AgentBrokerage

How brokers will lose home-search advantage

AI-based search will woo homebuyers as they begin their home-finding quest
  • Disruption does not attack by making incremental improvements to existing technologies and systems. It attacks by changing the rules of how the marketplace is served.
  • The software perpetually correlates what you appear to like with locations and price ranges you search, proximity to schools, parks, restaurants, cycling trails, transportation and every amenity each home has as captured by the software from the description brokers provided about each house.
  • The AI system tracks criteria and finds correlation as buyers search hundreds of homes online within just a couple of days. It discovers what the buyers like based on their actions and makes recommendations quickly, which accelerates finding the homebuyers like -- all while they are still playing on the Internet.

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Brokers made two tremendous strategic errors in the prior 20 years:

  1. Not taking control of the Internet business channel in 1996 when realtor.com launched
  2. Losing home search in 2006 when Zillow launched

Their current strategic error will cause them to completely and permanently lose home search by the end of 2017.

Brokers will lose control of online home search as the major portals attack home search with artificial intelligence (AI) based tools and pull their combined market power to 90 percent by the end of 2017.

The top four real estate sites currently own about 44 percent of the total market share for real estate search, but that is the wrong way to perceive their prominence. Once you drop below the top-10 ranked real estate sites, the market share of the remaining thousands of sites rapidly drops from 1 percent to .0001 percent.

Essentially, these other sites don’t exist. They are irrelevant; they possess no market power. When you consider who shapes the industry, the top four competitors control 90 percent of the power affecting the industry.

When disruption attacks

All of the leaders — including Trulia, realtor.com and Redfin — are launching or have already launched AI-based home search. Zillow has not formally announced its tool, but that’s part of the sneak attack, as it already has access to Trulia’s AI work, and Trulia has some hard-core technologists on staff.

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Tatiana Shepeleva / Shutterstock.com

Tatiana Shepeleva / Shutterstock.com

This silence should be a deafening alarm to the industry. These will be the only players of consequence for Internet real estate search by the end of 2017. (Reading the linked data above for each company will be an eye-opening experience and well worth your time.)

Unless a large franchise has secretly spent the past five years plus tens of millions of dollars in research and development, already created an AI-based home search tool, and it’s on the launch pad ready to go today — their market status for online home search is irrelevant and irretrievable. Not having done this is the brokers’ third strategic error, and a fatal one.

In his book “The Innovator’s Dilemma,” Clayton Christensen discusses in detail how several industry’s dominant firms focused on sustaining technologies and did not invest in disruptive technologies.

Think of a sustaining technology as any improvements introduced that perpetuate the current market dynamics. The market leaders remain the leaders.

In the real estate industry’s case, the franchises and brokerages invested in the sustaining technologies represented by bigger, prettier, faster websites, CRM tools, electronic contracts, faster response systems, communications software, team collaboration software and various hardware improvements.

These keep the broker-centric model in place and crawling along but never advancing.

Disrupters, on the other hand, attack the market from below — striking with new technologies never seen by the marketplace. Our primary example is Zillow’s automated valuation model.

Although every real estate website on the planet has at least as good of quality of home data as Zillow does, they were still destroyed as the market ran to the disruptive AVM technology they could get nowhere elsewhere.

Disruption does not attack by making incremental improvements to existing technologies and systems. It attacks by changing the rules of how the marketplace is served.

Disruptive innovation is much like a shark: coming up from the darkness below and hitting the incumbent with such force that even if they survive they are maimed for life — never as strong again.

This is now happening with AI-based home search.

How it began

Home searches on the Internet began around 1996 when realtor.com first appeared and were additionally promulgated through a multitude of broker-based sites with the advent of IDX (broker reciprocity) in 2000.

These market offerings were fundamentally watered-down versions of the MLS searches brokers used based on location, a price range, bedroom and bathroom count and home size. These search features set a technological standard 20 years ago and are still used by 99 percent of real estate sites today.

Other than a few incremental sustaining improvements, no franchise, brokerage or the National Association of Realtors has advanced home search beyond this antiquated, programmer-based search criteria.

Every brokerage, franchise and broker IDX site is based on this ancient search technology, which will be destroyed within two years.

Christensen’s book demonstrates how incumbents vying with each other using sustaining technologies never substantially gain or keep a strategic advantage over one another.

The combined efforts of franchises perfectly fit this description. Yet when an outsider introduces a disruptive technology, the strategic advantage is so great that no existing market leader ever catches up with them in market demand.

This is now happening with home search. With the years of research required to develop such sophisticated software, along with the tens of millions of dollars investment — all topped off by the patent protection created — anyone who isn’t in this game already can win.

What is AI-based search?

For the real estate industry, it is essentially recommendation engines based on machine learning (AI).

Recommendation engines for real estate buyers is tricky stuff — as you can’t ask a homebuyer what they want. Due to a problem commonly called survey bias, you will never get an accurate self-assessment of what a homebuyer truly desires.

You’ve seen this yourself when a buyer describes what they want in your first meeting only to buy something substantially different six months later.

So you are left with tracking a person’s actions and then inferring intent based on your algorithm’s analysis. Essentially, you’re trying to interpret what the buyer likes based on where they go and what they do on your website.

Over time, you also have the advantage of seeing what similar buyers did and liked — creating a “standard” for this “type” of buyer. It’s labor-intensive — at least for your computer.

The technology world likes to call this kind of research “big data.” Again, consider following the links above, particularly for Trulia and Zillow, and you will barely begin to understand the complexity of AI search.

Imagine the AI software noting your affinity for pictures of Victorian homes — or, at the opposite end of the spectrum, industrial lofts. Further, the system tracks locations you like to pull these homes from and captures the price range you spend the most time looking at.

The software perpetually correlates what you appear to like with locations and price ranges you search, proximity to schools, parks, restaurants, cycling trails, transportation and every amenity each home has as captured by the software from the description brokers provided about each house.

The AI system does what buyers’ agents do over a period of months as they show buyers dozens of homes. Through much time spent, you note what excites the buyers regardless of what they originally told you they wanted in a home months before.

Except that the AI system tracks perhaps a thousand potential criteria relative to your focusing on a half-dozen, and it finds correlation as the buyers search hundreds of homes online within just a couple of days.

The AI system discovers what the buyers like based on their actions in a couple of days and starts making recommendations quickly thereafter. It accelerates finding what homebuyers like — all while they are still playing on the Internet.

The various types of homes have commonalities — such as our Victorian being turn-of-the-century and renovated but not remodeled — along with key attributes like 10-inch based moldings, period fixtures, hand-carved wood finishes and the like.

The AI system notes, remembers and searches for other homes meeting these criteria within acceptable tolerances and makes recommendations to the buyer.

The system might note the industrial loft buyer certainly spending a lot of time in hard-core urban areas and key terms such as concrete floors, steel beams, 20-foot ceilings, underground parking and walking distance to museums and restaurants. It then makes recommendations of homes based on these criteria and thousands of others it tracks.

The future of online search

Once a website offers even a non-perfect version of home search with the ability to learn from users’ actions and offer suggestions of homes they might like, it’s touched on a series of benefits no search based on price range and bedroom count can ever touch.

This strategic advantage — even with its shortcomings while it is being refined — will destroy home search at all sites using the current search criteria, and you simply cannot compete with it.

The top four sites will use AI search to sustain and grow their 90 percent market power, and the buyers and your advertising dollars will all converge there.

Creed Smith owns QValue, REalMARKABLE, and Demon Of Marketing.

Email Creed Smith.