Transparency will radically alter the real estate industry’s leadership

This article was originally published on Inman News:
For those relying on traditional tactics to stay in power, the outlook is bleak

  • Visibility and data insights are empowering consumers and exposing businesses.
  • Real estate leaders can embrace change within this new, transparent environment or hang onto traditional informational leverage as long as it lasts.

This winter, Inman is obsessing over leadership in real estate. We’re publishing profiles, Q&As, strategy guides, and an in-depth 5-part report on what the industry wants from its leaders. Then, on March 26-28, we’re going to gather those leaders in the California desert to digest all of these inputs and figure out where to go from here.

Inman is asking the industry what the future of real estate leadership looks like. While much of that conversation will focus on who future leaders will be, the most fascinating aspect may be our increasingly transparent environment, which will force leaders to change the way they do business. For those relying on traditional tactics to stay in power, the outlook is bleak.

Through new media and ever-growing access to data, transparency in the real estate industry is driving the massive changes we’re seeing in business models and industry power players. Billions of dollars are being invested in the brokerage world, as investors and technologists find ways to engage an informed consumer pool and snatch profits from traditional businesses.

Tomorrow’s leaders will strive to give customers greater access and insights through our data, and run their organizations with greater visibility and accountability in this new environment.

Proprietary knowledge as leverage

Knowing more than your customer has been the leverage that many traditional companies used to maintain profits in the past. From individual agents to the industry’s largest organizations, proprietary knowledge was power. That advantage is vanishing for many today.

While information-savvy companies are building new and fascinating ways to leverage data, some in the traditional industry are trying to build bigger blinders. Customers, on the other hand — whether they’re buyerssellersagents or brokers — are demanding transparency and clarity in their business decisions.

The biggest stories in real estate today bear out this transition. Competitors or not, their recent successes have to be recognized and considered.

Redfin advertises its commission rates, its agent salaries, even its performance metrics, to the public. Compass’s six-figure onboarding checks, a brokerage tactic that would have been hush-hush in the recent past, is today’s open recruiting tool. Low-cost brokerages and franchisors like HomeSmart and NextHome have visibility like no midsize company would have had in the past, and their straightforward, concise pitches are garnering headcounts.

Hanging on

Contrast that with a traditional brokerage whose profits rely upon paying minuscule commission splits to information-deficient agents, while offering “friends and family” deals to favorites. Hold it up against the brokerage that loses money on its transactions because it can’t pull the plug on its 40-year-old compensations plans, but keeps the lights on through junk fees and ancillary “profit centers” while hoping its agents are too busy to see the fat in the system.

The traditional brokerage model, like much of organized real estate, is at a crossroads, and its leaders will either be open to this new business environment or their businesses will stagnate. Read Trends 1-5 of the Swanepoel Trends Report. Read the Black Paper on the future of brokerage from 7DS associates. Read 1000watt’s Nodes of Production.

A traditional mindset

It’s not just the brokerage world that’s held back by tradition. “Traditional” real estate is a franchisor that treats every customer relationship like a secret one-off negotiation. It’s a service business granting sweetheart deals that promote some of its customers at the expense of others, all the while hoping that these customers are informationally siloed and never compare notes.

“Traditional” is a Realtor board that takes semi-annual international boondoggles on its members’ dime with no metrics for the return on investment or accountability measures. It’s a multiple listing service (MLS) that intentionally prohibits its brokers from using their own data as a tactic to inhibit consolidation. It’s an association that practices a “Keep others out” philosophy in executive session, even as its brokers are calling for more cooperation and transparency.

These traditional ways of leading our organizations, which used to be contained in closed-door meetings and whispers between friends, are being exposed. They’re discussed openly in public forums. They’re shared between ever more closely networked professionals across geographies.

They have no future in a transparent real estate world

There is hope for current leaders if they accept this atmosphere of high visibility and rapid change, and seek to inspire success and responsibility in an environment that will require both. Moves toward a philosophy of openness are being seen even in the industry’s most long-standing organizations.

The manner in which the National Association of Realtors (NAR) recently shuttered AMP illustrated just how this “leadership in the sunlight” must be carried out. CEO Bob Goldberg’s blunt comments on the financial and operational inefficiencies of the project were unprecedented, unexpected and refreshing to a large swath of membership which has been anxious about the trade organization’s fiscal operations.

Though some small and mid-sized MLSs are undoubtedly disappointed at the loss of the opportunity AMP promised, the openness of the explanation and the focus on fiscal responsibility was thoroughly appreciated by most.

When transparency chooses you

Of course, transparency can be initiated by an organization within itself, but it also can come as a directive through regulation. The Federal Trade Commission (FTC) and U.S. Department of Justice (DOJ) will reportedly investigate real estate competition in the coming months.

The questions will surround the expiration of the DOJ/NAR VOW settlement — in essence, an inquiry into whether the industry is appropriately allowing access to real estate data for all participants.

“Think tanks” have proposed regulating listing databases in the belief that MLSs somehow restrict visibility of listings. Though sometimes thoroughly misguided, never doubt the government’s interest in bringing greater transparency to a marketplace. It’s the dream of many well-intentioned, yet often underinformed bureaucrats, and it’s the duty of the industry to build a transparent and competitive marketplace before someone else decides to “fix” it for us.

That process is already in place through many efforts, not the least of which is the Broker Public Portal (BPP). Regulators need to look no further than this volunteer conglomeration of leaders that brings thousands of brokers, over 100 MLSs and over 800,000 agents’ listings together for public consumption. Its existence is evidence that transparency is now a driving goal for some of the industry. Today’s leaders would do well to begin their paths toward transparency by joining in.

The skeletons in the closet will be exposed

This transparency coming to real estate will affect how we work with our current customers, as well as exposing our historical business practices. Scrutiny is growing over the way leaders conduct themselves across every industry.

Employees write tell-all stories about maniacal executives that go viral and often result in leadership being forced out. The movement to expose sexual harassment in the workplace is a freight train bearing down on every C-suite in the world. The HR department’s secret files and the corporate hush money checks won’t keep bad behavior in the shadows forever. Leaders must conduct business like their corporate files will eventually be exposed because, as is becoming painfully clear, very little is truly secret or secure. Even the communications of the highest offices in the land find their way into the public eye.

Whether you cheer or fear this future, it’s coming.

This progression toward transparency will be good for the real estate industry, though it will be a painful process for many. Our businesses do not exist in a vacuum. The knowledge-empowered consumer, and the public, will demand that we operate transparently and with accountability. There’s no better time than today for our leaders to embrace those values as fundamental to the success of our organizations.

Sam DeBord is Managing Broker/VP of Strategic Growth for Coldwell Banker Danforth, Past President of Seattle King County Realtors, and 2018 Vice Chair of Multiple Listing Issues and Policies Committee. You can find his team at SeattleHome.com and SeattleCondo.com