The real estate industry has always been a conundrum. On the one hand, we are still doing business the same way we always have. In a simplistic view, Realtors market properties and put deals together. On the other hand, the industry operates on an amazing concept of “coopetition” that is not found in such a large scale in any other industry.
Recently, I was asked how the real estate industry worked… a loaded question if I ever heard one. To explain, I used buying a car as an example. Imagine if every car dealer in your local area put all the cars they had for sale on one website and allowed salesman from other dealerships to sell their cars. Someone from the Ford dealer could walk onto a CarMax lot with a buyer and “sell” them a car.
Actually, that sounded like a good idea to me the consumer, but auto dealers would never go for it. But in real estate, that’s what we’ve been doing for decades. I cannot think of another industry that cooperates and competes on the same playing field, at least on the same scale as real estate.
The real estate industry also adapts quite well to tectonic shifts caused by changing consumer expectations. When buyer agency came to be a consumer expectation, the industry shifted. When the Internet achieved mass appeal, the industry adapted. When the public shifted attention to large aggregators, Realtors® were right there… still marketing properties and closing deals.
Where We Are Now
Currently, we are in the final stages of the Internet Infiltration and in the 4th quarter of the Portal Party. These are simply business cycles that will cease to be big deals once they have reached maturity.
The Internet has matured from a disruptive technology to a basic utility. Portals or aggregators have made it through puberty and are now in those difficult teenage years. Soon they will be leaving the house as mature adults and we won’t see them as much. Frankly, I can’t wait.
While there are lots of technology changes on the way that could disrupt the industry as much as the Internet did, to see the next change, you need to look to consumers. Consumers wanted to be represented in the transaction, so we gave them buyer agents. They wanted on-line access to property listing, so we gave it to them and instead of being satisfied, they asked for a better experience… enter the large aggregators.
No one knows what’s next, but looking at changing consumer expectations will give us a glimpse at the possibilities.
So what’s the next big shift in the industry that will cause industry watchers and doomsayers to predict the end of real estate as we know it?
Here are a few possible consumer frustrations that might foster the next disruptive expectation:
Artificial Intelligence (AI)
While AI has been around a while, it is just now starting to reach the mainstream. This matches perfectly with consumer expectations of quick responses from Realtors®. Unfortunately, these consumer expectations are NOT being met today.
Some will predict that AI will replace the need for Realtors®, but we’ve heard that song before. Instead, I look for the industry to embrace AI as a way to solve the speedy response expectation gap. When a consumer sends an email or text asking for more information, instantly a computer using AI will respond. And when I say respond, I mean better than any agent ever could. AI will know more about the property than the MLS or agent and will use big data to know more about the inquiring consumer than a human ever could.
Like any new game-changing technology, this one will scare most folks at first and there will be resistance. Consumers are already starting to move past the “creeped-out” phase of this technology and soon advantages of AI will out-weigh the fears. As we have with other new technologies, the real estate industry will embrace this as soon as it becomes a consumer expectation.
To find future consumer expectations, you only need to look at current consumer frustrations. AI will help with the consumer’s expectation for instant responses from Realtors®, but the frustrations over mortgages are more complicated. While AI may help solve the problem, the real problem is human’s displaying artificial (as in fake) intelligence. To keep this editorial from turning into a novel, can we all just agree that Congress and regulators have completely screwed up the mortgage industry, making it painful for consumers to get loans?
Since you probably have your own horror story about the mortgage process, I’ll spare you by not sharing mine. Instead, let’s focus on the seemingly remote chance we find a solution to this consumer frustration. The beauty of capitalism (including the real estate industry) is that entrepreneurs generally find solutions that fill the gap between consumer expectations and reality. Eventually this will happen with mortgages.
Currently, consumer expectations are low with obtaining mortgages. Having been beaten down by the financial crisis, over-correcting government regulations, and sluggish home prices, consumers expect a difficult experience when applying for a mortgage. When the overall housing market heats up next decade thanks to favorable demographics, we can expect consumer expectations to change.
Hopefully we will never return to the days of 125% LTV’s, and No Doc Loans, but consumers will expect an easier, faster experience. It is hard to imagine a mortgage process that can be completed in a week or less, but why shouldn’t consumers expect that? If you have good credit and income, why do you have to wait in the same line with those who don’t? The current process penalizes everyone and rewards no one. Capitalism does not support such a business model for long and will figure out a way to fix this silliness.
Here are a few thoughts to consider that don’t require the regulators and politicians to fix things: Why do we have to wait until a contract is accepted to do appraisals, surveys, title searches, and even home inspections? Also, why does the buyer have to wait to apply for the loan until they find a property? Finally, why don’t we give buyers with good credit an express lane that rewards them?
The other significant emerging consumer expectation is more related to demographics than current frustrations. Currently, cities are seeing an influx of young homebuyers and renters. Next decade, that group will shift to the suburbs in search of better schools and lower taxes. Baby boomers followed a similar migration pattern decades ago.
The difference between the Millennial generation and the Boomers is their expectations, especially related to technology. AI will not creep them out and smart homes will attract them. They will also expect better pictures and videos of properties that put them in control of deciding which properties are worth the time to actually go see.
Drones and smartphones have created better opportunities for Realtors® to improve video images for homes they are marketing, but unless the industry takes a major step forward in this area, the expectations of the Millennials will not be met.
While Realtors® have been impressive in embracing technology in the past, the bar will be raised again by the emergence of the Millennials as the primary force in the real estate marketplace. Realtors® will need to raise their use of technology in communications, service, and marketing to stay relevant with the next dominate generation in the marketplace.
The wrap up
While only time will tell which of these three (if any) will cause a tectonic shift in the real estate industry, we can be certain that there will be a shift. It could be caused by something that we can’t see coming, or by something that has yet to be invented.
Based on history, we will embrace the shift and remain relevant. We’ll figure out how to use the shift to create a better way to market properties and make deals happen. In real estate, the more things change, the more they stay the same.