No one can disrupt our industry without our permission

Smart brokers will adapt to challenges posed by Zillow, Trulia, realtor.com

Editor’s note: Inman News founder and publisher Brad Inman invites you to join the discussion inspired by his recent piece, “Real estate disruption may not be what you think it is.” Today, Joseph Rand, a managing partner of Better Homes and Gardens Rand Realty, weighs in with his own take. Submit your own guest opinion piece to matt@inman.com.

If real estate brokers get disrupted and marginalized out of the real estate industry, we have only ourselves to blame. To paraphrase Ann Landers: No one can disrupt your industry without your permission.

So how did we give permission? By ignoring what our clients needed. For a generation, the real estate industry has been focused not on what clients need, which is a better transactional service experience, but with what we need — more leads, more sales, more money. That infatuation has infected every aspect of our industry, from the way we train and hire agents to the way that we’ve built our businesses.

Coder image via Shutterstock.
Coder image via Shutterstock.

We don’t train agents to be great at their jobs of servicing client needs. We teach them how to “prospect” by using manipulative techniques to trick people into setting appointments.

We don’t hire for competence. We rely on a sales-oriented independent contractor model that keeps costs down but ensures low barriers to entry and reinforces “fog the mirror” quality standards.

And we don’t innovate to find better ways to service our clients. We spend about 90 percent of our creative energies developing clever new ways to generate leads, and the other 10 percent devising “revolutionary” new models for cutting up the commission pie between brokers and agents.

Innovations designed to make the real estate transaction better, to give our clients a better service experience? That’s a rounding error.

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But if you don’t pay attention to what your clients need, someone else will. Just think about where Zillow came from in the first place. For years, the real estate industry recognized that people wanted to know how much their home was worth. How did we respond? We offered them the ubiquitous “free CMA” in our marketing, a thinly disguised invitation for a listing presentation. That’s not what clients needed. It was what we needed.

The industry used to be broker-centric. Then it was agent-centric. Now it’s client-centric."

Zillow gave clients what they wanted — a simple way of finding out how much their home was worth. The Zestimates were terrible, we all knew that. But that wasn’t the point. Even a bad estimate was better than enduring presentations of our 27-point marketing plans. Zillow gave our clients what they needed, and then found a way to monetize it.

And it’s not just Zillow. Or Trulia. Or realtor.com. Last year, I attended the Realogy FWD technology competition, where 20 different real estate technology startups presented products that almost universally addressed inefficiencies in the real estate transaction that the traditional industry has long ignored.

The funny/sad/frightening part was that almost every speaker started the presentation like this: “I got the idea for this startup when I bought/sold a home and realized how terrible the experience was.”

That’s where disruption will come from: If we don’t take steps to create better real estate transactional experiences for our clients, someone will do it for us. Brad Inman argues that this process has already started, and questions whether real estate brokers can redefine our value proposition to keep ZT&R from replacing our role in the industry the way that Uber is displacing traditional limousine companies or Netflix dethroned Blockbuster.

I think Brad is right that disruption is coming, or has already started, but I don’t know that it’s coming in exactly the way that he anticipates.

First, although online portals are taking an increasingly large role in driving lead generation, I don’t see how that significantly impacts the modern broker-agent relationship.

Brokers have not had primary lead generation responsibility for their agents in over a generation. Most agents develop their own business opportunities, which is why they get that lion’s share of the commission income.

At its best, the brokerage role is one that provides management, supervision, support, facility and systemic infrastructure, etc. Someone has to help agents actually manage the on-the-ground requirements of their business. I’m not so sure that ZT&R even want that job.

Second, I’m more optimistic than Brad seems to be that brokerages can adapt, and that they’re the ones in the best position to improve the client service experience.

For example, we’ve already seen a dramatic surge of interest in the past two years in systems that would help improve the service experience through client reviews or agent performance analytics. Those systems are still developing, and agents are unsurprisingly resistant to many of them, but brokers are increasingly seeing the value of becoming more responsive to client experiences.

Agent ratings and reviews are just a first step, and they’re meaningless unless brokers do more to innovate their client service systems and improve agent competence training. But we’re certainly seeing the first signs that the industry is becoming more appropriately client-centric.

Third, even if disruption comes, I don’t know that it’s as devastating as people assume.

For example, our boogeyman has always been how technology startups like Expedia and Travelocity “destroyed” travel agents. But what really happened? The industry consolidated, eliminated many of the weaker players, and adapted to the new realities by focusing on the luxury, business and niche travel market rather than just booking simple flights.

As a result, we have a lot fewer travel agents — but the strongest survived, average annual earnings of those agencies are rising, and the industry still accounted for one-third of the bookings in the U.S. travel market in 2011.

That’s likely what would happen from disruption of the real estate industry. Well-run brokerages that adapt will survive. The ones that are just hanging on will disappear. I can live with that.

Finally, let’s try to keep some perspective when we hear that technology is changing everything. Disruptophiles often fall victim to the classic early adopter fallacy — that everyone is as technologically sophisticated as they are.

Here’s an interesting quiz for you: What percentage of U.S. retail sales took place online in 2014? Ten percent? Twenty percent? Thirty?

Actually, it’s 6 percent. It’s very easy for those of us who embrace technology to realize how many people don’t. We live on our smartphones, but forget that over a third of Americans don’t even own one. And a lot of those dumbphone people buy and sell houses. They’re not necessarily buying or selling them in San Francisco and Manhattan, but their money is still green. Literally, it’s green. They use cash. About 30 percent of Americans don’t have credit cards. So let’s not get carried away with how technology is a lock to destroy everything.

That said, change is coming. It’s always coming.

The industry used to be broker-centric. Then it was agent-centric. Now it’s client-centric.

But real estate brokers adapted to splits going from 50 percent to about 75 percent and 80 percent. They adapted to commissions going from wherever they were to wherever they are now (shout out to the fine people at the Justice Department!). They adapted to losing control over the inventory when everything went online.

And so I have confidence that smart brokers will find ways to adapt their value proposition to the challenges posed by Zillow, Trulia and realtor.com, and then to whomever it is that turns Zillow, Trulia and realtor.com into real estate’s Myspace.

And if we can’t adapt, if we can’t find a way to provide agents and clients value, then we get what we deserve.

Joseph Rand is a managing partner of Better Homes and Gardens Rand Realty, and also serves as the company’s general counsel. He writes for the Rand Realty Blog and his real estate education blog, “The World’s Best Real Estate Agent.”


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