Fear Not Disintermediation; It's Customer Relevance You Should Focus On

By
Real Estate Services with MyST Technology Partners

In a separate thread (Open MLS for the Public but still No Complete MLS for Brokers) over on Mitchell Hall's AR blog, I saw a couple of comments that led to a comment that led to this post. Make sure you read the entire post and comments - it got me thinking.

"Selling a home is not an easy task. Most people prefer to have a broker do it for them." -- Mitchell Hall

This, I agree with. It's likely to be much harder than it looks. I'm just an ordinary consumer when it comes to real estate buying and selling. But I'm also aware that there are aspects of transactions that are foreign to me, and there are potential pitfalls. As such, I'm not likely to "go it alone" when it comes to selling my home. However, I am likely to do some of the tasks associated with buying my next home. It doesn't matter what those tasks are for this conversation - suffice it to say that there are slivers of activity that I might be more qualified to do than a real estate agent, and at less cost. Hold that thought...

Transparency and Disintermediation 

There are other market parallels that have survived in the face of rampant transparency and [some] disintermediation. Many people still have stock brokers, some people still pay slightly more to have a travel professional. But in these cases [where transparency has reshaped entire industries], one thing is abundantly clear - historical transaction costs have fallen. It doesn't mean stocks or travels costs less - it just means market topologies have been reshaped; certain aspects of industries that were once very relevant, are now irrelevant.

But it's important to note that the Internet's ability to rapidly dis-intermediate entire business sectors is really just a capability that may or may not be a good idea for any given market. The outcome (or forecast outcome) - i.e., what may happen because of this capability and why transparency leads to irrelevance - is the more important aspect that the real estate industry should pay attention to.

Transparency is no Guarantee of Disintermediation

Transparency *may* lead to disintermediation, but it may not; it depends on how consumers react to the pervasive availability of information in markets where the information has traditionally been inaccessible. My view is that the degree with which disintermediation actually impacts any business segment has little to do with how transparent the information becomes, and mostly to do with how irrelevant business providers become under the new light cast through increased transparency.

Disclaimer - I'm certainly not qualified to predict what will happen in real estate, but I have a hunch that there are two dimensions of transparency that may each create irrelevance independently and to different degrees.

  1. The pervasive access to information relating to the selling of a home;
  2. The pervasive access to information relating to the buying of a home;

Unlike say the travel industry, we consume airline seats for a specific period of time. However, we rarely sell an airline seat -- save the occasional bump in exchange for some economic advantage. Stocks, on the other hand, are more like real estate - we buy them and sell them. And even in this multi-dimensional market of activity, the stock buying and selling industry has been significantly reshaped.

"New Yorkers are not looking to dis-intermediate." - Mitchell Hall

I agree with this comment as well - no consumer wants to dis-intermediate. But all consumers want to optimize wealth which is synonymous with controlling costs. Regardless of how Mitchell shapes this statement, transaction costs will probably fall - the only question remaining - who will benefit?

The real estate industry should not confuse the threat of disintermediation with the risk of becoming irrelevant to it's customers. While your industry may seem like it's under attack by companies like Google, Trulia, and Zillow, these are simply artifacts of market forces that are attempting to seek lower transaction costs. Some of these ideas will fail, and some will succeed. But as I said earlier, transaction costs will most certainly fall - not because consumers believe you are overcharging them - but because they can be achieved at lower cost. The businesses that manifest ways to lower transaction costs will be the likely benefactors, just as the businesses that create (or sustain) relevance given the new market topology will also emerge as highly competitive leaders.

I believe that real estate's challenge is to identify it's own future relevance given the likelihood that greater information transparency will reshape some (perhaps many) of the present transaction inefficiencies. Could the answer be that simple? ;-)

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Rainmaker
298,656
Brian Brady
VA Home Loans/San Diego
San Diego VA Home Loans/858-777-9751

This is such a good post!

Transparency can and should work to you advantage.  I've used it in my business for 12 years when describing what I do.  It actually shows the tremendous value we have.

1- First I show terms offered by a big national bank who uses our nation's name in it's title.

2- Then I show the "wholesale rate" that they offer me and calculate the bank's "profit"

3- The fee I charge for arranging loans is usually 30-50% lower than the bank's profit .

The amazing things is that transparency WORKS in building value.  This is why I recommend a "menu of services" approach to pricing your services.  Of course, customers in general (and I believe Manhattanites, specifically since they're all traders at heart) will want the best service for the lowest "pricing plan".  This is where the true salesmanship comes in in building value for your fees.

 

November 04, 2006 12:46 PM
Rainer
27,506
Barry Hurd
123 Social Media

I have to agree with Matt here. Having a wealth of experience in various aspects of real estate has only made me realize that I want an expert to close on my real estate transactions. 

I'm a professional and this logic applies to every project I am serious about. If I need a designer, I don't brush up on my old graphic skills I learned in college... I hire a professional. If I need a database developer, I don't code it myself... I hire an expert to do it.

There will always be a market for mass-commerce fast food, but there will always be a market for five star dining. The question real estate professionals need to focus on is what client market do they want to compete in?

November 04, 2006 03:13 PM
Rainer
24,320
Bill French
MyST Technology Partners

Barry, Matt -

"All that knowledge doesn't make me want to go and purchase or sell my house without an agent, in fact it's the opposite.  I realize how complex the transaction is, and how much having a competent agent helps."

"Having a wealth of experience in various aspects of real estate has only made me realize that I want an expert to close on my real estate transactions."

Sure you do - you have perfect knowledge. Unfortunately you both [and I] don't represent a good cross section of the market segment.

Sara -

"I don't believe trading stocks is equivalent to buying and selling homes, nor do I believe the travel industry can be similarly compared."

Neither do I. I didn't suggest either were equivalent - I only said they are good parallels to better understand buy-side and sell-side similarites. However, they each represent business segments that were disrupted in much the same way that real estate is presently being disrupted.

Barry -

"There will always be a market for mass-commerce fast food, but there will always be a market for five star dining."

Perhaps, but what if the machinery for manufacturing a five star dining experience became so refined that the marginal cost differential narrowed to the point where it was about the same as fast food? How would that change the topology of the dining market?

What if the machinery for buying and selling homes became so optimized that all commissions were cut in half? Setting aside the fact that a significant number of buyers would start to shift to the discount model (fast food side), how many would be left to pay for the five star meal?

I liken this comment to one that I ponder frequently - in 2014 it is predicted that about 20,000 people (elderly for the most part) will still pay for the NYTimes to be printed on real newsprint. It will be regarded as a newsletter for "old money". Why? The cost of manufacturing smart paper will be less than real paper. Indeed, the transaction cost of delivering news in 2014 will be so cheap that newspaper will become an unaffordable option - good tidings for tree lovers everywhere.

The same will happen to other industries - the Internet has a habit of seeking out transaction costs that have the biggest fluff factor. Maybe real estate isn't all that "fluffy", or maybe it is. In any case, real estate is being disrupted - the attack is aimed squarely at the transaction costs as it should be. Companies are strategizing for long hours and putting up significant investments to find out how to disrupt the current model.

Consider - Google rarely plots ten year product strategies to enter a multi-billion dollar market and there's only fleeting evidence that they are interested in the real estate segment.

  • In 2001 they leaked a few labs projects to see how data attributes could contribute to search and dscovery.
  • In 2003 they officially launched Google Base - an attempt to harden the idea of market-drive submission of name-value pairs.
  • In 2004 they started to play with API's making it possible to integrate geo-location data with Google Base data.
  • In 2005 they establish a schema for real estate data.
  • In 2006 they release Google Real Estate - a first cut to integrate Base, Maps, and API's to see how the market would react.

For Google Real Estate to exist - all these other components had to first exist - this demonstrates a great deal of foresight and planning.

November 04, 2006 07:17 PM
Rainmaker
605,159
Sharon Simms
St. Pete FL - CRS CIPS CLHMS RSPS
Coastal Properties Group International

Thanks for the link to Shimon Sandler's blog - an interesting read.

I think there's more opportunity for client-agent cooperation. Some sellers can advertise and market better than we can; some buyers want to schlep hundreds of miles to do drive-bys.

Isn't it the old Time vs. Money? We bring to the table our expertise, our sorting through the mountain of information, the knowledge of a community and an area, the sense of what will fit with the client, the advocacy, the counsel. Some clients want this, some want a cheaper price. We never were able to be everything to everybody, nor do we want to be. Choose your position - then let the clients choose theirs. 

November 05, 2006 05:21 AM
Rainer
24,320
Bill French
MyST Technology Partners

Sharon -

"Isn't it the old Time vs. Money?"

I think that may be one dimension of customer relevance. Some customers probably don't value their time like others, but those customers that have little time, or choose to do other things with their time, are certainly looking for a different bundle of real estate goods.

You can find successful parallels in many industries. For example - auto parts. There are millions of people that change their own oil or maintain the their own automobile engines. Some do it to save money (a false optimization indeed), and others do it because they just like doing it. I have better things to do on a Saturday morning besides sitting on a bar stool at NAPA Auto Parts. ;-)

Another good one is your website or blogsite. We charge for our blogsite services about the same that your Lexus dealer will lease you a car. But there are far [seemingly] cheaper approaches to blogging, just as there are far cheaper alternatives to car leasing. Some people like driving cheap cars, some don't. Some people like the rewarding feeling they get by learning a blog template language and spending lots of time manicuring and understanding the technology and how the machinery of the blogosphere works. There are false economies in both markets - a cheap car may send the wrong signal if you're showing a 10 million dollar home, just as a near-free business blog running on a domain populated by mostly spammy blogs affiliated with gambling, porn, and ringtones will send a bad signal.

I think the key (as said many times in this thread) is understanding your target audience and creating services that differentiate you from other agents/brokers while at the same time leveraging the new transparency.

Imagine a service that manufactures a personalized web page (for each prospect) that draws from all the data available that is relevant to a specific buyers needs. This would save (the prospect) me a bunch of time, deomnstrate to the prospect that you care about my needs, while still embracing the transparency shift in real estate. Distilling information for customers seems to be a key success factor in any industry that is being disrupted.

November 05, 2006 09:23 AM
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Rainer
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