Disruptive Change in Real Estate

JOURNEY OF DISCOVERY

Disruptive Change ReportFOUR EXPERTS SHARE TOP FIVE MOMENTS IN REAL ESTATE’S EVOLUTION

Version 223 July 2014

Prepared by:CE Holmes Consulting, Solvable, Monique Morden Consulting

BCREA Journey of Discovery: Disruptive Change Report

Goal for the ReportOur first Journey of Discovery Report opened with a quote from Dale Stinton, NAR CEO,“It is hard for me to imagine an industry that has expe-rienced more sustained turmoil in the last half dozen years and there appears to be little to suggest it will abate any time soon.”It was the assumption of the JOD Task Force, BCREA Board of Directors and JOD Research Team that this was a widely shared sentiment and experience across the province. In the process of getting to speak with hundreds of REALTORS® and Brokers over the past seven months, we found this sentiment of unrelent-ing change a consistent theme–both in looking back, and in looking forward. And yet, in the many dialogues we have had with member board leadership over that same time, there is a widely differing understanding of that rate of change, and, in some cases, a dis-agreement about whether fundamental change is happening at all.

Our goal for the Journey of Discovery research is to surface data that supports fact-based decision mak-ing for BCREA as we plan for the next five years. We felt that a missing link in our data was in provid-ing a shared understanding of the change affecting our industry. With that, we reached out to a number of experts to give us their top five lists of disruptive change over the past five years and those disruptions likely to happen over the next five. While you may not agree with all the findings, we think these thoughts can shape a constructive dialogue on what BCREA can do to advance a more sustainable and thriving industry for BC REALTORS®, Brokers and organized real estate.

Black SwansIn the Harvard Business Review article, The Six Mis-takes Executives Make in Risk Management, the au-thors define a concept that has become part of con-temporary business parlance–the Black Swan.

“Low-probability, high-impact events that are almost impossible to forecast–we call them Black Swan events–are increasingly dominating the environ-ment…Instead of trying to anticipate low-probability, high-impact events, we should reduce our vulnerabil-ity to them. Risk management, we believe, should be about lessening the impact of what we don’t under-stand–not a futile attempt to develop sophisticated techniques and stories that perpetuate our illusions of being able to understand and predict the social and economic environment.”

Essentially the message about Black Swans is that while predicting high-impact events is nearly impos-sible, the predictions themselves help to prepare for eventualities should the event(s) occur. The article de-scribes preparedness as a kind of insurance policy for businesses and organizations.

Thus, we sought perspectives that could spur “what if” dialogue amongst BC ORE leadership to prepare for a changed future. The predictions are not proposed for their likelihood to occur, which the Black Swan theory would shoot down, but rather to ensure that BC ORE is prepared should they occur. Similarly, the list of past disruptions is not indicative of the future, but rather to create a common understanding of our industry’s rate of change and the urgency to prepare for further escalation.

Selection ProcessWe invited experts by considering the diversity of their perspectives combined with an underlying knowledge of the real estate industry. We were particularly inter-ested in those individuals who frequently write and speak about technological change and disruption. Our initial five invitees were: Rob Hahn, David Eaves, Stefan Swanepoel, Garth Turner and Doug Devitre. Stefan Swanepoel recommended his frequent Trends Report contributor, Jeremy Conaway, who accepted the invitation. Garth Turner turned down our invitation (read more on the next page), thus we moved forward with the four experts.

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REPORT CONTEXT

http://timurdhaka.weebly.com/uploads/5/4/0/2/5402479/harvard_business_review_-_six_mistakes_in_risk_management.pdf

http://timurdhaka.weebly.com/uploads/5/4/0/2/5402479/harvard_business_review_-_six_mistakes_in_risk_management.pdf


Rob HahnRob Hahn is the founder and Managing Partner of 7DS Associates. Rob writes the well-known blog Notorious R.O.B., where he opines on topics in real estate, tech-nology, marketing, social media, and strategy through far-too-long posts. His most recent venture, Neighborhood Advocates, helps REALTOR® Associations mobilize grassroots support and member engagement. Rob started in real estate at a spe-cialized commercial real estate investment firm, and moved on to Realogy, where he headed the interactive marketing for Coldwell Banker Commercial.

David EavesA public policy entrepreneur and negotiation expert, David Eaves has become in-ternationally recognized for his work and advocacy on open government. In 2008, David advised the Mayor of Vancouver on open government and open data, and helped draft the Open Motion—the world’s first municipal motion on open govern-ment. Since then, he has advised several municipalities and international organiza-tions on open data and innovation strategies. Over the past few years, David has been brought in to speak at various regional and national real estate events.

Jeremy Conaway Jeremy Conaway is considered one of the innovative and creative organizational, MLS® and brokerage system designers in the North American real estate industry. His brokerage and member service systems focus on profitability, standards, ac-countability and transparency and are being used by some of the top brokerages and REALTORS® on the continent. He work is featured in both Swanepoel and NAR publications. He is the contributing editor for the Real Trends publication.

Doug DevitreREALTOR® Associations bring in Doug Devitre when they want to use the technol-ogy and talent they already have to communicate better with their members. He has self published three books including his latest, Strategic Altering: How to Influence Members by Making Better Decisions Faster, and commercially publishing the forthcoming, Screen to Screen Selling: How to Dramatically Increase Sales and the Customer Sales Experience Without Being Physically Present, with McGraw Hill in the first quarter of 2016. In 2013 Doug Devitre earned the Certified Speak-ing Professional credential, which is bestowed upon the top 10% of professional speakers worldwide.

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EXPERT PROFILES


On May 20th a blog post appeared on thegreaterfool.ca titled, They asked for it. The post was in response to our request of Garth Turner to be one of the experts for this Report. Turner first voices his surprise, “Turns out the provincial body actually wants to clean up the industry, or at least hear from those who be-lieve change is necessary. It even issued a fat dis-cussion paper asking big questions like, what in the future will customers expect of REALTORS®? How is the business of house-flogging going to change, because of the economy, or technology or a tidal wave of wrinklies?”Then he proceeds to ask his readers for their own top lists of past and future disruptors:“Are we up to the challenge, blog dogs? What five things do you wish me to tell the REALTORS® about how we got into this sorry state, and the changes that will be needed to get out?”Within 24 hours Turner received 268 responses to his post. While too extensive and varied to be able to summarize here, we cannot encourage you enough to spend sometime with the comments, some of which provide further elaboration of the disruptors noted by our experts, while others are completely new and thought provoking.

The following day Turner posted, Blown Away, in which he wrote, “All Jake Moldowan needs to know about improving the house-flogging business in Can-ada was published on this site. Actually, I’ve nothing further to add. I think he knows it.”

And that was that. Within 24 hours we had a list of dis-ruptors crowdsourced from across the country. And all it took was asking the right guy. Undoubtedly, we can learn a great deal not just from the content, but also in creating a platform that can engage our members and consumers in strategic thinking about our collective future.

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CROWD CONTRIBUTION

http://www.greaterfool.ca

http://www.greaterfool.ca

http://www.greaterfool.ca/2014/05/20/they-asked-for-it/

http://www.greaterfool.ca/2014/05/21/blown-away/


ROB HAHN (PGS 07–08)

1. Elance, The BrokerageThe real estate transaction becomes highly fragment-ed, highly specialized, and highly outsourced.2. Zillow Killed the Franchise StarWill franchises be able to charge their 6% royalty fees when Zillow, Trulia and Move become the dominant brands synonymous with real estate?3. Real Estate Agents Become EmployeesGovernmental entities eliminate the “loophole” of clas-sifying real estate agents as independent contractors, and 80% of REALTORS® are fired the next day.4. Large Brokers Flex Their MusclesA database is created that sits between the brokerage and the MLS®, thereby granting total control over list-ing data to the brokerage5. Banks Enter the Portal BusinessTo control the consumer at the top of the funnel for mortgage leads, another bank, mortgage company, or other financial institution enter the portal business.

DAVID EAVES (PG 10) 1. The Collapse of Some BrokeragesLarge brokerages without a clear brand or resonance in the marketplace go under.2. The Bubble BurstsAt some point the housing market will stumble or fall, which could force consolidation or cause a temporary decline in the number of REALTORS®.3. Baby Boomers Continue to DownsizeThis will have a big impact on the types of housing that is built and the large number of single family homes occupied by empty nesters.4. Driverless CarsThese cars could increase the outer range of a city rather than concentrating growth in the downtown core.5. More Data in Consumers’ HandsConsumer access to more information will cause prime neighbourhoods to be more readily identified and undesirable ones to be readily avoided.

JEREMY CONAWAY (PGS 12–13)

1. Standards/Accountability/Transparency FailureOutside parties set standards for the residential real estate industry that promote their agendas rather than the best interests of REALTORS®.2. Drive for Greater Profitability by New Entrants Companies are creating new business models that dramatically impact ROI, and thus cause Wall Street to demand other public companies follow their lead.3. The Failure of Millennials to Buy HomesA change in the overall passion and interest in home ownership by Millennials would be dire for a number of existing economic and business interests. 4. Comprehensive RegulationThe industry and marketplace deal with an omnibus regulatory framework by government regulators for economic stabilization and/or consumer protection. 5. Government Funds Growth through Taxation A tax on real estate commissions might put consum-ers, brokers and REALTORS® at odds regarding which should be paying the tax.

DOUG DEVITRE (PG 16)

1. Self-Diagnostic Tools for the CustomerTechnology companies are building tools for custom-ers to analyze their situation and to deliver advice to the questions traditionally asked of REALTORS®.2. Increased Demand for ROITransparent performance information will surface, and alter how ROI is calculated and communicated.3. Executing the Transaction from Your PajamasA whole new set of best practices, presentation skill sets, and language to influence will need to be devel-oped to justify the augmented working relationship.4. Cross Channel UsabilityOnce task metrics such as online completion, error, and satisfaction rates surface across multiple devices, leaders will need to improve the customer experience.5. Increased Participation and RevenuesIf the association could access the performance met-rics for each REALTOR®, they could quickly suggest products and services to close performance gaps.

The Top Five Future DisruptorsThe full descriptions can be found on the associated page numbers

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ROB HAHN (PGS 08–09)

1. Agent Teams Go MainstreamThe Agent Team, empowered by technology, can and does take market share from the middle class, divid-ing agents into the Haves and Have-Nots.2. Is That A Listing In Your Pocket, Or Are You Just Happy to See Me?Technology and systematization have transformed an innocuous activity into the Destroyer of MLSs®.3. Mr. Zillow Goes to WashingtonNot just REALTORS® can go talk to government of-ficials. Zillow has been making a quiet push to make serious connections with serious policymakers.4. The Pursuit of AppynessWe are now living in an app-app-app world, and it would be useful if real estate decision makers stopped looking at cutting edge technologies from 2003.5. Wall Street Buys Main StreetAn asset category that was a specialized, unique niche has become mainstream in the world of high finance.

DAVID EAVES (PGS 10–11)

1. The Rise of Zillow and Online Housing MarketsZillow and others showed consumers a world where helpful information was at their fingertips. It showed agents what useful online tools that enhanced their offerings could look like. 2. The Competition Bureau’s Investigation of the Real Estate MarketI suspect that Canadians don’t trust REALTORS® as a “group” like they once may have.3. Low Interest Rates and Foreign BuyersMore money than usual is moving around the market, driving up or maintaining prices at a level that may be hard for Canadians to sustain over the longer term.4. The Desegregation of the Industry’s ToolsAll this is making buyers better informed and agents more efficient.5. The Rise of Boutique ShopsThe rise of digital tools may lead to the consolidation of the big players - but it could also simultaneously lead to a larger number of small niche players.

JEREMY CONAWAY (PGS 13–15)

1. The failure of organized real estate to update MLS® operations, procedures and rules in a man-ner that is consistent with industry and consumer needs. 2. The emergence and growing influence of the real estate listing portal.Millions of consumers are now using listing portals as their first point of contact for their real estate experi-ence, and continue as they access agents.3. The failure of the REALTOR® to track the in-creasing expectations and indeed, demands, of today’s real estate consumer.4. The emergence of the Internet of Everything (IOE) movement.By and large the REALTOR® has neither accepted, embraced nor accommodated the IOE movement. 5. “Agent Centricity”The industry finds itself unable to move forward in criti-cal sectors such as consumer satisfaction, technology adoption and efforts to enhance its value proposition.

DOUG DEVITRE (PG 17)

1. Search to Service: How Customers are Making Decisions OnlineCustomers have more options online now than ever before to locate a property for sale that meets their specific criteria.2. Agent Accessibility: 24-Hour Access Across 24 Channels3. Commissioning New Commissions: Alternative Money Making Activities4. Time Sensitive Transactions: How Decisions are Made QuickerThese faster decisions decrease overhead costs and increase risk for transaction partners. 5. Fact or Fiction: Social Media is HelpingNow that popular platforms like Facebook, Linkedin, and Twitter have reached critical mass, consumers are overloaded with information.

The Top Five Past DisruptorsThe full descriptions can be found on the associated page numbers

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FUTURE1. Elance, The BrokerageThe final disrupter, the Event Horizon, can happen to-day. All of the pieces are already in place. I figure it’s just a matter of time before someone successfully ex-ecutes on it.

The emergence of agent teams (covered above as Past Disruptions) coupled to advances in technology means that today, the real estate transaction is highly fragmented and highly specialized and highly out-sourced. Even though the consumer might think he is hiring the agent, behind the scenes there are transac-tion coordinators based in the Philippines, website de-signers from Estonia, staging specialists, professional photographers, and all of it is choreographed by more and more sophisticated transaction management sys-tems that are designed to allow inexperienced people to do a great job for the consumer.

We already see companies like Jason’s House in Houston offering to rebate money back to consumers based on how much of the work the consumer has al-ready done. Find your own house? It’s a 25% rebate. Willing to negotiate the deal yourself? That’s another 25% rebate. And so on.

The Event Horizon is when some agent or broker-age offers this sort of assisted a-la-carte model on the seller side. Paying some real estate agent 3% on a $500K house ($15,000 in commission) to handle the transaction paperwork, when the agent will simply farm that out to a $8/hr virtual assistant in Guam, is financial nonsense. The seller will gladly pay the virtual assistant the $8/hr personally to save 1% of the com-mission. And some company somewhere will offer ex-actly that service.

It’s Elance, the real estate brokerage. And the full-service agents are going to have a really hard time convincing consumers that their services are worth the full 3% when they themselves are farming out the work at dirt-cheap rates. Expect major disruption, ex-pect lowering of costs, expect gnashing of teeth.

2. Zillow Killed the Franchise StarTo be sure, Zillow isn’t the only company doing this in real estate. Both Trulia and Move have also launched significant consumer branding campaigns in the U.S. The goal of all these companies is to brand them-selves as synonymous with real estate. Zillow’s CEO has publicly said on earnings calls that they think real estate is a total brand whitespace and that they’re happy to spend $50m, $60m, or whatever to brand Zillow to mean “real estate”.

Which is great for Zillow, but the major Franchises ought to be shaking in their boots. When long-estab-lished brands like Coldwell Banker and Century 21 and RE/MAX have no appreciable impact on consum-ers at all — which they don’t, since there would be no brand whitespace if they did — while the major portals are becoming household names amongst the millions and millions of consumers who flock to them daily… one has to ask for what exactly these franchises are charging their 6% royalty fees.

3. Independent No More: Real Estate Agents Be-come EmployeesWhile Canadian law and American law are slightly different, fact is in both countries, most real estate agents are considered independent contractors for tax and employment benefit purposes. Thing is, the U.S. is functionally bankrupt and Canada isn’t ex-actly rosy (granted, $16bn in 2014 deficits is chump change to what the U.S. will run up on its credit card, but still…). Given that government spending is unlike-ly to decrease over the next five years, governmental entities will be searching far and wide for sources of revenue. It just so happens that one rather useful little niche of revenues for politicians might be eliminating the “loophole” of classifying real estate agents as in-dependent contractors. Real estate brokers aren’t ex-actly popular, and it is unlikely that politicians will pay too heavy a price for changing that legal regime.

Of course, when recruiting agents means actual costs to brokers… 80% of today’s REALTORS® will be

Rob Hahn, 7DS Associates Full, unedited submission as provided by the author

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https://jasonshouse.com/how-it-works

https://www.elance.com


fired the very next day….

4. Project Upstream: Large Brokers Flex Their MusclesProject Upstream is the secret initiative by The Re-alty Alliance — a group of very large independent bro-kerages — and other partners. Supposedly, Realogy, HomeServices of America, Leading Real Estate Com-panies of the World, RE/MAX, and KWRI are all in-volved or have been asked to be involved or are think-ing about being involved or… you get the point. And details have remained secret, but it appears that the concept is to create a database that sits between the brokerage and the MLS, thereby granting total control over listing data to the brokerage.

You know what that actually is? It’s a giant national pre-marketing “pocket listing” network, comprised of the largest brokerages in the industry. The strategic business logic of doing just this is irresistible. There-fore, this will come to pass at some point, whether under the current “Upstream” name or a different one.

While a U.S.-based project at the time being, I can-not imagine the large Canadian brokerages like Royal LePage looking at a program like this and not wanting to do the same.

5. Banks Enter the Portal BusinessWhen Nationstar Mortgage bought Real Estate Digi-tal earlier this year, only a few techno-nerds in real estate lifted an eyebrow. Why would a mortgage com-pany want to own a company that makes broker and agent websites? The answer, most likely, has to do with controlling the consumer at the top of the fun-nel for mortgage leads. It may also have to do with the enormous repository of real estate data that RED has in order to power all of those broker, agent, and MLS® websites.

Either way, with the precedent set, I think it is highly likely that we will see one or another bank, mortgage company, or some other financial institution enter the real estate portal business. Going big could mean

something like Bank of America buying Zillow; smaller might mean something like Royal Bank of Canada buying REALTOR.com from Move, Inc. Those banks could capture mortgage leads from consumers, at the same time consumers are just getting interested in buying a house. No regulation or legislation forbids banks from owning web portals, although they cannot own real estate brokerages. It will turn out that there is no need to own real estate brokerages if you own the consumer relationship.

PAST

1. Agent Teams Go MainstreamWithout a doubt, the most important trend of the past few years is the mainstreaming of agent teams. I don’t mean the husband & wife “team” that some brokers associate with the term. I mean the “brokerage-in-a-brokerage” model laid out on paper by Gary Keller in The Millionaire Real Estate Agent, and honed to per-fection over the years. The Agent Team, empowered by technology, can and does take market share from the middle class, dividing agents into the Haves and Have-Nots in a way we have never seen before. It also changes the relationship between brokers and agents in truly fundamental ways, and utterly disrupts the competitive balance between brokerages. We have yet to see all of the disruption that will emerge from this phenomenon, but it is the most important disrup-tion of the past five years.

2. Is That A Listing In Your Pocket, Or Are You Just Happy to See Me?So-called “pocket listings” have been part of the real estate industry ever since a couple of Dutchmen bartered some beads with Indians for the island of Manhattan. These private listings are the norm rather than the exception for commercial real estate, even in 2014. And “pre-marketing” of listings has been a feature of every single real estate office meeting, even when Colbert Coldwell was running a local office. And yet, in the past few years, “pocket listings” or “off-MLS listings” have gone from an unnoticed phenomenon to Sauron the Dark Lord. Why?


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http://www.kellerink.com/sites/kellerink.com/files/The_Millionaire_Real_Estate_Agent_InsidePages_copyrighted.pdf


Technology and systematization have transformed an innocuous activity into the Destroyer of MLSs®. Because on the current path, pocket listings, listing clubs, and pre-marketing networks will render the MLSs® largely irrelevant. It’s hard to talk about the MLS® being the gold standard of data accuracy if 40% of the transactions are happening off MLS®.

Truth is, the entire “pocket listings” problem is the symptom, not the cause, of the sickness. The actual cause is the combination of the craptastic technology platform of the MLS® and the arrogance and pater-nalism of the same. At the same time that the MLS® is telling its subscribers to use Internet Explorer to ac-cess the system, it is promulgating all sorts of rules and policies that are arbitrary and capricious. No won-der producing agents would rather use Facebook to tell each other about their listings.

3. Mr. Zillow Goes to WashingtonIn 2013, Zillow hosted a live web conference with President Obama. And while NAR people in Chicago and Washington DC flipped out, not many people re-ally paid close attention to what was going on. Fact is, Zillow has been making a quiet push to make seri-ous connections with serious policymakers in Wash-ington DC. The idea that a tech startup might start to form relationships with elected officials and high-level regulators apparently shocked the Association world, who sees government relations as their bailiwick. Yet, there is no reason to think that only REALTORS® can go talk to government officials. As the portals con-tinue to grow in power and wealth, it seems inevitable that they will form their own deep relationships with people in power. If Zillow can go to Washington, why not Ottawa?

4. The Pursuit of AppynessThe real estate industry tends to focus on things that are well past its sell-by date. For example, for the past couple of years, the real estate industry in North America has been obsessed with websites. In the Q1/2014 earnings report, Realogy talked about tak-ing steps to be more independent on the web, and

actually used the word “URL” in the call. Meanwhile, by 2013, the majority of the consumer traffic to Zillow was coming from its mobile apps, and while MLS® executives talk about their latest website enhance-ments, Trulia is investing tens of millions of dollars into their mobile technology capabilities. We are now liv-ing in an app-app-app world, and it would be useful if real estate decision makers stopped looking at cut-ting edge technologies from 2003.

5. Wall Street Buys Main StreetThe bursting of the real estate bubble led to the col-lapse of the financial markets, which then caused the Fed to panic and start dumping money into the financial system, which then perversely created huge incentives for big financial firms to get into real es-tate. Real estate investors have always been a part of the market, but not like we have seen in the past few years with hedge funds and investment banks pour-ing billions of dollars into single family homes around the country. It isn’t as if Canada is immune from the impact of deep-pocket investors either (see, e.g., Van-couver’s insane real estate market). The main disrup-tion here is that an asset category that was once a specialized unique niche has become mainstream in the world of high finance.


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FUTURE1. The Collapse of Some BrokeragesLarge brokerages without a clear brand or reso-nance in the market place are probably at risk. Lo-cal niche brokerage firms could - collectively eat their lunch while better positioned brokerages with strong brands will hit them from the other side. This could force some to innovate more - perhaps more white label brokerages appear?

2. The Bubble BurstsAt some point the housing market will stumble or fall. It could be that Canadians make it harder for foreign investors to buy homes and drive up prices or that interest rates have to rise. Regardless of the reason, the next five years could be a bumpy ride. This could force consolidation or cause a temporary decline in the number of REALTORS®.

3. Baby Boomers Continue to DownsizeThis will have a big impact on the types of housing that is built and raises questions about what will hap-pen to the large number of single family homes oc-cupied by empty nesters. Either way, I suspect it will have an impact.

4. Driverless CarsProbably not in the next 5 years but the rise of the driv-erless car could further decentralize cities. Driverless cars mean that commutes can get longer as people now do other things while commuting (working, social time, etc…) these cars could thus increase the outer range of a city rather than concentrating growth in the downtown core.

5. More Data in Consumers’ HandsThe trend of consumers having more and more data is only going to get stronger. Commute times, walkabil-ity scores, school catchment areas are just the tip of the iceberg. As more information and data moves on-line consumers will get more access to more informa-tion that will cause prime neighbourhoods to be more readily identified and undesirable ones to be readily avoided.

PAST (OVER 50 YEARS)1. Formation of Canada Mortgage and Housing CorporationThis allowed mortgages to become affordable to ev-eryday people. It basically is the foundation that led to the creation of a modern mass real estate market and so is the foundation/pre-condition to the entire pres-ent system. It is also a great example of the positive power that collective action/structure can have on the market.

2. The RE/MAX ModelIn the 1980s RE/MAX broke all the rules and com-pletely altered how it compensated REALTORS®. Gone was the model where you stayed with an orga-nization your whole life and they trained and guided you. In came a lower cost model (you paid them less - but you always paid them a little bit regardless of what you sold. In less than 10 year everyone either copied or yielded to RE/MAX.

3. WEBForms®Started by a small group of developers in Surrey WEBForms® digitized the process of filling out paper work. This allowed agents to get off managing paper and dealing with all sorts of errors that might occur through forms being misfiled or lost and freed them to focus more on customers. In addition it standardized a lot of paper work making it easier to do transactions.

4. MLS® and its PrecursorThere has always been a need for people to look at homes without being physically present. Families moving to a new city, those with time constraints. Starting in the 1950s REALTORS® began to orga-nize sharing photos of homes for sale. In the 1980s and 1990s this moved onto computers and eventu-ally online, letting people browse homes in whole new ways. Each leap both weakened and reinforced the REALTOR® role. On the one hand buyers could browse for homes without a REALTOR®, on the other hand the REALTOR® continued to be a gate keeper to man-ager the sale–more focused on dealing with the transaction.

David EavesFull, unedited submission as provided by the author

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PAST (5 YEARS)1. The Rise of Zillow and Online Housing MarketsThe rise of Zillow, Redfin and others has shown just how ineffective MLS® is - it offers little in tools to both buyers and sellers, as well as to real estate agents. Zillow and others showed consumers a world where helpful information was at their fingertips and it showed agents what useful online tools that enhanced their of-ferings could look like.

2. The Competition Bureau’s Investigation of the Real Estate MarketRegardless of whether the competition bureau’s in-vestigation and case yields any outcome the very fact that the bureau chose to investigate the real estate in-dustry is illustrative. It sums up a larger trend which is, I suspect, that Canadians don’t trust REALTORS® as a “group” like they once may have. Various discussion groups I’ve lead on the subject always yield the same outcome. Fees have gone up, and yet Canadians are not sure what they are getting, other than access to a market and some process advice.

3. Low Interest Rates and Foreign BuyersNeed we say anything else? The continued activity in Canada’s real estate market cannot be decoupled from the historically low interest rates. Low interest rates have been aided by another trend in certain key markets - particularly Vancouver, but also Toronto - foreign buyers. Wealthy buyers have driven up prices at the upper end of the market, the effects of which cascade down the market tiers. Both these trends - lower interest rates and increased foreign investment - mean that more money than usual is moving around the market driving up or maintaining prices at a level that may be hard for Canadians to sustain over the longer term.

4. The Desegregation of the Industry’s ToolsIn addition to Zillow there is a whole range of new tools design to aid buyers and sellers both directly and indirectly. Websites like Walkscore inform buyers of the walkability of neighbourhoods, while a range of

new apps help agents organize contacts and manage transitions. All this is making buyers better informed and agents more efficient.

5. The Rise of Boutique ShopsI suspect that the growing number of digital tools cit-ed in number 4 are making it easier for agents to serve more customers, more effectively. More importantly, agents are getting tools from the marketplace that they used to get from brokers. All of this is throwing into sharper and sharper relief the true benefits of a brokerage’s brand to both consumer and agent. An-ecdotally I see a growing number of boutique brands - able to leverage tools that allow them to act like large players but focus on geographic or other niches - pop up. The rise of digital tools may lead to the consolida-tion of the big players - but it could also simultane-ously lead to a larger number of small niche players.

David EavesFull, unedited submission as provided by the author

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FUTURE1. Over the past five years virtually every industry in North American with the exception of real estate has adopted standards, accountability and trans-parency as the cornerstone of their value proposi-tion. In the meantime the residential real estate industry has remained “agent centric” In contrast the residential real estate industry has elected to maintain its traditional “agent centric” posture and has reject the concepts of standards, accountability and transparency. With this decision they have isolated themselves from the consumer, the lender, and, most significantly of all, the regulator who now understands that the system may be even more dangerous to consumers than previously assumed. It is highly unlikely that the real estate industry will be able to maintain this posture.

The disruption arising out of this black swan will be caused by outside parties (e.g. regulators, portals and/or financial institutions) undertaking to set stan-dards for the residential real estate industry them-selves. The disruption will be driven by the fact that these “non REALTOR®” entities will create standards of practice that promote their agendas rather than the best interests of REALTORS®

2. Disruption caused by publically held firms that are willing to do what it takes to generate market level brokerage profitability and ROI at levels that can attract outside investment.From the perspective of a serious businessperson the residential real estate industry has traditionally assumed a very non-business approach to both free enterprise and entrepreneurialism. The profits and re-turns on investment from the essential business activ-ity of representing buyers and sellers (excluding core services and property investments) pales in compari-son to almost every other business sector. The risks being assumed by brokerages compared to their prof-its are embarrassing.

The disruption caused by this Black Swan will ap-pear within the next several months. One example

will be Berkshire Hathaway Home Services (BHHS), whose parent corporation has already gained almost celebrity status for its ability to impact the financial performance of its holdings in several other industries through standards, accountability and management efficiencies. BHHS is currently transitioning its bro-kerage business model into a new configuration that is driven by these same objectives. These changes will immediately impact the BHHS ROI causing Wall Street to demand that other publically held compa-nies within the real estate space follow their example. The disruption caused by firms responsible for over 40% of the industry’s production rushing to meet new ROI standards in order to avoid disinvestment will be massive. The final disruption of this black swan will occur when these publically held firms undertake to use their superior marketing resources to convince the consumer that these adjustments are what is nec-essary to protect them and that all brokerages should have protected consumers with these practices.

3. The failure of the Millennium Generation to de-ploy its dreams and resources into homeownership may well represent a Black Swan.The X generation, following the advice and example of their civic and boomer generation parents blindly plunged into the real estate marketplace. Many dis-covered that it was not the wonderful event experi-enced by their parents. The Millennial and/or Y gen-eration has, over the past ten years, carefully assured their friends and family that they too will follow the grand institution of homeownership.

Interestingly enough however their words are not nec-essarily being mirrored by their deeds. Homeowner-ship rates at the leading edge of this generation are lagging behind previous generations at the same age and stage of development. While the automatic response has been to blame this situation on lower compensation rates and consumer debt the facts sug-gest such may not be the case. The Y Generation is spending a greater percentage of their disposable in-come on leisure and recreation than its predecessors. Studying the literature and media of the Y Generation

Jeremy Conaway, RECON Intelligence Services Full, unedited submission as provided by the author

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culture also fails to disclose the same level of passion regarding homeownership as was observed in past generations. There is also reason to believe that gov-ernment may be subtly playing a role impacting the Y generation decision regarding homeownership.

This disruption will occur if the 74 million strong Y Generation elect not to follow cultural norms or ex-pectations relative to homeownership. The ramifica-tions of this disruption will be most dire for a number of existing economic and business interests including residential real estate.

4. There is a strong likelihood that the relatively regulation free world of traditional real estate will be encumbered by a much more comprehensive regulatory scenario in the not too distant future.This regulatory black swan foresees an industry and marketplace dealing with an omnibus regulatory sys-tem envisioned, enacted and enforced by government regulators focused on economic stabilization and/or consumer protection. Given the nature of other real estate regulatory programs currently being adopted (mortgage, closing and appraisal) such a system would be both intrusive and prohibitively expensive. Industry disruption would not only arise from this in-trusion and expense. For a culture that is essentially both regulation and supervision free even the most cursory regulatory scheme would be catastrophic and debilitating. The industry will suggest that an invasive and disruptive regulatory system would be fatal and would reduce brokers and sales representative to mere functionaries.

5. The governments of both Canada and the United States are being challenged by the need to fund the growth of expanded operations with increased and creative taxation. There is a distinct possibil-ity that one or more of the taxes enacted as part of this challenge will impact the cost of real estate or the real estate transaction itself. Such a black swan offers a high probability of major disruption to the extent that it would impact housing affordability. Moreover a tax on real estate commis-

sions might well set off a scenario that would see con-sumers, brokers and REALTORS® at odds regarding which should be paying the tax.

PAST1. The failure of organized real estate to update MLS® operations, procedures and rules in a man-ner that is consistent with industry and consumer needs and expectations has, over the past year be-come a black swan. There are several disruptions arising out of this state of affairs. The MLS®, even with all of its political and functional shortfalls has long been one of the most stable and centrist icons of organized real estate. That status is now being disrupted from several directions.

In 2013 nearly 45% of properties in the U.S. were sold without MLS® involvement thus effectively dis-rupting its function in the property valuation system. Moreover, the mortgage sector is now actively search-ing for a more stable non-REALTOR® alternative for the provision of sold data.

The brokerage community has been complaining about the administrative and financial burden of multi-ple MLS® affiliations for years with no relief forthcom-ing. Now large brokers are taking action. The most notorious of these actions is the current “up stream diversion” project being undertaken by the Realty Alli-ance. Through this utility it can no longer be assumed that the MLS® will qualify as a listing syndication re-cipient.

Lastly, high performance agents in almost every im-portant American market have been telling their cus-tomers over the past two years that the MLS® is un-necessary as they can find buyers using increasingly sophisticated off MLS® marketing practices. This disruption has given birth to the “community market-ing” movement. More and more neighborhoods are organizing websites and Facebook pages that are be-ing used to market properties without the benefit of REALTORS®.


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Any one of these three disruptions would have had dire results. Taken together their lasting disruption may well be the destruction of the MLS®.

2. The emergence and growing influence of the real estate listing portal is already demonstrating the power and potential of a Black Swan.The listing portal has now been on the North Ameri-can real estate scene for several years. While portals are primarily an American phenomenon there is no reason why a Canadian derivative with the same busi-ness model with local functionality might not be intro-duced. Portals such as Zillow, Trulia and REALTOR.com were originally created and continue to expand to fill the vacuum that was created by traditional real estate’s failure to meet the needs and expectation of the empowered consumer.

The disruption here is several-fold starting with the fact that millions of consumers are now using list-ing portals as their first point of contact for their real estate experience. The disruption continues as more and more consumers access agents who are recom-mended by the portal to which agents may be paying a commission. The fact that hundreds of thousands of agents are now working under agreements with por-tals disrupts the traditional Broker/agent relationship. This disruption will grow even more invasive as the portals develop standards and procedures that must be followed in order for the agent to remain on the portal’s referral program. At some point these require-ments will conflict with broker procedures. 3. The disruption caused by the failure of the REALTOR® to track the increasing expectations and indeed, demands, of today’s real estate con-sumer.There is no question that the real estate experience expectations of both the Canadian and American real estate consumer have shifted dramatically over the past five years. It is equally clear that by and large the REALTOR® community has refused to adjust its service package and/or value position to meet these expectations. Alternative vendors are even now seek-

ing to replace REALTORS® in the dream, search and negotiation phases of the transaction. Continuing dis-ruptions will see these vendors setting best practices that become mandatory if a referral is involved and increasing diversion of commissions into referral fees. The ultimate disruption is the growing consumer con-sensus that current commission levels do not reflect an adequate value proposition.

4. The emergence of the Internet of Everything movement is disrupting everything in its path.The “Internet of Everything” (IOE) has become the universal phrase to describe the exploding trend of adding connectivity and artificial intelligence to just about every device currently known to mankind and certainly for those planned for introduction in the near future. The adjective that brings all of these con-nected devices and objects together into one spe-cies is “smart”—smart cars, smart appliances, smart watches, and of course, smart houses. By and large the REALTOR® has neither accepted, embraced nor accommodated the IOE movement. This decision, be it intentional or by oversight has removed the REAL-TOR® and their value proposition even further from the consumer’s perspective. Moving forward the In-ternet will be increasingly disruptive to the traditional REALTOR® role as it introduces new alternatives to interacting with the consumer, specific properties and the marketplace. The use of intuitive algorithms (such as Ylopo) will play an especially disruptive role in this transition.

5. “Agent Centricity” is a Black Swan that has been disrupting the North American residential real es-tate industry for much of the past two generations. In spite of its efforts in this direction For most of the past thirty-five years the North Ameri-can real estate industry has focused the vast majority of its energies and resources on its agents. Despite endless indications and “wake up calls” to the contrary, today the industry finds itself unable to move forward in several critical sectors such as consumer satisfac-tion, technology adoption and efforts to enhance its value proposition. This disruption has blocked the bro-


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kerage’s ability to increase revenues, meet increased consumer demands, develop management resources and to expand product offerings. Even more disrup-tion can be found in the fact that because of their in-ability to meet these challenges the current financial value of many brokerages are at record lows. Thou-sands of brokers who have now reached retirement age will, because of this disruption, not be able to sell their firms and retire. The ultimate disruption from this black swan will probably be the fact that the industry is desperately trying to develop a new business model that isn’t agent centric.


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FUTUREMy Phone Said So: Self-Diagnostic Tools for the CustomerOne job of a real estate professional is know the ques-tion a customer has even before they know to ask it. This is based on asking a few basic questions to de-termine the consumers’ need, transaction parameters, and timelines. Technology companies are building these tools right now for customers to analyze their current situation and deliver practical advice. An ex-ample is a customer calculating their own return on investment based on interchangeable variables that are most important to them. A forward thinking orga-nization can get a leg up by offering new diagnostic tools that sell process, not just properties.

More Isn’t Meaningful: Increased Demand for ROIConsumers want more value for commissions, agents want more value from their brokers, and brokers want more value from their associations. While this is so much a new trend how the ROI is calculated and com-municated will be altered for the betterment of the end user. In other words the transparency of performance will surface because new technology will give us ac-cess to information we didn’t know to ask of before. An example would be an agent would be able to see their ROI of their association from their phone based on the adoption rate and implementation of services. An agent would be able to see the ROI from their split that pays for tools, help, and other resources. Who-ever can visually tell the best story will win at the end of the day.

Augmented Transactions: Executing the Transac-tion from Your PajamasNew tools are being developed in order to expose the transparency of the transaction, solve problems faster using mental models, and serve the customer without being physically present. These new technology tools will be made available but because this is unchartered territory for real estate companies, a whole new set of best practices, presentation skill sets, and language to influence will need to be adjusted for the augment-ed working relationship to be justified.

Cross Channel Usability: The Biggest Competitive AdvantageIs the customer experience as user friendly on the computer as it is on a smart phone? In most cases it isn’t. Most big real estate brands and associations of-fer tremendous value but if their customer portals do not receive high customer satisfaction ratings across channels then those customers will turn to competi-tive alternatives (one reason why ZRT has become so powerful in US). Once metrics such as online task completion rate, task error rate, and task satisfaction rate across multiple devices surface leaders will need to hold themselves accountable for improving the customer experience.

Monetizing Big Data: How to Increase Participa-tion and RevenuesThe value of the organization isn’t so much the data it provides, it is the organization of the data that delivers value. While most companies and associations have access to this data, many do not know how to use it to their advantage in order to generate more revenue (or more participation). This can be said for internal data vs. external data, member data vs. consumer data, government data vs. association data and so on. What if you could access the performance metrics for each agent so an association could quickly suggest a value proposition to close the performance gap? If the right performance metrics were established and deci-sion tree was made a new or experience agent could get exactly what they needed from the association. Monetizing big data is a strategic discussion that in-volves strategic partners, technical architects, and the end user to make sure the risk of time and resources pays off big dividends in the future.

Doug DevitreFull, unedited submission as provided by the author

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PASTSearch to Service: How Customers are Making De-cisions OnlineCustomers have more options online now than ever before to locate a property for sale that meets their specific criteria. Neighborhood information, affordabil-ity calculators, and property tax records are all avail-able at our fingertips from mobile devices. The integra-tion of property data among association, government, and 3rd party applications has given the consumers more access to information. The accuracy of some websites demands the interpretation of a competent real estate professional. The acuity in questioning cus-tomers needs more attention to dispel myths found on the Internet. Finally, the acquisition of customers must be done ethically using regulated policies established by the area in jurisdiction.

Agent Accessibility: 24-Hour Access Across 24 ChannelsFace to face appointments, phone calls, and couriers used to be how agents communicated with their cus-tomers. In the last five years add multimedia instant messaging, social media, and remote meetings now give busy consumers more options to choose how they want to communicate with their agent. This has increased the need for more skills based training on using multiple communication platforms that follow existing agency and license law guidelines.

Commissioning New Commissions: Alternative Money Making ActivitiesBrokerage commission splits can vary on the type of model arranged by each company. Some companies have offered a more generous split to attract new tal-ent. Others may charge a desk fee and offer a higher split to their agents. Now companies are giving away equity in the company to recruit new talent. No matter which is deemed to be the most profitable, each mod-el needs to be examined to determine if they are in compliance with the association and regulatory body.

Time Sensitive Transactions: How Decisions are Made QuickerTen years ago it used to take 60 days from contract to closing. Now some prospective home-owners can ex-ecute all of their obligations including financing in 21 days. New software has allowed consumers access to view the details of the transaction so they can make better decisions faster without long delays. Electronic signatures save time processing the paperwork and allow for faster response time. These faster decisions decrease overhead costs and increase risk for trans-action partners because someone might overlook an important detail in which they might be held liable.

Fact or Fiction: Social Media is HelpingWhen social media entered the real estate space in 2009, many agents tried to figure out how to use in their business to sell more homes. Now that the popu-lar platforms like Facebook, Linkedin, and Twitter have reached critical mass, consumers are overloaded with information. The challenge for brokers, associations, and the regulatory agency is to ensure the right mes-sage is being shared at the right time so customers can make more informed decisions. Cutting through the noise is now the biggest challenge for both com-panies and associations. Metrics such as reach, visits, and likes have less impact whereas call to actions, building new relationships, and participation mean more.

Doug DevitreFull, unedited submission as provided by the author

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Date post:	23-Aug-2014
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