A couple weeks ago a friend of mine lured me into a thread on Facebook that was initiated with a question like, "Do you think real estate professionals will be replaced by computers?"
There were, as you might imagine, a lot of responses, and I couldn’t resist trying my hand at it as well.
Most of the responses to this question focused on how computers can’t accomplish the tasks of a real estate professional as we envision the job today. I think it’s also useful to work from the other direction: What kind of world would be necessary to make this possibility a reality? If you can avoid a knee-jerk reaction to the question, then it might be useful to explore these possibilities.
It’s called "scenario planning" by futurists — considering a possible future scenario, and planning how you might operate in that environment. Other people call it "using your imagination" or "daydreaming" or "working on plan R."
The thing to remember when doing scenario planning is that, to do it effectively, you need to envision a scenario that is complete. Your plan must also work for achieving your true core objectives.
The value of scenario planning is rarely in having a plan that will work for your hypothetical scenario. The value of the exercise comes from how it influences the way you think and the way you handle relationships with others in and around your work.
For example, in emergency management — a field that’s obsessed with scenario planning — many exercises highlight areas of success and "needs improvement." But the lasting benefit of doing the exercises comes from different organizations getting experience coordinating with one another and learning which people do what tasks. In the event of a real emergency, this increased level of relationship and operational knowledge will far exceed the value of whatever written plan exists.
Let’s try out a scenario-planning exercise. If you go through this process you will likely come up with your own thoughts and ideas informed by your own experience. That’s great. My primary hope is that you try the process, not that you come up with the same results that I do.
The nature of real estate
This topic is one of the perennial favorites. Whenever things calm down just enough someone, somewhere will throw this grenade into the room and run for cover. Comparisons between real estate and other industries that were "gutted" by technologies are drawn. Emotional appeals to the value of various service or convenience aspects of real estate are made.
Some of the particular sticking points that come up frequently include:
- Convenience: Sellers won’t want to have to let people into the house, etc.
- Specialized knowledge: Real estate professionals are uniquely suited to marketing properties.
- Negotiation skills: Real estate professionals are better equipped to negotiate real estate transactions.
At this point in our scenario planning we could approach it by dreaming up some computer stuff that will solve these three sticking points. That is probably the most common approach — write some software that negotiates, and presto!
Let’s take a different approach.
Instead, let’s envision a world in which those issues exist in a completely different way than today. For example, what if the actual meaning and nature of negotiation was significantly different than it is today. What if the negotiation landscape experienced tectonic shifts. Negotiation involves a lot of things: personal skill, transparent access to equivalent data sets, and power, to name a few. Let’s play with negotiation power.
For negotiation to be a relevant factor in real estate transactions, the relative negotiation power has to be a little bit close. If the ability to negotiate is noticeably and obviously disparate, then negotiation won’t be a significant part of the transaction.
The classic example of obviously disparate negotiation power might be the government wanting to use land. A real estate professional would not be able to negotiate effectively for a homeowner in the Rondo neighborhood of St Paul in the ’60s when Interstate 94 was built, for example. But we don’t have to go quite so far as government takeover to find significant mismatches in negotiation power.
Anything that makes it easy for buyers to not buy would change negotiation power dynamics: attractiveness of renting, prices out of reach, perceived value too low, no time pressure, etc. Likewise, anything that makes it imperative that sellers sell will change the power dynamics: perceived value outside of risk threshold of the owner; migration; transaction speed as a critical aspect, etc.
Any time someone feels they have to sell and the person buying doesn’t feel they have to buy, there will be a mismatch in negotiation power. When that mismatch is great enough, then there really isn’t much need for negotiation.
Negotiation and efficiency
Negotiation will always be an indicator of an "inefficient" marketplace. Negotiators get paid so those resources don’t go to the person selling or the person buying — they leave the system. This is why people complain about real estate practitioners, lawyers and other professionals who specialize in negotiation skills.
If we can imagine a scenario in which there is a mismatch of negotiation power that is great enough to negate the need for negotiation, then it will be the interest of both the buyer and the seller to perform the transaction without negotiation — because more resources will remain with the buyer or seller.
Efficiency is what provides the motivation to remove the real estate practitioner of today and replace him or her with something else, likely a piece of software (which is itself just some computer code that funnels people through an accepted legal procedure).
Conversely, even if the negotiation power is balanced (neither side is feeling pressured to buy or sell), if the perceived advantage of negotiation is less than the inefficiency generated by negotiation, then the parties may still prefer to have a nonnegotiated (perhaps software-driven) environment.
Levels of negotiation power
The likelihood of all real estate transactions involving gaping disparity between buyers and sellers is unlikely. Mass migration events, government nationalization schemes, elimination of the middle class, etc., make for great plots in movies, but if we spend too much time on them in our scenario planning we might miss other interesting possibilities.
Instead, examining the role of software in real estate transactions based on levels of negotiation power might generate some ideas. Let’s make a simple list:
- Negotiation power obviously disparate: auction-like software system
- Negotiation power equal but perceived value of negotiation is low: self-serve software or auction-like system
- Negotiation power equal but perceived value of negotiation is high: human negotiation
What we’ve generated here is a segmenting of the marketplace based on negotiation power (as opposed to property type or lifestyle needs or other market-segmenting methods). Some organizations may have opportunities in one or more of these segments.
Obviously, with more time we could build a more detailed model or scenario to examine. But hopefully this exercise can get you started with the method.