As a longtime watcher of real estate and technology, but still just a consumer in every respect, I have a question for the technology-savvy realtors.
What does it matter to me, as a consumer, if you’re a tech-savvy agent?
It’s a real question, actually, because at this point, I’m not sure what the answer is. Let me explain.
Technology = Productivity, Right?
One of the hallmarks of technology in any field, in every endeavor, is that it makes things more efficient. And as a result, it creates productivity gains.
For example, word processing software makes it possible to create multiple copies of a finished document in a matter of minutes, rather than hours that it might have taken with a typewriter, whiteout (do people even know what whiteout is anymore?), carbon paper, and the like. It also makes it possible to reuse frequently-used documents by editing an existing document, rather than having to recreate the whole thing on a typewriter. The typewriter in turn makes it possible to create documents in a fraction of the time it might take to write it out by longhand, then send to a typesetter to put through the printing press. And so on and so forth.
Every single piece of technology one can think of, from the steam engine to the latest iPad app, has productivity implications.
Presumably, real estate is no different. What might have taken days in the past (for example, circulating listing data throughout the MLS) now takes minutes as one can login to the Internet, go to the MLS website, and enter the data directly as opposed to having to send some piece of paper to the MLS headquarters by mail to be printed into the listing book or some such.
Advertising a property for sale went from having to call the classified advertising department of various local newspapers to place an order to automatic syndication to hundreds of websites. Presumably, there were efficiency gains along the way for the agent and the broker.
So Where Are the Savings?
In every other industry, the advance of technology has meant savings for the consumer. This 2003 GAO report (PDF), for example, suggests that the growth of the Internet in the air travel business has meant lower costs for consumers who use the Internet to book their own tickets. In real estate, various studies suggest that the exact opposite has occurred.
First, we have the 2005 GAO Report on brokerage commissions (PDF) which concludes:
Various studies using data from the late 1970s through the mid-1980s found evidence that the majority of listings in many communities clustered around the same rate, exactly 6 percent or 7 percent. Although these studies and observations do not indicate that there has been complete uniformity in commission rates, they do suggest that variability has been limited. Many of the industry analysts and participants we interviewed said that commissions still cluster around a common rate within most markets, and they generally cited rates of 5 percent to 6 percent as typical now. (Page 9)
Second, we have this paper from the AEI-Brookings Institute which finds:
In fact, the strange nature of the fee structure has led the industry and press to report that average commission rates have “fallen” from about 6 percent to 5.1 percent between 1991 and 2004. Those figures, however, are somewhat suspect and misleading. Even accepting them, the average commission has still increased in dollars over that period, even after adjusting for inflation. Furthermore, any decrease in the rate appears to be primarily due to brokers’ willingness to charge somewhat lower rates for the increasing number of much higher-priced listings. One would have expected that an information and communication-based industry, like real estate brokerage, would enjoy tremendous cost efficiencies from the development of the Internet, databases, and other communication technologies.16 Yet it appears that traditional brokers generally have not passed on their cost savings to consumers in the form of lower fees. (Nadel, Mark S., A Critical Assessment of the Standard, Traditional Residential Real Estate Broker Commission Rate Structure (October 3, 2006). Available at SSRN: http://ssrn.com/abstract=942348. Emphasis in original)
Both studies suggest that there is tremendous competition within the real estate brokerage industry — a fact that everyone who knows anything about real estate does know. But they both think it’s odd that there is no price competition.
I have a different question. Assuming that technology in real estate does in fact lead to efficiency gains and productivity gains for the real estate agent… what is the benefit to the consumer?
Why, as a consumer, should I care that you are techno-savvy?
Real Estate Technology Overwhelmingly Concerned with Marketing
Fact is, real estate technology is concerned mostly with marketing and new customer acquisition. Think about the social media craze, for example. The justification for all the blogging is to acquire new customers, as they see that the blogging realtor is a real estate expert. The justification for FaceBook and Twitter is that they help to attract more customers, or help the agent work her sphere of influence more effectively. IDX websites, focus on SEO, listings syndication, etc. are all designed to attract new customers, or to help the listing agent land the listing contract.
And those advances are all welcome, and they are innovative in themselves.
Thing is, once you are a customer, there’s precious little technology that comes into play. Consider, for example, how many mobile apps there are designed to market a listing or to attract new customers (which are often the same thing, since listings draw buyer inquiries, which may be directed elsewhere). How many mobile apps are there designed to make the real estate transaction more efficient? Apart from DocuSign, I can’t think of any technology off the top of my head that is about making the actual transaction itself more efficient for the consumer or the professional.
Tale of Two Agents
As a result, I cannot rightly think of why I, as a consumer, should use a techno-savvy agent over a luddite agent. So let’s do just that. Let’s say that I want to buy or sell a home, and my choices are between a techno-savvy agent (let’s call her Mara) and a stuck-in-the-dark-ages agent (let’s call him Luddy).
Let’s say Mara is equipped with the latest in technology, IDX-enabled website, full listing syndication, mobile applications, the iPad, Facebook, Twitter, blogs, and the rest of it. Let’s say Mara is all kitted out with DocuSign (electronic signatures on documents), online transaction management systems, and the like.
Luddy, in contrast, is a dinosaur whose only concession to technology is that he has a cellphone. Not an iPhone, nor a BlackBerry, but just a plain old cellphone. He also has a 3-year old PC, and hires a young assistant to help him enter listings into the MLS, and “do the computer thing” for him. His idea of a transaction management system is a young woman who works in his office.
If I’m a seller, what is the difference between using Mara and using Luddy to sell my house? We already see that I would be charged the same 5% or 6% by Mara and by Luddy. So there is no difference in price, even though one could assume that Mara with her impressive technology infrastructure is able to work at a fraction of the effort that Luddy would have to put out. So presumably, Mara’s online transaction management system is better than Luddy’s assistant, right? How?
If I’m a buyer, what is the difference between using Mara and using Luddy to buy a house? Consider as you think about this the fact that I probably have access to a bunch of tools and websites already that lets me search for properties to my heart’s content. Chances are that I have access to a bunch of tools and sites that give me school info, crime data, weather patterns, sex offender lists, and the like. So what would be the difference to me, as the consumer, between using Mara to buy my house and using Luddy?
Yes, I know that the value of the realtor remains. People want local expertise, people want advice, people want someone else to do the dirty work of negotiations, ensuring inspections get done, showing houses, etc. This scenario isn’t about whether consumers should use a real estate agent or not; of course they should. This scenario is about whether consumers should use a techno-savvy agent or not.
If Mara’s not using the additional efficiency and productivity for additional benefits to me the consumer, since she’s charging me the same as Luddy, why do I care that she’s technologically plugged in?
Your thoughts are particularly welcome on this topic.