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Middlemen cut out by internet in most industries, but not real estate

The internet has ushered in the era of dying middlemen, yet the web has given rise to even more middlemen in real estate as startups continue to attempt commoditizing listings.

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Goal of the internet: destroy middlemen

Remember back when the internet was going to destroy the middleman? The New Yorker ran a famous cartoon back in 1997 with seven business people sitting around a conference table, and the caption reads, “On the one hand, eliminating the middleman would result in lower costs, increased sales, and greater consumer satisfaction; on the other hand, we’re the middleman.”

While I doubt the cartoon’s creator had real estate in mind, real estate agents and brokerages have been grappling with how to successfully merge the off-line world of real estate with the on-line world for well over a decade. However, as 2013 begins the internet hasn’t eliminated the middleman in real estate but instead created more!

Zillow and Trulia, for example, are both advertising business that run on the display of real estate information. They are the new middlemen, and they are profiting quite handsomely – primarily by selling ads to real estate agents while providing consumers with information that may or may not be accurate. In fact, one could cynically argue that they have a strong incentive to make the listing agent information difficult for a consumer to discover, because that increases the value of the ads they are running alongside a particular listing.

I’m not here to say that Zillow and Trulia are the enemy or the answer, but to instead ask why most industries have found the internet to be a phenomenal way of reducing middlemen and costs while the internet has created more middlemen in Real Estate. To answer this, I want to compare real estate to two industries – book publishing and travel.

How publishing middlemen were destroyed

Amazon.com, for example, started out to change the publishing industry by making it just as easy to buy a book at home as it was to buy in a store. As the world quickly discovered, amazon.com actually had some advantages by being online. For example, they could stock millions of books, unlike local stores that were limited by their physical space. When amazon.com started, way back in the 1990’s, the kindle had yet to be invented, so it wasn’t even a matter of re-inventing book delivery, this was just about being able to create the world’s biggest inventory of books because they could build warehouses anywhere cheap land was available near a major airport.

But when you buy a book, you always get the same thing: a bunch of words. They may be printed on a page and bound in soft cover or hard cover or they might be digitally displayed on a screen. Regardless, though, you buy a book and you get your words. And you can read those words pretty much anytime and anywhere you want, with very little possibility that things will go wrong. And if things do go wrong? It’s probably not a big deal. Regardless of how much the book cost, it isn’t a financial investment that is a part of your retirement strategy. And no matter how good the book is, you would never invite friends over to just look at your book (you might be a member of a book club, but book clubs get together to discuss the book, not to actually look at each other’s copy of a book).

How travel middlemen were destroyed

The internet has also transformed the travel industry. While we used to go to a travel agent to plan out a complex trip and book tickets, most people do those things online now. And while a plane ticket might be more expensive than a book in the above example, a seat on a plane is, well, a seat on a plane. No one ever sees a really cheap seat and wonders, “Hey, is that seat located inside the pressurized cabin or is it bolted out on the wing?” While there are a variety of seats available within a plane – coach, business or first class – they all essentially do the same thing, and once you have consumed your plane ticket, you move on with your life. Perhaps your plane trip has resulted in the memories of a lifetime, a new client, or a visit to see a long-lost friend. Unlike a home, a plane trip or a book is a consumable item.

How middlemen have thrived in real estate

Real estate is fundamentally different for a variety of reasons, but let’s look at a few. For one thing, brokerages have never possessed a physical inventory of homes for sale. No real estate agent has ever offered to take anyone back to the warehouse to see this year’s available homes, although we have put millions of people in our cars to go visit the homes available in a specific neighborhood. But there is no economy of scale to be gained with a really big warehouse of homes, because homes don’t exist in warehouses, they exist in neighborhoods. Furthermore, while two homes may be very similar, no two homes are identical. Real estate, by its very nature, cannot be commodified.

Websites now offer consumers a wealth of information (some accurate, some less-so) about homes online, yet I’m willing to venture that there is nothing – ever – that will replace physically visiting a home you are interested in purchasing. Why? Because no matter how much information you put online, sometimes the most important things about a home are the things that you can’t see in the marketing text or the pictures. For example, is the master bedroom window under a streetlight that shines excessively bright at night? Is the home at the top of a steep hill that would not be easily accessible by a disabled individual? Does the breeze from a landfill usually blow odors towards the house? Is the next door neighbor a lunatic who throws parties until 4am on a regular basis? In other words, what makes a home desirable is not just the presence of some features, but also the absence of certain other features. Making valuation even more complex, home buyers often don’t always agree about the value of particular features.

Homes differ from both other consumer goods and financial instruments because they have an innately physical and fixed presence, and they exist in a context of other homes and people. Regardless of what book you place on either side of War and Peace, the book in the middle will always be War and Peace. But a home with two great neighbors is more valuable than a home with two horrible neighbors. Homes are also not a disposable consumer good. No one ever says, I’m finished with that home lets put it on the shelf and go buy the sequel. And while people might like to brag or worry about how their investment portfolio is doing, no one ever invites you to come over and enjoy the physical presence of their stocks or bonds.

If I had to sum it all up, I’d say the most distinguishing feature of real estate is permanence. Not only are the permanently and innately tied to their environment, people purchase homes for the long-term. Real estate is neither consumable nor disposable, which may explain why rental sites like AirBnB do well – if you get a bum vacation rental, you aren’t stuck there for the next three – five years of your life.

The takeaway

Regardless of the unique traits of real estate, consumers clearly want accurate information about homes online. In 2013, I think the real estate industry owes it to our clients to find a way to deliver that information with fewer middlemen.

Matt Fuller, GRI spends most of his waking hours obsessing over all things San Francisco real estate. He is half of the successful JacksonFuller real estate team, and also writes at the San Francisco real estate blog about all things SF. He is also a father, husband, foodie, avid runner, and slave to his Newfoundland and Basset Hound dogs.

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17 Comments

17 Comments

  1. markbrian

    January 10, 2013 at 2:27 pm

    Ummm…couldn’t it be argued that real estate agents are also middlemen? Not trying to start a $#!+ storm or get attacked. Just saying…

    • Matt Fuller

      January 10, 2013 at 4:39 pm

      Real estate agents make the market by bringing buyers and sellers together. Back in the 1990’s the industry was terrified that the internet would be the end of agents, but here we are in 2013 and not only are agents still in business, we’ve managed to create more middlemen. I think it’s a fascinating contrast to many other industries, I’m sorry if it came across as complaining, I find it puzzling.

      • Mark Brian

        January 10, 2013 at 4:51 pm

        Matt I didn’t really think you were complaining. I was just playing Devil’s Advocate LOL. Excellent article and I look forward to reading more from you!

        • Matt Fuller

          January 13, 2013 at 1:22 pm

          Thanks, I appreciate it! 🙂

  2. Ron Aguilar

    January 10, 2013 at 3:10 pm

    I agree with your takeaway.

    • Matt Fuller

      January 10, 2013 at 4:40 pm

      Thanks!

  3. Chad McBain

    January 10, 2013 at 9:12 pm

    Matt I applaud you lol. Seriously though I have made very similar statements to our team for years now however you articulate it better then I. Spencer Rascoff even stated as much @ the WTIA meeting. The video can be found on youtube and his points about the fact Realtors are not going away start around the 31-33 minute mark. A point that you make that should be heeded is making the consumer experience so much better if you wish to thrive, amen. Very well written, I look forward to more of your posts.

    • Matt Fuller

      January 13, 2013 at 1:22 pm

      Chad, do you happen to have the youtube URL handy? I’m feeling really lazy this morning!

  4. J Philip Faranda

    January 12, 2013 at 8:33 am

    I am no middle man. I reject the term. I am a trusted adviser and advocate in a transaction which was, is and never will be point and click.

    • Matt Fuller

      January 13, 2013 at 1:24 pm

      J Phillip,

      Middleman has always (IMHO) had a negative connotation – an extra layer that isn’t necessary. I agree with you that we don’t just stand in the middle doing nothing, I very much think we make the market happen in a lot of different ways, many of which you point out!

  5. DavidPylyp

    January 12, 2013 at 11:17 am

    I love the article topic and perspective. Our industry is indeed under assault by everyone with a computer that thinks Selling a house is merely posting the advertisement online. They don’t realise that having the data has nothing to do without a way to measure the validity of the data and examining what’s a priority in someone’s life.

    Being a REALTOR provides a barometer of value relative to the market and a better understanding of the market conditions that govern that price. We are truly in the people’s needs filling business.

    David Pylyp
    Etobicoke Real Estate Agent

    • Matt Fuller

      January 13, 2013 at 1:25 pm

      I agree with you with a qualified asterisk. I think your definition of Being a Realtor applies to great agents, but there are plenty of agents that aren’t great and think real estate is just an easy dollar to be made. But that’s a whole different can of worms!

  6. Todd Carpenter

    January 14, 2013 at 9:02 am

    I work for Trulia, but this is my own opinion. The role that Trulia and Zillow play in real estate has been around long before the Internet. Real estate agents and brokers used to spend their marketing dollars on newspaper adds, real estate magazines, and direct mail. Now they spend more and more of their marketing budget on the Internet.

    Amazon and Expedia are seen as the disinter-mediators of book store owners and travel agents. Often, real estate professionals look at Zillow and Trulia and worry we are trying to do the same thing. It’s just not going to happen. As Matt wrote, a house is not a seat on a plane. We’re not trying to compete with the agent. We are trying to compete with all those other companies that provide marketing services to agents and brokers.

  7. JoeLoomer

    January 14, 2013 at 12:36 pm

    I completely object to this post – my parties are usually over WELL before 4 a.m.!!
    Navy Chief, Navy Pride

  8. James

    January 15, 2013 at 11:03 am

    How viable is it for a consumer to write down 10 listings they like, then schedule appointments to see the houses without involving a buyers agent?

  9. Andrew Mooers

    January 23, 2013 at 6:47 pm

    Videos of the area first for outside new buyers, then one after another full motion, with natural sound deliver the information so well. At one stop individual sites, blogs, video platforms linked to social media. There is not reason to have to keep the herd habit, knee jerk along with forking over beaucoup dollars for better “seating” for eyeballs. On sites populated by your own covered dish, invited to the real estate buffet tid bits for the dog and pony.

  10. Pingback: Artificial Intelligence (AI) in real estate: Negating or monetizing an agent's experience? - The Real Daily

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Opinion Editorials

Who’s missing next to Zuckerberg as he testifies at the political circus?

(EDITORIAL) Facebook Founder, Mark Zuckerberg isn’t testifying because of web privacy violations, this is all a political opportunity with a dash of regulatory salivation thrown in.

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Cambridge Analytica. The name of this company has become synonymous with a breach of your privacy. Several years ago, the company took advantage of a loophole that gave them access to 50 million Facebook users’ information. The story is convoluted, but the entire timeline is laid out here so you can see this is about more than just your privacy.

Today, Facebook has begun alerting users if their info was used by Cambridge Analytica to politically target them without their direct consent. But there is no recourse other than the sheer knowledge that your info was used. How novel.

Facebook Founder, Mark Zuckerberg has headed to Capitol Hill to testify before Congress about this situation, which we all know will turn into a dog and pony show filled with political bluster from both sides as they use their time to lecture and stump, and maybe ask a semi-informed question or two.

Why is Zuckerberg on the hot seat alone? Because they’re the biggest visible fish in the sea, so Facebook will be made an example of. Their entire business model is to make money off of your information, and they’ve been pretty open about that since day one.

But Zuck didn’t set the tone, Eric Schmidt at Google did. And social media platforms have followed suit ever since.

Think about it – you know that Facebook collects the data you insert into their walled garden, but Google manufactured your tv, all of your phones, Gmail accounts, and your home assistant, and it’s obvious what they’re doing with all of that data as it is mined and consolidated in a much less obvious way than Facebook. And it’s strange that Google hasn’t come up in any of these talks of collusion, given the depth of their data and lax requirements of advertisers.

That takes us to the overreactions of today – you know that all of you deleting your Facebook accounts aren’t really deleting anything other than your access, right? Facebook still retains the rights to your photos, posts, and past activity. Just as Schmidt noted above as it pertains to Google.

So your information was used to be advertised to. Nothing new to see here. In fact, it’s not even new that Facebook data could be used politically. Although Facebook seemed to turn the other way when this information was being used, they’re certainly no political virgins – Carol Davidsen, director of data integration and media analytics for Obama for America, said Sunday on Twitter of Facebook, “They came to office in the days following election recruiting & were very candid that they allowed us to do things they wouldn’t have allowed someone else to do because they were on our side.”

So it’s not new that Facebook allows third parties to use your data. It’s also not new that the data is openly used for political targeting. So why is this call for Congressional hearings now that the toothpaste is so far out of the tube that it’s down the sink!?

Sadly, politics. Because this time it benefited someone that’s popular to hate. But the result will have nothing to do with politics at all.

People under 30 never lived a life with privacy and can tell you that they know it doesn’t exist – and if it’s gone, it’s still on a social media company’s servers somewhere. And if you take a quiz about what kind of bread you are, you know that your info is going to be used for something, because we all know that if you don’t pay for a product, YOU are the product (that’s an old line dating back eras). This is what politicians intend on legislating, good or bad.

Sure, Zuckerberg is the target of the hearings because of the Cambridge Analytica situation that benefited Trump instead of literally anyone else on the planet, but again, he’s flying solo because he’s the biggest fish in the social media sea.

And he should not be in the hot seat alone.

Jack Dorsey should be sitting next to him. Steve Huffman should be sitting next to him. Reid Hoffman should be sitting next to him. Eric Schmidt should be sitting right behind Sundar Pichai.

But it’s more than that. If Zuckerberg is on the hot seat, so should every company that ever uses your data without your direct consent or complete understanding. The politicians and talking heads are all dominating the airwaves right now screaming about privacy, and stomping around that it must be addressed (again, they’re over a decade late). So why not force the auto insurers that use your smartphone info, or health insurers that can use your smartphone activity to indicate your activity levels (and duh, insurability). Why not the fitness apps that report user locations to the public, accidentally unveiling secret military bases? Why not television manufacturers for using data above and beyond what cable knows (like app usage), selling that info to the highest bidders?

Try to tell me this is about privacy. It’s not. So let me tell you where this is going.

Zuckerberg’s flamboyant “let them eat cake” attitude is something the tech world is used to, but politicians are not. What’s at stake is the very nature of Facebook. What are they? How can politicians regulate them? How can they protect users based on the marginal information they kind of understand and kind of don’t?

The bottom line is that they’re asking if Facebook is a media company, a moniker they’ve brushed off for years. That’s where this is going. And they are a media company. Because they are, but are not legislated as one, politicians have set a trap for ol’ Zuck.

And he shouldn’t be alone testifying. He should have a litany of counterparts at various social media companies up there. But their first step is to pin him with being a media company so they can simply regulate the rest.

We’ve cheered on and red flagged both sides of the social media boom since before it began, but watching people not in tune with technology fumble over regulating it is simply bad for business.

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Opinion Editorials

How top performers work smarter, not harder

(EDITORIAL) People at the top of their game work less, but with more focus – learn how to replicate their good habits to get ahead.

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Practice, practice and more practice will get you to be more competent in what you do, but working smarter isn’t always about competency, at least in business. Productivity expert, Morten T. Hansen’s studies indicate that multitasking is detrimental to working smarter. But it’s only half of the problem.

Hansen discovered that the top performers did not try to do thousands of things at a time. He’s not the only one.

Earl Miller, an MIT neuroscientist outlines why humans cannot multitask. As he puts it, “our brains… delude us into thinking we can do more.” But this is an illusion. When we interrupt the creative process, it takes time to get refocused to be creative and innovative. It’s better to focus on one project for a set amount of time, take a break, then get started on another project.

Hansen also found in his research that the top performers focused on fewer goals. He recommends cutting everything in the day that isn’t producing value. As a small business owner, you have to look at which tasks bring in the most profit. This might mean that you outsource the bookkeeping that takes you hours or give up being on a committee at the Chamber of Commerce that is taking too much time away from your business.

Taking on less work will help you work smarter, but Hansen found that it goes hand-in-hand with obsessing over what you do have to do.

When you have fewer burning fires, you can dedicate your time to these tasks to create quality work. According to Hansen, this one thing took middle performers at the 50th percentile and put them into the 75th percentile. When someone is competent in writing reports, for example, and can focus their energy into that, the work is much better.

Top performers also take breaks to rest their brains. One of my favorite analogies is the one where a lumberjack is given a stack of wood that needs to be cut down. He starts with a sharp ax, but over time, as the ax gets dull it becomes harder to chop the wood. By taking a break and sharpening the ax, more gets accomplished with less effort.

Your brain is like that ax. It works great when you first get to work. You’re excited to get started. In a couple of hours, your brain needs a break. Go outside and take a walk. Get away from your desk. Do something different for 15 minutes. When you come back, you should feel like you have a second jolt of energy to take on tasks until you break for lunch. Science backs the need for breaks during the day.

By taking breaks, obsessing over what you have to do, and laser focusing on fewer goals, you’ll be outperforming your competitors (and even coworkers). Work smarter, not harder.

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Opinion Editorials

The real key to working smarter, not harder

(EDITORIAL) We’ve all heard that we should be working harder, not smarter, but how does one go about doing that aside from a bunch of apps?

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I know you’ve heard the phrase, “work smarter, not harder,” but what does that mean exactly? How do you work smarter?

A new book by Morten T. Hansen attempts to answer the question. “Great at Work: How Top Performers Do Less, Work Better, and Achieve More” was released at the end of January. Hansen found 7 different behaviors outside of education levels, age and number of hours worked. I’d like to take a look at a couple of the things he recommends. Read the book if you want to know more.

Let’s continue on by addressing the 10,000 Hour Theory of Expertise. Under this principle, it’s thought that if you spend 10,000 hours in deliberate practice of a skill, you’ll become world-class in any field. The Beatles are thought to have used this theory to become one of the greatest bands in history. But it’s not just about practicing until your fingers bleed or you can’t stay awake any longer, it’s really about pushing yourself in an area.

Although it has been argued that this theory doesn’t necessarily apply in business or professions, there’s something to be said about deliberate practice.

When it comes to working smarter, no, you don’t need to spend 10,000 hours in the workplace to get better at your job. But you can put some of the principles of the theory in action:

  • Pick a skill that you need to develop. There’s no way you can work on every skill at the same time. Just choose one to focus on for three months, or six months. Review your performance now. Have a benchmark of where you want to take that skill.
  • Carve out time to work on that skill. Spend 15 minutes a day doing something that helps you get better. You know the old joke? How do you get to Carnegie Hall? “Practice.” You’re going to have to find ways to practice.
  • Work on specific elements of a skill. Typically, the skills we want to improve involve a lot of smaller things. Take a good presentation. You need connect with people, have a good outline and learn to have diction and tons of other things. Work on one thing at a time. ?I used to have a real problem with looking at people when I was giving a presentation. For quite a few months, I made it a priority to be conscious of making eye contact. No matter who I was talking to, the cashier, a patron at the center where I volunteer and even my neighbors. It’s much easier now for me.
  • Get feedback. You may believe you’re making progress, but others may have a different vantage point. Find a couple of good mentors who can really evaluate your performance and offer constructive criticism.

Repeat until your skill-set grows.

To get better, you need challenge and practice. Believe me, you’re going to make some mistakes along the way. Get up, dust yourself off and keep practicing.

Competence in a particular area goes a long way toward working smarter.

But wait, there’s more – the discussion continues in part two of this series, keep reading!

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