In a comment at the Future of Real Estate Marketing, our friend Tom Johnson delivers a fatherly lecture on the facts of life:
This is the free market and unintended consequences at work. There is a reason that the commission rates have been stuck for years where they are. The contingency nature of the listing relationship drives the business. The consumer is unwilling to pay for service that does not result in a sale.
Pouring VC cash into the real estate space has improved technology. The RE.net came on the scene with plans to disintermediate the real estate brokers by tapping into the commission honey pot. This put pressure on commissions forcing brokers to cut costs, so the RE.net responded by giving the services away for free. Free outbound doesn’t earn a return inbound. The cash burn continues, brokers continue to cut costs by not buying RE.net products causing more cash burn and layoffs.
As transactions slow, the commission honeypot shrinks. Brokers will cut cost and redouble efforts to get salable listings, by using the free tools that are provided by RE.net.
It seems to me that the RE.net did indeed disintermediate, but it was not the RE brokers that were disintermediated, but the print media. So here we are, marketing listings for free on the web. Because of the fractured nature of the RE space, it takes unimaginable amounts of time to manage all that free stuff, so we are where we were. The consumer is still unwilling to pay cash for RE services on a non-contingency basis. So, we tweet and blog and facespace our listings, to get a transaction started, and then the real work begins-getting the contract to the closing table. That is the part of this industry that the RE.net sort of forgot about and the cash burn continues…
Indeed. We have seen the future of real estate marketing — and it is us.*
As might be obvious, I don’t have a lot of time for other RE.net sites right now, but it is worthwhile to note that tFoREM has four whole posts this week, a huge number by comparison to recent performance. Makes me wonder if we should be on the lookout for layoffs in Emoryville, too.
[*That joke is built from two pop-culture references. A virtual lollipop to the first person to name both.]
Technorati Tags: disintermediation, real estate, real estate marketing, technology, Zillow.com
Teri Lussier says:
>That joke is built from two pop-culture references. A virtual lollipop to the first person to name both.
We have seen Orwell and he is Pogo?
October 18, 2008 — 2:29 pm
Barry Cunningham says:
You’re not misisng anything on the RE.net..same old whining and lamenting just broadening like a cancer.
People (agents) hold the keys to their own financial prisons yet do nothing to helpthemselves. The yearning for the good old days is really tired. That ship has sailed and no one has Cinderella’s slipper to get them back home.
Just wish everyone would accept the referee’s review of the recent plays and confirm that the call on the field stands. The real estate business model as we knew it is toast.
Those who create and implement the new mousetrap will be fine, and the others…well let them eat cake!
October 18, 2008 — 2:43 pm
Greg Swann says:
> We have seen Orwell and he is Pogo?
Richard Riccelli emailed about Pogo, one of my father’s favorite jokes. I hadn’t thought that the other reference would be more obscure…
October 18, 2008 — 2:49 pm
Greg Swann says:
> Those who create and implement the new mousetrap will be fine, and the others…well let them eat cake!
Connecting the two troubled business models, I think the future of advertising will be more and more pay-for-performance.
October 18, 2008 — 2:56 pm
Thomas Hall says:
I have commented time and time again that leveraging technological solutions in the RE space should not be all about the data. I posted previously about the RE Web 2.0 space and commented on the myriad of solutions out there.
A solution that can quantify the value that is provided by a real estate professional beyond the data analysis might be able to bridge the ad revenue gap.
October 18, 2008 — 4:19 pm
Bob says:
The challenge with that is that it isn’t a fixed value. Some agents bring tremendous value. Others should be forced to pay for being involved.
October 18, 2008 — 6:42 pm
Joe Hayden says:
Can I be the first to propose a bailout of RE.net? I’m thinking something along the lines of $500,000,000,000.99. Divided equally amongst all licensed agents, it should give everyone roughly $500,000. You can give away a lot of services for that kind of money!
October 18, 2008 — 6:51 pm
Bob says:
Thomas is on the right – it isn’t only about the data. That was the assumption Trulia made originally when its business model was just to scrape listings.
Zillow came closer to the pot at the end of the rainbow with their attempt to enable the consumer directly. And not just the buyer, but most importantly, the seller.
The data that is crucial is the listing. The better mousetrap will be more than just doing what the RE industry can do on their own – market online. It will offer an alternative to the listing agent. Until that task is successfully completed, Russell Shaw will sleep well at night – and likely for the foreseeable future.
October 18, 2008 — 8:13 pm
Heather Rankin says:
May be old news to some by now but Zillow announced they are cutting 25% of their workforce
http://tinyurl.com/67pqps
From the same article……
“On Monday, Redfin, the nation’s first online real-estate brokerage, announced a 20 percent staff reduction.”
For now, still looking for the mousetrap, eh?
October 18, 2008 — 10:23 pm
Barry Cunningham says:
I don’t understand why I keep reading about Zillow and Redfin layoffs as if it is some punctuation on anything but financial viability.
Both companies did what those in BUSINESS do. When revenues slow or are projected to be less than expected, they cut back and one of those methods is layoffs.
Unfortunately with such a low barrier to entry, there are so many..hundreds of thousands of realtors who should be issuing their own pink slips to themselves but alas they don’t understand business.
So they languish on blogs and social networks lamenting about the state of the industry where if they were truly in business they would be left with the same choices as Redfin and Zillow.
Hand out the pink slips or keep losing money. What’s funny and sad at the same time is that most real estate agents would prefer to continue doing the latter.
October 19, 2008 — 9:15 am
J Boyer Chatham NJ says:
“Hand out the pink slips or keep losing money. What’s funny and sad at the same time is that most real estate agents would prefer to continue doing the latter.”
Yes Barry, Funny and Sad at the same time. The way things have gone around here, we should have seen 40% of the REALTORS get of of the business, but rather than that, we have seen more like 10% get out.
A new dawn has broken over the real estate industry and it happend a few years ago already.
October 19, 2008 — 6:00 pm
Joel says:
Everything’s fine Greg. Thanks for your concern.
October 19, 2008 — 7:04 pm
genuinechris johnson says:
I got the pogo reference, my dad’s favorite joke. But, all I could think of was the ‘rain man’ autisim rant, “bam, the FUTURE of Rock and roll..”
October 20, 2008 — 6:10 am
Greg Swann says:
Lincoln Steffens committed one of the great betrayals of Western Civilization when he said of Soviet Russia, “I’ve seen the future and it works.” He wasn’t the worst of the Communist apologists, but he was the first.
October 20, 2008 — 7:08 am
Wayne Long says:
“The challenge with that is that it isn’t a fixed value. Some agents bring tremendous value. Others should be forced to pay for being involved.”
Man I have to agree with that. Professional Realtors are hard to find but are worth their weight in gold.
January 9, 2009 — 6:32 am