The Commoditization of The Real Estate Industry - Podcast EP024
This is a topic we are both extremely passionate about - over the past decade our industry has changed more than in the previous 5 decades and the pace of change is accelerating. This week we talk about the changes we are experience in our industry right now - and how we are counter-punching to keep our businesses thriving! - Enjoy
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Kelley: We are live. Welcome to the Thrive Not Survive podcast. I am your host, Kelley Skar, from Calgary Redline Real Estate. As always, my co-host coming live from Brantford, Ontario, Jeff Thibodeau. How are you, my friend?
Jeff: Fantastic today. I survived the eclipse.
Kelley: Yes, so did I. I was actually out showing properties with my kids in the backseat, and the clients that I had actually had those glasses, so it was really cool. The kids got to see the eclipse.
Jeff: Oh, nice. Family real estate, I love it.
Kelley: Family real estate, that's how we roll sometimes. Got to make some adjustments, right? On the fly. Today's topic is the commoditization of our industry and how we're going to win. What we're going to be talking about today are a couple of different changes that are happening, taking place right now that we're seeing within the real estate industry. Then we're both going to kind of give an example as to the way that we see the future and how we're going to survive this ultimate shift that's going to happen. Jeff, I'm going to hand it off to you and let you kind of wax poetic over there, and then I'll jump in with my two cents as we move along.
Jeff: For sure, this is one of our favorite topics to kind of chat offline about. When you and I get together, we're always talking about the destruction in our industry and where things are going. A lot of it is technology-based, but the first thing I wanted to talk about was something that actually I heard on stage very early in my career at a big brokerage keynote event. It was a non-real estate speaker, it was an economist talking about our industry. This is even like six or seven years ago. It stuck with me and, hopefully, I'm going to be able to give his exact quote.
Basically what it is, is really a race to the bottom happening with brokerages. I don't mean to say that in a bad way. That's not a negative connotation. What happened a long time ago is that the brokerage basically kind of invented this model of the independent agent, where they would let you go do your own thing, run your own business, use their brand, but the service kind of declined a little bit from the boutique-type brokerage. What we've seen even more recently is even more of that's happening. From FSBO companies, property guys or whatever, doing mirror posting and accessing the MLS, to super discount, like park your license type brokerages, and then just brokerages with a good brand name and a good logo but, literally, they don't provide anything to their agent.
What he said on stage was, he said when any industry, real estate or anything, becomes commoditized, it becomes a fast race to the bottom. The only thing left when the consumer sees this all that's the same is our feet. He said you can either decide to compete there, because if you compete anywhere else against the discounter, it's hard. So you can either decide to hop in that game and do the least and charge the least, whether you're a brokerage or an agent, or you can decide to do a complete 180. That was his message on stage. He said you can actually increase your service, office premium items, offer home staging, offer pro photography. This was back before a lot of that was even common, six or seven years ago.
That meant a lot to me when I heard that on stage, and I took my business immediately in that direction. One of the things I first did was I came home, consulted with a home-staging group. They would go and do the home-staging consultation for like a $100. Then I added a pro photographer for $150. For $250, I just started charging a half-point more of commission. I was recovering it, I was actually making profit on giving premium services and I'm like, "Wow, this makes so much sense." I am out of the race from the bottom, I'm going to stop cutting my fees and discounting. Any time I feel frustrated by it, I'm going to add something else, add something more to my business. That's item number one for me.
Kelley: The commoditization. That's such a scary word. Really it is.
Jeff: It is, because commodities, brand no longer matters, agent no longer matters. A commodity really means the source or the label on the thing doesn't matter, you just buy it. It's concentrated [inaudible 00:03:55].
Kelley: Almost makes me feel like cattle.
Jeff: No one likes to feel like cattle.
Kelley: Just being bought and sold. It is, it's a scary word. It means the disruption is coming. It means that we could very well, as an industry, mean nothing to the consumer anymore than somebody that may be opening the door. That kind of is a segue into my first item, which is tech companies becoming brokerages. I know we're in Canada, I know things are a lot different here, but what's happening in the United States is going to happen here in Canada at some point.
I'd invite our listeners to go to zillow.ca and see where that website, where that URL actually takes you. That's the first thing. Second thing is, there are companies like Redfin out there, like Zillow, which isn't a brokerage yet, and I'll come back to that in just a second. You've got these companies that are highly discounted, they are talking about becoming the Amazon of real estate, becoming the Ebay of real estate. This guy Kelman, who runs Redfin, is not stupid. He's a very smart guy and he understands the language that he's using when he's out there in the media and he's doing these press releases. He's understanding that the media is picking this up and, eventually, consumers will start to see Redfin as the Apple of real estate, the Amazon of real estate.
What he's done is, he's got this real estate company on the front end that really is a loss leader. They don't make a lot of money off of the thing that they run off the front end. Where they're making their money is on the back end side of things, with their mortgage company. They're filtering that buyer through the real estate sales process and getting to the mortgage, where they're actually making the dollars. That's where those guys are going to win. They're coming out as more of a tech company, more as a company that has agents that are not independent. They're actually salaried, so you go to work at Redfin and you earn a salary.
This could potentially be the future. Their IPO was released, I think, a week and a half ago. Their initial public offering came out at like $15. It's skyrocketed up to like $45, and now has settled down somewhere around $30. They're double where their IPO was. I think if that's an indication of what their success is going to be, if their stock continues to rise, that just means that there are consumers out there, people that are investing their money into this company can see that this company is going to start to make money along the same lines as what Amazon has done for the online consumer.
That's where I'm seeing a lot of things. To kind of double back and go back to the Zillow thing, we have to understand who is running Zillow right now. Spencer Rascoff, where did he come from? He came from Expedia. Let's think about Expedia and relate that back to real estate. Expedia is a company that came out of the tech bubble, the tech boom, back in the early-, mid-2000s and really disrupted the travel agent industry.
How did they do that? They didn't do that by becoming a travel agency. They did that by connecting the consumer with the guys that run the airlines, with the guys that run the hotels, or girls that run the hotels. They connected the consumer direct so that they could go ahead and plan their own vacation without having someone in the middle. That's sounds very, very similar to what real estate is all about. You've got a consumer, you've got a seller and then you've got us as agents in the middle. If we think that Zillow isn't going to become some sort of a hybrid-style brokerage, and I'm not saying that they're going to have all of these bricks-and-mortar offices all over the United States, what I'm saying is that they are going to find a way to become a brokerage without having all of the bricks-and-mortar part of the brokerage, just like they did in the travel agency industry.
Jeff: Yeah, I agree. Zillow is the case to watch, and I've gotten to watch a lot of the leadership team of Zillow on stage at different events talk about it. They'll tell you, with a giant smile on their face, that they're not in the business of getting realtors out of the transaction, but you can-
Kelley: That's right.
Jeff: Any part of the machine that they can enhance and keep a little bit more money or charge agents more to advertise, they released a feature that allows sellers to accept offers directly on their properties. It's very a very limited beta release and it's from a pool of investors, but that's your favorite tool in the States where it's buying and selling real estate, cutting the agent out of the transaction.
This is the thing, it was my item two, too, on technology. Same kind of thing, if we sit around and pretend to be the gatekeepers, the consumer does not care. They're lazy, they're going to go where the data is. If one of these giant technology companies is giving the consumer the stuff that you're asking them to register or to sign a contract for, it's not too long before the consumer just goes straight to them.
How do we combat this? One is just embrace it, right? Stop thinking of yourself as a data gatekeeper and start focusing on, like we just talked about in point one, your service, your local market knowledge, your ability to actually market and negotiate a property, and becoming more of a consultant and advisor to your clients, rather than a task master, door-opener or a guy that fills in blanks on offers.
Kelley: A salesperson.
Jeff: Yeah. The difference between, and I feel so confident that Zillow's not going to take over the world because you and I are in this every day and we understand that houses are not commodities. Every house is unique, every family situation is unique, and most people do not go through this complicated process more often than once every half-decade or so.
The consumer is always going to want a trusted advisor, much like even though you can go and buy your own stocks, the majority of Canadians still have their money with a bank and in mutual funds. Just because stock-trading became easy didn't mean everyone jumped the ship, because it's confusing, there's a lot of money at stake and most people aren't ready to do it on their own. We can all change the oil on our car, too, but I don't choose to.
I'm not something that it's just going to devour our industry, but it's going to just make the people who rely on data-gating obsolete. If that's part of your business plan, better look at it.
Kelley: That brings me to my second point, that the major changes that are happening right now, it's not happening right now at this second, but the data in Canada is going to become available at some point. I think there are enough advocates out there for it. I'm an advocate for it. Point-blank, I am telling you right now that if the data were released tomorrow, I am not panicking because I am very solid in my business and I know the value that I bring to the table. Like you said, it comes back to this gatekeeper mentality. This is the way that the industry has been for 40, 50, 60, 100 years. We are the people with the data, you have to come to us to get it. Th people that are most afraid are the people that have that mindset of being that gatekeeper and not allowing that data to become readily available to the consumer.
I would invite any one of our listeners that watching on YouTube, you can leave a comment down below on iTunes, shoot us an email, firstname.lastname@example.org, I'd love to engage you in conversation. Tell me why you don't think the data should become available to the consumer. Why shouldn't they be able to see what their neighbor sold for? Don't give me this whole privacy bullshit language, give me a break. You can go down to the land titles office tomorrow and go and pull a title on your neighbor's house and you can see what they paid for it or what they sold it for.
It isn't about privacy. This is about a data stream that will eventually become available to consumers. You have to decide, as an agent, where your value proposition is. I would venture to say a lot of our value is interpretation of that data.
Jeff: Bingo. That's what a reporter does, too. They don't make the news, they comment on the news. That's our job as realtors, too. It's not protecting the data, it's interpreting it and leveraging it to our client's advantage, whether they're buying or selling. One hundred percent agree.
Kelley: What are we going to do, Jeff? What's the future? What are we going to do here? How are we going to survive?
Jeff: Here's the thing I really see coming down the pipeline. We've touched on this a couple of times, but I'm watching it happen. More than likely, oh, there's going to be virtual reality home tours, there's going to be this, there's going to be offers negotiated, click, click, click in space. Yeah, all those things are going to happen. Those are just incremental improvements on stuff that already exists.
The big thing that we've already touched on is this, we're calling it the "Uberization" of our industry, and Airbnb, Expedia, Uber. What they did is they took out the middleman between service and consumer, that long-held gatekeeper, the taxi driver, the hotel booker and the travel agent. It's going to happen in our industry, too. I think the fulcrum when it happens, and there's lot of companies working on this, is when somebody else invents a data base that's superior to our current MLS system.
A lot of the consumers don't understand. Maybe some realtors listening don't understand, but it's this completely fragmented system. Not only do we have these giant walls up at a national level that, to your point just a minute ago, but inside of each local board, they're all fighting from their neighbors to control their data and save their jobs at the board levels. All that in-fighting, the problem with it and all these walls being put up, is it's stopping our own industry from innovating and making a better product for the consumer. Someone like Zillow or whoever else, Rogers tried it, but they were a little too early to the game, was [Ducasa 00:13:34], but somebody else is going to build a better data base and a better website for the consumer and then, bingo. They're going to get the eyeballs and now we're going to have to pay that person to advertise on their site or to get a lead from them.
This is the big thing that I think the shift is going to happen. How do you protect yourself against that? We have to realize that the MLS is not what it used to be. It isn't our thing. The data of homes for sale and homes that sold is a public entity, and now we have to leverage it. You have to connect in. We have to be on the leading edge of who that new provider is. My friends in the States, who embrace Zillow and dive their budgets into it, these big teams and brokerages, are crushing their neighbors who say, "I would never use Zillow. They're running our industry."
You can decide, are you going to take stand and protect your industry, or are you going to jump in and make money for the next decade as a real estate agent or as a brokerage? That's it. It's a mindset change, it's not some secret. It's the fact that, get on the bus, guys, and hop in with these changes, embrace them, modify your business plan. Take a critical look at where your lead sources are today. Are those at risk of just drying up if somebody flips a switch on your website or your lead provider? Or, do you have a brand, you have a name that's recognizable in your town? Are you creating content? Do you have a pool of people that recommend you? That kind of business sustains when it gets commoditized. The data-driven lead generation, IDX-type business starts to collapse, I promise.
Kelley: Yeah, a hundred percent agree with that. We talked offline about this and we always talk offline about this. This is one of my favorite topics. My position is that real estate agents have to get out of the mindset of being a salesperson. What they have to adopt is a marketer's mindset. What I mean by that is, you can act as an advisor, as a consultant, to the clients so long as you can get the clients. As we become commoditized, technology, and this is just an aside, we actually haven't mentioned this yet. Keller Williams went out and announced that they're going to start a billion-dollar fund to fight technology with new innovations in technology, which, to me, doesn't make any sense whatsoever. They're just throwing away a billion bucks. They're going to try and fight these pixels, they're going to be banging heads against each other. Who's going to win in that? The tech companies are going to win. The agents are going to lose out.
This is how you differentiate yourself as a realtor as the data becomes opened up: You adopt a marketer's mindset, you allow yourself to become an advisor and a consultant and get away from being that salesperson. You need to understand that media is everything right now. You have to understand that video is playing a major, major role within the Interwebs, Facebook and Instagram and all of these other platforms. YouTube is still relevant. Podcasting is a great way to get your message out. Writing an email newsletter, blogging, all of these different pieces of media tied back to you in creating that know, like and trust factor for people that are looking for an agent to represent them.
If you can create that front end, that media company that Vaynerchuck talks about all the time, you're differentiating, your unique sales proposition to those clients is going to be the fact that you are in their face more than the next guy and you are relatable to them, so that they can choose you over your competition and bring you into their fold and allow you to represent them in their real estate transaction. You're not going to be able to get there unless you have that media arm of your real estate company.
Creating the media company, allowing the media company to drive the front end, where you've got your real estate sales on the back end, adopting a marketer's mindset, that is how you're going to win in the future. It isn't some shiny penny piece of technology. The technologists, they're going to win every single time, because we as realtors are stupid enough to lay down our credit card and buy the next shiny object. They will always win. There will always be vendors in our space, there will be always be tech companies in our space, but that isn't the way to differentiate yourself in your business and win more business and stay in business as we become more a commodity.
Jeff: Look, guys, here's the final two cents on this. Google is trying to index real estate listings. Facebook just released a new marketplace tool where I can send my IDX listing to Facebook and they will auto-create all the ads and drive the leads for me. Amazon is playing in the real estate space. If you think any one of these three companies puts their head to it and you're going to win on pay-per-click advertising or driving traffic or whatever, you're not. They're going to beat you on SEO, they're going to beat you on Google ad words, they're going to beat you on Facebook marketing.
So back to our point about creating a brand, either embracing your brokerage's brand with you as a sub-name, creating your own sub-brand and really making a stand in the market, insulating yourself from this commoditization by providing higher level of service and a recognizable, repeatable business that your clients can recommend you. You do that well, at the same time watching these technology tools and getting on board at the ground level with them. Test them out. A new platform comes out that's promising you leads or exposure for your listings, what's the harm in testing it out for three months and seeing? You might be the guy that locked up that digital real estate for your city on that tool right out of the gate.
We've both seen how being early adopters on platforms has affected our business, when people were kind of laughing at us a little bit for making all those videos back in 2009 or doing Google ad words in 2010-11 and getting on Facebook in 2012 and going really heavy. Now with the budgets we've pumped into Facebook, a lot of people I talk to can't comprehend that I would pay to put something on Instagram. I'm like. "Cool. Stay over there."
Kelley: Yeah, exactly. The less competition, the better for me, thanks.
Jeff: Yeah, that's all good. Please don't listen to my podcast, either.
Kelley: Yeah, absolutely.
Jeff: This is part of a larger thing happening. It's not real estate, guys. It's the world. The technology is taking out inefficiencies in markets. Unfortunately, I hope I don't offend anybody here, but there's a lot of inefficiencies in the job of a realtor, and a lot of roadblocks we put up and headaches for the consumer. They're not going to sit around idly and wait for you when a better tool arrives. Get out in front of it, make people want to recommend you, make people have an incredible experience, and embrace the new tools. Stop putting up walls. This isn't Trump, right? We're not building walls. We're going to break them down and hop on the train. We're moving to the future. Let's do this.
Kelley: That's it. That's the last word, right there. I think we just leave it.
Jeff: All right, I'm shutting it down. I'm going to throw us out today, Kelley. You do it so well every week, but-
Kelley: All right. Go for it.
Jeff: If you're listening to this on SoundCloud or on iTunes, make sure you subscribe. That way it pops into your phone or into your email regularly. We'd love if you left us a comment and a review. It means the world to us, event those little messages just to let us know that you're listening keeps us fired up to creating good content. We're looking to get some more guests on the show as we move forward, too. If you disagree with anything we're saying, we would love to get on the screen here and have an open, healthy debate. It would be awesome. We want people who disagree with us, because me and Kelley agree on so much that we get boring sometimes.
Thank you, as always, for listening. We appreciate your attention and we will be back very soon with another episode. Say goodbye, Kelley.
Kelley: All right, see you later. Sorry, I was just still waiting for you to wax poetic.
Kelley: All right.