When economists value a real estate market, they scrutinize rents, home values, commercial sales and interest rates. Value and cost are driven by outside factors. What most outsiders don’t know is that most of those costs are passed through in the name of “inefficiency”.
Insiders, however, tend to abide by the old adage, if it ain’t broke, don’t fix it. Well, it’s broke, really broke and instead of fixing the problems at hand, the industry has decided to make incremental improvements to a failing system that is only accelerating its own demise.
Buckminster said it well:
“You never change things by fighting the existing reality. To change something, build a new model that makes the old model obsolete.”
I’m happy to report there is a new model and it is making those incremental improvements that only add friction, obsolete. Even better, it’s empowering the organizations and technologies that do add value and is implementing a layer of efficiency that will save the industry billions.
Let’s start by properly diagnosing the problems:
First, the economics are completely backwards for the brokerages, landlords, title companies and agents driving the transaction...
Residential is the lowest hanging fruit so we’ll start there:
Residential real estate agents pay subscription fees to give their local MLS their property data. These fees are commonly increasing across the nation, adding expense to agents who are already paying to generate those leads and listings. In return, the MLS gives the agent exposure to someone that can hopefully bring them a buyer. But that exposure is geographically restricted. If the agent wants national exposure, their data can be syndicated to a national portal where they pay for access to their leads (that were generated by the data the agent already paid to obtain!).
The agent pays at least two middlemen just to get the property on the market and generate a potential lead. Before a buyer or tenant is even procured, the agent is maintaining at least three separate data stores that barely (if at all) communicate with each other:
Brokerage CRM
MLS
Portal
Folks, we have a MASSIVE data management problem!
In an age where data is becoming more freely available, not less, and technology is adding efficiency and automation, not taking away, the question becomes, how can this be?
It’s simple. Trust. Once the data leaves a company's system, they have no way to track it’s lifecycle downstream. Therefore, everyone is operating their own proprietary database with no standard method of connectivity.
The most obvious case is with residential MLSs. They are geographically territorial and don’t trust sharing agent data with other MLSs because their entire business model is predicated upon control, not distribution. Therefore, a collective decision was made to punt the problem onto third party portals. Did this solve the problem? For the MLS, temporarily. For their represented constituency? I think you know the answer.
How have brokerages intervened?
By investing in tools that add more cost and more time to the transaction. Brokerages integrate this tech from within and syndicate the data from the MLSs. The agent pays the brokerage or the MLS for access to these tools, most of which add new silos to the transaction, further fragmenting the data while increasing overall costs.
To recap:
Agents spend money to obtain a client
Agent enters data into their brokerage CRM
Agent enters data/pays to market the property locally on MLS
Agent pays for leads generated from their data on a public portal
Brokerage invests in tools intended to cut costs and add efficiency but does the opposite
Nobody is pulling the data from a single, agreed-upon source.
The interesting thing is that everyone eats these costs. The consumer, technologist, brokerage firm, title company, and landlord.
Commercial Real Estate has similar challenges, just with different players.
…and wait until we get to the money….
Data should be easy to move and control without the superfluous overhead the industry has added.
What’s the solution? We’ll dive deep into the technologies that are adding efficiencies through transferability, audibility, and automation. In addition, we’ll address how title companies, landlords and brokerage firms can reduce back-office costs 20-40%. Those that embrace these changes will flourish and those that brush it off will remain a part of the existing reality in which I refer you back above to Mr. Fuller.