Editor’s note: Inman News has embarked on the "Roadmap to Recovery," an editorial project that seeks to engage you, the readers, in charting a course for the future of the real estate industry. Click here for more details.
The following is an Inman News Roadmap to Recovery Q&A with Manuel J. Iraola, president and CEO for Homekeys, a company that offers online real estate tools and services:
Q: Imagine how the real estate industry will be different when we recover from the current downturn.
A: The economic downturn is exacerbating the situation, but the reality is that it is only the tip of the iceberg. Prior to the downturn our industry was in the midst of a major transformation, as changes in consumer behavior and new technologies were driving innovations that we had not seen during the last 50 years.
What we used to refer to as normal will no longer be normal. It will not be business as usual anymore. Prior success no longer guarantees the future viability of the existing real estate business model and profitability for the industry.
The downturn in itself would have resulted in new behavioral patterns but when coupled with major changes in technology it will leave us no choice other than reinventing ourselves.
This means that we need to remake or redo completely the business model. It does not mean that an improved version of the past is coming back — if that is what we want then we are surely bound to fail. While it has been a long and rewarding ride for our traditional business model, its time has passed. We are sure some aspects of our traditional business model will survive, but for the most part we will witness the emergence of new business models — some of which will be led by players that today are not in the real estate industry.
Our industry is at a crossroads. We need to look at our industry as an outsider would and not from the incumbent’s perspective. We need to honestly and impartially challenge all our existing paradigms. And frankly, we may not like the answers but in the end reinvention through innovation will strengthen our industry.
Q: How is the economic downturn going to impact consumer behavior?
A: Our clients (and fellow neighbors) are experiencing and will continue to experience the effects of the worst financial and economic crises since the depression of the ’20s. The impact of these times upon our ways of thinking and behaving are impossible to determine, but a few patterns are emerging, among others:
1. Say goodbye to the equity-rich syndrome so prevalent a few years ago. Welcome equity preservation. Buyers and sellers will look at every single aspect of the process and seek ways to minimize transaction costs. Is the existing commission structure going to survive? It will not unless the role of the agent is changed. People are willing to pay for "value-added" support, but it will be up to the new breed of agents to convince the consumers.
2. Say goodbye to leveraging. Leveraging your life will no longer be possible as financing in every sense of the word will be available only to those who have the ability to serve the debt regardless of how low the rates are. How will this impact the number of agents? This translates into fewer agents, but those remaining will have a bigger slice of the pie.
3. Say goodbye to part-time agents. The days of part-time agents are gone, and this will benefit those individuals who are fully dedicated to the profession. This may be a good opportunity to raise entry barriers. Like in any profession, there are good agents and bad agents. However, it is too easy to obtain a real estate license, and traces of unethical behavior that are now found everywhere must be eliminated. This is the time to do it.
4. Welcome back savings. Saving will no longer be looked at as the exception, and people in general will have to work harder to earn less. The wounds of this economic downturn will be deep and will take time to heal. Living within your means will be the rule and not the exception. Consumers will be looking at every single economic and financial decision in their lives with a new set of glasses.
But in addition to the impact of the downturn on consumer behavior, the technologies around all aspects of our lives will continue to drive behavioral changes that will significantly impact the way real estate is transacted.
1. The Internet has leveled the playing field by making available to the consumer information and data previously controlled and limited by the agents. Consumers and agents will have equal access to the information, (which) will shift the control of the process to the consumers.
2. The Internet will bring down transactional costs. Advances in technology and the ever-increasing sophistication of consumers are destined to change the way homes are bought and sold. Did the industry fail to recognize changes in the behavior and expectations of homeowners and investors? Today’s consumers are tech-savvy, more independent, more sophisticated, more knowledgeable and want to be in control. They want to have choices.
Almost every traditional brokerage house has a Web site that is mostly used to provide photographs and summarized property information. This is a step in the right direction, but not quite what the consumer wants.
Consumers want access to the same information and tools that professionals have. They want a buy-and-sell process that is easier, smarter, faster and cheaper. Consumers know that the Internet has made it possible to have access to information and resources that in the past only were available to professionals.
The Internet has also made it possible to provide these services at a fraction of the cost. Technology-based models are not a substitute for good judgment, but they are more efficient and transparent. These efficiencies result in lower cost of representation, and access to information and know-how that is completely unbiased and independent of the value of a property. Put another way, technology drives down the cost of representation.
The challenges in front of us are big and many. However, there should not be any doubt that there is a bright future for the real estate industry. After all, real estate will continue to be the heart and engine of our economy. And it will be especially brighter for those embracing radical change and seeking new ways to serve consumers. Those who embrace the change brought by evolution will succeed. Those who continue to extrapolate the past will see their business succumb to innovative models that put the interests of the consumer at the center of the process.
Q: Will the industry be regulated differently in the future? If so, how?
A: Legislation and regulation can’t stop evolution and innovation. The regulation of listing data will become impossible to police as the listings move away from the MLS (multiple listing service) and into the public domain. The free centralization of listing data by private industry will provide buyers and sellers better quality and more consistent data. Agents and agencies, however, will be under more scrutiny to provide ethical and quality service. Real estate transactions will be regulated by higher authorities — possibly the federal government. We would not rule out the total disappearance of the MLS as we know it. We are confident someone is already working on this.
Q: What must the industry do now to prepare for this new direction?
A: Now is the time to build the search technologies and … value-search mechanisms in order to capture a fair share of the search traffic. Web site optimization and the publishing of listings must be done immediately to guarantee Web site placement in the search engines of tomorrow. Training of agents and strengthening of internal controls and procedures surrounding customer service and the real estate transaction needs to be in place.
Q: What skills will the real estate agent of the future require?
A: Agents will need to be both very social people and tech geeks. Technology will allow the agent to be available 24 hours a day for their clients. Technology will also allow agents to find the best deals faster and give their buyers and sellers the advantage. The agent will be in constant communication with their clients, whether it is by face, voice, instant message, text message or e-mail. The personal relationship, access and trust will make the sale.
Q: How will real estate advertising dollars be spent in the future? How will real estate marketing be different?
A: TV and radio will still play a large role, but hyperlocal search on both the Web and the mobile Web will provide the best targets and leads. Companies that can provide the hyperlocal search advertising platforms will be most valuable to the agents. The property and listing search companies will lead the way, and then more generic search companies will follow.
Q: Will sales activity in your local housing market contract or expand in 2009? Will national sales activity contract or expand?
A: We believe sales activity will expand as prices come down. However, keep in mind that the second-home market will be dried until the global economies return to normal, and that will not be in 2009.
Q: What will drive the expansion or contraction?
A: We do not see an expansion in 2009. We have sufficient inventory to meet our needs for the foreseeable future.
Q: Will national home prices fall, rise or remain flat in 2009? In 2010?
A: The gap between supply and demand continues to increase, and only price can balance the market. It is dangerous to generalize, but in some markets like Florida, Arizona, California and Nevada you can expect a further reduction of 15 percent to 30 percent.
Manuel J. Iraola is president and CEO for Homekeys, a company that offers online real estate tools and services.
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