Analysis: How come the internet has not killed off real estate agents?
This seems to me to be a commonly voiced question. Whether you read the local New Zealand concern voiced as part of a recent REINZ research report “that questions the ‘you’re doomed’ view of tech” or listen to the renowned team at Freakonomics respond to the question ‘How has the internet not killed the market for Realtors yet?’ as part of their FREAK-quently Asked Questions
The fact is the internet has been around long enough now that doomsayers forecasting that real estate agents would go the way of travel agents and taxi drivers are clearly wrong. Here in New Zealand as well as many other countries, we have not seen massive, significant or even modest disruption of the role of real estate agents in the real estate process as a function of technology.
I recall the quote I used for many years in industry presentations as a wake-up call to agents to embrace technology rather than fear it:
“Agents will not be replaced by technology, they will be replaced by agents with technology." — Peter Williams, CEO Deloitte Digital 2007.
It has long been my view that technology has a lot to offer the real estate transaction process but will not wholly replace the role of the agent. Forget it. It is not going to happen.
As to why, the simple answer is well wrapped up in this summation that speaks to the true role of an agent:
The transaction process for a residential property is for the majority of people a highly infrequent event. It’s a lengthy and complex process.
It’s a deeply emotional event.
It’s an event that commits people to significant financial liability and most importantly it lies at the very core of Maslow’s hierarchy of needs.
That is why people entering the process want and need the support of a real person, someone on hand, someone they can trust, someone who is proficient with the process and will be their guide, their confidant, their confessor and their advisor
Let me unpack this statement so as to provide clarity, as to why, when you look at the component parts, technology can improve and has improved efficiency and brought greater transparency to the whole process but, when seen as a whole, the process, particularly when it comes to selling a property is far too much to allow disintermediation through technology to completely replace the agent of the process.
It is important at this stage to clearly define the real estate process in the New Zealand context as a seller-side service, as is the case in similar markets like Australia and the UK. It is also fair to say the buyer side has been significantly affected by technology – easier access to inventory and democratisation of property data, both of which have empowered buyers.
As an aside the US is a quite different market, with both buyer-side and seller-side agent services, which makes the transaction far more expensive and complex as it supports twice as many agents, as selling agents cannot advise buyers and visa versa. Added to which the US system still heavily relies on an archaic listing database structure – the less said about this the better!
Let me now share my thoughts on those key components of the process – both real and emotional – and thereby better demonstrate the influence of technology as an enabler but not a disrupter.
It is not unheard of for people to live in the same house for decades – equally some people seem to move every few years. For me, I’ve moved 10 times in my adult life which averages out to just under every four years. I understand the average is somewhere between eight and 12 years. This infrequency leads to a lack of 'learned experience' for the majority of buyers and sellers. The fact is they seldom get to develop skills and experience into the process of selling a property, which often leads to a sense of uncertainty and that nagging doubt “that something's changed since the last time we moved?”
For most people selling a property is inextricably linked to buying a property. The elapsed time for a completed move of house is generally measured in months rather than days or weeks. Often people start to consider moving six to nine months before actually physically moving. This protracted process means people often become distracted by everyday matters especially as the process builds up a head of steam as the critical decision-making date of putting a house on the market has a habit of creeping up on you. So, just when you thought you had the time to manage everything yourself, you more than ever need someone to offload onto.
Buying and selling property is complex. It needs to be. Property rights are at the core of modern democracies. It is the land and the legal rights pertaining to owning land that underpin the property-owning process and ensures that you alone own the land upon which the property sits, whether that be a clear freehold title, a more complex unit title, cross-lease or leasehold title. The appropriate correctly documented filings need to be executed correctly and legally. Certainly, digital documentation processes and potentially a blockchain structure will ensure greater surety and efficiency but this will only be as an aside to the overall process. We are blessed in New Zealand with one of the most digitally developed systems of land registry, which means searching titles and recording title changes is measured in minutes. Many countries suffer from fragmented and un-digitised systems that lead to what is termed “the closing” process commonly taking weeks.
Property has always been a very large financial transaction, more so these days where typical property prices are up to 10 times the average salary and often far more in the major cities. Such financial transactions are still largely underpinned by mortgages that obligate buyers to 20 years or more of repayments. Certainly, digitised systems and artificial intelligence has and will, ever more in the future, change the process of mortgage origination to the point when applying for a mortgage or changing a mortgage term will be as easy as a PayWave transaction.
Sure, we are being better served by bots and voice-activated artificial intelligence when it comes to booking an Uber or checking on the delivery of a courier but we are humans not robots and we crave the ability to look eye to eye with a person we empower and trust to represent us. Someone who has shown their credentials and who through recommendations and referrals we believe has our best interests at heart to see the process through to the end, surmounting any obstacles that may appear on the way – that person is the local real estate agents we select. Someone who is part of the local community part of whom we know, someone who will be there now and in the future.
It is staggering how human-like the latest artificial intelligence human interface is in answering questions – another five years and we will be easily convinced we will be talking to a real person on a screen or even in a hologram. This will be great for shopping and informing our everyday lives but, when it comes to property purchasing, I suspect it will not be until we actually trust AI to transact with another AI, in a very distant future world where every action is AI driven, then we will see the gradual replacement of agents. Until then I think regardless of tech-savviness or age, people selling property want to look deep into the eyes of the local agent who sits in front of them and tells them how this process works and how they will be in good hands.
That indefinable quality that often tops people’s list of real values we seek in people we want to work with and be with. Real estate agents sadly often fail to reach even halfway to the likes of doctors and engineers or police on trust ranking professions but you have to ask yourself what erodes that trust in agents? Is it the experience of you or your friends, or is it a perception created through the media of the few bad apples who certainly damage the reputation of the many thousands of agents that day-to-day support thousands of customers? Sure, if the industry can’t keep working to eradicate the bad-apples, then trust will continue to be eroded but would you trust an artificial intelligence at the end of a phone line or online interface, more than a real person?
The process of property transaction often seems easy when viewed from the outside. Stick an advert online and in print, host an open home or two, and wait for people to make an offer. Shuttle back and forth between buyer and seller working toward a compromised price and bang. A couple of hours work for c.3% of the selling price. How hard can it be – surely a piece of software can bring the buyer and seller together?
Well, the perception and reality could not be further from the truth.
Firstly any business offering the service of real estate for a fee requires it to comply with the Real Estate Agents Act 2008 – all parties in the role need to be licensed which requires significant initial training to reach qualification and then continuing training. The property transaction process starts far before any property advert is posted anywhere and requires a deep understanding of legal obligations and background investigations on the property as an agent is acting as a representative of the seller with all the legal implications that can entail with personal and professional liability.
The process of identifying and facilitating the prospective buyers and guiding them through the process has professional obligations as well, and such matters are complex and demanding, with the agent at all times seeking the best outcome for their client (the seller) while recognising the professional responsibility to the buyer.
An agent is a critical guide to the process helping all parties understand what happens and when. This requires experience and coordination. Certainly software systems have and will continue to manage and visualise the critical timeline and the path needed to be taken with appropriate notifications and critical-path planning. However, as we all know diary alerts and notifications are simply that, notifications. If you don’t have someone overseeing them and acting upon them, they will get ignored or forgotten and the process of real estate transaction needs to be a well-choreographed process guided by a dedicated person with experience.
Confidant and confessor
Emotions cannot be wholly removed from the real estate transaction and, as such, you need someone to share your deep concerns with, whether you set out with this intention or not. As the seller you have in your agent a professional who has an obligation of client confidentiality which allows them to help you to succeed in the sale whilst appreciating the possible emotional challenges that lie behind the reasons for the sale, many of which may be the last thing you need or ever would want potential buyers discovering. However, agents cannot abdicate their professional responsibility to buyers. They have to truthfully, accurately and honestly represent all the facts pertaining to the property they are acting as agent for – any misrepresentation and they are personally liable.
An agent is clearly an adviser in the property process and more than ever technology plays a large part in improving the analysis and representation of property data to better inform all parties, especially when it comes to initial listing price expectation and then on through the process. However, no algorithm, no matter how sophisticated, could advise a seller on the options available at the time of, say, a tender submission when the unique circumstances and market conditions influenced day-to-day by impending and actual transactions of prospective buyers change a market by the actions of these self-same participants as ruled by their head and their heart. The fact is artificial intelligence and algorithms are powerful tools that are incredibly effective at crunching masses of data at scale – think of millions of property records and thousands of property sales to come up with automated valuation models but, when it comes down to a couple of properties and a handful of buyers in a local area, no algorithm will be able to advise a seller or buyer in a way that creates confidence and facilitates outcomes that get people to where they want to go with their lives and the houses they want to live in.
A smart professional real estate agent is a role that is made up of a multiplicity of individual roles. Technology can be a powerful enabler to better support many of these roles but replace them all in one unified system to facilitate property transactions end to end? No way. The best agents need to embrace technology and let it be their differentiator.
No country anywhere in the world has yet experienced a radical or significant disintermediation. This is not because the market is not attractive for investors nor so opaque that innovators cannot dissect the roles and processes and seek to reinvent them. The core fact is that real estate is not a global market that has liquidity and substitutional homogeneity. Every real estate transaction happens in a hyper-local environment that involves a tiny subset of customers and every transaction is in some ways ephemeral – never to be repeated or modelled for future. At its heart and to use the language of tech start-ups 'real estate transactions don't scale as a process'. Real estate companies can and do scale but that is not the same thing and maybe the subject of a future article.
Alistair Helm is the former chief executive of Realestate.co.nz and former head of product at Trade Me Property. He has just restarted his independent Properazzi blog after a three-year break.