Warning. This blog may warrant a big glass of something other than water (or two) and the use of a comfy over-stuffed chair. And yes, it is also a longer post than usual, but equally yes, this read is not a “nice to have” - it is one that I believe strongly is one of those “must have.” reads.
Note. If you have for whatever reason missed any my past blogs and want to see them, you can find them all posted on trancen.com/blog.
OK, so I understand my audience. You may not like all of the “pieces of the puzzle” that I have detailed below, or believe they even have a role in the future- but the one thing that you cannot ignore is how this “puzzle” is shaping up as the “pieces" begin to fall into place.
So hang on, and here we go.
Without question, I believe this might have been one of the biggest weeks of change in the history of the residential real estate industry. For the first time, I am starting to see the “future of the brokerage industry puzzle” may look like in the near future as certain key things begin to happen in this industry.
And even I am surprised to see what is unfolding.
We have long known that there was going to be something big in this business. Something different for us and something better for the consumer. To that end, I have predicted that it was the end of the “world of random real estate”; the one that is now totally controlled and managed by 1.3 million very independent contractors. And for the past 5 years, I have also been critical of the antiquated MLS industry who continues to mis-manage the data and the way brokerages interact competitively in this industry. Then there was this whole matter of home services and the inability for companies like Angie’s List, HomeAdvisor and even Amazon to crack the home improvement services code with the consumer. And finally, there was the issue I have commented on for the past 10 years regarding the industry’s insane obsession with assuring that competitors have the mandated right of cooperation and compensation for selling listings taken by someone else, because we do not believe that we can sell.
So let’s fast forward to what is happening now with the slow reveal of this “puzzle". I think what has started to evolve can be best characterized like this.
The consumer meets the portal meets the MLS meets the buyer broker meets the listing broker meets the agent meets the distribution of home services.
I believe that the changes that are happening now will serve to totally reshape and refocus the residential real estate brokerage industry. Forever.
So think about this scenario. And for the purposes of this discussion understand some of these parties could be substituted by others, but for now these “puzzle pieces” exist and they have the potential now to make this happen.
Let’s begin with the lovely MLS. The MLS and the NAR get slapped with a consumer class action lawsuit. It claims that industry price fixing is occurring centered around buyer broker compensation. The industry laughs it off, as does the NAR, as a lawsuit that will take multiple years to decide and moves on. I predicted that there was more, like an investigation by the DOJ and the FTC and this week that happened. The DOJ is in big time now and has subpoenaed Corelogic for details related to the behavior of the industry as it relates to paying buyer brokers and the ways the compensation levels for buyer brokers are characterized by the industry. This is a very big deal.
Result? I think we will see a bifurcation of the fees assessed by the listing broker to the seller from those charged by the buyer broker to the buyer. And I predict that the majority of the buyers will opt out of paying . using a buyer broker and will instead go direct to the listing broker to purchase a property. And soon after that, for obvious reasons, I predict a dramatic decrease in the number of Realtors and MLS members nationwide.
Now to Redfin. For the past two years Redfin has been focused on getting the listing. I have commented that this is not only smart, it is in fact genius. Win the listing, control the asset, own the product, and you own the buyer is exactly what I have been saying for the past 15 years. All of this solidified in my mind when I worked with Carrington back during the downturn. Carrington owned the REO so they designed the processes, fees and conditions of the entire transaction. Very smart people with total control of the consumer experience. So now, for these reasons, Redfin focuses on the listing and then does this. They advertise that they will charge "1% to sell your home.” I initially called BS on them for misleading the consumer only because I knew that the buyer broker was going to step in and demand 2 to 3% for their efforts to get the buyer. Fast forward to today, and that was a very smart strategy on the part of Redfin.
Result? Redfin has now established a new norm for the cost to list a property that is separate and distinct from the buy side. And that norm is now moving to 1% to yes, actually SELL the listing. Here’s why.
And then Redfin recently took another step. They offered the ability for the buyer to buy a Redfin listing directly from Redfin. Without the need for a buyer broker OR for the cost of a “cooperating" buyer broker. Yes, the same consumer who stepped up and literally took control of the search process on Zillow, Trulia, Realtor.com and Redfi.com is now being enabled with the opportunity to save 2 to 3% of the purchase price by making an offer directly to the listing broker. And all of this was done literally days before the DOJ steps in the investigate the buyer broker price-fixing matter and the traditional brokerage industry.
Result? Redfin may have just moved into a very key future strategic role with the consumer. They have enabled search on Redfin.com, they have reduced to cost to SELL a property to 1% and now they have begun to eliminate the need for the traditional buyer broker and their related fees. And what have the traditional brokers, the MLS and the NAR done in response? What they always do. Denigrate the viability of the change..
And next comes the big one. Redfin is able to make this offer to the consumer at such a competitive fee because they have employee agents and NOT independent contractors agents. So they get a whole handful of puzzle pieces for this move. They have total control of their consumer experience by using employees and they have showcased their own listings with the ability to avoid the use of a traditional buyer broker by providing a viable means for the consumer to buy the property direct from Redfin. Brilliant and very timely.
Result? All kinds of stuff now happens. Maybe the biggest one, Redfin is NOT fighting the demise of the buyer broker, they are providing a means to enable that to happen. Way ahead of the litigation being decided or the DOJ investigation being completed. Why? Because the writing is clearly on the wall now and only industry denial stands in the way of ver\y substantive change.
And then there’s this little detail. Because Redfin controls the transaction AND the consumer experience, they now have the viable means to inject the orderly process of offering home services to seller and buyers, at the exact time when the home services are most wanted and needed by the consumer. And they are able do all of this WITHOUT the historical interference and resistance of the independent contractor in the process.
And the result of all this progression of change is a really big deal. And, I hold here in my hand the last "piece of the puzzle."
I have said more than 1000 times in these blogs alone that Amazon wants into our business but that Bezos has stayed out of the brokerage business for one important reason. And that was that he could not find anything that he wanted to buy. Nothing about the traditional brokerage business makes any sense to a guy like Bezos. He was not going to buy a company made-up of random consumer experiences controlled by independent contractors, Ever. And literally everything in the brokerage industry has been centered on the saving the dwindling commission and keeping the agents - not the consumer- centric to the business. That was NEVER going to fly with Amazon and especially with Bezos. No control of the consumer experience, and dwindling brokerage profits are after all, worth what? But now all of that could change very quickly. Or at least very quickly after Amazon injects $$ billions into a model that Amazon values and can actually use. So this.
If Redfin has made the right bets here, I believe they could be the prime target for a future "Amazonian takeover."
Amazon would get a world-class real estate portal with an outstanding UI / UX, a nationwide army of employee agents, a strong consumer-centric platform for offering services, a unique way to enable their Prime users to list and purchase properties, an ability to distribute a complete a full array of financial services within the transaction, and most importantly to Amazon - a strong, very viable means to sell home services to home sellers and home buyers.
And yes, Amazon, for very obvious reasons could care less about the MLS or even the other portals and would likely ONLY advertise their listings to their 250 million loyal consumers on Amazon.com.
Result? The most catastrophic change we may have ever witnessed in the residential real estate brokerage industry. Everything changes and nothing remains the same. And all that of which is now traditional and conventional instantly becomes unconventional and non-traditonal. Big, big stuff happens then. So in closing.
Any or all of this could potentially happen. It is clear though that the” puzzle" is getting clearer and there are players who now hold more “puzzle pieces" than others. And while this may all be nothing more than my speculation, I do know this for certain about anything in business.
"For all those who resist change, no worries. Change will happen without you."
Have a great day!