Will Technology Replace Real Estate Agents
There's been a lot of news recently about disruption in the real estate industry and how technology will one day replace agents. Full disclosure:
I'm an agent
I have a vested interest in the outcome
I've spent a lot of time thinking about this
With huge inflows of VC money to fund real estate tech startups, brokerages masquerading as tech companies and other "disruptors" many people are wondering what’s going on.
Softbank for one, has a $100 billion fund that is focused on companies "revolutionizing" the real estate industry. In fact, a few weeks ago they made investments of over $800 million into just two firms.
The general thinking is that the manner in which residential real estate has been bought and sold has been operating on the same business model for so long and that there is so much money generated through commissions that the process can be automated, overhead cut, and still a lot of profit to be made with a better mousetrap. Sort of like what has happened in almost every other aspect of our daily lives with the exception of law and medicine which I’ll get back to later. (Not comparing Realtors to Doctors or Lawyers, trust me.)
Non of this should be surprising because real estate has been the ultimate non disintermediation model almost from its inception.
For those not familiar with this term, disintermediation can be loosely described as "cutting out the middleman" or more formally as "the removal of intermediaries in a supply chain".
But, much as many would like to see it change, the real estate industry is premised on the use of an intermediary when buying or selling a home. That's literally the role the agent / brokerage plays.
Think about it. What's the first thing most people do when they get serious about listing their home for sale. They call in three Realtors for "listing presentations". (Yes, some do just go and put a "For Sale" sign in their yard to do a FSBO but most of those wind up with an agent eventually.)
So what has been the firewall preventing disruption and disintermediation?
To start with, there are laws on the Federal, State, and Local level governing real estate transactions and these laws and regulations constantly change and are often left open to interpretation. An experienced hand is often needed to guide participants through the maze.
Secondly, real estate listings are, for the most part, the ultimate in "garbage in - garbage out" data. What we used to call GIGO.
There is simply too much inconsistency in the agent controlled MLS listing data. To use a really bad example, think of buying a car where the MPG rating was set by the salesman selling you the car. Yes, it really can be that bad. (Please don’t compare Realtors to used car salesmen.)
As for the maze of regulations, while it might be possible to automate all these on a national level with some artificial intelligence to guide buyers and sellers, it is probably so cost prohibitive that it would make the current commissions paid seem like a bargain.
What we are left with is that:
EXPERIENCED AGENTS POSSES A WORLD OF "INSTITUTIONAL KNOWLEDGE” USED TO BENEFIT THEIR CLIENTS
And the application of that knowledge is often situational.
Not only is every property different - almost by definition, from every other one, almost every buy / sell situation is different as well.
And while in theory it could all be programmed into the ultimate agent Artificial Intelligence, not very likely.
Now there's no doubt that more tech is used in the Real Estate transaction than let's say 10-15 years ago. However, technology enhancements to date have augmented the customer experience while also simplifying the agent's job.
Here's an example.
There was a time when buyers not get automatic updates of new listings on their app of choice, they actually could only find out what was for sale directly from agents who were the only ones who had access to the "inventory". In other words there was no Zillow, realtor.com, Trulia etc.
All that changed with the dissemination of listings to 1000's of websites through IDX, the technology that allows you to get those notifications. Sort of a twist on EDI customized for real estate listings.
Now, once a new listing is placed into the Multiple Listing Service (MLS) it is sent to literally every participating website for display. But as I mentioned above, at the current time, that data is only as good as what the agent or brokerage enters and there can be wild inconsistencies.
For example, in the MLS I participate in, which is one of the largest in California if not the largest, when I enter the square feet of the property I can choose the tax assessors data or other choices such as the builder's data, an appraiser's measurement, what someone taped the property at or even "estimated". Really. Now we all know that the size of the property is kind of important to buyers. But often buyers viewing homes on their app du jour don't realize that the stated Square Feet they see might not be right at all. And that's just one example of what I am referring to as lack of data integrity.
On the Seller side, historically you had to call an agent (or appraiser) to find out how much your home is "worth" or could be sold for.
As much as Automated Valuation Models (AVMs) have proliferated over the past years (think Zillow's Zestimate), they just aren't accurate enough yet and likely never will be unless each and every house in the US can be site visited.
So with Zillow and other AVMs being off by their own admission by as much as 5% in some areas, would you be likely to rely on that? Well maybe if it was 5% high and you were the seller.
Think of all of this in stark contrast to other industries that have been disrupted.
Whether you are buying a TV from Amazon or going down to your local Best Buy, the ultimate product you get is the same with the only difference being price, delivery, and installation.
The same can be said for booking hotel rooms or flights or anything else where there is no or ver little differentiation in the deliverable.
TECHNOLOGY HAS ALREADY MADE A DIFFERENCE
If I roll back the clock a mere ten years ago, I had to get every document involved in the transaction signed by hand, what we call a "wet signature" on a hard copy. Those documents that might then have to be scanned and sent to another agent.
These days we mostly use electronic signing. The program I use which is pretty much the industry standard, DocuSign, allows Buyers, Sellers and agents to sign online using their desktop / laptop, tablet, or phone. That doesn’t mean there isn’t a review process. And much of what people are signing still has to be explained. But that can be done on the phone or via text or email.
So these days rather than have to meet clients after they get off work, on the weekends, or at their home or office, agents can load the needed documents into an electronic signing program and boom, once signed send the documents off to whichever party needs them. Or even better just have it sent automatically.
That frees up a lot of time for everyone. It also speeds things up.
Another tool that I use on the back end is Skyslope which organizes the transaction paperwork for Broker compliance. While that isn't consumer facing, it does benefit buyers and sellers because agents are more likely to have complete files and not be chasing down their clients for paperwork after or right before the close of escrow.
On the presentation side, yes dissemination of listings is helpful because buyers can pre screen properties that just aren't going to work for them and not infringe on sellers for showings. Other tools such as 3D virtual walkthroughs are also beneficial and allow buyers to revisit the property without physically being there. Could those be enhanced by AR? Probably.
WHAT AGENTS DO
Here's what the best agents know and do that is simply not possible to automate - at least yet, or disrupt.
Inventory
Negotiation
Process
Resources
Market Conditions
Every week I view between 10-20 properties. Some of these are new listings on Broker's Open tours and some are properties I am seeing with my clients. I also track what has sold, for how much, and how long it took. Sure a computer can do the latter and already does provide that information but when buyers and sellers invariably reference "what about that one?", I have seen “that one”. I know why it sold for more or less than whatever comp is being used and why it took longer to sell or not.
Because I know the inventory, I can better negotiate with agents on the other side of the transaction. Real Estate is different than most industries that have been disrupted because we are negotiating price and terms throughout the transaction which itself can last for 30-45 days.
During the escrow period, there are certain steps in the process. While this can possibly be Alexa-ed or Siri-ed to some extent, there are simply too many variables for AI to handle because of the subjective nature of the decisions. For example do you ask for repairs to be made or for a credit or price reduction? How much do you ask for. There is no place, as of yet, this information for prior transactions is captured so there is no place for it to be applied.
Throughout the process there may be a need for other resources; electricians, plumbers, termite companies and heaven forbid, lawyers. Local Realtors know the best people to call for all these needs. Presumably there could be an Angie's list of matching and there’s always Yelp. But wouldn’t you rather get a recommendation from someone who actually used and has a relationship with these providers?
Lastly, what Realtors know is the local market conditions. For example, a power plant is coming down or a stadium is going up and how that affects property values. Is all that programmable? Possibly but most likely cost prohibitive.
My prediction?
Over the coming years there will be more tech on real estate for sure and at sometime there might be a radically different business model or even multiple models. But those changes will happen organically, not because VCs and throwing money at what they perceive to be a problem that no one has asked to be solved.