Top Brokers Tell It Like It Is in RISMedia White Paper Sneak Peek
From Zillow Instant Offers to Opendoor, real estate professionals across the country are concerned about an ever-growing faction of so-called industry disruptors. RISMedia’s recently released White Paper, “The Disruption of the Real Estate Industry: A Survival Guide for Brokers and Agents,” includes exclusive RISMedia research on the topic, a look at some of the industry’s most noteworthy disruptors, and in-depth interviews with real estate leaders on the veracity of the threat, including strategies for adapting your business for the future.
In this special excerpt, we spoke to several brokerage and franchise leaders to get the C-suite perspective on how tech disruptors are impacting the industry.
- Anthony Hitt, CEO, North America, Engel & Völkers
- Adi Pavlovic, Technology Strategist, Keller Williams Realty International
- Gretchen Pearson, President & CEO, Berkshire, Hathaway HomeServices Drysdale Properties, Danville, Calif.
- Joseph Rand, Chief Creative Officer, Better Homes & Gardens Rand Realty, Nanuet, N.Y.
- Matt Widdows, Founder & CEO, HomeSmart International
- Susan Yannaccone, President & CEO, ERA Real Estate
RISMEDIA: What is your opinion on how Zillow’s Instant Offers product will impact your business and the relationship your agents have with consumers?
HITT: The reality is this is a distraction du jour. There’s a buzz around it, and we’re certainly all talking about it, but it doesn’t affect our day-to-day work. In fact, it might help us generate seller leads, because desperate sellers who are interested in this fast cash are a small segment of the marketplace. Consumers still want a professional representing them. I view this as a fast-food approach to getting a deal done cheaply. If you put your clients’ best interests above your own and provide a white-glove experience with competence, it’s an opportunity to show your value.
PAVLOVIC: We anticipate the impact of this will be minimal to the industry; it’s a tool developed to generate seller leads that will be sold through advertising to real estate agents, much like many other Zillow ad products. The impact to the consumer, however, is more troubling. Streamlining the process of institutional investors buying directly from homeowners below market value is not only a disservice to the homeowner, but has macroeconomic consequences on the market. Institutional investors have historically proven that they intend to turn these homes into rental properties, rather than putting them back on the market. That ultimately reduces the inventory of available entry-level homes on the market. While this behavior was beneficial to communities that experienced large losses in equity during the downturn, it may now be causing challenges for buyers, especially first-time homebuyers. The lack of inventory in the entry-level market will cause prices to increase more. It’s important for us as an industry to educate sellers on the risk in selling directly to institutional investors, rather than exposing their home to the market in order to get the most return on it.
PEARSON: We had an instant offer on our website for years, but a very small percentage of consumers used it. A [reason] for Zillow’s initial rise was the fact that consumers felt it was a neutral third party that would provide information without bias. Experienced consumers also understand that in this market, in particular, getting a buyer is not difficult or a valuable piece of a REALTOR®’s job; [helping buyers] navigate through the escrow is their value.
RAND: It’s the equivalent of going to the convenience store instead of the supermarket to buy milk, even though it’s more expensive. You’re willing to take convenience over price. There’s a segment of sellers in the market who find the real estate transaction to be overwhelmingly difficult and tiresome. Those people are willing to trade some of their equity through this program [Instant Offers] in order to close a deal and be out of their house in a week, even though they’ll get less money for their house. Right now, I don’t think this model is disruptive. There’s a small percentage of people out there who are willing to trade money for convenience.
WIDDOWS: This isn’t the first test of its kind to, in effect, take agents out of the picture. Look, data is out of the bag; technology is changing every industry. There’s pressure on agents and broker commissions because more tasks are becoming automated and moving online. I don’t see REALTORS® completely out of the game. There will be a percentage of people who are okay with doing a real estate transaction online, but a lot of people still prefer to do it in person. We view this as helping our model at HomeSmart; we operate lean and mean. We rely heavily on technology so we can streamline our fees and charge our agents low fees. So this won’t impact us as much as more traditional real estate companies that have always relied on huge revenue streams from their agents’ commissions.
YANNACCONE: Innovation is the key to success in any business, and our industry is no different. I look at Zillow’s Instant Offers, Opendoor and other products as iterations of other brokerage models we’ve seen before. ERA, for example, has had a guaranteed purchase program for 40-plus years, where we’ll buy the property if it hasn’t sold in a certain amount of time. As brokers, we have to be relevant in today’s business models and understand why they’re evolving. Consumers are looking for more information on properties, and they have a right to have access to all of it. This forces agents to become more crucial to the transaction, which is complex. Consumers need more precise info than what they find online, and we stay relevant by giving it to them.
RISMEDIA: What are the main disruptors to the real estate industry right now, and why?
HITT: I think disruptors are excuses for agents to blame someone else for not doing what they need to do. None of the things we hear about—the internet, MLS, fax machines—were disruptors that put us out of business. I think the bigger chance for real disruption are companies like Google and Facebook that all have behavioral data on consumers. Human nature is that people have a tendency to freak out about things and be skeptical. Over time, though, we either adopt it or it goes away. At Engel & Völkers, our virtual reality initiative [using a VR headset to view homes remotely] is one way we’re disrupting the industry. We’re not the first to do it, but we’re an early adopter. We look at it as an opportunity to provide a full consumer experience in buying and selling.
PAVLOVIC: Applications utilizing artificial intelligence to improve the real estate experience have the largest potential to disrupt the industry. The majority of AI vendors in real estate today are focusing on lead capture due to the industry’s poor response time to online leads; however, more are beginning to implement the technology into other, more impactful verticals such as search, home improvement and the transaction. The main challenge with building AI technologies in real estate is that these applications require a great deal of data in order to provide value and to become smarter/more efficient through machine learning. This can be challenging due to the complexity of accessing data in the real estate industry and the amount of regulatory restrictions surrounding real estate data.
That’s why implementation of AI into the real estate ecosystem has been slower than in other industries.
PEARSON: Google and Amazon are disruptors because they have data and distribution, and a pure relationship with the consumer already. It’s not a new challenge, but it heightens [pressure] on the role and relationship with organized real estate. Agents should be prepared for a reduction in pay. They are the ones who are over-compensated in today’s market, and they’ll be the first to adjust.
RAND: Discount brokerages have always been there. Direct-selling companies are another. And FSBO (For Sale By Owner) programs are emerging for a small fee to put sellers’ homes on the MLS. All of these models seek to connect buyers and sellers directly and cut out the middleman, the real estate agent. But in some of these models, there’s no clearinghouse and no one advising or representing the buyer’s interest. That’s the disruptive future, and it’s not better than what we have now. I think the consumer experience will suffer.
WIDDOWS: The Zillows of the world are the biggest disruptor agents need to look out for. There are other platforms, but I don’t see them as much of a disruption because they’re taking on smaller markets. What the search portals do, however, is diminish the amount of an agent’s commission, which equates to less service. Another issue is the regulations in the mortgage industry, and lenders’ ability to gather information from borrowers. While it’s gotten better in recent years, that’s the biggest problem [in the transaction]. Appraisals are another disruptor, because the process is difficult and slow, and appraisal values are coming in too low.
YANNACCONE: The portals, for sure—the evolution of discount brokerages from where they were before to now being more prolific and gaining [market] share. As a franchisor of a traditional real estate brokerage, we’re learning how we can continue to evolve and articulate the value we provide to agents. They, in turn, can provide value to consumers. The discount in some models comes at a cost to consumers. It’s the most complex purchase of their financial lives, and they don’t do it often. The market changes with each lifecycle, and agents have to evolve to stay connected to consumers. If you’re stagnant, you won’t last. Whatever the disruption of the day is, it’s an opportunity for your business to evolve.
RISMEDIA: What consumer misconceptions or disconnects have arisen as more of these players enter the industry?
HITT: There are many agents out there who don’t do a lot of business and their focus isn’t where it should be; that’s damaging to the industry. Some people who are independent and confident and [believe they] know more than an agent will continue to challenge the industry. We have a public relations issue in this industry, and more consumers need to have a professional experience [when they buy or sell]. We need to bring the value and turn these tech offerings into educational opportunities. Show FSBOs the statistics [on pricing and sales], then tell them, “This is what I bring to the table.” A professional will understand how to articulate their value.
PAVLOVIC: Automatic home valuations have had the biggest impact on consumer misinformation by implying the value of a home based on a small subset of data. While many players have invested in developing more accurate AVMs (automated valuation models), the margin of error is still too significant. This is why the industry will continue to see an increasing number of litigation around this topic as consumers challenge public home valuations. As more players continue to enter the space of estimating a home’s value, the more likely it is that the industry will have a KAYAK effect similar to the travel industry. Consumers are going to put less merit into a single AVM and instead seek to compare multiple valuation estimates online in order to get a clearer picture.
PEARSON: The increased homogeneous flavor of real estate agents and brokerages. There will be an increased value and a finesse needed to draw differences among the players in the industry.
RAND: People think using online tools will save them money. I compare it to the travel agencies; we don’t use those anymore because we can do most of our travel bookings online. What consumers forget, though, is that it used to be easier and less stressful when you had a live travel agent helping you through it. In real estate, maybe Instant Offers will get more precise with valuations and become more legitimate. Right now, I don’t think it’s disruptive, and it’s a small percentage of people who are willing to trade money for convenience.
WIDDOWS: People still value the real estate agent’s expertise. They use platforms for searches. The platforms have such an extensive online presence, and that’s always been the case because they have the marketing dollars. As agents, we can’t compete dollar-for-dollar on property search, SEO and advertising. We work with [the portals]; they’re here to stay. If you don’t use a REALTOR® for a deal, there are a lot of complexities. It’s not easy, and it’s an emotional process where two people are pitted against each other naturally. There’s always a place for a local, experienced real estate professional; the Zillows of the world cannot get that local.
YANNACCONE: The misconception that using a discount brokerage or selling as a FSBO will be a substantive discount is really more about speed than receiving the best price for your home. Agents need to be very comfortable to articulate their value to consumers. We’ve gotten away from that [as an industry]. If you’re an agent who can speak a consumer’s language, show relevant ways you’ll market their home, price it right and sell it quickly, people are still willing to pay for that service because there’s value there.
Read more in-depth interviews in RISMedia’s full white paper report, “The Disruption of the Real Estate Industry: A Survival Guide for Brokers and Agents,” by clicking on the link below. Special pricing offered for a limited 48-hour period.