Solving real estate’s technology problem

solving real estate's technology problem

Solving real estate’s technology problem

  • Individually agents simply cannot afford to develop or even purchase the kinds of technologies allowing them to double their income—which is really the thing they are most interested in.
  • There are only four major sources of obtaining the cutting edge technology they need to thrive, with the first requiring giving up their influence in the marketplace and the second and third refusing to help them.
  • The only technologies agents care about are those creating more business and income for them, which mean technologies putting other agents out of business. It’s a zero sum game; you can’t have more unless someone else has less.

 

Real estate agents are in a terrible strategic situation.  There are only four major sources of obtaining the cutting edge technology they need to thrive, with the first requiring giving up their influence in the marketplace and the second and third refusing to help them.

 

Portals’ Technologies

The first major sources of technology are the massive portals such as Zillow, Trulia, and Realtor.  Cumulatively they spend far more on technological development than anyone else in the real estate industry.

Each develops or buys the technologies and companies needed to continue their dominance of internet based real estate activity, then makes much of this available at moderate pricing either through “membership” costs (I.E.: Premier Agent) or through the cost of advertising and obtaining leads at their websites.

The problem is that with each penny spent by agents they are simultaneously abdicating market influence to each portal while funding additional development of technologies for the continuing market dominance by the portals.

In the short term it appears a logical choice for agents, but in the long run it hints at Israelites and Pharaohs.

 

Franchises’ Technologies

The huge franchises’ values go against creating any kind of truly disruptive technologies.  Their business model is built on high volume of agents all paying fees and/or a portion of their earnings, thus the-more-the-merrier…the quarterly profits.  In nearly all cases their business models incentivize the franchises to desire greater numbers of agents and thus greater amounts of income back to them.

Strategically it makes sense for one franchise to develop a disruptive technology, patent it, and drive other franchises out of business through the near monopoly status a patent is designed to create.  But this is a huge risk to the franchise with the gamble of spending tens of millions of dollars of profits on something that may not create the desired outcome of market domination and a large reduction in competition.

Established real estate industry leaders are all very risk adverse based on prior actions, and being wrong means being fired and giving up perhaps millions of dollars in salary and bonuses along with a pension.

It’s easier and safer to make tiny incremental adjustments than risk a loss of position.  Charlie Munger notes that people do what they are incentivized to do.  Established real estate’s leadership are incentivized to guide their company’s quarterly and yearly profits in incremental and stable positive trends, not destroy the competition and disrupt the industry.

Therefore this group is not going to assist agents in the breakthrough technology needed to re-attain their pre-internet marketplace status.

 

MLS Systems

MLS systems could potentially be the means of developing and disseminating the breakthrough technology agents need to improve their market authority.  But there are several anchors weighing down their actions.

First is similar to the dis-incentives and values of established franchises.  The-more-the-brokers-the-merrier-the-MLS-profits plus MLS leadership has spent decades with no competition within their respective marketplaces.  The internet changed that.  But most MLS leaders are not fully grasping they are private companies now fighting for their lives; they have Upstream trying to control the backend data flow and ZGR already controlling the frontend data presentation.  Yet many still seem to perceive themselves as organizations serving their constituents in a protected environment for as little cost as possible.  They don’t see their jobs as creating or disseminating cutting edge technology and they are not incentivized to do so.

Second is the cost of developing edgy technologies.  Collectively MLS systems still hold the key to the most vital real estate information on the planet.  But individually they are approximately 750 fairly financially poor entities.  Individually there’s no way for them to hire a team of innovation psychopaths to take on the giants of the industry.

Perhaps the only option here is to form a separate technology company with each of hundreds of MLS companies feeding it financially and all sharing in the development cost and new technologies.  But this is unlikely to happen before it is too late to make a difference in the market.  Besides they are under the delusion the Broker Public Portal is doing this already.

The third problem relates somewhat to the second: many MLS’s just can’t get it together.  For MLS systems to work collaboratively or allow third-party technology companies to provide the tools agents need, they need a common thread of database field terms and data feeds.

Yet Jeremy Crawford of RESO has taken to using the bully pulpit trying to get many MLS systems to work toward this end.

As such relying on the MLS systems to provide the cutting edge tools agents need to regain market power is unlikely to occur within the very short timeframe required.

 

Third-Party Technology Companies

If none of the first three means of developing and disseminating breakthrough technologies are coming to pass helping real estate agents regain market dominance, the forth must be the solution.  It may be, but is fraught with its own problems.

There are plenty of companies offering more of the status quo with prettier pictures on agents’ IDX sites.  This was “technology” fifteen years ago but does agents no good today.  Then there are a few small companies making great headway in fixing problems within the real estate industry.  Agents’ problem is that ZG will likely buy the best ones.

Individually agents simply cannot afford to develop or even purchase the kinds of technologies allowing them to double their income—which is really the thing they are most interested in.

Last year, just as this year and again this coming year there will be about five million homes sold in the US.  The only technologies agents care about are those creating more business and income for them, which mean technologies putting other agents out of business.  It’s a zero sum game; you can’t have more unless someone else has less.  The technologies agents need are those so strong that they put other agents out of business.

Because agents are actually tiny companies which have no budget for the development of technologies costing tens of millions of dollars, they have the four options within this article for obtaining the tech they need.

First circles back to the portals, which will develop or buy the technologies and disseminate them to you.  ZG is even on your side at putting your competition out of business.  Their game plan revolves around helping the top agents wipe out their competition using Zillow-based technology.  It’s going to work.  Let’s face it, if Zillow were a real estate franchise you would join it just for their leads and technologies.

This is the fastest means to get the technology you need.  If the outcome is 80% of agents are put out of business and you are in the top 20%, it may be your best option.

Second and third are your franchises or MLS systems, which are dis-incentivized to develop and disseminate technologies killing off your competition for you.  It simply is not in their best interests.

And forth are the third-party companies developing the kind of technologies allowing you to put your competition out of business.  This last group has few members and ZG is perpetually trolling to find and buy them.

The tricky part of this is getting there before ZG owns them, and receiving the technology in a near “plug-and-play” format so you can utilize it to gain market share without being a technologist—tech for the non-technical.

Watch for the opportunities like this.  They will be few and far between.  But it may be better to avoid buying a new Ford Taurus each year and commit to the Tesla when the opportunity presents itself occasionally.

From the individual agent’s perspective you have to perform aggressively like the tiny company you are.  You cannot rely on someone else to chart your course.  Solving real estate’s technology problem means you solving your technology problem and putting your competition out of business.

 

Creed Smith owns QValue™ and is the Demon of Marketing

Comments

  1. says

    Very insightful, as always. The disruption of losing 50% of current agents may not be such a bad thing. Perhaps that’s exactly the “survival of the fittest” test we need. Thanks for your reasonable and thoughtful take on current affairs.

  2. Michael Lind says

    Once again, Creed, you have nailed it. Collectively, this industry is wearing blinders, and you are one of the very few voices telling the industry the way it really is. Keep up the great work.

    • says

      Hi Michael, thanks for the kind feedback. I think the industry will be obliterated within five years–meaning not less than a 50% reduction in the number of licensed real estate agents. Obviously this kind of disruption technology will not come from established real estate (NAR, franchises, MLS systems, or most brokerages).

      Just the weak-ass BOT I am currently upgrading without the billions of dollars Zillow has can already outperform live realtors at finding homes buyers prefer. Imagine if somebody who actually knows what they are doing locks onto the real estate industry :) ….

      Thanks bud

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