All posts by sdebord

We Need Much More Honesty on Upstream

This post was originally published on the Notorious R.O.B.:

bogeyman2

Well, this should be fun. After Rob’s critique of my last piece about Upstream, I thought it would be appropriate to step into the Notorious octagon. Considering I’m not a trained attorney, that’s probably a mistake (yes, that’s the first of many self-deprecations to bloat my handicap on his turf). I once put a foot into law school before I realized I would likely work even more hours and earn far less than I could in real estate (cue the Raise the Barconversation), so that’s going to have to do the job.

Rob is a friend, one of the most precise analysts in the industry and a kind purveyor of a 3,000 word skewering. Though it’s outside my normal comfort zone (self-deprecation #2), I’ll try to adapt to the informal, irreverent, “quote and dissect” style employed here. Some of the best discussions in real estate happen here, and I’m honored to share with the Most Informed Readers in the industry. Enough of the lovefest—let’s get started.

I’ve made the case that a significant portion of pushback against Upstream is self-serving. Some of that comes from the MLS sector. Before the accusations of an MLS-hating broker begin, I think I’ve proven my bona fides in the past with love letters I’ve written to the MLS like this one. I’m not always right, but I have gotten guidance over the years from some of the smartest MLS leaders across the country and have great respect for the institution.

Digging in to the first grenade that Rob lobbed against my piece yesterday:

Rob: “he tries [to] position anyone who questions Upstream, criticizes it, or even questions it as some sort of a retrograde self-serving cabal of people desperate to stop progress”

Sam: “There are viable arguments against Upstream and its potential for success, but they seem to be the exception.”

How much of the industry is conscientiously against the business model, and how much is in self-preservation mode, we may not agree upon. But there’s definitely some of both. I’ve heard some really thoughtful arguments against the structural setup of Upstream, here on the Notorious blog, from some folks at HAR, and even my own NWMLS.

I’ve also heard arguments which have a primary goal of protecting the status quo. They may not be trying to stop progress, but their efforts would, nonetheless. The tone of the conversation is important. Here’s Rob, after a CMLS event that discussed Upstream at Midyear in DC:

“Then… the sessions end, people file out into the hallways, and… it’s ‘f**k them’ muttered sotto voce… I literally had one MLS exec say to me, ‘You know, I looked up the dictionary definition of “collaborate” — and we’re talking about the second definition here.’ For your edification, Merriam-Webster: (#2) to give help to an enemy who has invaded your country during a war.”

This doesn’t downgrade anyone’s argument for/against Upstream, but it adds clarity for the reader who may not wander those halls. I spoke on one of the Upstream panels at that CMLS. The reception was chilly. Being from a well-run regional MLS territory where we really like our MLS, it was eye opening to see the tension. Only my friend Carl DeMusz from NORMLS was willing to give me an alternate, yet reasoned MLS perspective afterward. There’s a history that has created a feeling of invasion in some of the MLS community. That’s partially brokers’ fault (we’ll get to that), but it also generates a defensive posture that lends itself to unnecessary skepticism in some.

“Perhaps the whole brouhaha would benefit from a little more honesty, that everyone involved kind of understands and acknowledges, but refuses to say for a variety of reasons.”

Let’s have that conversation. Rob apparently doesn’t care if he keeps his job, but I’ve always tried to avoid making enemies. Hopefully this conversation can be viewed as simply saying the things that we all hear in the hallways, but rarely make it into print.

There are self-serving interests on both sides of this conversation. Rob’s piece spells out some very real concerns that MLS interests might have, but doesn’t seem to touch the fact that we know some are merely holding back change that’s coming their way.

“There are brokers, nationwide, who will benefit from Upstream’s ability to reduce their costs of data input, normalization, delivery and storage. Instead of another set of Band-Aids, it delivers a cure for the mish-mash data delivery system the industry now employs.” – Sam

“Every single person involved with the MLS or with MLS technology supports those goals…Quite contrary to Sam’s assertion that there are these nefarious self-serving pricks who want to throw shade at Upstream because their salaries depend on stopping progress, every single person I know in the MLS industry, in the MLS technology industry, and in the Association world support the goals of Upstream.” – Rob

LOL. Can I write that here?

I’ll admit that I’m more than uneasy with the translation of my piece into calling MLS folks “nefarious pricks”. These things can take on a life of their own. So I’ll call it like it is, an inaccurate bastardization of my comments to support a point. (I was told that I needed to use many big words from leather-bound books.)

There’s a quality turn of phrase here, as “those goals” are supported by “every single person”. Based on our experience, that seems to be true only if he/she is allowed to control the process which governs those goals.

Let’s get to that honesty. I did call a portion of the industry self-serving. I meant that for the broker side as well the MLS side. Self-serving is natural. Business people should be seeking greater profitability, efficiency, etc. Brokers are self-serving in the pursuit of Upstream because it will benefit organized real estate, and themselves in particular.

Self-serving in a way that protects individual status quo and damages overall progress, on the other hand, can’t be allowed to drive the conversation. Letting grievances stall industry innovation while the organized sector of real estate continues with outdated, inefficient processes and falls behind the outside forces in real estate technology, is not acceptable. Yes, those “outside forces” include the Cthulu’s evil elder god (later).

“The first and biggest problem which I have raised ever since the first details about Upstream were made public is that Upstream wants to create its own database of property listings outside of the MLS.

I keep asking, Why?

Sam doesn’t address this. I’ve asked Alex Lange, CEO of Upstream, Cary Sylvester, the architect of Upstream and a Board member, and everyone else who would actually speak to me about this Database issue, and… well… the answers are unsatisfactory.

Except that we live in 2016, not 1970, when the whole concept of proprietary walled-garden databases is not exactly progress. In fact, it’s exactly the opposite of progress.”

This is a stretch. Accessible data is the future, but proprietary systems that strictly limit access to and use of that data are employed by some of the world’s most successful companies, e.g. Apple. They may pull in outside data sources to supplement their applications, but they restrict the hell out of their proprietary pathways and their repositories.

There’s nothing in a technologically advanced world that impedes the use of data on multiple databases, with a single database as the verification point or key. Though not the same as new technologies like blockchain, there’s an ideological similarity in having an Upstream database that assures all downstream databases that they have a source of data to trust.

Sure, some MLS vendors today can call APIs to dynamically generate data from central databases, but many MLSs still use antiquated systems which require vendors to replicate and store a copy of their database for end user functionality. The MLS in its current form is not a pure database available to all who need its information. Upstream does not add a layer of complexity on top of a seamless, pure listing input and distribution system. It adds a layer of uniformity and clarity on top of a tangled web of disjointed nationwide databases.

“Words and phrases like ‘nuclear option’, ‘push the red button’, ‘don’t plan too many more of these CMLS events into the future’, and of course, ‘You have ten days’ are… shall we say… attention-grabbing? … Have the brokerages behind Upstream — particularly the Realty Alliance and LeadingRE — ever publicly stated that their beef with the MLS was done, over with, and behind them? That thanks to the conversations that the ‘You’ve got ten days’ and ‘Don’t plan too many more of these CMLS events into the future’ sparked, they’ve buried the hatchet, smoked the peace pipe, and sang kumbahya with the MLSs?
If they have, I missed it.”

We are 100% on the same page here. I think most of us were shocked by the nature of the comments at that event. They’re still burned into our memories. In hindsight, it was probably the worst way to introduce what would become a project like Upstream.

This may be the single most influential and damaging moment in the industry relations history between MLSs and the not-yet-revealed Project Upstream. There are some unbelievably intelligent and talented people running the organization. That day at CMLS probably haunts some of their dreams.

MLSs should have been brought into the conversation early, consulted often, and been party to decisions. Yes, many would have pushed back heavily. Many still will. But the acrimony of that day will live in Upstream infamy.

“So, the truth is that Upstream needs its own database to serve as the nuclear option against the MLS. Having its own database makes it possible for Upstream, and its brokers, to cut off the problematic MLS so that its listing count goes from 100% of a given market to something like 50%, thereby rendering it more-or-less useless.”

No, no, no. I haven’t spoken (or whispered) with a single broker nationwide who wants to cut off the MLS. Of course they want to add efficiency to those that need it, and many support consolidation of MLSs in “overserved” markets. So do many of the top MLS leaders. They’re on stage at Inman talking about how many consolidations we can make happen and how quickly.

“But one of the most read posts on this blog is the one where I talked about the announcement of RPR back in 2009. Yes, it was rather laden with hyperbole… it’s how I write… so sue me. What I didn’t even mention in that post, however, is that the origins of RPR was in a NAR Presidential Advisory Group that seriously discussed the creation of a single national MLS under NAR’s control and ownership. Their ultimate recommendation was somewhat short of that, but read between the lines and you can see why the MLS people might be a bit nonplussed about this ‘Gateway’ that ultimately took form as RPR:”

“RPR partnering with Upstream to the MLS looks like a backdoor strategy to create this ‘national gateway’ from the 2006 PAG which differs from the MLS not at all. A rose by any other name….”

This is my realtor.com trigger, when I lose my ability to politely defer away misdirection. It’s akin to the unending drone of arguments that attempt to shut down any progressive ideas from NAR with reticence about a decision that happened in the 1990s.

Here are some honest questions: How much relevance would a thoughtful leader give to a domain name agreement 20 years ago in his/her decision making about other initiatives today? How much weight should an industry executive put in the words of a volunteer PAG in a 10 year old brief? Would you trust your technology strategists if they kept talking about Yahoo and AOL instead of focusing on Google and Amazon?

This strand of an argument goes from volunteer committee prognostication to RPR as vendor for Upstream that becomes the national MLS. I can’t tell you that a national MLS will never happen–who would’ve thought banks nationwide would give loans to people with no jobs, credit, or assets? Crazy things happen in this world, but casting shade on Upstream because of a 2006 PAG isn’t passing the smell test.

These kinds of things can not drive our strategic vision today. It is the worst kind of grudge that allows a decade-old perceived threat to cause industry members to undercut one another in case those old feelings might still reside.

“I asked this question on stage at CMLS Las Vegas this year to a room full of MLS executives and MLS leadership:
‘If Upstream had chosen Corelogic or MRIS as its technology partner, would any of you here have a problem with Upstream?’ Not a single hand went up.”

Now, we’re getting somewhere. I’d love to point out the self-selected evidence and the expected lack of hands in a situation like the one described. But let’s take the situation as truth.

If so, then the MLS world and Upstream would be singing harmony, if only RPR wasn’t the vendor. Would MLS folks really undercut a broker initiative that would offer a streamlined industry data system and financial benefits to the brokerage community—its core customers, members, and creators—just to make sure that RPR isn’t successful? Is this actually the enigma in the room that no one will speak about?

(*Update – I neglected to mention that I sincerely hope this isn’t the case, but we’re working with the scenario that was presented.*)

MRIS was on board as a potential vendor for Upstream, for god’s sake. If, as this conversation seems to insinuate, MLS support existed before the vendor choice, but not after RPR’s selection, we are drowning in a quagmire of self-preservation.

There are MLSs with outstanding administrators, high quality products, and very happy customers. Then there are others holding down a geography. If they’re afraid of another company overtaking their business because they’re not providing a superior value to their members, they should be. That’s how brokers live. The focus on the RPR national MLS bogeyman is a distraction from the priority of running a competitive business. It just reinforces stagnation.

Next. Small vs. big brokerages is always a good way to divide and conquer.

“In every MLS in the country, the vast majority (I’m talking 70+%) of the Participant brokers are not HomeServices of America, NRT, or giant brokerage firms that belong to Realty Alliance. They are mom-n-pop shops with zero to five agents. They don’t work cross-market. They don’t have ‘overlapping market disorder’ problems. They don’t worry about flow of data into their back office systems, because they don’t have a back office system. In what conceivable way are these mom-n-pop brokerages in the same ‘broker sphere’ as the one Sam keeps insisting exists?”

At NAR’s MLS Technology and Emerging Issues Advisory Board (name dropping), we hear stories about small brokers who travel across state and county lines in rural areas. They do suffer the inefficiencies of overlapping market disorder and artificial geographic restrictions.

The follow-up conspiracy says that only big brokers will really benefit from the technological advances available from Upstream because they have more resources to build new tools and access the new functionality. Remove the word “Upstream” and replace it with anything else of value. Of course big brokers with more money will be able to leverage the tools more effectively. That’s how scale works. This has nothing to do with Upstream itself.

But let’s just include the next portion as we get to the bigger point:

“In Cthulu mythology, Hastur the Unspeakable is a mysterious evil Elder God also called ‘He Who Must Not Be Named’. Well, in the context of Upstream (and possibly in real estate industry in general), that role belongs to Zillow, ‘He Who Must Not Be Named’. [DISCLOSURE: I have a business relationship with Zillow, but obviously, they have nothing to do with this post or these opinions. I sell my time, not my opinions. In fact, I may get in trouble with them for this post….]
The uncomfortable, unspoken truth about Upstream is that it is part of an overall strategy by the largest brokerages and national franchise companies to ‘take back power’ from Zillow.”

It’s funny, because in my household, we actually refer to someone as “He who must not be named”. He’s a tailback from USC who wore #5, whose family greedily ruined the football program for years by taking improper benefits and lost his Heisman trophy…but I digress (did that suffice as a “Rob tangent”?).

Honesty:

Rob says Hastur is Zillow. I’d say, for brokers, it’s Zillow, Move, Homes.com, and anyone not involved in the actual sales transaction who profits from it. Brokers don’t want or need to shut them down. They simply want more leverage over the data they’re creating. Whether big or small, brokers’ margins have been shrinking over the years. They didn’t have the impetus or foresight to create a collective, broker-controlled platform together at the dawn of online real estate. They see its value now. In one arena they’re competitors, but in this sense, they are are aligned.

Of course we have moments like Realogy’s Alex Perriello questioning the value proposition. Brokers are only aligned in some facets of strategy, and their other responsibilities will overlap and create tension. Upstream’s eventual adoption rate won’t prove or disprove that there is a “broker sphere.” The fact that these companies came together and built a beta version of the platform has already proven it to an extent.

As a reminder, supporters include:

  • Better Homes and Gardens Real Estate
  • Berkshire Hathaway Home Services (HSF Affiliates LLC)
  • Coldwell Banker
  • ERA
  • Keller Williams
  • NRT
  • Realogy
  • Re/Max Holdings Inc.
  • Realty Executives
  • Sotheby’s International
  • Leading Real Estate Companies of the World
  • The Realty Alliance
  • HomeServices of America
  • Baird & Warner
  • Long & Foster
  • Real Estate One
  • William Raveis Real Estate
  • Northwood Realty
  • Shorewest, Realtors
  • Pacific Union
  • Private Label Realty/Tenura Holdings
  • Century 21 Real Estate
  • Crye-Leike Real Estate

Controlling data: this is where we often hear clichés about the cat already being out of the bag, or “that time has passed.” Poppycock. We are in day 1 of the internet. For anyone who believes the current power structure is set in stone, it’s time to retire. We are living in the wild west of real estate data management. Things will change more in the next five years than they have in the last 20.

Brokers want more power, relative to the organizations which use their data for profit. Call it “taking back” if you must look at the world in the past tense, but it’s merely a strategic push in one direction in a landscape where power has recently shifted to the opposite direction.

Should brokers assume that they’ll never have control, standards, or rights to all of their data in perpetuity? Shall we accept that we’ll never capture a larger portion of the value created by listing data? Is there some Great Wall of China that’s been built in the middle of the cyber world that can’t ever be budged because someone said “Zillow has already won”?

It’s ludicrous. Yes, brokers want to gain more power, leverage, and potential profitability relative to their current position. They’d be negligent business people if they didn’t. The other benefits of Upstream do not preclude it from also creating greater leverage. There is no sin in wanting both.

When brokers are given a dashboard with the ability to opt-out or turn off their syndication to portals, less than 1 percent hit the off switch. They don’t want to cut off the flow. They just want to know that they control the switch, because things will change. Owning the switch allows greater control as to how they change.

“It is entirely possible — hell, I’ll even say it’s likely that I’m wrong for the sake of discussion. Upstream and the MLSs can prove me wrong very, very easily in a few steps.
1. Tell all of your CRM, CMA, back office, Accounting vendors to start coding against Retsly. They’re your vendors; they have to do what you ask, or you’ll find another vendor who will.
2. Go to the local MLS and tell them to install Retsly and Bridge.
3. Ask Zillow to build a non-listings database for all of the data that Sam and Alex insist are far more important than listings data, and to do it for free, in exchange for access to data.
But once we get honest about what’s going on here, and get real about the unspoken, unpublicized issues behind the scenes, then I think we see that most of the ‘shade’ is actually justifiable concerns on the part of people who don’t want to see the baby out with the bathwater.”

Quickly on these steps:

1, 2, 3: Why would brokers ask their MLSs and vendors to build these tools with a publicly-traded company they don’t own, when they can do it themselves and direct it going forward?

Change is inevitable. Much like the “taking it back” conversations, there seem to be so many arguments that assume players in the industry will in the near future be what they are today. Imagine just five years ago thinking that Rupert Murdoch might own realtor.com and Zillow would be doing transaction management and translation/aggregation for MLSs.

The industry is transforming rapidly, and the entities that brokers get into bed with today might turn out to be totally different in the morning. This is why they’re building their own platform. Yes, the brokerage and NAR-owned vendors could change in time, too. But at least we know that our core, simplest missions are driven by the same fundamentals: real estate salespeople earning commissions. We can never be fully sure of our future, but we can certainly buckle in with partners who need the same foundation.

We can agree that there are “justifiable” concerns from some in the industry about Upstream. At the same time, the idea that “RPR the unspeakable”, 2006 PAGs, and uncomfortable words are driving resistance to Upstream’s progress is painfully depressing for the future of the industry.

So if competition is the main concern of MLSs who are wary of Upstream, so be it. Find your core value proposition and own it. Find the services that someone else can do better and let them. Don’t hold back industry progress because some poltergeist from a volunteer committee or a hot-headed panelist put a decade-long burr in your boots.

We know that there are many MLS industry members who want to work together with us on this initiative. It can’t happen without quality MLS organizations’ support. These folks shouldn’t be drug down by the fears from the past or their cohorts who can’t keep up.

We do need more honesty in the Upstream conversation. We need it from all sides.

This is business. Speak the names out loud, or hold your peace.

Seattle home-sale market provides small hint of slowdown

This article was originally published on WSJ Marketwatch:

Home buyers in Seattle might be able to breathe a bit easier. The Seattle real estate market is still red hot, but the rate at which its inventory is shrinking has been slowing.

The number of homes available for sale in the greater Seattle area has shrunk about 13% year over year. That news on its own sounds like bad news for buyers. Compared with the 20% drops that we’ve seen over the past 18 months, though, it looks like a positive trend. Sellers may finally be getting on board and listing more homes for sale.

Available inventory in the Seattle real estate market has been under two months for over two years. That’s not a healthy market, and it has pushed double-digit price increases across the region. A balanced market would have 4-6 months of available homes. Sellers are concerned that after they sell, they’ll have trouble finding their next home in this competitive market. It becomes a self-reinforcing cycle. The summer slowdown we’re seeing right now may finally be reversing that trend a bit.

That’s the feeling on the streets from many real estate brokers. From the MLS board to the Realtor association and brokers’ offices, the general murmur is that while the market is still very hot, we can feel a bit of a slowdown in the air. Some buyers are giving up. Some aren’t willing to waive all of their contingencies any longer. Cash buyers still win, and big offers still prevail, but buyers are negotiating a bit harder and sellers are playing along.

King County, at the heart of the Puget Sound real estate market, could use that relief. The median Seattle home price rose 15% over the past 12 months. At $505,000, that pricing is out of reach of many middle-income residents. Still, the influx of technology jobs and the lack of new construction create a demand for homes in the upper pricing tiers of the market.

ondos are scarce. King County has 0.9 months of available condo inventory for sale. Seattle condos are like a black hole. The inventory just keeps imploding upon itself.

With this kind of price appreciation comes bubble talk. The price increases are dramatic. There will be a slowdown at some point, but our situation is vastly different than it was before the 2007 peak. There are 10,000 new technology workers coming to the Seattle metro this year from just four companies. They’re making good money. The mortgage system now verifies income, employment, assets and ability to pay.

In short, the last bubble was built on false credit. Home buyers today have cash, large down payments and good jobs. Seattle’s population shift is a major factor in a long-term reshaping of the city’s real estate market.

A bit of a slowdown would be welcome in the Seattle real estate market. Just don’t expect prices to go down any time soon. The fundamentals for today’s buying frenzy are solid. Seattle has become a more valuable place to live.

Seattle condo prices jump 21% as tech workers snap up urban homes

This article was originally published on WSJ’s MarketWatch:
by Sam DeBord

Inventory is the story across the country. Lack of available homes is constraining most major markets, and the Seattle real estate market feels the pinch. Monthly home sales have eclipsed new listings in recent months.

The condo market in Seattle is a prime example of how low inventory can affect home prices and affordability. The city has seen a huge influx of technology workers in recent years. Amazon, Microsoft, Google, and Facebook are just a few of the companies relocating employees to the Seattle market.

– Search Seattle homes for sale – 

Many of the folks in the tech industry work long hours and prefer an in-city lifestyle. They eschew the long commutes and big yards, and prefer walkable neighborhoods and the low-maintenance benefits of condo living.

Unfortunately, there aren’t enough condos to keep up and the problem keeps getting more serious. Inventory of condos available for sale in Seattle dropped to 0.97 months in February. That means for every 100 condos being sold, only 97 were being listed for sale.

When markets go above 100% absorption, buyers feel the crunch. Balanced markets are supposed to have 4 or 5 months of inventory for buyers to peruse. The Seattle real estate market hasn’t seen those levels in terms of available condos since early 2012.

Year over year, Seattle’s condo inventory is down 39%. For buyers, that means bidding wars and rising prices. The median condo price in Seattle rose to $385,000 last month. That’s 21% higher than just one year ago. It’s not a surprise anymore to hear about a brand new listing that received 10, 20, even 30 offers. Buyers get fed up, but rent prices continue to rise at the same time.

The trend Is growing

The measure of condo pricing over time can be volatile because of the significant difference in building styles and how they fluctuate based on new buildings coming available. The overall trend can’t be denied, though. Seattle’s population is growing, the demand for urban homes is visible and the region’s newest residents want to buy homes near their jobs.

Condo development is at the heart of the answer for cities like Seattle where population growth is meeting with a lack of housing and transportation. Regulation and resistance from traditionalists create significant hurdles and friction for condo developers. Onerous construction fees and lagging liability concerns discourage new entrants.

That shouldn’t stop local leaders from confronting the inventory issues head on — because they’re beginning to tower over us. Growth is inevitable. Embracing the change will make the region stronger in the future. Obstructing condo development will only make us feel like we’re preserving the gritty little town that we used to be. That time has passed.

– Search Seattle homes for sale – 

Provoking, flipping and dropping bombs (Inman Connect Speed Wrap)

This article was originally published on Inman News:
by Sam DeBord

Last week was Inman Connect in San Francisco, one of the best events of the year (and no, not only for the parties).

I’m writing to you from a campground in the Cascade mountains, so I’ll try to wrap up a lot of content quickly.

Bots taking over

Connect is always looking for the leading edge of tech. Bots are right at our fingertips.

Amazon’s Alexa was on stage at #ICSF answering Brad Inman’s questions — the way lead management software will in the near future.

A number of companies are already providing a combination ofhuman/bot lead conversion that works for agents while they sleep. Those conversations are digitally stored.

The human concierges likely won’t last long. Machine learning and that database of interaction analyzed against conversion rates will create a finely tuned sales bot in no time.

It won’t replace the agent in the transaction, but it could replace the inside sales lead conversion/appointment setter. I’d hire one. (And this week, Inman launched its own bot for readers, too.)

The software has eyes

Speaking of machine learning, RealScout has nailed it. Millions of human eyes interpreting real estate images have been transformed into a software intellect.

The machine can read images more accurately than its human counterparts. It sees the open layout and the box beams, even if the agent doesn’t identify them in the listing.

Consumers use natural language search and enjoy a curated discovery process, free of the artificial constraints of archaic code.

This is where the real estate experience improves. MLS and agent/broker inefficiencies are overcome by intelligent investment. Technology and capital come together to add value to the process.

We need more of this.

‘MLX > MLS’

That headline on W + R Studios’ website might be unnecessarily provocative, but that’s pitchman Greg Robertson’s style. Cloud MLX won the Inman Innovator Award, and it’s better than any MLS interface I’ve seen.

Like RealScout, it breaks free of traditional MLS search constraints.

With instant search suggestion feedback and past favorites/saved searches built into real-time interaction, the user’s efficiency grows with continued use. It’s a secondary or complementary MLS interface (there’s no “add/edit” listing feature). For now, it’s not a direct competitor to the big primary MLS providers.

This company is doing CMAs better than MLSs. It has better listing alerts. Now it has a superior user interface. What’s next?

The arms race

Congrats to the entrepreneurs who are being acquired in this bubbly market. Commissions Inc, a little startup out of Atlanta, sold for $250 million. That’s one-quarter of what News Corp paid for Move/realtor.com.

Leads and customer management software are still the story, no matter how many speakers try to shout it down.

Bridge Interactive Group was just acquired by Zillow. If you’re not familiar with them, have a look at their services, then look at Project Upstream’s. There’s no cold war here, just some friendly comrades building agent tools and ad platforms.

 

Bridge Interactive Group

 

Flips, bidding wars, and discounts

There are a lot of new business models getting airtime at Connect.

Haus is a bidding war platform that promises transparency. The legend is that an Uber founder got angry when he was outbid on a home, so he started a new company where everyone can see everyone else’s offer.

It’s going to be as hot as the taxi business. The potential user base is sellers in hot markets who want to give away their strategic advantage. Why would listing agents encourage their sellers to dump their informational leverage? How did this question not come up immediately to the founders?

Knock is another startup. It flips homes by giving sellers a guaranteed price. The property is listed publicly, and either Knock buys it at the pre-arranged price, or the seller gets a premium if it sells for more to another buyer. Knock takes some kind of fee, which should be front and center on its website but isn’t.

Transfer taxes limit some flip models. They can be up to 2 percent of the purchase price. In a traditional flip with two sales, that 4 percent really squeezes the profit margins.

Opendoor is taking a strategic approach by traditionally buying/reselling flip homes in states with low/no transfer taxes. They’re pretty successful so far. Homeowners are willing to forgo the money available on the open market for a guaranteed price/easy closing. It will be interesting to see if they can scale in other states.

I have an uneasy feeling about how well these sellers are informed about the value of their homes. It’s one of those uncomfortable topics like pocket listings: consumers have free choice, but the quality of advice they receive from their advisers has a great effect on those choices.

SoloPro came to talk about its limited-service model. It embodies the philosophical disconnect between many outsiders and industry insiders.

The company “unbundles” real estate services. Its marketplace lets consumers meet licensees for flat fee, discount services. Open a door for X dollars, write an offer for Y dollars, Agent Z who happens to be available today will serve your needs.

The agency relationship can’t be dismembered without losing value. Piecemeal representation is lesser representation. Continuity creates value. Inexpensive is sometimes just cheap.

Hobbled-Leigh

You’d think the cast Leigh Brown had to lug around as MC of Connect would have slowed her down, but she came out swinging. Her performance was edgy and smart, in classic Inman style.

In a departure for Connect, she pitched politics and the Realtor PAC from the stage. Some cheered, some grumbled.

This is a pretty simple one, folks. You might not like politics, but we all enjoy the extra money RPAC is putting in our pockets. Anyone who sells, owns or vends to those who do, is benefiting from those carrying the water.

Dropping bombs

I don’t mind when speakers use off-color language, but it’s painful when they don’t know how to wield it. It’s a lot like a weapon. If you’re going to take it on stage, you’d better have a really good (expletive) handle on it.

A few wannabe gunslingers put us all through some pain last week. Don’t be one of them. If you’re not sure, don’t try it.

Startup Alley

Agents don’t want more tools. They want fewer, better tools, and First promises that.

Instead of adding a new CRM, First simply monitors a user’s social networks. Using predictive analytics, its algorithm identifies moments in your sphere’s lives that may signal a move. The agent is alerted to make contact.

Just keep doing what you’re doing on social media and your vendor will do the rest. We need more of this: horsepower on the back end, simplicity for the user.

Unsolicited advice

I’m always struck by the number of entrepreneurs that appear to not have sought broad guidance before launching. There are some really smart folks who could simply sit down with some savvy brokers and agents to find out that their product is functionally obsolete in this industry.

They might save themselves the first failure or pivot.

This isn’t about discouraging innovation. Push the edge, but first ask a few people if it’s just a cliff.

It’s not just the old stodgy guard that’s saying your product/model won’t work. It’s often someone who wants you to improve the experience but can already see what you can’t.

We just might save you a lot of time and money.

Sam DeBord is managing broker of Seattle Homes Group with Coldwell Banker Danforth and President-Elect of Seattle King County Realtors. You can find his team at SeattleHome.com and SeattleCondo.com.

How long can aging agents dance on the bar?

This article was originally published on Inman News:
by Sam DeBord

  • “Raise the bar” is more bullhorn than boots.
  • Incremental change is insufficient.
  • International regulation should focus our industry on prompt action.

I’ve been trying to write this for some time, but it’s difficult to put a positive spin on it. I’ve put it back on the shelf a half dozen times, but after having a chat with Brad Inman in Seattle this week, I thought: “This is Inman. Just let it rip.”

So, here goes:

The real estate industry has a perpetual ritual. It’s titled “raise the bar.” After a decade of observing it, I wonder whether it’s a choreographed song and dance rather than a call to action.

The lyrics come from rote memory: “More education! More training! Higher barriers! It’s too easy to sell real estate!”

Self-flagellation follows: “There are too many bad agents. It’s our fault. It’s our brokers’, our licensing boards’, our associations’ fault. Mea culpa, mea culpa, mea maxima culpa.”

Feeling relieved to have aired our indignation, we return to the status quo until next year’s performance.

Paved with good intentions

To be fair, expressing our desire to better our industry is valuable. There are many people who have devoted their efforts to improve our practitioners.

That the progress is so slow is perplexing, though. With countless voices proclaiming to be the prophets of professionalism, there are far too few putting those words into action.

“Somebody should do something.” This is our usual unenforceable delegation. The National Association of Realtors, brokers, the state licensing board — someone else should raise the bar and shrink the pool of ill-equipped agents.

I’ve had the privilege of sitting through the conference calls and meetings with committees, task forces and licensing boards that intend to raise real estate standards. There’s a revolving door of well-intentioned people who express their viewpoints but won’t endure the process.

There’s little continuity. Little moves forward. The stalwarts become jaded and begin to give up (mea culpa). The bar remains the same. More untrained agents get licenses, write contracts and balloon the already overcrowded rolls of consumer complaints-in-waiting.

 More agents, not fewer?

A counter-narrative to the overpopulation of agents has popped up recently. It strikes me as bizarre, and it goes something like this:

There’s a problem with the aging population of agents. The boomers will retire, and we won’t have enough knowledgeable practitioners available. The public will be underserved. Unfit entities will fill the void.

The real estate market must be booming if this is our current concern. There are roughly 1.5 million agents today. There are 5 million homes sold annually.

Retiring agents will train their successors. Larger, more efficient teams will take up the slack for those that don’t. If we cut the agent population in half, we’d still have plenty of manpower to handle consumer demand.

The demographic trends are an interesting study. The aging population won’t create a shortage of competent agents, though. Let’s put that distraction to bed.

NAR membership: Crutch or benefit?

There’s also been talk of NAR’s compulsory membership being an impediment to its members. Its revenue would suffer if it supports barriers to membership that reduce headcount.

It could, however, gain a more selective group of members as its distinguished Realtor representatives, according to a thought-provoking piece by Russ Cofano. If NAR didn’t compel membership, maybe only the best and brightest would rise to the top, uniquely identified as Realtors for all consumers to see.

That’s an engaging topic for the trade association. It won’t change the landscape of the overall sales force, though. We will only improve the industry’s reputation by creating standards that ensure all salespeople, Realtor or not, have the proper training and experience to do business with the public. If that means fewer members and fewer licensees, so be it.

Winter is coming

If we needed a wake-up call, the winds of change are storming in from the North. British Columbia, Canada, is attempting to put its real estate industry into a regulatory stranglehold. Canadian real estate has been dancing on the bar as long as we have. The Crown is tired of waiting for it to get down.

Rob Hahn put together a thorough breakdown of the potential changes. The regulations potentially placed upon B.C. real estate practitioners and the powers stripped from their associations would be sweeping.

Whether those winds spread to the U.S. is still in question. That we should be prepared for the possibility is not.

The essence of the government’s argument is that the real estate industry was allowed to self-regulate. It was given time to work out issues. It failed to act.

Our regulatory environment is significantly different, but we’d be foolish to ignore the implications.

Raise the bar: Brass tacks edition

We have reasons to improve. We have the motivation to improve. So, what would it take to discourage the hobbyist agent from dabbling in real estate?

Incremental changes won’t work; 200 hours of annual education isn’t enough. We all know about those online education schools (wink, wink). Licensing fees of $1,000 aren’t enough; $5,000 Realtor dues might not even be enough. Agents can make five-figure commissions on a single transaction. Two to three sales a year is a significant second income for many.

Higher education requirements and fees are popular suggestions, but they miss the point. Only training and on-the-job experience teach an agent how to run a business and act like a professional.

Mandated mentorship

A required apprenticeship would be a beneficial barrier and a boon to the real estate sales profession. It’s not a new idea, but it’s one that is usually passed over for easier so-called fixes. That’s probably because this kind of radical change would require immense, broad support.

Before licensees ever work solo with a client, they should work as an apprentice to an experienced agent for a significant length of time.

This isn’t a manager signing off on contracts. It’s a mentor required to train an apprentice in the full world of real estate. That’s more than paperwork. It’s interacting with clients and customers, marketing, business building, conflict resolution, etc.

Of course, this won’t affect the legions of hobbyists who already have licenses. When you’re in a flooding boat, though, your best bet is to plug the leak before bailing water.

Boots on the ground

Are we dancing or are we lifting? Our actions will make the answer clear. If you feel the need to talk about raising the bar, take the next step.

Engage your local Realtor association, your MLS board, your brokers and your managers. Prepare for a long haul. It’s not glamorous, but it’s necessary.

The irony doesn’t escape me — I’ve been dancing while you’ve been reading.

So I’ll shake off the cynicism and get back to work. I hope to see you there.

Sam DeBord is managing broker of Seattle Homes Group with Coldwell Banker Danforth and President-Elect of Seattle King County REALTORS. You can find his team at SeattleHome.com and SeattleCondo.com.

Seattle home prices surge more than 10% as supply struggles to meet demand

This article was originally published on WSJ Marketwatch:

The inventory of homes for sale has finally begun increasing a bit in the Seattle real estate market. In King County, the supply of available homes has been at less than two months for nearly two years. For most of 2016, inventory has hovered around one month’s supply.

In April we saw residential real estate inventory bump up from 1.1 months to 1.3. That 18% gain is nothing to dismiss, but it’s one drop in a very large bucket that needs to be filled to give home buyers some breathing room. It’s not enough to satiate the local population hoping to purchase a home, let alone the influx of tech workers moving to the Seattle region. Amazon, Facebook, Google, Nintendo, Microsoft and many others are in a talent-spending competition that rivals any tech hub nationally.

At issue for the region are the burdensome condominium construction regulations, lack of mass transit options and a deficiency of high density housing near the transit centers that exist today. Until the region begins to plan and grow like the big city Seattle is becoming, prices will continue to rise quickly.

Luckily, interest rates continue to keep homes relatively affordable. Home buyers today are spending a significantly smaller share of their income for mortgage payments than they were during the last Seattle real estate boom.

Prices will, at some point, start to squeeze the affordability of payments if the current rate of price appreciation continues. The median single-family home sale price in King County was $537,000 in April. That’s up 10.9% from the same time last year when the median was $484,000.

Condos sit in an even more extreme position. Inventory is at 0.9 months of availability. Buyers are gobbling up listings faster than they’re coming on the market.

Seattle condos months of inventory, median sale prices

The median King County condo sale came in at $315,000 last month. That’s a 13.8% year-over-year increase. Condos seem particularly attractive to the newer residents in the Seattle market who have often relocated from urban areas in larger cities. The Seattle real estate market just isn’t keeping up with that demand and is, in fact, falling further behind by the year.

Antidevelopment advocates will say that we can’t build ourselves out of this problem. There is always a contingent in a city that wants everything to remain as it was. There’s no stopping the economic growth in Seattle, though, unless we allow our housing shortage to become so severe that businesses decide we’re no longer a financially viable location.

That would be a real shame. The real estate ecosystem in greater Seattle has to be built on a long-term strategic plan to accommodate smart growth in infrastructure for housing and transportation.

Long-term double digit growth isn’t sustainable without significant stratification of a community. As we head into another year of 11% and 14% gains in Seattle real estate prices, it’s time to focus on acting now.

(Statistics via Northwest MLS. The NWMLS did not compile or publish this information.)

The broker-driven future of the MLS

This article was originally published on Inman News:
by Sam DeBord

  • Brokers need to understand the new initiatives changing the way we work with MLSs.
  • New tools can create efficiency and improved data storage and analytics for brokers and vendors.
  • Consumers will have access to broader, more accurate information and tools.

New technology initiatives are reshaping the future of broker relationships with MLSs. The sheer magnitude of the changes coming to the MLS portion of our industry is creating uncertainty for some and unease for others.

These initiatives are complex. That’s why many agents, and even brokers, simply avoid them. It’s what we were taught: If the MLS is working, there’s no need to investigate further. Get back to business.

That focus is not selfish or small-minded — it’s a virtue to salespeople.

These are historic times, though. Brokers and vendors are driving the creation of tools that will radically change our industry’s data delivery system — streamlining and enhancing it significantly. These efforts will require not only understanding, but broad, demonstrative support by the broker community to come to fruition.

If we’re going to make intelligent decisions about the future of the MLS, we need to understand it. Many agents don’t know how their MLS works, let alone Upstream. Here’s a start, from one broker’s perspective:

The future of real estate data

 

To be clear, this is not a technical data flow chart. It’s merely a visualization of how the MLS world could fit together in the future. The intent is to illustrate the players involved and how they are connected. Many technical details will be glossed over in an attempt to provide brevity and clarity.

The players:

MLS service providers

Core MLS service providers handle the MLS’s listings and office information database. These could be Corelogic, FBS, Black KnightRappatoni, a custom solution, another vendor, or in the near future, RPR AMP. These companies provide the back end for the MLS and deliver data to some vendors for brokers.

They usually also provide a front-end interface for MLS users. This could be Matrix, Paragon, etc. In the case of RPR AMP, it could be multiple front-end interfaces for MLS users simultaneously sitting on top of the AMP database.

Secondary MLS interface providers

There are also secondary interfaces available to MLS users. Homesnap MLSand CloudMLX are optional enhancements to an MLS’s user interface options. They are built on top of any core MLS provider’s database. They don’t affect the primary MLS interface but provide a different (and sometimes more streamlined) way for a user to interact directly with the MLS database.

Upstream

Upstream is the database that would streamline brokers’ data output. Brokers who join Upstream would no longer send listing and office data to dozens of unconnected outlets. They would use the Upstream database to store and update all of their information.

All of their data could then flow downstream to their providers (including MLSs) at the individual broker’s discretion. This would increase efficiency and improve data storage and analytics for brokers.

Those brokers who do not join Upstream would continue the current process of listing and office data distribution on their own. They would send separate data feeds to multiple MLSs, office tools, vendors, portals, etc.

Aggregators

Aggregation products allow access to IDX data across multiple MLSs for brokers. They provide a feed that brokers can use with their office tools and vendors. The breadth of the data is dependent upon the aggregator’s MLS reach.

Some aggregators have additional data. Zillow’s Retsly Connect adds public records data for broker use. Trestle from CoreLogic adds consumer-facing public records data and AVM data. It’s far and away the largest with 100 MLSs already signed up, but it won’t be available until late 2016.

Broker office tools and vendors

One of the misunderstandings about Upstream is that it’s only about listings. Brokers are currently feeding different kinds of data to a wide range of office tools. Company records, office addresses and photos, agent rosters and photos, staff information, accounting, transactions, and customer records are all uploaded to disparate databases that don’t talk to one another.

With Upstream, these broker tools and vendors can all go to the single source of that data for the information. The broker merely needs to keep one central set of records with Upstream to ensure uniformity.

Portals

The major consumer-facing real estate portals currently receive listings from many sources. Agents, brokers, MLSs, franchisors, vendors and syndication systems send listings of different levels of quality to be displayed on these platforms. The data rights of the senders also vary widely.

In an Upstream world, a foundation of rights over the listing data and photos would be established for any broker or agent member using the system. Listings delivered by broker consent through Upstream to a portal would have pre-existing rules attached to their usage and display.

Brokers could negotiate different or superior agreements with the portals if they wished to. In short, portals wouldn’t be taking listing photos and recycling them as they please. The broker retains control of them.

Broker Public Portal

The BPP is a totally separate animal. It’s essentially another consumer-facing portal, but it’s broker-owned and managed. Its intention is to deliver an accurate, timely, responsibly displayed database of brokers’ listings to consumers.

BPP recently hired Homesnap to provide the technology for its product.Somebody pinch me. Homesnap has shown an uncanny ability to combine software interfaces that attract consumers, deep connections of MLS data and a cooperative style that works well with associations. If there is a company that fits the mold for this to be a successful venture, Homesnap is probably it.

The environment:

Friction

It seems logical that a broker with access to Upstream at the front end of data distribution and an aggregator such as Trestle at the nexus of multi-MLS data would be significantly more empowered than one using today’s traditional system.

It shouldn’t be surprising, though, that some of these initiatives face pushback from entrenched players. In some cases, they create significant new work and additional complexity for MLSs. MLSs need to be at the table with brokers in the planning and implementation phases. The transition will not be easy.

Action

There will be objections to this new model, some with genuine concern for viability and some self-preserving or self-serving. It will hit road bumps, and there will be growing pains. The rumor mill is already in full churn. That shouldn’t discourage us from seeking long-term improvement in our systems.

The funding is in place to begin the process, and most of the industry’s biggest players are on board. Upstream has five alpha markets already selected to begin testing the program.

Then what becomes of the MLS? I’ve heard intelligent people predict everything from a national MLS to the end of the MLS. Neither is happening nor would they be good for the industry.

Focused MLS

These initiatives are taking items off MLSs’ plates that create controversy. Most brokers don’t want the MLS to make advertising decisions for them. They want fast, inexpensive access to broad MLS data. They want flexible software options.

They want to have their data synchronized across their plethora of tools without having to update it manually in so many locations. Upstream, AMP, aggregators and secondary MLS interface tools take much of this burden away from the MLS.

Brokers also want the MLS to continue doing what it does so well — cooperation and compliance. Brokers are the MLS. Its existence is invaluable to us.

The idea of a compliance arm of a national MLS handling enforcement is frightening. Imagine the federal government replacing all local police forces with the national guard and expecting everything to be OK. “Seattle, you’re OK with people smoking pot in the park. Provo, you’d like to throw ’em in jail for the weekend. We’ve got a single answer for both of you that will please neither. Your papers, please.”

Painting the corners

There are a lot of angles and conspiracies regarding how these initiatives benefit some parties over others. Many have credence. These are businesses trying to make money.

That doesn’t have to be the narrative about these initiatives, though. They also create a picture of an MLS system that effectively serves its brokers, while brokers simultaneously gain back efficiency and control over their data distribution. They remove conflicting territories.

Will some outside platforms lose leverage? It seems that they might, but improving the business for the brokers and agents who actually generate transactions should always be viewed as a benefit to the industry.

And lest we forget, there’s a consumer angle. They’ll simply get more accurate data across consumer-facing outlets, better tools developed at faster rates and access to broader information across markets and MLS territories.

That’s worth a shot.

Sam DeBord is managing broker of Seattle Homes Group with Coldwell Banker Danforth and President-Elect of Seattle King County Realtors. You can find his team at SeattleHomes.com and BellevueHomes.com.

Artificial Intelligence (AI) in real estate: Negating or monetizing an agent’s experience?

This article was originally published on The Real Daily:
by Sam DeBord

Have you ever emailed or texted someone, and subsequently opened Facebook on your phone to immediately see that person in your news feed?

You read the entire terms of service when you downloaded that app, right? So you remember agreeing to every bit of your phone’s hardware and software recording and interpreting the signals that your everyday actions are creating (just nod your head yes—it’s watching you right now).

Artificial Intelligence is seeing tremendous growth in consumer-driven industries. It is the ability for software to learn and adapt to consumer behavior via live feedback. Cars, websites, wearables, and apps are becoming more intelligent and adaptable.

We’re seeing huge advances in the affordability of AI software that match the exponential growth of hardware’s computing power.

bar
Simultaneously, human labor in developed countries is increasing in cost. Minimum wage laws, increasing liability, and rising health care costs are pushing employers to replace labor with technology. McDonald’s employees become kiosks that order Big Macs. Chase Bank tellers are replaced by apps that scan and deposit checks. Companies like Circuit City and Borders Books shutter their stores as websites more efficiently serve their customers.

How AI intersects with RE

Intelligent software has massive potential for creating technology that changes labor markets. Real estate labor is a natural target, and a couple of recent pieces got the ball rolling this past week.Russ Cofano penned a broker outlook that viewed “cognitive computing” not as a threat to labor, but an asset to the baseline of real estate’s agent intelligence:

“So here’s the question. What if cognitive computing enables agents to be better professionals and make better recommendations to their clients? What if access to cognitive computing power, and the data necessary to power it, becomes the 21st century equivalent of the MLS utility?”

Further, Cofano states, “Cognitive computing has the potential to add massive value to the real estate brokerage value proposition and do for agent professionalism what no other initiative could touch.”

While the piece focused on the superior delivery mechanism (Upstream vs. the MLS), it provided support to the idea that brokers could adopt intelligent data systems to improve agent capabilities industry-wide.

Not surprisingly, a different take came from Rob Hahn, focused on the costs of repetitive labor and the likely evolution:

“The $6 billion question is where real estate brokerage services fit in the spectrum of services if we put McDonald’s order-taker on the one extreme and the Chief Engineer of Nuclear Fusion Reactors on the other extreme in terms of specialized skill and knowledge.

I think most of my readers know the answer. Real estate is far, far closer to McDonald’s than it is to McDonnell-Douglas.

…rote procedures and manual inputs are being displaced by technology. Why would it be any different for the rote procedures and manual inputs in the real estate business?

Answer: it won’t.

Those real estate agents who survive will have to be ‘upskilled’ and focus on niche areas or ‘be equipped to handle smart systems.’”

Comparing two views on AI

So we have two very different views of software intelligence’s effect on real estate agents. In one, brokers might adopt cognitive computing measures to improve agents’ core capabilities to serve consumers. They improve and survive as a unified group of forward-thinking adopters.

In another, AI wipes away the entire foundation of repetitive services performed in real estate. This debases the masses of agents and eliminates the need for their services. It leaves only the specialized practitioners above water when it’s done.

It would be remiss of me to gloss over the McDonald’s analogy. The skills that allow agents to survive in their occupation can’t be crammed into a single linear comparison. It seems prudent to point out that the comparison of rocket scientists, real estate agents, and Egg McMuffin order takers should be complex.

In recent real estate history, replacing a repetitive procedure in the sales process with software has simply changed the sales process. It hasn’t removed the sales person. There are graveyards full of real estate labor would-be disruptors who have a poignant understanding of that history.

artificial-intelligence-REAL-ESTATE

The intrinsic skills that keep real estate agents strongly entrenched in the industry seem to center on two things:

  • Personalized intelligence (unique local knowledge, negotiation, transactional experience)
  • Personal relationships (emotional IQ and sphere building)

The latter is almost invariably ignored in real estate labor disruption conversations, yet it’s probably the single greatest barrier to disruption. People list with people. Sellers’ top three requirements for a listing agent are reputation, honesty, and trustworthiness.

AI is the intrusive stalker in your phone. Thelma is the amazing woman who comes to book club and walks with you on weekends. H.A.L. 2000 can’t touch her in terms of trust. This should be the overriding theme of every disruption conversation.

On to bottling knowledge

In the future, personalized intelligence might be a different story. If part of the value of exceptional agents comes from what they know from experience, the way they negotiate, and how they interact with clients, how much of that could be learned by an exceptional AI platform?

Could exceptional agents allow themselves to be profiled by their devices and capture that intelligence to monetize it? Would brokers be able to conglomerate the practices and intelligence of their best agents to provide a unique set of processes for their agents and answers for their clients that aren’t available to the general public?

It might not be as crazy as it sounds. Think about the vast amount of information that could be gleaned from one agent over a single year with all of his/her devices in “AI learn mode.” Spoken word, tone, movement, visual cues, timing, location data, digital communication, social engagement, contract negotiation—all of these and more could be processed into a database describing when, where, and how top agents interact with their environments to close more sales transactions.

Who owns the AI?

While the aforementioned could be done on an industry-wide basis to inform brokers as a whole, it might also be led by savvy top producing agents or brokers who would profit from it as a differentiator. Melded with predictive analytics on consumer behavior and market statistics, the right set of personalized intelligence could tell an agent when and where to meet a consumer, and how to begin interacting with that person to provide a greater likelihood of a client and a sale.

Of course, until personality can be direct-ported into the agent’s brain, we still need a human with emotional IQ to show up and close the deal. The creation of a relationship might be initiated by data, but it’s going to be sealed with emotion.

ThelmaRealtor software version 2.5 could be an AI profile that’s sold to brokers or new agents as a foundational of intelligence for their careers. Whether these benefits and profits go to the real Thelma, her brokerage, or the industry depends on who adopts the technology first.

Back to the people

If that’s all a bit too much sci-fi, let’s get back to the basics. There are huge opportunities for the brokerage community to leverage greater technology and AI to improve how they do business. Those that do will have valuable differentiating tools and skills.

Still, Thelma v. 2.5 isn’t going to wipe out the physical agents on the ground. Technologists with armies of software agents will continue to stare at screens, while real life agents are cementing unbreakable relationships with real people. Consumers will work with agents they view as trustworthy, no matter what amazing intelligence is dangled in front of them by H.A.L. 2000 Realty.

It’s true that consumers want more intelligent real estate transactions. Before that, though, they want trust. AI has great prospects for helping brokers and agents improve their business intelligence, but it’s not going to take the human element out of the transaction any time soon. The real Thelma’s role may change, but she still owns the most valuable, subjective, and defensible portion of the real estate transaction: the relationship.

Will ‘smart contracts’ replace real estate closers?

This article was originally published on Inman News:
by Sam DeBord

Key Takeaways

  • Criminals are taking advantage of poor security in real estate transactions to defraud buyers.
  • Security holes in the real estate transaction could be fixed with verification software.
  • The role of a closing agent could be drastically altered with smart contracts taking over verification.

Most of a real estate closing revolves around trust and verification. Buyers and sellers use trusted intermediaries to verify that properties, funds, contractual obligations and insurance safety nets are all properly vetted before closing a sale.

That’s part of the reason a real estate transaction has so many participants. Agents, lenders, inspectors, title insurance providers, notaries and closers provide independent verifications of individual facets of a sale. An escrow company or an attorney is usually the organizing force that pulls these individual points of verification into one trusted transaction.

Security is lacking

The security of the current process is weak at best. Homebuyers are frequently being robbed of their purchase funds. By simply hacking an agent or closer’s email account, criminals have put themselves in control of the closing communication.

The hackers spoof the closer’s email, ask the buyer to change the wire instructions, and the funds roll into an unverified bank account. By the time the buyer realizes what has happened, the money has been laundered overseas through multiple wire transfers. It’s gone.

Software security to replace human fallibility?

This kind of real estate fraud is possible because of a reliance on unsecure, disjointed communication methods. The purchase process has no safety envelope. It lacks a seamless layer of overriding security that verifies each sale condition throughout the process.

What if software could replace the parts of the closing process that rely on human verification for security? Smart contracts aim to do just that.

Imagine a digital contract that independently verifies every step in a real estate sale including the identities of the buyer and seller, the funds sourcing, the lender sign-off, deposits, property title transfer and delivery of payoffs to sellers and lien holders.

Before getting into the technical details, let’s look at the roles of an escrow closer or an attorney in the closing process.

Closing functions that could potentially be replaced by secure software:

  • Administration of transaction as a neutral third-party
  • Control of earnest money funds
  • Verification that proper paperwork is in place
  • Examination of title for liens, judgments, mortgages, clouds
  • Ordering of title insurance policy
  • Pro-ration and transfer of property tax and utility bills
  • Preparation of closing documents
  • Administration of signing appointment
  • Transfer of purchase funds to sellers and lien holders
  • Recording of deeds with local government

Closing functions in which human input may trump intelligent software:

  • Live verification of personal identity
  • Explanation and recommendations for resolving title issues
  • Review and explanation of contract items
  • Guidance of clients during unexpected or unique circumstances

Clearly, there is a large portion of the closing process that could potentially be absorbed by secure software. This isn’t to say that the smart contract is ready to take over 90 percent of a closer’s role today.

The potential is real, though. Some of the world’s biggest banks are already developing software based on a technology concept called blockchain to create smart contracts for the financial world.

This is not bitcoin. Although many have only heard of blockchain technologyas the foundation for the digital currency, its use as a software model can be applied to any number of reputable business processes.

The real estate concept, in an oversimplified explanation, is a digital contract embedded with smart money. Buyers, sellers, lenders and all other parties are identified by their personal information.

This data comes from decentralized databases that add to the verified blocks in the data chain — banking, credit reporting, employment, government or other information gathered from trusted sources.

After verifying individuals, the blockchain assigns them an encrypted ID, which allows the smart contract to approve their actions going forward.

You’ve been verified; you no longer need to be trusted

From here, a homebuyer can create smart money by uploading funds and programming them. The buyer’s programmed money goes into the contract with stipulations attached to it.

The seller cannot touch the funds until the buyer’s programming instructions have been met: inspection approved, title clears, lender releases funds, county records the deed and so on.

The lenders, title companies, government agencies and others can all become verified participants in the blockchain smart contract. These identified users in the transaction can make the sale move forward when they verify that certain steps have been accomplished. Only the verified sellers and lien holders will be allowed to receive the closing funds.

What does the smart contract mean for escrow and attorney closers?

Smart contracts could drastically alter the way real estate transactions are closed. With much of the verification process now handled by a network of databases instead of human interaction, there’s the potential to remove much of the labor that’s currently necessary. This is the way most technologies disrupt industries — through efficiency improvements.

Timelines for closings could be reduced. Software doesn’t take holidays, evenings or weekends off.

It’s clear that a smart contract with enough access to the right data could administer a large portion of a real estate closing. Any item that pertains to verification is ripe for delegation to the smart contract. The complexity of the human interaction in the transaction isn’t something to underestimate, however.

Barriers and holes in the process

Smart contracts can’t review and explain contract documents to a nervous seller or buyer the way a human closer can. It’s a stretch to believe they’d replace the closer completely.

It would also be foolish to ignore the most glaring hurdle to the full-fledged adoption of smart contracts in real estate. That is the decentralized and unharmonious makeup of the industry itself.

A typical transaction might have a buyer’s broker using Instanet software while a seller’s broker is using dotloop. Meanwhile, the escrow company and lender are trying to shoehorn everyone into their own custom software product.

Each individual wants the process to work smoothly, but no one wants to use the other’s solution. A consensus blockchain-style foundation could allow many different software products to access the same smart contract, but the industry’s track record of coalescing around a single solution is less than stellar.

Moreover, the cross-industry participants necessary to close a financed sale make for an uphill battle. A single contract needs every member of the transaction to adopt its platform to be effective.

Brokers, lenders, title companies and even government agencies that record transactions would have to sign on for a truly seamless, secure transaction. That will take significant time and influence.

Digital disruption through leadership or pragmatic paper?

Smart contracts have significant potential for increasing the security of transactions, improving the speed of sales and making the closing process more efficient. They could effect profound changes on the role of the real estate closer, but they don’t eliminate the closer’s role entirely.

The smartest software in the world can die in unfulfilled anonymity in this industry. Adoption of smart contract technology won’t happen from the ground up. It will require the kinds of voices that can convince government agencies, banks and big brokerages to sign on.

Whether it’s blockchain or another solution, consumers deserve industry leaders’ full attention on providing a safer way to buy and sell homes. If it happens to make transactions faster and more efficient in the process, everyone benefits.

Every buyer and seller should be warned of the current danger of digital fraud at the outset of a transaction. Of course, there’s a simple way for many of them to avoid it.

Drive to the bank. Get a paper cashier’s check. Drive it to the closing office. Sign the paper. Thank your closing agent in person. As archaic as it sounds, until there is a solution, it couldn’t hurt.

Sam DeBord is managing broker of Seattle Homes Group with Coldwell Banker Danforth and President-Elect of Seattle King County Realtors. You can find his team at SeattleHomes.com and BellevueHomes.com.

Culling the lazy, bloodsucker real estate agents

This article was originally posted on The Real Daily:
by Sam DeBord

Liar. Cheater. Loser. Choker. Incendiary rhetoric seems to be in vogue this year.

“The consultants are like bloodsuckers. They’re ten times worse than a real estate salesman or broker, ten times, which is saying pretty bad stuff.” This was the biting yet confusing commentary from Donald Trump, a real estate salesman himself, at a recent political rally.

Inside the industry

The shots at real estate agents are coming from within the industry as well. Keller Williams’ Chairman Gary Keller recently said that agents who buy leads from Zillow “are lazy and don’t want to do the work.” Surely many of his top agents and teams who effectively use the leads would disagree.

Zillow’s CEO Spencer Rascoff recently told CNBC that the company no longer wanted to work with agents who weren’t “great” (they don’t spend a lot of money on advertising). So they’ll be “culling” those agents who aren’t up to snuff. While a practical business move, avoiding a term associated with slaughtering inferior or surplus animals might be item #1 for the PR team’s next executive media coaching session.

Real estate classism

Before we get self-righteous about these leaders’ word choices, though, it’s worth noting that this kind of language pervades much of the industry’s conversations on the quality of real estate agents.

There’s no shortage of snobbery and classist speech among agents and brokers.

Just ask a high volume agent how we should raise the bar of professionalism in the industry:
“Raise Realtor dues by 1000% and we’ll lose 90% of the deadbeats who bring us down.”

Talk to boutique brokers about their counterparts:
“That head shop will hire anyone who can fog a mirror. Their agents are bottom feeders who don’t sell anything and make us all look bad.”

You hear it from speakers at industry conferences:
“Let’s use the 80/20 rule. We need to get rid of the 80% of crappy agents who are making us look bad, so that the good agents who do 80% of the volume are the only ones left.”

There are some really important conversations to be had about the quality of real estate agents in our industry. We want clear answers as to how we fix them problem. We want the answers to be simple.

Unfortunately, big answers are often necessarily complex. When we group real estate agents into simplistic silos to try to fix our issues, we do a disservice to ourselves.

Volume does not equal quality

We can all agree that there are real estate licensees without the experience, ethics, education, or conscience necessary to serve their clients well. There are bad apples in our midst. They’re a poison on our reputation and should not be allowed to sell real estate.

Let’s not overreach with our reaction, though. This rhetorical journey usually ends with lower producing agents or those with non-traditional business models being given the scarlet letter and pronounced as a scourge on the industry.

Volume does not equal professionalism or quality. We’ve seen sweatshop practitioners become real estate celebrities, only to later lose their businesses and licenses when their practices came under scrutiny.

On the other hand, some of the lowest-volume agents often have the most experience to with which to guide their clients. Agents who are nearing retirement will often shrink their active client base significantly. The buyers and sellers who work with them are afforded all of the benefits of an agent with decades of experience and insight, as well as a greater share of that agent’s attention.

The client who works with an agent who has only one client at the moment may be the client who is receiving the most comprehensive personal service possible.

Then there are those “lazy” agents who buy leads, or pay fees/splits to others who prospect for them.  Since when was specialization of skill and division of labor a sign of laziness?

Selling vs. lead generation

Admittedly, this comes from my position of personal bias. We’ve brought agents on to our team who were low volume producers before they joined. Most had experience, but didn’t want to prospect anymore. They just wanted to work with clients and sell.

Meet “Jane”. She sold for 30 years before joining us. She is one of the smartest, most dependable, respectful, and effective agents we’ve worked with.

By many counts, she should have been tossed from the industry the year before because she only sold two homes. She sold 15 homes last year, a healthy business in a market like Seattle. It still probably wasn’t enough for the sales police to label her volume sufficient. She’s “lazy” because she’s relying on others to generate leads and focusing on her core skills of selling. She might just be “culled” with the other low-rung agents who provide outstanding service and consistently receive raving reviews from their clients.

It’s more complex than that

To be fair, we’re in an industry that has an unhealthy obsession with sales numbers. I’ve stopped counting the number of times someone asked me, “What kind of volume do you do?” within the first two minutes of a conversation (It almost sounds like “How much do you bench, bro?”). So it’s not surprising that an agent’s volume is often the first metric many look to for a frame of reference. Volume makes a big difference in finding out whether or not an agent is good for your team, your office, and your business model.

Let’s just not let it creep so far into the conversation about who deserves to belong within the greater industry. There are a lot of different business models, and different roles that fit within them. Not everyone needs to be a solo, door-knocking, cold-calling top producer to provide great service to clients.

“Jane” isn’t. Her clients will scoff if you tell them that her volume and prospecting system make her a bad agent. If we’re going to talk about improving the reputation of real estate agents, let’s stay away from oversimplifications.

The answer is more complex than volume or business model.

It’s about education, experience, dedication, and professionalism. Those are difficult things to measure, but improving an industry isn’t supposed to be easy.

Let’s skip the simple labels. They’re part of the problem.