Power Shift Technology puts the client in the driver's seat
Colleen Barry, GSIR Director of Productivity
Technology has revolutionized our world. Each of us has instant access to unfathomable amounts of information, art, and music, right in the palms our hands. While we mourn the loss of the local book stores, record stores, and travel agencies, we rejoice in the ability to communicate with someone across the globe. We revel in our ability to research nearly any topic.
Likewise, there have been many positive developments that have shifted the balance of power away from service providers and into the hands of their clients. Real estate is one industry that has seen some of the more dramatic changes. From how people search for homes, to how homeowners think about selling, real estate has been revolutionized.
Fifteen to twenty years ago, a home buyer would need to contact a real estate agent in order to find out which homes were available. The agent would tell them about the properties available in nearby neighborhoods and would gather a list of open houses. Now, third-party aggregators like Zillow, Trulia, and Realtor.com gather information from public record, MLS services, and other sources to give home buyers the ability to search on their own. They can see what the neighborhood looks like, assess key characteristics of nearby schools, survey the options for grocery stores, and map how far the location is from their workplaces or loved ones. Buyers can see where and when the public open houses are occurring and can attend on their own.
This unfettered access to information has uncovered a fascinating contradiction: You might think that the power shift away from real estate agencies as "gatekeepers of information" would have reduced the need for them; just as the ability to search for and book hotels and airfare eliminated the need for most travel agents. But, just the opposite has occurred. While third-party aggregators placed more power in the hands of each buyer, they created an unexpected need for professional help.
Because buyers are doing more of the legwork themselves, the process has increased in duration from seven weeks to twelve weeks from 2001 to 2013. (source: NAR Study of Home Buyers and Sellers, 2014) The percentage of home buyers using an agent grew 27.5% from 2001 to 2013. (source: NAR Study of Home Buyers and Sellers, 2014)
This apparent contradiction highlights what an agent's job has been all along: To be a home buyers or seller's trusted advisor and guide. I argue that ours is a service industry much more than a sales industry. It simply took a technological revolution to make that clear. Annual studies by the National Association of Realtors (source: NAR Study of Home Buyers and Sellers, 2014) have found that what buyers and sellers want from their real estate agents hasn't changed much:
In short, clients want service, just as they always have.
Agents also help clients find the most accurate information. Not all the data on third-party websites is accurate; a predictable result of gathering complicated data from many sources. One example of this is the typical inaccuracy of a value estimate. Third-party websites typically use Automated Valuation Models (AVM) to generate values. While AVMs are easy to find, they can be wildly inaccurate. A 2015 study done by Gibson Sotheby's International Realty found that AVMs were over the actual sale prices by an average of only 6%. But, within that group, some properties were over or under the actual sale price by 25% and 41%. Property valuation is an art. It requires skill and nuanced understanding of a home's location, curb appeal, architectural style, condition, and other variables. As of now, AVMs are not able to create an accurate assessment of most properties.
Within the real estate industry, there also have been improvements to how we, as agents, share available properties, make offers, and complete transactions. Fifteen to twenty years ago an agent would take one picture of a property to market it. The marketing would typically consist of a one-page brochure, a window display, and a newspaper ad. The reach was extremely limited and the advertising lacked user engagement. Now our agents use our professional photographers to take dozens of beautiful photos. A study by VHT Studios in Chicago showed that professional photography sold homes 32% faster (source: VHT Studios, 9/14). Then the listing is shared in an online MLS (or several) and sent to third-party aggregators. Each viewer can zoom in on photos in each room to get a true feel for the property.
These enhancements have also opened up the international buyer market. As members of the Sotheby's International Realty network, our listings appear on more than fifty websites and a cascading platform of dozens of affiliated companies websites. Many of our third-party websites have international audiences or are based in foreign countries, allowing a buyer in Beijing, London, or Dubai to virtually tour our homes. This has increased exposure for each property, thereby quickening the pace of the market and increasing final sale prices for our clients. International buyers tend to make cash offers due to the difficulty in securing financing as a non-citizen, eliminating the need for financing contingencies. In fact, Boston is #7 in the ranking of US cities for real estate investment, underscoring the importance of reaching a worldwide audience. (AFIRE Foreign Investment Survey, 2015)
A lot of the paperwork involved in the transaction has also gone digital. Programs like Dot Loop and Docusign allow agents to create digital contracts and send them to their clients via email. Then clients can sign them quickly and easily from their computers, tablets, or smart phones. Recently, one of our clients submitted and won a competing bid by while waiting in the airport for his plane to board. That could never have been accomplished in the past. No longer do our clients need to wait by a fax machine or sign for a package delivered by bike courier. They can carry on their normal lives during the process of purchasing a home. The ability to act quickly has become even more critical since in 2014, 35% of properties in Boston sold for more than the asking price. (source: MLSpin)
Is the industry done changing? Definitely not. There is a battle being fought between several third-party aggregators. Zillow acquired the rental property website, Rent Juice, and then acquired Trulia. This created a giant in the industry. However, Rupert Mudoch's News Corp, acquired the Realtor.com website in 2014, after buying List Hub, a data distributor that had been feeding Zillow and Trulia. Predictably, List Hub ceased its distribution to give Realtor.com the edge in the market. This forced Zillow to scramble to create relationships with individual MLS services throughout the country. This battle will continue for the foreseeable future.
No one knows who the key players will be a few years from now. But, we can predict that change will continue to affect agencies and their clients. Real estate will become even more of an international business. And, if the competition continues, we can expect imroved features and services to benefit all of us.