What do death, taxes and real estate all have in common?
Technology.
I’ve blogged on several occasions about Real Estate Web 2.0 and my belief that in the myriad of solutions that have been developed, deployed and adopted, there has yet to be a “real estate agent killer” app.
Not long ago, innovators wanted to develop technology solutions that unleashed the knowledge within the MLS – that is where the perceived value of the real estate transaction was hidden. Enhanced property search and data analytics was the way to break the current commission based business model, drive down the cost of the transaction and essentially eliminate the middleman – the agent and/or broker.
I was often confused when I read comparisons between the real estate industry and the travel industry. Again, technology innovators wanted to do to the real estate business what Expedia, Orbitz or Hotwire have done to the travel industry – put the consumer in the driver’s seat and eliminate the middleman – the travel agent.
Not to belittle the travel agent, but clearly much has been learned about the real estate transaction process to determine that real estate is not like the travel industry. Unlocking the MLS and aggregating data alone does not address the complexity of the real estate transaction, nor does enhanced search engines that exploit mapping technologies.
Real estate is a knowledge-based business. In creating true innovation, my question is why aren’t technology innovators drawing parallels to other professions that are knowledge-based? I can’t help to think that there can be a significant disconnect between our current business model, i.e our compensation, and the knowledge and expertise that experienced agents have developed over time.
To better understand the disconnect is to understand how the Pareto principle applies to a real estate transaction. Could a knowledge management solution address 80% of the process-related issues to buying and selling real estate, leaving the 20% of the really tough, unexpected issues and problems to be addressed and managed by a licensed real estate professional?
I have my business degree in accounting – I never practiced accounting, however, when it comes to tax time, I feel obligated to do my own bookkeeping and taxes. Why hire a professional when you should “know” accounting, right? Well, I don’t know accounting, hence I use TurboTax religiously.
The beauty of TurboTax is that it walks me through the process of completing my tax filing – even as a self-employed person with two businesses. I provide answers to questions that guides me through a fairly complex process that would be unfamiliar to me without the use of such a tool. If I get confused, lost and simply give up, I have the ability to contact a professional – generally online. The really tough situations can be addressed and solved by an expert – usually at that point, I understand there is a cost associated with expertise.
As a real estate professional, we have all executed deals that went smoothly – a slam dunk. It felt good and we got paid – usually pretty well. There are times we have executed deals that have almost led us to our own executions – we jumped through hoops and perhaps drew deeply from the well of expertise that has risen from experience and knowledge from previous deals. Often times that level of expertise is worth significantly more than the few percentage points of the transaction.
Can we engineer the process to be more knowledge based? I think we can and I think we should – providing a greater exposure to our own specific knowledge, moreover providing greater differentiation between agents.
jay says:
Now that was a thought provoking post. So much so that I do not want to comment further. Let’s hope 2.0 or 2.5 sticks around another decade 🙂
j
December 8, 2008 — 7:03 am
kingj says:
Thomas, You’re right on the money referring to TurboTax—great system. And while it may have made many CPAs upset, I still need an accountant to help me navigate some of the waters that TurboTax can’t guide me through—the complex issues that still require human nuance.
And I agree, real estate transacting will always call for expert 3rd party assistance (read ‘agent’)—unless housing prices happen to tumble so far as to match the cost of, in the words of the might Bob Barker, “a new car!”
Unlikely prospect.
December 8, 2008 — 8:13 am
Dave Phillips says:
Just last week I heard about web 3.0, which will rely on artificial intelligence. Zestimates and other valuations are the leading edge of web 3.0 in the real estate arena. When the web goes 3.0, agents better do the same. We made the transistion to Web 1.0 (posting listings on-line), and some are transitioning to Web 2.0 (social media). I expect the industry will transition to 3.0 in due time.
As with every industry dealing with change, there will be early adoptors (like Bloodhounds), conformist (top agents), and lollygaggers (everyone else). We should not be fearful of 3.0, but we better pay attention and embrace it. Do do otherwise would be artificially unintelligent.
December 8, 2008 — 10:11 am
james canion says:
Jay , you are right on,this is a thought provoking post.
We are moving to a more complete and useful internet platform that will require more experience and effort to take advantage of all the applications available. This means success will follow the 20% agent as always.
Ignorance is bliss- in that the less capable and experienced a person is, the more likely the probability
of overlooking something that will be costly in time, money or both that they will never know about. This
is also true of turbotax since the IRS ususlly does not
catch mistakes in their favor. Give me a good realtor
and a good CPA every time.
Jim Canion
December 8, 2008 — 11:20 am
Dylan Darling says:
Buying a home is obviously much more complex than buying an airline ticket. Each individual area has it’s own rules and regulations. While some experienced buyers and sellers feel comfortable tackling the process on their own, most are not.
Agents that keep up with current trends will succeed.
December 8, 2008 — 12:02 pm
jay says:
James, I last heard/read that is was the top 7% of agents who do 93% of the business, and I believe it. It’s a great place to be….
December 8, 2008 — 12:12 pm
dave in NYC says:
While I think it would be quite tough to come up with AI to replace an agent, I think sites like zillow and trulia are about the best the web has to offer. Maybe they are real estate web 2.5?
December 8, 2008 — 2:39 pm
J Boyer Morristown NJ says:
Very thought provoking but I think such applications are at best 10 years off. Would it be a good thing??? Probably not, just as people screw up their taxes using turbo tax, we will have even more people screwing up their real estate purchase of sale once someone launches such a app. I find Redfin’s recent actions to be instructive in this field.
December 8, 2008 — 8:34 pm
Marlow says:
Some people will always pay for convenience. Personally, I loved using a travel agent, especially for complex trips, and I always use an accountant. Who’s going to add up all little scraps of paper and receipts? Not me.
There will always be people who are willing to pay for service. Not everyone’s a do-it-yourselfer.
December 8, 2008 — 11:26 pm
Tom Hall says:
I think this is a good thing. Evolving towards knowledge-based systems I believe helps agents differeniate their skills and knowledge / this is where the real value is.
December 9, 2008 — 11:13 am
Jonathan Blackwell says:
As a lender the absolute last thing I want to deal with is buyer without an agent.
December 9, 2008 — 2:19 pm
Tom Hall says:
@jonathan – I’m curious to understand better why you prefer to have buyers represented by an agent.
December 10, 2008 — 8:22 pm
Leon Belenky-One Bal Harbour Condo Expert says:
You bring up a wonderful point here. Though the internet arms people with the knowledge to take on many more jobs than in years pass, like with doing your own taxes on Turbo Tax, I do think that there would be no way to really get rid of the real estate agent. For great real estate agents, we work to get the best, most fair deal for both sides so everyone is happy-that human touch can never be bought in a box, no matter how wonderful the internet gets.
December 10, 2008 — 10:31 pm