The State of My Industry: Why Real Estate Is Taking So Long to Change

Why, people often ask me, hasn’t technology made real estate better? The answer always surprises them: that technology mostly hasn’t tried.

Since the rise of the Internet in 1999, U.S. worker productivity has increased 35%, but the productivity of real estate agents has, according to the National Association of Realtors, somehow fallen over that same 15-year-period nearly 30%.

And the consumer’s the one footing the bill: Real Trends’ data show that the money paid to a real estate agent for selling the median-priced U.S. home since 1999 has increased in nearly the exact same proportion, 34%.

All this means that agents have continued to eke out a marginal existence, earning over the past five years a gross yearly income of $28,220, which, after expenses, is below the poverty line for a family of four.

The result is the rarest and most persistent of free-market paradoxes: an industry of pure misery, where the consumer overpays, as much as twice the fees of Europe, but the service-provider is underpaid.

Client & dog

 

What’s striking about the persistence of this paradox is how much real estate has changed in the last two years for everyone except the consumer, with the rise to prominence of national real estate portals, Zillow and Trulia. These portals didn’t exist a decade ago but are together now worth $5+ billion, up $2+ billion from a year ago.

The portals have built a magnificent national destination for real estate data that before was mostly only available on local sites. Their customer however is not the consumer but the traditional real estate agent, who pays as much as several thousand dollars a month to appear on a portal. The technology cavalry has come at last to real estate, but not to lower prices or improve service.

No one can blame the portals for building an audience rather than building a better service for that audience, but we shouldn’t mistake one goal for the other. Rather than eliminating the middle-man from real estate, these portals add a middle-man, coming between traditional real estate agents and their clients. The portals’ impact may be to increase, not decrease, the money spent in real estate on marketing, competing for home-buyer traffic primarily with brokerage sites, not with newspapers or other media companies.

The buyer’s agent the portals recommend is often, understandably, the highest ad bidder not the best agent. The data the portals publish about the homes listed for sale by an agent are often spottier and less comprehensive than what local brokerage sites like Redfin or Windermere publish.

Now as these portals seek to become the face of the market, with a one-year, $110-million advertising blitz unprecedented in real estate, the prospects of fundamental change would seem to dim. At industry conferences, the portals promise never to challenge the business model of their customers, the traditional real estate agent, saying that any company using disruptive technology to offer consumers better value is doomed to fail.

But fortunately for consumers, that prediction is being proven wrong.

client & kids

The company where I work, for example, is just such a technology-powered, consumer-focused real estate broker. Redfin uses our technology to increase the productivity of our own agents six-fold over the industry average, resulting in agents with dramatically higher average earnings; consumers pay half the fee traditionally charged by an agent to list their home, and get at closing about a third of the buyer’s agent fee. We have served over 10,000 customers, saving them more than $100 million in fees. We expect our service to reach more than half the U.S. for the first time this year.

Redfin has increased agent productivity primarily by building the most comprehensive search tools for each local market, so that we can meet our customers without paying lead-generation fees, or asking agents to spend time prospecting door to door. To be sure, we have invested deeply in technologies beyond the initial home search, with mobile tools to find the nearest agent for an on-the-spot tour, or a precise digital campaign to reach just the right buyers for one of our listings. But these tools enhance, not replace, personal service.

If we ever stopped meeting customers freely through our own search tools, we would have to pay agents less or charge customers more. We have thus grown despite, not because of, the traffic-building efforts of national portals.

Now, a host of similar companies, from Suitey to Urban Compass to Findwell, are following our lead. The trend is part of a movement across industries, in which software engineers contribute to real-world businesses rather than pure digital marketplaces, so consumers can get better service. Why after all make software for traditional real estate agents when you can just try to be a better real estate agent?

As Greylock’s James Slavet and more recently Andreessen Horowitz’s Chris Dixon have pointed out, technologists who embrace an “end-to-end” or “full-stack” approach to solving customer problems have to muck about with such mundane tasks as employing real estate agents for every locale and ensuring the agents deliver great service, but this leads in the end to far more valuable companies, from Uber to Tesla to Nest to Climate Corporation to Netflix to Amazon to Pixar:

The full-stack approach lets you… completely control the customer experience, and capture a greater portion of the economic benefits you provide.

The challenge with the full-stack approach is you need to get good at many different things: software, hardware, design, consumer marketing, supply chain management, sales, partnerships, regulation… The good news is that if you can pull this off, it is very hard for competitors to replicate so many interlocking pieces.

This vertically integrated approach, with real estate software working hand in hand with real estate agents, once seemed hopelessly antiquated. It takes more time and money to build, expanding one neighborhood at a time.

But it is the salvation of technology’s proper role in society, to do the big thing, to help regular people, to make things better, to make a difference in the real world. It is the future of real estate, and of many other industries too.

The photos are of Redfin clients. James Slavet is a Redfin investor.

This post was originally published on LinkedIn.

Discussion

  • http://timandjeni.com/ Timothy Ellis

    Well said.

  • Bob

    Real estate is taking so long to change because so many so-called agents are not trained in sales. They think they are, but they really are almost pure marketing. I have a home listed with a non-redfin agent. An agent from Redfin toured the house, and had some positive remarks to say about the house, (on your public website, so that anyone looking at my house on your site could see it), and made the gaffe remark that “it could use some updating”. Please – let the consumer draw their own conclusions. If you point out something just to let a prospective buyer know that you see the flaw(s) and you are as smart as they are, it is about the dumbest thing you can do – - so why do it on a website? Most of these “part-time” agents who rarely sell or list anything think that marketing is sales. It isn’t. Take some courses, learn about open-ended questions, and how to get to “yes” after five “no’s”, and how to do an elevator speech. It’s not about pictures on a website, it is about selling value to a client that actually needs some guidance, not just being a yes-person, but really selling what you believe in. And most RE agents are really poor at pure sales.

    • Audrey Lawrence, Redfin

      Hi Bob. Redfin is a little different in that it is not our agent’s job to sell a home to their client, it is to help their client find the home that’s right for them. They are paid on customer satisfaction, which means giving clients as much information as possible to make the best choices on one of the most important decisions they will make in their life.

      In the example you mention, someone who’s looking for a home that’s already updated could read that comment and not waste their time going to tour that particular home. But it could also interest someone who wants to buy a home that they can fix up and make their own.

  • http://quillrealty.com/ Quill Realty

    Bob, I’d add that in the modern world, and particularly with the advent of buyer’s agency, real estate agents aren’t even expected to be salespeople anymore. In the “good old days” when every agent worked for the seller, sure, they were acting as a true salesperson, no different than the shoe guy at Nordstrom (although some buyers may not have fully understood that dynamic). But today, buyer’s agents specifically work for the buyer. They are now, practically speaking, as much if not more a “representative” than a “salesperson.” And there’s no going back…

  • http://jeoftp.blogspot.com/ Jeoff Wilks

    Glenn, I’ve used Redfin a lot and I love your mission: to give people better data so that they screen out more homes and make fewer, more-targeted home visits. If you think about the new home market for a minute: other than quick-move-ins, every single person buys their home without ever seeing it yet — because it hasn’t even been built! They do so by looking at a floor plan, a lot plan, and a site plan. The floor plan tells you a lot about how well the interior of the home will serve your needs. The lot plan tells you if it has the kind of yard size and placement that you want. And the site plan tells you about traffic patterns and community arrangement. I can tell you I’ve visited hundreds of homes, wasting my time and my buyers agent’s time, simply to check out a home’s floor plan and lot size — only to find out it won’t work for me. I could screen out probably 80% of home visits if I had this information upfront — particularly the floor plan.

    Suppose you were to initiate a Big Data effort to ingest every floor plan you can get for every address you serve. They are often available on the public internet when the home is new. Index it and keep it around so that you have it later when the home goes up for resale. Then show it as part of the listing wherever possible.

    Buyers would be far more informed and would be able to zero in on the homes that work for them far more quickly. In some cases, as with new homes, they might even have the confidence to prepare an offer before ever visiting the home. That would do a lot to reduce the time and expense of real-estate transactions.