While the old tradition of broker cooperation via the MLS is slowly eroding, there is an opening for others to intrude. Two quotes seen this week in different articles:
Founder and CEO Rich Barton said in a radio interview on April 1st that he sees Zillow Offers as an evolution of Zestimates. In fact, at some point in the future, a Zestimate and a cash offer may be the same thing, he said in an appearance on National Public Radio.
“Ideally, I would like to have the Zestimate be a live offer on every home in the country,” said Barton, adding, “It will take quite some time to get there.”
Glenn Kelman, CEO of Redfin, a real-estate brokerage that has also got into the home-flipping business, said he still believes the endgame for Opendoor, as well as his own company, is to get buyers to purchase homes without necessarily using an agent.
“A large number of these companies, Redfin included, are going to be selling direct to consumers,” he said.
Will consumers trust them enough to buy and sell houses based on their fabricated estimates of value, without a realtor on their side? All that needs to happen is for these ibuyer companies to overwhelm the public with advertising, and convince you that their value estimates are close enough.
The advertising is the key. Consumers don’t have much real estate experience and education, and it’s not easy finding helpful resources (how many real estate blogs are there?). They just want to click and go!
It will be like TrueCar, where they advertise that their valuation system gives you an advantage, and to go down to one of their dealers to buy the car for that amount. TrueCar has sold over 2 million vehicles!
The largest agent club in Southern California is growing its membership quickly, as the erosion of the cooperation between brokers continues.
We’ll hear more about the disrupters, discounters, and consolidation, but the underlying theme is that agents are only going to be sharing their listings with one another as the last resort if they can’t sell them off-market.
The realtor groups on Facebook are bursting with off-market talk, though we don’t know how many deals are actually being done. But with so much focus on the off-market space, it is inevitable that more transactions will result.
The PLS only has five listings in San Diego, but it’s just getting started here. One of the five is an active listing on our MLS, but the rest look like they expect some off-market action as a result of being listed here:
With no one in the industry objecting, expect more of this in the future.
In March, Facebook said it had agreed to a settlement with civil rights groups over discrimination in the way it has allowed advertisers to target audiences.
In an announcement about the settlement, the company said, “Anyone who wants to run housing, employment or credit ads will no longer be allowed to target by age, gender, or zip code.”
But there was a nugget of far greater interest to members of a certain industry in another point. “We’re building a tool so you can search for and view all current housing ads in the U.S. targeted to different places across the country, regardless of whether the ads are shown to you,” said Facebook.
Facebook intends to build a platform that aggregates advertisements for housing products and services, a spokesperson confirmed. That could be homes for sale, or it could be new developments, or even a lottery for an affordable housing opportunity.
That’s a very different proposition from Zillow’s secret sauce. The company describes its web site as a “living database” of 110 million U.S. homes, whether they are for sale or not, and relationships with nearly all the entities that provide the data announcing when homes do become available for sale.
“Uh, you mean, a massive consumer real estate portal like Zillow?” wrote Julian Hebron and Spencer White, two housing finance tech professionals who consult and blog under the name The Basis Point.
No, not quite like Zillow.
But Hebron told MarketWatch that it’s still “a brilliant move by Facebook.”
“It satisfies fair housing law in that if all housing data is in one singular place that the consumer can go to and search, they are not being targeted in any way,” he said.
Buyer-agents are heralding this as the Big Turning Point is real estate because the lawsuit aims to ‘break up the cartel’ and unbundle real estate commissions.
There is a whole legion of agents that offer a fee-for-service menu who think they are doing the consumer a favor. But it is a great dis-service to tempt consumers to select their agent based on their fee. This is where NAR and others have failed us miserably because nobody talks about how important it is for consumers to identify the skill level of agents they are considering.
Agents offer a discounted commission/rebate/fee-for-service because they don’t have the skill level to earn a higher fee. In effect, they ‘buy the business’ with lower cost/less service, and the consumer gets what they pay for.
But if this lawsuit prevails, causing MLS companies to be run out of business and ‘broker cooperation’ to get dismantled (seller paying the buyer-agent fee), the buyer agents will be the first casualty.
On this blog we talk about street-level impact.
Here’s an example that happened to Kayla in Manhattan, where the rental market is so hot that tenants have to pay their broker directly – and the typical fee is two months of rent.
Kayla is showing rentals to her old college roommate plus one other woman. The listing agent is present, and when Kayla goes into a bedroom with one of the women, the listing broker pulls the other aside and says, ‘if you don’t want to pay Kayla’s fee, just go through me directly’.
The two women rented the apartment directly through the listing agent, and burned Kayla.
We’re sliding into single agency, where buyers/tenants will just go directly to the listing agent. They will never know if they saved any money, they won’t know if they got proper representation (unlikely), and they will just take what they get.
The reason disintermediation worked in the travel business because consumers don’t worry about a bad vacation costing them an additional five- or six-figures in resale costs (and major disruption of life) to unwind one.
Without constant reminders of how important it is to Get Good Help, buyers will be left to their own devices and just go directly to the guy who has the product – the listing agent.
Single agency is not what’s best for consumers or agents – yet the market forces are heading in that direction without recognizing the ramifications. Watch what you wish for!
Obviously, my rantings on this topic have done nothing to slow down the trend, so joining Compass was the best way to position myself for my clients.
The real estate industry has never felt the need to create a powerful search portal in response to Zillow. There should have been an industry-wide effort to create a realtor-centric website to support our business, but NAR and others just shrugged it off.
Traditional realtors should be demonstrating why our experience, our advice, and our gravitas is a better solution for consumers.
It starts with realtors having the best real estate search portal – and Compass has committed to producing it! Our website will make it clear who the actual listing agent is on each listing, regardless of company.
There is another benefit – we put our Coming Soon listings in the front of the search, which will hopefully cause consumers to keep coming back, and help build the traffic faster.
From our CEO:
The future of the real estate industry will be defined by the company that creates the best experience for buying and selling a home. I believe Compass is going to be that company. To achieve our mission of helping everyone find their place in the world, we must make it as simple and straightforward as possible for people to navigate the process of buying and selling a home. We must also put the person who knows how to create a world-class customer experience front and center: the agent.
Many technology companies are doing the exact opposite. They’re confusing consumers and taking advantage of agents in order to maximize their own profits. They most commonly do this by hiding the true listing agent and monetizing the client lead in a variety of ways.
At Compass, we are not just looking to elevate ourselves, we are looking to elevate the industry. Being the first company to show the true listing agent on every listing will not only help bring clarity to the home-buying process, but it is the right thing to do.
It is part of a 3-step strategy to win the consumer:
Make the Compass website and mobile app just as good as the best aggregators by end of summer 2019
Invest millions of dollars advertising our Coming Soon inventory to consumers around the country
Put the listing agent on every listing, making Compass.com the only site in the country where consumers can always find the listing agent
It means we are gently nudging consumers towards connecting with the listing agents directly, making that trend more obvious to all. If the business is going that way anyway, we might as well be out in front of it. JtR
It’s out in the open now – Zillow intends to change the game. An excerpt from an interview with Rich Barton where he admits Zillow used agents to get big, and is now deciding how to use that power:
An excerpt from I-News:
Barton also indicated there could be major changes coming to the way that Zillow deals with agents. Thus far, Zillow has derived profits from charging agents to appear on the site, with the idea being that would-be homebuyers will find those agents and end up working with them.
But that’s changing.
Barton told Stratechery that he wants to move away from a subscription based model and toward “a success-based compensation scheme that is around what happens when consumers actually close a transaction.” That will delay Zillow’s revenue but should whittle down the number or people the company is working with and improve the consumer experience.
“It enables us to move from a system of huge floors of people dialing for dollars for advertisers, which is what’s happening right now, to a group of people where we are actually interviewing and selecting partners we think can do the best job for our collective consumers,” Barton said. “It’s a complete mindset switch in the way we are thinking about things.”
The comment appears to reference Zillow’s Premier Broker Flex Pricing program, which debuted last year.
J.D. Ross, another cofounder at Opendoor, picked up on Barton’s comments and opined that Zillow appears to be acknowledging it will ultimately displace real estate agents.
A Zillow spokesperson noted that Ross’ comment was merely his interpretation and pointed to another part of the interview where Barton discussed the importance of agents for the company’s future business. Barton described Offers as a “fast lane,” but added that most consumers will still choose a more conventional “right-hand lane.”
“So we see both of these lanes as critical because we want to serve everybody, we want to get everybody to a better place,” Barton said, referring to both Offers and the company’s agent-based business.
It figures that more people will be sleeping in their cars, but did the city council think some would be making money on it? Expect even more scrutiny of AirBnB, the website:
Last month, the San Diego City Council unanimously voted to stand by their repeal of an almost 36-year ordinance that prohibited residents from living in vehicles on streets within our city limits.
“And it’s now legal to crash-out anywhere [inside a vehicle] in San Diego, so it makes more sense for tourists on a budget to rent a 2-in-1,” Michael added, “and sleep by the beach.”
Last week, an Ocean Beach resident posted a collage of photos on Facebook titled: “VanBnb coming to a curb near you ….” One of the photos was of a black van that was available for $28 a night.
Michael’s buddies didn’t buy into the rent-a-van-and-sleep-inside suggestion for spring break.
“I still think it’s a great idea,” he said. “The people renting the vans or RVs on Airbnb and this so-called ‘VanBnb’ are [likely] vetted, so they shouldn’t be problematic. They should be forewarned that they might be targets of mad-doggin’ by anti-vandwellers that own property by the beaches.”
Zillow must believe that flipping homes is their future:
On average, a customer asks Zillow for an offer on their home every five minutes, said Barton, signaling there’s ample consumer demand for a simplified home-selling process.
“It’s like advertising free beer at a college party,” he said.
They’re finding out that flipping isn’t as easy as it looks though. In addition, realtors aren’t spending like they used to:
In August, the company said that it was taking longer than anticipated to sell the homes it acquires. Three months later, it reported that some advertising customers were pulling their business because they disliked changes to the platform. Shares in the company, which peaked at $65.21 in June, plummeted to a low of $27 in November.
Agents may have told Zillow that they were pulling their business because of changes in the platform, but that won’t be the end of it. As the number of home sales decline nationally, realtors will slow or stop spending money – starting with the very expensive Zillow ads.
Zillow still says they love realtors, but we’ll see about that. Once their advertising income declines, and the homes they bought start piling up, it is inevitable that they will think they don’t need agents any more.
We’ve talked about one-story homes – another way to add insulation from any potential downturn is to buy a property that can accommodate a granny flat. They can produce extra cash flow (the county states that they can be rented), and if you ever have to sell, there are home buyers looking to have grandma on-site rather than putting her in a senior facility at $5,000 per month. Cities have been slow to accommodate the accessory dwelling units (ADUs), but they need to comply with low-income housing so they should come around.
Hat tip to Bryce and Nancy:
The San Diego Board of Supervisors voted to waive fees for residents building accessory units on their property Wednesday to address the county housing shortage.
These accessory dwelling units, known as “granny flats,” are described as attached or detached residential spaces to an existing property that can provide sleeping, eating, cooking, and sanitation, according to the county.
“This is a critical step in our on-going efforts to address the region’s housing crisis, especially the serious need for affordable housing,” said District 2 Supervisor Dianne Jacob. “This new program is the quickest and easiest way for us to expedite the development of housing.”
The board voted Wednesday to waive all county permit and development impact fees over the next five years with the hopes of bringing thousands of additional granny-flat homes across the county.
The previous cost of a permit for a granny flat was $1,222 plus $0.0411 per square-foot of space, according to the county’s website.
In total, residents planning to build granny flats could save an average of $14,000, according to District 5 Supervisor Jim Desmond.
In order to offset the loss of these fees, the county said it would subsidize $11 million for the five-year program.
“We will continue to be creative and challenge the status quo to solve the region’s housing crisis,” said Desmond.
The incentivized units can be used for family members or rented out as a source of income for the homeowner, the Board of Supervisors said.
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