Shouldn't Technology Have Displaced Realtors®?
Travel Agents, Taxi Drivers, Checkout Clerks, Bank Tellers...why not Realtors®?
Industry insiders and analysts studying the profession from the outside have something in common: they just don't understand how real estate brokerage has persistently managed to avoid innovating for decades while maintaining or even growing market share and preserving or even increasing profits. It's truly astounding and remarkable. How can the profits secured by real estate brokers possibly be justified by the service they provide?
Why should some Realtors® earn more than many attorneys, engineers, dentists, doctors, and other business professionals? They are frequently less educated. Only 12% of Realtors® have a graduate degree. Licensing requirements are not comparatively rigorous. Agents absorb far less financial risk than entrepreneurs or doctors. They often spend surprisingly little time actually engaged in the practical aspects of the job (brokering sales, negotiating terms and price, showing homes, marketing homes, see here). What gives?
Aren't real estate agents merely service providers like travel agents, taxi drivers, bank tellers, or other customer service professionals? Shouldn't the internet and other communication technologies have put agents out of business, or at least automated much of the process, thus causing a steep decline in their numbers? Shouldn't real estate brokerage have been "Uber-ized" by allowing anyone to market homes for anyone else online for a fraction of the price?
Sure, sales professionals are paid quite well in many industries, especially business-to-business technical products. However, "top-producing" individual agents have higher incomes than even the most highly paid sales representatives, and the brokerages themselves are multibillion dollar empires. Not only that, they aren't required to travel frequently or at all, unlike other high-paying sales jobs.
Something seems to be amiss. The internet, sites like Zillow, and the easy availability of information should have at least put downward pressure on the price of real estate brokerage, but it hasn't (overall). There is a good discussion of some recent attempts to innovate here. How is this possible?
1) A home is more than a house.
Houses are not just objects: they're homes loved by people. Selling or buying a home is an emotional process for most people. Apps and automated services are great for exchanging objects. But, buying or selling a home involves people's inner selves: their desires, their dreams, their hopes, their anxieties, their relationships, their self-images: it all comes out during this process. Some of my clients make me wish I were a trained psychotherapist in order to help them process their emotions. I provide understanding, empathy, and actual care. Lawyers, doctors, therapists, customer service representatives, and agents all have a duty to care. At the end of the day what matters is that we take care of you, protect your interests, and help you achieve your goals. No machine can do that...yet.
No two properties are the same. No two houses feel the same, look the same, or have the same psychological effect on the same people. Even in the blandest of suburbs, each plot of land has a unique relationship to the earth and to its owner’s self-perceptions. It's the job of the agent to help the current owner and the new owner agree on the exchange of something far beyond mere property. The sellers are parting with an aspect of themselves, a piece of their history, a story about their family. A trusted, professional, and personal adviser is indispensable for the sellers as they attempt to see their home through a buyer's eyes and negotiate a fair deal. The presentation of an offer by the buyer is not the same as clicking on an item to place it in a "cart" online. It's a deeply personal statement about the buyer's perception of value and must be handled skillfully and carefully. The buyer has to learn to see not just their future, but the sellers’ past and their personal motivations. There's no app for that.
2) Knowledge is more than data.
"Infobesity" is pandemic in the real estate market. I first learned this term while reading All About Them by legendary entrepreneur Bruce Turkel. Essentially, we are surrounded by an overwhelming amount of information all the time. We're bombarded by millions of tiny decisions and facts, and it's exhausting. We're drowning in information and piles of data, but wisdom and intelligent discernment have become rare commodities. Buyers and sellers have access to an enormous amount of information about the real estate market. They can read up on the laws, regulations, financing, housing prices, market forecasts, and see every listing everywhere all the time, instantly. Unfortunately, this has actually made the home buying process more difficult and confusing for the average buyer and seller.
When people come to me, they are typically deeply confused and operating on several incorrect assumptions or making decisions based on irrelevant data while ignoring important facts. Several of my physician clients have told me this same dynamic is causing "cyberchondria" in many of their patients. Basically, people Google their symptoms and freak out because a health information site like WebMD says their stomach ache is probably cancer. Some of my physician clients absolutely loathe that sites like this for confusing and disturbing their patients. One time, I told a physician client that "Zillow is the WebMD of real estate" and she immediately deleted the app from her phone. I was shocked at the time but I now understand just how damaging excess irrelevant information can be.
I'm not saying that buyers and sellers are helpless waifs who can't sort through the data to help themselves make better decisions, it's just that an experienced and well trained agent does this every day, all day, and has developed a deeper understanding and intuition about the market. No blog article, no automated valuation model, no crowd-sourced answer to your anonymous online question can provide truly reliable and professionally competent advice. No app can help you search your inner motivations, or help you sort through your priorities.
3) Service is more than a transaction.
I love Amazon.com. It's fantastic. When I know exactly what I want, I go to Amazon and buy it. Boom, done. When I want to get rid of some useful stuff I no longer want, I list it on Amazon for the lowest price and it sells. I throw it in the mail and get paid. Great! As I said before, the internet is amazing for the exchange of simple objects and a wonderful achievement in the communication and dissemination of ideas. One downside, though, is that our interactions with each other are becoming increasingly cold, one-dimensional, and "transactional." I think we all feel it, and cultural commentators have been talking at length about this for a while. As a side note, if you have Netflix, I think The Black Mirror (NSFW) is a brilliant illustration of some of the darker aspects of our technological progress. Anyway, the buying and selling of a home is not essentially "transactional," it's essentially personal. Each home is unique, each buyer and seller is unique. I believe it is fundamentally impossible to simply build an app or website that can cater to each buyer's and seller's specific human needs and idiosyncrasies.
Buying and selling a home is a deeply subjective, personal, and human experience. I can't tell you how many times I've seen adult men and women cry at the closing table. And while they're crying, I'm right there next to them making sure the taxes were calculated correctly and that the deed was written properly. When they were dreaming about where to put the furniture, I was making sure they weren't overpaying and that they understood the legally binding details of their contract with the seller. One of my many jobs is to create a space to allow the buyer or seller to be human. I watch out for their interests, I help them sort through the avalanche of data, and I lead the dance of negotiation to make sure no one's toes are crushed. It's a subtle, demanding, nuanced, and emotionally stressful job. It can't be done by a computer program, and really, would we want it to be? A home is not a commodity, like soap or toilet paper. It's not just an exchange for cash; it's a major step in a human person's life journey. An app or an online chat bot is not a suitable companion for something like this. Would you crowd-source your decision about whom to marry, or whether you should go for a promotion, or how you should handle your mother in law?
Now, if our grim future is to be filled with undifferentiated gray box houses and undifferentiated gray box-like homo sapiens, agents will no longer be valuable. They will not only have lost their value because the houses are all the same, but because there are no longer any people to buy and sell them.
4) No one wants to be a Realtor®
So far, I've offered an explanation for why there are still Realtors at all, even though it seems like the internet should have caused them to become an endangered species by now. I haven't explained, however, why they continue to command such seemingly outrageous fees. Essentially, it's because there isn't a lot of competition among experienced agents, so these agents don't feel the pressure to cut their fees. Also, the average age of Realtors continues to climb, and older demographics are more resistant to technological innovations that would streamline their operations and increase productivity (thus putting downward pressure on wages for less productive agents). Further, the license requirements and MLS agreements among established brokers effectively prevent innovative business models.
No one wants to be a Realtor. Seriously. The National Association of Realtors reports that 87% of new agents are out of the business within 5 years. In addition, young people aren't entering the profession. I am one of the 2% of Realtors in this country under 30. While the official barriers to entry are alarmingly low (in Pennsylvania, a criminal record and lack of high school diploma aren't disqualifying) and brokers are constantly hiring anyone and everyone because of the massive turnaround: it is quite difficult to actually survive as an agent. An honest job description would be something like this: "100% commission, no benefits, no security, work 24/7/365, exposed to 6-7 figure liability, constantly meeting strangers in empty properties, many people will assume you're a scumbag and an idiot, might work for months or years for no pay, monthly costs just to stay in business somewhere $300-$1000 or more depending on your business strategy." Ready to sign up?
You'd think that a supposedly easy job with fat paychecks would attract tons of people. Unfortunately, perception is not reality for the vast majority of agents. Sure, the barriers to entry are low, but the barriers to success are formidable. Simply becoming an agent isn't difficult at all, but being a good agent is extraordinarily difficult. The public perception of agents as lazy, dumb, and dishonest rent-seekers is understandable given the actions of poorly trained and desperate agents. It's unfortunate that many people end up dealing with such agents. Fortunately, there are also some competent, professional, and ethical Realtors!
All of that said, here's a warning:
In so far as a competent, ethical, and knowledgeable Realtor can make your moving experience wonderful, an incompetent or malicious agent can ruin your experience and cause tremendous stress, financial loss, and long-lasting frustration. A good Realtor can make an enormous contribution and is well worth the expense. However, a bad one can be extremely destructive and dangerous. It would be better to stick a "for sale" sign in your yard than hire a bad agent, but if you have the chance to hire a good one, you won't regret it.