Every generation of mankind has lived through some form of a revolution. For example, the first agricultural revolution occurred in 10,000 B.C., Thomas Jefferson’s Revolution of 1800, the industrial revolution of the 1930’s. All the way to the present, where we find ourselves in the middle of the Digital Revolution. My generation is the last who will have known a world with no internet, no smartphone, no social media. I got my first email address when I was a freshman in college. I got my first cell phone two years after I graduated college. Many people are quick to embrace the change, others not so much. For example, it took friends of mine going online themselves to set up an AOL messenger account and a couple of years later, a Facebook account for me before I begrudgingly started accepting these advances.
The commercial world can be summarized with the same split opinion as well. The internet, smartphones, and apps have created entire new industries that didn’t exist 25 years ago. Other industries have gladly embraced technological and digital advancements to make their operations more efficient and cost-effective or open additional revenue streams. Even Major League Baseball has embraced algorithyms and advanced analytics programs that have completely replaced 100 years of managerial intuition. Unfortunately, like me, the real estate industry has been reluctant to embrace the digital revolution and until recently has actively worked to keep technology out of the buying/selling process.
But why? There is so much innovation out there now that has been developed specifically for the real estate industry. Companies like Zillow allow for sellers to post their home or buyers to begin their search online. The ability to apply for a mortgage, submit an offer, and even close on a home have all been digitized. Still other companies are even trying to implement new strategies of buying and selling a home. Whether it be a discounted commission model like Redfin, an agentless model like Homie, or a trade-in system of buying and selling being attempted by Knock, the opportunities or endless. So why have traditional brokerages fought so hard to maintain the status quo.
A lot of theories can be postulated, but I have a strong opinion that there are two correlated drivers which I have developed simply from my own experience and what I have seen first-hand from both sides of the table. First is overwhelming cost structure. A lot of real estate firms have huge fixed overhead expenses that include physical retail outlets and corporate management & executive compensation expense. They simply have too many expenses that are not directly related to the execution of the real estate transaction (AKA revenue generation). So they either don’t have the disposable capital to invest in new technologies or can’t risk a cost savings implementation expected to be passed on to the client. This puts them in a catch-22 where they can’t improve the experience for the customer for fear that it might reduce revenue to a point where they can’t service their fixed overhead demands. This locks in the role of the traditional agent to get out and turn as many units as possible at as large of a commission percentage as possible.
This leads to my second driver assumption. Due to the above, the traditional agent is too important to the survival of inefficieny in a traditional firm that they can’t afford to take a risk in terms of the agent’s productivity. So a mentality of “if it ain’t broke, don’t fix it” sets in and traditional firms find themselves fighting to maintain an outdated model simply for the sake of survival.
But with 90% of home-buyers beginning their search online now, the role of the agent has changed and older, larger, more traditional firms need to adapt. Don’t misconstrue what I am saying here. I don’t believe the answer is for all firms to completely digitize, eliminate the agent, and discount the commission. I truly believe a well-trained, experienced agent who takes their fiduciary responsibility seriously plays a valuable role in the real estate transaction. What I do believe is that a carefully designed and implemented technology strategy is needed for the real estate industry to keep pace with the ever-evolving way clients engage in the buying and selling process.
Technology should be utilized to support and supplement the agent’s ability to serve their clients. A perfectly designed platform would allow a client to rely as little or as much on a physical agent as they feel comfortable. A situation of a first time home-buyer who isn’t sure what needs to be done encourages more consistent and constant interaction with the agent and the platform. But an experienced investor who buys and sells homes multiple times a year drives interaction only when an issue arises. A perfect platform would then be able to measure the ratio of a client’s engagement with just the system itself and the physical agent, then calculate an appropriate level of commission based on a sliding scale.
This type of innovation is a dream at this point, but the bottom-line is this isn’t an all or nothing proposition, nor should it be treated as such. The industry needs to come together to develop the best strategy for serving its buyers and sellers. Each brokerage needs to determine who their target customer base is and adapt their evolution accordingly. One of the most popular lines I hear an agent utter is “I’ve been doing this for 20 years…” Unfortunately, that ignorance prevents a client from obtaining the best representation possible. I implore us as an industry to embrace the revolution. Don’t be scared of it. Identify that balance of digital and physical representation and do what’s right for our clients by “virtually” guaranteeing a positive experience.
Todd Wilkinson is the Founder and Owner of FonHome Realty. FonHome is a customer-centric brokerage where our clients are in control and our experienced agents are respected for providing the positive and exciting experience the real estate transaction should be. Todd is an accomplished real estate investor with an undergraduate degree in Financial Economics and a Masters’ degree in Business Administration. Todd has held senior management and executive level positions with the world’s two largest retailers and a successful startup venture. Todd has served terms on the University of Arkansas Advisory Board and is actively involved with the St. Theresa School in Kenilworth. Todd opened his own brokerage after feeling underserved in his personal experiences with real estate transactions and wanted a firm whose mission was on serving the fiduciary responsibilities guaranteed to the Buyer and Seller. Contact Todd today for a free Comparable Market Analysis for your home or for advice on beginning your search for a new home at www.fonhomerealty.com.
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