The argument at the recent SF Marketplace Conference was made by Pete Flint, Trulia founder: “the future of real estate is in quality.”
I couldn’t agree more.
For that “vision for quality” to transpire into reality, the real estate industry must forgo pay-to-play, commission kickbacks, bait-and-switch schemes, price fixing, and a consistent urge to violate RESPA. As long as the industry continues to focus on poor lead generation strategies, the quality will continue to evade the process. Today, the bulk of the industry operates under the assumption that “no up-front costs” referral fee networks aren’t costing the industry anything. The truth could not be further from reality. Referral fees degrade both, the service quality and the price competitiveness. It is a proven economic fact: kickbacks result in lower quality of service and higher prices for consumers — the industry eats itself alive from both ends. From one end, having to consistently pay 25%-40% of agent’s commission in exchange for successful leads, the referring real estate agent loses competitiveness and effectively works for someone other than their client 40% of their time. From another end, the referral network is inherently biased with pay-to-play and cannot provide anything but a subjective match. There is a perfect storm brewing for massive industry disruption, we are in the eye of it right now in 2019.
What does disruption require?
1. Scaled exposure of added costs and pay-to-play bias proposed by every referral network and house-flipper that operates in the United States.
2. Live and scaled consumer-focused alternative, an Open Marketplace.
HomeOpenly aims to deliver both of these pre-requisites in our upcoming release in April of 2019, an absolute implosion of information that actively guides consumers out of the broken process.
What if such disruption cannot be achieved? Can we just forget it all and move towards how the things used to be? Implementing a scaled and sustainable consumer-focused approach in residential real estate transaction is going to happen. In the era of marketplaces such as Airbnb and Amazon, there is simply not enough incentive to bypass the biggest consumer asset class in the World, it will be disrupted. Consumer-focused real estate agents have already made a splash into the industry and a series of scandals will continue to bring havoc on the Zillow Group and realtor-Opcity kickbacks scheme — the largest MLS aggregators in the country. Zillow Offers will continue to be exposed with its 1% success rate, where 99% of all users are converted into leads and sold in exchange for kickbacks, to be precise, $20 Billion in fees, as the new CEO claims. Realtor-Opcity will continue to suffer as their “lead generation pipeline” continues to steer consumers toward random real estate agents, without any merit, other than whoever is willing to pay 30%-40% of their commission back into the process. These referral fee networks will be disrupted not because these employ terrible business models, but because they consistently took to adopt pay-to-play in lieu of consumer-focused UX.
What is quality in real estate?
You would have to imagine it because today we have only bits and pieces brewing into what will eventually become an Open Real Estate Marketplace. This process doesn’t just reduce kickbacks, it illuminates it. This process doesn’t just generate leads for agents who have agreed to pay 40% of their commission for the privilege, it allows consumers to make an educated choice and work with whomever they choose. This process doesn’t just expose price-fixing, it allows an individual agent to determine their own price levels and service offerings. Most importantly, an Open Marketplace lowers home transaction costs organically by establishing an open and transparent process for all parties involved.
Why the resistance?
Over 2,000,000 real estate agents in the United States are fighting to help buy and sell what is only about 6,000,000 homes each year. When an average volume of transactions completed by any one agent is only a few homes per year, there is a market for broker mentality: “we buy leads with 40% of our commission, jack up the price on our commission, otherwise we are going to miss out on half of our sales.” Be that as it may, this isn’t what anyone in their right mind would call “quality.” Such logic is justified in a broken market, but it is directly contrary to consumer-focused UX.
What is the solution?
At HomeOpenly we have come up with a guidebook that simply spells: absolutely free leads. There are no costs to real estate agents to join into the network, before or after the successful sale. In this live experiment, we aim to change the existing logic into the consumer-focused approach. By the time we are done scaling this idea, the real estate logic will spell something like this: “we receive free leads in an Open Marketplace, able to set competitive commissions and fairly advertise service offerings, and this is how we make half of our sales.”
In this context, the concept of “quality” seems simple enough.