Amazon.com began life with the ambition to be "the world's largest bookstore". Back in 1996, few book publishers had any idea that their "proven" business model was about to be totally up-ended. As usual, the publishing "powers-that-be" were asleep at the switch when the Amazon train came barreling down the internet track. After just 15 years of Jeff Bezos relentless drive for innovation, Amazon is not only the biggest bookstore in the world, they are also threatening to become the biggest retailer, along with the biggest shipping company.
Amazon.com has totally upset the status-quo in the publishing world while reducing the price of books down to pennies on the dollar along the way. The publishing world was too arrogant to realize that the innovation Amazon was looking for would run over them like a steamroller. Today the publishers are pretty much forced to work with Amazon.com if they want to stay in business. Amazon.com has truly changed the world of publishing and retail sales, whether anyone likes it or not.
The customer rules by way of their pocketbooks, and amazon.com CEO Jeff Bezos understood that. But Bezos, being one of the new generation of tech-guys, understood something more important - the access to customer data that is available online. And he has capitalized on it like no one else. I'd highly recommend that all real estate brokers read this article in The New Yorker. It will give you a vivid idea of just how much someone with insight and the ability to innovate can change your business in a very short time. The old guard at the National Association of Realtors should be afraid, very afraid.
The traditional real estate industry, like book publishers before them, think they are too powerful to be run over by upstarts like Zillow and Trulia. But the reality is, the internet long ago changed the playing field for the real estate brokerage industry. In fact, the real estate industry and it's antique stalwarts known as the MLS or Multiple Listing Service are long overdue for the type of innovation that has come to the publishing world.
Once upon a time, long, long ago, in the ancient days before the internet, real estate brokers controlled property listings in the same way that publishers once controlled books in print. When I first became an agent, way, way back in 1996, property listings were still published in books that were only available to real estate brokers. Outside of driving around looking for "for sale" signs, the only way the public could find data on homes for sale was to visit the local brokerage office, talk to the floor agent on duty and they would be allowed to browse through the brokers special book of listings. The photos were often crummy, the info on each property was very limited and finding out about a given property meant having to spend the entire day in an agents car, while they dragged you all over town, making sure to show you, the buyer, only those properties that they wanted you to see. (i.e. the brokers exclusive listings).
It used to be that the brokers controlled buyer access to listing data and buyers had no choice in the matter. Further, home sellers were forced to list their properties at commission rates of 7%. While commissions are supposed to be negotiable by law, brokers have always fought to keep them as high as possible, thus aggravating the very property sellers that they need in order to survive. I recently had a conversation with a family member who was livid over the commissions paid to sell two properties in 2014.
Both properties were listed with an agent at 6%, and in the end, the seller was very unhappy because the agent failed to obtain a higher price than the seller could have gotten as a FSBO. It's just a matter of time before technology allows buyers and sellers to bypass the old guard in favor of more choices at lower cost. The NAR likes to talk about "pent up demand". I can tell you that the amount of "pent up demand" among sellers looking for a way to bypass the high cost of real estate commissions is growing exponentially. See this.
Zillow and Trulia entered the real estate world with the help of the very system that they may eventually displace. In the blindness of maintaining the "old guard" the NAR has lost credibility with the public and lost their focus on the people that matter - the buyers and sellers. Personally I think that the internet has the potential to reduce or eliminate the commission-driven home sales business model for many of the same reasons that Jeff Bezos was able to alter the publishing world - customer response to innovation and a better deal.
Suffice to say that Realtor.com MLS's across the country, the NAR and individual brokerages have left themselves exposed and vulnerable to the next Jeff Bezos who will have the insight to change the way real estate works, and that will likely result in the death of the traditional real estate industry in the not too distant future. They can only hope that this guy is not waiting in the wings at Zillow or Trulia.
About the author: Donna S. Robinson is an 18 year veteran of the real estate industry and residential real estate market expert. She is the author of "Real Estate Investing Fundamentals & Strategies". Follow her on twitter @donnaconsults Watch her videos here. read more articles and contact her about real estate business consulting services on her website.
Hi Mike, I checked out your article and you did your usual great job. I'd agree that you are right as well. I alluded to the missed opportunity at the NAR and MLS and your angle on the data collection capability is exactly what I meant in referring to the analogy with Amazon. Great article - I'd highly recommend that brokers and agents read both articles for the full picture of what is really happening here. For those who won't let me translate by saying that the people who have the data collection capability are the ones who will control the game.
Nice article Donna, and you're right of course. The days of MLS are pretty much numbered... I wrote my own article on this for SiliconAngle, I think you'll find it interesting http://siliconangle.com/blog/2014/07/31/zillow-trulia-merger-will-create-boundless-new-big-data-opportunities/ 🙂