Technology is the new real estate

I recently wrote about companies that are going through identity crises. Are they real estate companies or are they technology companies? Regardless, the big name real estate disruptors have changed the industry. They have given home buyers control of their home search. They have also given home sellers choices of real estate services and commissions. But the recent trend of real estate companies touting themselves as technology companies may be a signal that large real estate brokerages want more change. But are they mistaking the map for the territory?

Are real estate brokers still interested in selling homes?

technology and real estate
Technology (infographic from nar.realtor)

Last November, the real estate brokerage Compass made headlines because of its ability to raise massive capital investments. In a Compass press release, the company announced raising $100 million in capital (Compass Raises $100 Million in New Investment Round; prnewswire.com; November 8, 2017). The colossal investment comes one year after raising $75 million in capital. The capital is to be used for expanding brokerage offices in new markets as well as “building new technology.”

Compass’ vision is to be “the world’s largest real estate platform.” The press release quoted an investor saying:

“Compass has proven that its technologically advanced platform is incredibly attractive to the industry’s top agents…Their position at the intersection of technology and real estate gives them the unique opportunity to be the single largest holder of real estate data, ushering in a new realm of possibilities for agents and clients alike.”

In a similar move, RE/MAX announced this week of its purchase of booj, a technology company. In a February 26th RE/MAX press release, the acquisition is touted as means to “…deliver core technology solutions designed for and with RE/MAX affiliates. The objective: technology platforms that create a distinct competitive edge for RE/MAX brokerages and agents…” (RE/MAX Takes Bold Step to Provide Best-in-Class Technology; remax.com).

Is the shift to  being a technology company about revenue?

It would seem that recent industry moves may indicate that real estate brokers would prefer to be technology companies. However, the latest trend may be more about generating revenue, raising capital and investor relations than it is about selling homes.

Lizette Chapman’s report on the matter is revealing (Tech Startup or Real-Estate Broker? Fidelity Values Compass at $2 Billion; bloomberg.com; November 8, 2017). Chapman likens Compass to Redfin saying that the company “is almost certainly unprofitable,” although generating massive revenue. In her reporting, Chapman quoted a seasoned real estate agent who was briefly with Compass, “The technology was mostly marketing tools…It was sleek, but I can’t say it was different from anything else out there.”

Although many home buyers and sellers turn to the internet for housing information, they don’t wholly rely on technology when choosing real estate services. According to the National Association of Realtors 2017 Profile of Home Buyers and Sellers (nar.realtor), a majority of home buyers and sellers hired agents with whom they worked in the past, or were referred by friends and family.

The problem with technology is that humans are the ghosts in the machine. The human element, contrary to technology, is erratic, messy, and highly subjective. The human element remains at the core of home buying and selling.

Many consumers recognize that tech and the internet are tools that are often used as gimmicks to get their business. Technology is not a substitute for an experienced real estate professional who can also empathize along the home buying/selling process. The turn to tech only underscores that residential real estate is still a personal business.

Choosing a real estate agent

Choosing a real estate agent is much like searching for a home.  It is an objective and subjective process.

The real estate agent is supposed to be a fiduciary that is supposed to protect your rights and assets.   A real estate agent is supposed to be honest and act with integrity.  They should act in your best interest.

The quality of an agent is not dependent on the firm. Quality agents are affiliated with almost all brokers. If you haven’t already, ask friends and family for their recommendations.

Prepare questions to interview several agents.  The purpose of the interview is to learn about the agent’s professionalism, training, and knowledge base.  You get to hear about their experience, and get a feel how they interact with you.  Besides asking about their experiences, ask how many years they have been selling homes, and if they full time agents.

If you live in an area where agents are licensed in multiple jurisdictions, ask about their experience in the area you plan to buy/sell. Just because they have a license to sell homes doesn’t mean they have extensive experience in that jurisdiction.

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Evolution of real estate agent business models

by Dan Krell © 2011
www.DanKrell.com

When comparing real estate services, it is sometimes difficult to understand operational differences that could impact your transaction. Although the basics of selling real estate have not changed much over the years, the manner of delivery has changed. To understand how an agent’s business model may differ from another’s, let’s look at how several models developed.

Although real estate cycles, technology, and laws have contributed to the evolution of the real estate agent and how they deliver service, the “traditional” real estate agent is still around. The traditional real estate agent typically works solo, focusing on personal service rather than selling a high volume of homes. Since the agent is a solo practitioner, direct access to the agent is expected when issues arise in your transaction. The individual agent has their strengths and weaknesses; their experience and talent can be the difference in any transaction.

In past market surges, many agents found that their time was being stretched thin. To take advantage of the business environment, some agents felt that leveraging their time by hiring an assistant could grow their business. The idea was that the agent could spend more face to face time with clients and potential clients; while the assistant would deal with lower level functions, such as answering the phone and advertising.

Some assistants were licensed agents, so they could work directly with clients by showing homes and writing offers when it was necessary. As the market expanded, real estate assistants were spending more face-to-face time with clients as the lead agent was once again stretched for time. Agents keen on expanding their business, found that they could leverage even more time if they hired more licensed assistants to form a real estate team.

Although the “team” approach became popular about the time when buyer agency was introduced, it did not reach its peak until the boom market in the early to mid 2000’s. Initially, real estate teams were loosely comprised of a lead agent and several buyer agents (and sometimes an unlicensed assistant). The lead agent was focused on face-to-face time with home sellers, while feeding buyer leads to the buyer agents on the team (and of course retaining a part of the buyer agent’s commission). There is no coincidence that the peak of the housing market and this type of team structure coincided. As buyers became scarce, many of these teams contracted until (in many cases) the lead agent reverted once again became a solo practitioner.

To achieve an even higher volume of business, the team approach evolved further to a corporate or bureaucratic structure where licensed agents were hired to deal with specific tasks of the business or transaction (for example, one person would coordinate home inspections, another would coordinate contracts, etc). Various forms of this structure are still used today. The lead agent typically lends their name to the sale while team members conduct the day to day business of interacting with clients.

Like real estate agents, agent business models are not the same; and like individual agents, each real estate team has its own personality. Each model has pros and cons. The most touted benefit of working with a real estate team is that you have the team’s combined experience at your disposal. Conversely, a solo practitioner provides direct communication and typically excels in local real estate knowledge.

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Comments are welcome. This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of January 24, 2011. Using this article without permission is a violation of copyright laws. Copyright © 2011 Dan Krell.