Jay Thompson is a former brokerage owner who spent six years working for Zillow Group. He retired in August 2018 but can’t seem to leave the real estate industry behind. His weekly Inman column publishes every Wednesday.
Disclaimer: I am a part-time consultant for Pacaso. No one there asked me to write this column or had any input as to its content.
The real estate industry is steeped in tradition. Although not necessarily a bad thing, traditions can stifle innovation if people or an industry get locked into a “this is the way it’s always been done, and the way it should always be done” mindset.
That’s not to say there has been no innovation in the real estate space. On the contrary, real estate is ever-evolving.
Technology moves at a blinding pace. Remember, the “world wide web” only started coming into prominence about 30 years ago and one could argue began to impact how real estate is transacted just 15 years ago. The iPhone is barely a teenager, turning 13 this year.
Although some reading this have never lived without the internet or seen a telephone with a cord outside a museum, many of us are old enough to remember a world with no smartphones or internet. A massive shift in the way we work, play, share and think, like the internet has caused — in only a few decades — is really quite remarkable. I don’t think anything has changed the world so significantly in such a short period of time.
It’s that pace of change technology provides that is so awe-inspiring — and so frightening. Change is hard. The unknown of what the future may bring is even harder. Flip through the Inman News archives or any online discussion group, and you will see frequent references to “disruption” of real estate. The fancy word “disintermediation” is less frequently used, but talked about just as passionately as disruption, and it also causes angst, concern and downright fear.
The definition of disintermediation is “the elimination of an intermediary in a transaction between two parties.” Even shorter, it means “cutting out the middleman.” (I know, middleman isn’t politically correct, hence the word “intermediary” in the formal definition.) Some industries that have been disintermediated primarily due to technology are travel, stock brokerage, book publishing and music.
Yes, travel agents still exist. You can hire a stock broker, publish the next great American novel using a literary agent and publishing house, and buy a CD of your favorite music. But you can also purchase a plane ticket online, go to Etrade and buy stocks, self-publish and distribute a book, and stream or download tens of thousands of songs.
From a consumer’s perspective, disintermediation is often a good thing. It tends to lead to more competition between suppliers, which means more innovation and a better experience and lower prices. From a business perspective however, there is a terrifying aspect of disintermediation as it can mean loss of your livelihood.
Homebuyers and sellers relish the idea of paying lower commission fees. Since real estate transactions are so infrequent, most consumers don’t fully grasp why an agent is so important. They don’t see behind the scenes or dig into the weeds to understand all you do. They just want to buy or sell a home, and being human, they want to do that with as low a fee as possible.
You have the tough job of improving your clients experience and demonstrating the value you add, all while holding transactions together with duct tape and bailing wire while hoping someone working out of a garage isn’t coming up with an idea that will replace the need for real estate agents all together.
Although no app is going to replace you, the concern of disintermediation is real. Nothing seems to stoke those fears more than non-traditional ways of buying and selling a home — methods that are not “the way it’s always been done.”
I argue that these non-traditional methods, some of which have been around longer than all of us, are not to be feared, but should be embraced and leveraged. Let’s take a look at some of them.
For sale by owner
The ink on my real estate sales license wasn’t dry when I first heard the good, the bad and the scary about homes sold for sale by owner (FSBO). They have been around since the dawn of time.
Per NAR, FSBOs accounted for 11 percent of home sales in 2018, right in line with historical levels across the years of 8-12 percent. Despite this low-level of usage, FSBOing is often maligned and even feared by many agents.
Don’t get me wrong, I’m 100 percent in favor of consumers being represented by an agent when they buy or sell a home. This is a transaction that is too infrequent, expensive, emotional and fraught with potential legal pitfalls to go it alone. It’s not worth “saving” a few percentage points on commissions. (“Saving” is in quotes because anyone reading this knows well those perceived savings are rarely realized.)
For those overly concerned about FSBOs “taking their business,” the solution is simple. Focus on the 90 percent of transactions that utilize a real estate agent. There is still, and always will be, plenty of sellers and buyers that value all a real estate agent brings to the transaction. Serve them well.
Despite the importance of representation, the FSBO route is a viable alternative to selling or buying real estate for some. Having methods outside the traditional paths, allowing consumers a choice, is a good thing.
FSBOs can also be good for agents — many have success prospecting FSBOs and converting them to listings. Others can negotiate a commission with the FSBO and find their buyer clients the perfect home. FSBOs add inventory to the marketplace. It gives consumers another choice, and choice is good.
Drive around any reasonably sized market, and you’re sure to see “bandit signs” littering many a street corner — a small sign that says something along the lines of, “I’ll buy your house for cash, TODAY!” Real estate investors range from the one person show flipping a few homes per year to huge conglomerates that buy houses by the hundreds.
Since time immemorial the real estate investor has existed, constantly on the prowl for a good deal. A property they can either fix and flip, or convert to a rental. I can’t find a good source for the number of homes bought through an investor, but the fact they have been in existence for ages tells you that at a minimum they can be successful enough to earn a living or at least provide supplement income worth the time and effort it takes.
Most agents in the business for any length of time have some investor contacts in their Rolodex. They can be a good solution for listings languishing on the market. Investors are rarely maligned in the industry, despite the fact they do “steal” a listing here and there.
The all cash, no hassle, sell right away aspect of investors does have an appeal for certain sellers, providing them with a choice. And, wait for it … choice is good.
The same concerns all these methods have can be said of the relatively recent trend of iBuying. Pioneered by Opendoor, iBuying has only been around for about six years (and really gained traction in just the past three years or so).
Within minutes of word that Opendoor was launching, the concept was condemned by some. Comments like: “It won’t work!” “Not a fan!” and “No one will ever sell a home this way” littered the internet. Well, it is working, and people are selling homes to iBuyers.
IBuyers provide a viable alternative to traditional real estate methods for some sellers. Those who desire a fast, simplified sale, with no showings or property preparations, who are willing and able to sacrifice some potential equity find iBuyers an ideal partner.
Will iBuyers ever capture 100 percent of the market as some seem to fear? Of course not. Yes, there have been some crazy predictions of iBuyers someday taking 50 percent or more market share. I feel that’s a grossly inflated number. Personally, I see it more along the levels of FSBOs, maybe getting to 20 percent someday. That still leaves plenty of real estate to be bought and sold through agents.
The simple and inescapable fact is: IBuying meets the needs of some sellers. Just this week, we listed our condo in Washington for sale with a “traditional” agent. But if an iBuyer was in the Seattle market, I can assure you we (or more likely our agent) would have asked for their offers.
Why wouldn’t we? As a seller, I want offers. I need offers. And if the math worked, we would gladly accept a iBuyer offer. Although I would love for a wonderful first-time buyer to get the keys to our condo and live an amazing life there, what I would love even more is a closed transaction. To be brutally honest, I don’t really care who buys it. As long as the check clears, I’m good.
Feel the need to fight the iBuyer trend? Understand what they offer, how they work, the pros and cons of using them. Educate your sellers about them because that provides value to your client. Yes, you might “lose” the occasional listing to an iBuyer, though in reality it was never really your listing. So buckle up, and bring them a buyer! Sell that iBuyer listing; the commission check spends just like any other.
Like other non-traditional methods, iBuyers provide consumers a choice. Yet again, choice is good.
Enter Pacaso, the brain-child of dotloop founder Austin Allison. He and former Zillow Group CEO Spencer Rascoff launched the company on Oct. 1. Their stated goal is to provide “a better way to buy and own a second home,” through “fully-managed LLC co-ownership.” It’s an interesting concept, and based on my own observations from recently buying a home in a second-home market, one that could fulfill a need for both second-homeowners and those interested in buying a second home.
Co-ownership is simply another method for buying or selling some types of real estate to some types of buyers and sellers. It’s been around in one form or another for many years. Usually it involves the headache of finding friends or family. “Hey let’s all go in on a house!” has spawned many a conversation, sometimes it works out, often it doesn’t. Time will tell how successful Pacaso will be, but it is a choice.
Don’t fear, leverage
As an agent, even if you’re steeped in tradition, you can utilize all these methods — iBuying, FSBO, investors, co-ownership, whatever else may come along — to help some of your buyers and sellers. You can also help your bank account in the process. Cliche as it sounds, the more tools you have in your toolbox, the more likely you are to build a successful business. So learn about these methods, keep those tools sharp and at the ready for when the job arises.
From FSBO through co-ownership, all provide choice. They all meet the needs of some, but certainly not all consumers. There is no need to worry about or fear non-traditional methods of transacting real estate sales. Instead leverage them to your — and your clients’ — advantage.
Choice is good — for all of us.
Jay Thompson is a real estate veteran and retiree living in the Texas Coastal Bend, as well as the one spinning the wheels at Now Pondering. Follow him on Facebook, Instagram and Twitter. He holds an active Arizona broker’s license with eXp Realty. “Retired but not dead,” Jay speaks around the world on many things real estate.