The traditional Realtor® model is under attack, and has been for a decade. The attackers are the Huns, unleashed by the Internet, and who have roamed the steppes of the World Wide Web annihilating one established industry model after another. Travel Agencies are their most storied victim. After Orbitz and Expedia obliterated the travel agent industry, everyone knew who was next. Real estate agents.
In the decade since, however, Realtors® have not fallen to the barbarians. In fact, trends indicate the growth of very non-tech sources of business. 66% of sellers either used their previous agent or the referral of friends and family to find an agent, actually up from 60% in 2014. Websites? 4%. And instead of resulting in more DIY sellers taking advantage of online selling platforms, For-Sale-By-Owners make up the smallest percentage of the market since NAR began compiling that data in 1981 (8% of sales).
With such a large fraction of it’s customers coming from “analog” sources, the real estate sales industry is actually highly resistant to disruption from Internet based business models. There is nothing yet to prove that Google AdWords and Facebook advertising can replace traditional agent-client relationships.
Nevertheless, new tech startups continue to dream of capitalizing on a paradigm-shifting re-imagination of the real estate industry, replacing agents and their commissions with apps, software and subscriptions.
It hasn’t yet worked. Partially it is because so many buyers and sellers continue to rely on personal relationships to guide their consumer decisions. But there is also a second major reason agents haven’t gone the way of travel agencies: buying real estate is a LOT different than buying a vacation package. Specifically, real estate is far more complicated, far more uncertain, and a far bigger investment. Imagine that actual vacations worked like this:
If Travel Agencies worked like Real Estate Agencies
You are going to take a vacation. But a BIG vacation. In fact, you are about to spend the equivalent of two years’ salary on your vacation. You have to take out a loan just to do it, a loan that dwarfs all the rest of your credit card debt, student loans and auto loans combined. If you fail to pay the loan at any time, your vacation is terminated early, your credit destroyed, and you won’t be able to take another vacation for at least the next seven years.
The vacation may or may not be worth the price you see on the website. It’s impossible to know for sure, partly because every one of these types of vacation is completely unique. When it does come time to book your vacation, you have to negotiate a time to further look into whether the vacation is a good fit for you, whether they will help you get a loan, and negotiate any improvements to your vacation package.
Also, you aren’t going there to frolic on beaches for a few weeks – you are going there to live. For the foreseeable future. To put your kids in school and try to stay in a safe part of town.
Also, when you click “book my vacation”, you actually can’t be sure that the person selling you this vacation package is even the actual company that owns it. It might have problems that cost you more money, or keep you from using the vacation package at all.
Is this the kind of vacation you would book on Orbitz?
I’d guess not likely. You’d probably want … a travel agent.
Every Real Estate Transaction is Unique, and a Big Commitment
Much of my own experience as a real estate agent has been spent marveling at just how complex and unique each and every deal can be. It is this variability that keeps real estate interesting, but also keeps us employed. Navigating the multitude of home options, micro-market information, contract contingencies and little surprises is a lot of work and stress most home buyers and sellers would rather avoid.
Technology is not the enemy, and major change continues to be fomented in the industry. Savvy agents adapt and adopt to their and Silicon Valley’s mutual benefit. But for those startups looking to replace agents altogether, the experience and “boots-on-the-ground” expertise of a real estate agent is a high bar to overcome. I don’t expect a real estate Orbitz anytime soon.