In a long, drawn out Twitter chat recently, some friends and I were discussing whether all of the technology innovation in real estate of the past 10 years is worth anything to the consumer.
First we had to argue a little bit about whether anything that’s occurred could accurately be called innovation — I think some folks had their cranky hat on that day. But for the purposes of this column, let’s call "the Internet" an innovation and, for the sake of argument, let’s lump all of the things on the Internet into that innovation.
If we wanted to say, "Yes, the technology boom of the past 10 or so years has been beneficial to consumer," what sort of evidence would we find of this?
This is a good point to drop in my standard caveat: I do tech, strategy and marketing stuff. I don’t buy or sell real estate nor have I ever in the past bought or sold real estate.
Also, this is just an exploratory piece. I suspect some people’s feelings might get hurt when they read some of it. Don’t let that happen to you — I’m really just thinking out loud here. Please do correct my naive assumptions or simplifications in the comments below.
OK, with that out of the way, let’s see what happens when we poke around.
Quantitative benefits of real estate technology to the consumer
The most obvious quantitative benefit would be money. But if we’re examining the impact on real estate consumers as a whole there are a couple of nuances to consider.
One is that the financial activity is trapped in a zero sum game or a closed loop between the buyer and the seller. Any technology which delivers a money benefit to the seller will be delivering an equal amount of non-benefit to the buyer.
Technologies which advantage just buyers or just sellers wouldn’t benefit real estate consumers as a group.
One metric which would affect all real estate consumers (who use a real estate professional) would be fees. Now I get it that real estate professionals get nervous whenever anyone talks about fees and commissions, so I’ll grab some numbers from an existing source: the 2007 report by the Federal Trade Commission and the U.S. Department of Justice, "Competition in the Real Estate Brokerage Industry."
The report uses Real Trends 500 data to note that in the year 2000, the average real estate commission rate was 5.42 percent which resulted in fees of $9,346 (2006 dollars). By 2005, the latest date given in the report, the average commission was 5.02 percent which resulted in fees of $11,549 (2006 dollars).
So using this blip of data it doesn’t look like the first wave of tech saved consumers any money — the average rate went down a little bit but the actual dollars spent went up.
If technology isn’t benefiting the consumer in terms of reduced broker fees, what about other stuff? Some technology will certainly be benefiting consumers. Like paperless tech.
In my Twitter conversation I jokingly referred to the quantitative benefit of technology to consumers being not having to make a trip to Kinkos. My friends set me straight, however, and noted that legal copying services are a bit more involved than that.
Aside from this we didn’t really come up with anything that technology was doing that resulted in a measurable dollar-value improvement for the consumer. They’re still paying about the same and maybe more for real estate services.
The NAR 2012 Profile of Buyers and Sellers reports an increase in agent-assisted sales — from 83 percent in 2001, to 88 percent in 2012. So technology isn’t driving consumers all the way to independence from professionals.
Overall, in my brief excursion into trying to find some data that would show consumers benefiting financially from the technology I came up blank.
Which makes sense, really. Someone has to pay for all this new technology.
Qualitative benefits to the consumer
So if there isn’t a quantitative benefit, what about qualitative — the soft things that make life better even though they don’t register in the bank account so much?
The NAR 2012 Profile mentioned above notes 54 percent of people who use an agent are "very satisfied" with the experience. Only 16 percent are indicating that they are "somewhat dissatisfied" or "very dissatisfied."
As you can see, when looking for qualitative benefits we run into a number of issues. It’s hard to say whether the experience consumers are talking about is related to the technology or the agents themselves.
My guess would be it’s more tightly correlated to having a good agent than whether the experience utilizes technology. But again, I’ve really got no data here.
One of the other tricky parts of relying on qualitative "experience" issues to make up the bulk of the real estate technology dividend for consumers is that the meaning and value of an "experience" is by default not-transferable.
One consumer may absolutely love the ability to search for property online at all hours of the day and night. Another consumer may find that be a complete headache and resent having that task outsourced to them (and paying a commission for the privilege).
It might be more useful to know how enjoyable consumers find the real estate process if we could segment the results by how much technology was used.
That’s not something I expect us to be able to get on an industry-wide level. But maybe a large brokerage that was diligent with following up on these sorts of things could monitor this. At the brokerage level, depending on the consistency of service offered, this would also control for process differences.
Doing this kind of analysis and thinking — how are consumers helped by what we’re all doing with technology — isn’t just an idle exercise. Ideally, it isn’t done in the "finding numbers to justify our existence" sort of way either.
By understanding what about the real estate process that consumers truly value can help us put the proper emphasis on technology versus brokerage process versus agent quality.
By determining what sort of correlations there are between different kinds of technology and qualitative consumer benefit we can develop processes to quickly segment consumers into the kind of real estate experience that they are more likely to enjoy.
My suspicion is that, like the old advertising saying "half of my advertising budget is being wasted but I don’t know which half," there may be expenditures of time and focus on technology that might not be resulting in any meaningful benefit to the consumer.