When I’m on the road, I get up so early that finding an open coffee shop is challenging. The early bird gets the worm, but there’s such a thing as being too early.
Almost 20 years ago, I began working on an idea that turned into the company Homegain, an early provider of online real estate services, which I sold in 2005.
The vision was to give homeowners and sellers transparency and more choices. The offer centered on two homeowner products: free home valuations — we put a consumer interface on a lender valuation algorithm that I came across — and a marketplace for homesellers to find agents.
We learned a lot. For one, homesellers ultimately selected agent proposals based on qualifications and quality of their service offers, not lower commissions.
We also discovered that a limited number of homesellers really cared about receiving multiple proposals; instead, they went with a referral or the agent they used to find their house.
By collecting what we dubbed a “success fee” — a referral fee off the top of the transaction — our revenue for the seller product reached $15 million in a few years but not enough to make tech investors happy. Along the way, we irritated many brokers, but the opportunity didn’t discourage 60,000 agents from signing up to make offers.
Homegain board member and all-around smart guy Brett Bullington suggested that we also sell buyer leads to agents by ZIP code. Thanks to his brainstorm, our revenue climbed, we became profitable and we had the first significant exit in the online real estate sector. The Homegain team was the brightest in the business.
Enter Wall Street, instant offers and ‘iBuyers’
Now, a dozen years later, well-funded internet entrepreneurs are once again focused on homesellers with a new offer, new platforms, a new generation of brainiacs, two decades of learning and a powerful partner — Wall Street.
This time around, the goal isn’t seller “choice” as Homegain emphasized but solving the problem of uncertainty that sellers face when following the traditional path of selling a home. How long will it take, how much will I get and how much hassle must I put up with?
The models we’re seeing sprout up today –Zillow’s Instant Offers, Opendoor and its look-a-likes termed “iBuyers” — are taking a hot iron to deep wrinkles in the details of home selling.
They also represent a convergence of events that could change how real estate is sold for years to come. And just as search moved advertising from newspapers to online, these new innovations will change the rules for the real estate industry — agents and brokers as well as homesellers . The shift won’t put agents out of business but will change how they do business.
The thick tension around recent announcements speaks volumes to the heft of their ideas and actions. Only when something is truly disruptive or threatening do people flip out. And a major industry firestorm is raging since Zillow launched Instant Offers, like nothing I have seen in years.
What is significant about it?
First, Wall Street wants to get into the real estate business — these investors are the ones funding this industry transformation. Second, a new generation of well-funded entrepreneurs is now focused on making the home selling process more efficient.
Throwing gas on these simmering developments was giant portal Zillow entering the picture 10 days ago. Whatever its motives, don’t underestimate its influence on this burgeoning new category. And it does not look like the dust is settling anytime soon on the controversy Zillow set off.
What a high-level shift means for change on the ground
Here’s where you can likely expect to see change:
1. Seller leads will become like buyer leads, packaged and sold. While this happens already, these new bundle deals will begin proliferating at scale, becoming a big business for the portals and a popular source for agents.
2. Zestimates 2.0 will turn into human-branded CMAs (comparative market analyses). My guess is that agents will pay to have their mug on a CMA that is auto-generated but approved and edited by real agents. Then agents will begin to compete on these emerging platforms, with investors and with one another.
3. The entire home selling process will be streamlined, giving all homeowners a more efficient avenue to sell.
4. More and more Wall Street investors will compete with buyers, keeping the housing market strong.
5. As digital solutions like instant offers, smart contracts, fingerprint authentication and instant money transfers roll out much faster, agents will be pushing less paper. Some will feel less relevant as their scope tightens and their focus demands a new level of expertise. These changes will be spawned by the number of companies funded around the new iBuyer category. That is the innovation loop; money and invention begets more money and more invention.
6. The role of escrow and title companies will be transformed as everything moves online. The instant offer is just one piece of the transaction; the new startups are also fixing the broken backend where the the process is absurdly slow and arcane — title, mortgage, contracts and closings. Zillow, Opendoor and others will forment higher home seller expectations, which will force the big banks to finally get their act together on the mortgage front as they have done with digital innovations on the retail banking side.
7. The momentum behind the concept of instant offers and iBuyers will quickly spread throughout the entire real estate value chain. Brokers who hope to compete with this new cast of characters must change how they think about the home selling process. True, the room is still dark as to what exactly their dance will be at this party. But that will be sorted out by a raft of real estate professionals who are already working on solutions. Agents seeking opportunity are like technology, fire and water: They cannot be stopped.
8. Real estate companies must begin to differentiate themselves on speed and efficiency. Digital marketing will become less important as “the process” becomes the advantage.
9. A handful of marketplaces will come to dominate the market, much like the portals have on the buy side, and a la Uber and Lyft’s territorial grab.
10. The old guard will be forced to pull its head out of the sand and face new realities or suffer obsolescence. When the industry tried to change itself, nothing happened; too many vested interests will keep any needle from moving.
Twenty years ago, I sat in a hotel conference room with a group of the largest newspaper publishers, discussing the Internet. They wanted to know what I thought was going to happen to their real estate classified ad business. None of us in that room really knew, but I vividly recall these titans showing early signs of being rattled. They were defensive, they trivialized the new players like craigslist and regrettably they went back home and did things more or less like they had before.
These looming real estate industry changes have been a chant of mine for too long — 20 years ago we called it the automated transaction and then the latte vision, buy a house as quickly as it takes to make and serve a fancy coffee. Six months ago, I wrote that home selling would never be the same, but in those 180 days, the fog clouding the path to a more efficient transaction and new era in real estate has suddenly dissipated. Question marks remain, but it’s all moving faster than I imagined and the future is becoming clear.
These are changes that will be difficult for the industry to grapple with, but many will help the consumer, creating a more efficient housing market, benefiting almost everyone who embraces a new future.