “the industry of misery.” Here he notes the long hours and frustration for an average of about $38K per year for the average broker. Maybe google his stuff for better details. But the inability to capture consistent quality leads kills most brokers.

      There can be many reasons why, but certainly the sheer number of brokers is one reason: 2 million brokers for 5 million sales per year. When a broker lives through several years of this bare survival they now have word of mouth and referrals in their favor, which accelerates some toward the top and many that didn’t do well to the bottom. Thus lots of brokers tossing money at Zillow, etc in hopes of busting through the inertia.

      I admire your using Steadicam and DSL work to promote the homes, as I do think that is the future, along with ala carte models. But part of that is when the market is hot the sellers are making good money and will pay the commission, even though that is the exact time they don’t need to pay a full commission—as in a hot market most any home will sell—just get in in front of the buyers.

      My opinion is that a quality video, pictures, and description on well used internet sites will sell a home (no MLS required). But the other part of the equation is that sellers don’t want to deal with the processes or paperwork of the sale—they want someone to take on all of that and say “sign here”; you really can’t blame them.

      I feel that you lean toward the craftsmanship of creating the visual pieces; maybe that should be your sole niche and sell your services to brokers. But one problem is that brokers are cheap—they want to do the minimal required and pay nothing for advertising. But perhaps you find a few Indie style brokerages that will arrange a $500 fee or something for each home—it would differentiate them in the marketplace and built their reputation. With enough volume you can make a pretty good living. But maybe you want to keep the brokerage side going for yourself.

      Certainly then your offering all the stuff the other brokers offer—plus extreme quality visuals, well then you have something 95% of the brokers don’t offer—all at the same commission rate. It’s just a matter of getting the sellers to understand how important internet marketing is—more important than even being in the MLS.
      Not all sellers care—but those that do are the great clients with great houses, and that sell quickly. Get their referrals and build out the beast.

      • says

        Exactly. Brokers / Agents are cheap, broke or simple dont get it. How many want to pay up-front to market listings properly.

        I figured I could set myself apart by offering actual tools to market a home. Most agents if not all of them cannot do custom graphics, websites, pictures and video, although it is getting easier to do some of these things.

        Ive done flat-fee and full service at least I can adapt to whatever shift is the permanent one in the industry. Saving sellers on commissions is hard when 90% are paying 6% in my market. I guess flat fee isnt a big enough splash to change things permanently.

    • Demon of Marketing says

      Thanks for the kind words. It’s funny/sad how I just had a long series of emails with my editor at Inman News (inman.com) on how few people respond to the in-depth articles, but they just love responding to the simple and easy to complain about stuff.

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