Harper 1


Jack Harper
Broker/Owner JS Harper Real Estate
Harper Consulting

           Is The Residential Real Estate Pro...
Harper 2


Besides the obvious threat we face today as a result of the mortgage market meltdown, I have
three specific are...
Harper 3


        have to perform many of the tasks of the typical buyer’s agent, such as
        document creation, and ...
Harper 4


        Over the years, many companies came into and went out of favor, each trying to
capture market share thr...
Harper 5


       real estate companies. Under their model, a predetermined percentage of the
       commission will be re...
Harper 6


       Data Access Vehicles: This spans the range from Search Engines to IDX sites and is
situated to become on...
Harper 7


was on a large lot with no rear or side neighbors, and on the golf course with views of the local
mountain.

  ...
Harper 8


bulk from the lenders. These would likely stay rented for a year or two then come back on the
market as FSBO sa...
Harper 9


         Everyone wants to be on the first page of a search. Basic search engine optimization
tells us that the...
Harper 10


         Consider the history of the industry and who might be “lurking”! Title companies were
just that at on...
Harper 11


   •   Consumer-facing Business Model Adoption

           o Give them value for dollars

           o Adopt n...
Harper 12




                                                        Works Cited

"About Trulia - Trulia Real Estate Sear...
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Dale Stinton - NAR

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Is the Residential Real Estate Profession Still Relevant?

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Dale Stinton - NAR

  1. 1. Harper 1 Jack Harper Broker/Owner JS Harper Real Estate Harper Consulting Is The Residential Real Estate Profession Still Relevant? In the light of the past few year’s market implosion, and under the heavy weight of its own size and structure, a combination of inside and outside pressures have created an environment in which the future of organized real estate as we know it is in serious question. At the risk of boring the reader with tedious history lessons, I will just say that the MLS (Multiple Listing Service) model of the past hundred years and the ubiquitous brokerage structure favoring agent-driven business models and bloated physical structures – brick and mortar and filled with non-performers worked well as we went along happily into our current nightmare. How long this will be true remains to be seen. The MLS model of yesterday - uniform offer of compensation evolving into massive data gathering and analysis – worked well indeed to provide Realtor®s a solid lock on the consumers they served. However, in my own twenty five plus years in the industry, I have come to believe that the majority of Realtor®s saw, and may still see, their value proposition as being wrapped up in the MLS. “If you want to buy or sell a home, you need to come to us. We have the keys to the MLS.” This was the unspoken raison d'être of the masses. Right or wrong, many believed that this “secret sauce” mentality would serve them well for years to come. When this was placed under the microscope, an immediate clarification came in the form of “but of course the real reason to work with us is our Standards of Practice and Code of Ethics.” We had it backwards, didn’t we? Standards and ethics must always come first as they do today. But I submit there was really no reason to question ourselves. The “if it works don’t fix it” mentality is a strong pull to maintain the status quo. Let me be clear. The MLS was one of the original ideas that inspired organized real estate in the first place. The MLS is absolutely critical, not only to our associations, but to each and every Realtor® as well. It is our strength and our method of providing up-to-date information and still carries the uniform offer of compensation that we have built our organization on in the first place. Of course, this is a very simplistic view. The MLS, coupled with the Association (let this mean at all three levels for the sake of this document) provides member benefits, credibility and information that would take the average member a lifetime to assemble – even if they could – on their own. But, I must say, The MLS – and the Association are not OUR value proposition. We must rediscover our own value proposition, and this time we need to do it well, if we hope to thrive in this new age. JS Harper, Harper Consulting – 2610 Presidio Drive, Brentwood, CA 94513 – jack@jackharper.com
  2. 2. Harper 2 Besides the obvious threat we face today as a result of the mortgage market meltdown, I have three specific areas of concern. We face some very serious changes, (some have happened some yet to happen), that make it imperative that we apply the brakes quickly, find the correct direction then go forward in a hurry: 1. Consumer Evolution 2. Competitor Evolution 3. Self Devolution Consumer Evolution: In my own practice, we have seen a solid upswing in the number of consumers calling us about a listing and asking how much rebate we would be willing to give them if they functioned as their own agent. Some ask for a rebate if they buy through us and some don’t want us to represent them in any way. “How did you find out about the property, “we might ask. “From Zillow, or Trulia, or Yahoo, or Google, or your own website” are likely answers. The key here is that they are “willing” to operate without us and they are “knowledgeable” like never before about the process it will take to actually close the deal. Ten years ago this would never have happened. Today, it is fast becoming the norm. What happened? • We rushed to educate them: Realtor®s have created some fabulous web offerings. In these sites we often provide page after page of how to buy, inspect, value, finance, negotiate, transact and close real estate transactions. This is a good thing, right? My own company site provides this and so much more. I viewed this, when we decided on our web structure, as a competitive requirement. It should make my agents more valuable, shouldn’t it? After all, an informed consumer is a valuable client. We actually ‘leveled our own playing field’. • Others will do it for smaller fees: This includes flat fee and fee for service offerings. It also includes discounters (whatever this means) and service organizations, such as Redfin and Zip Realty. In the case of Redfin, consumers receive a hefty rebate of much of the commission. Zip rebates a fixed but significant dollar amount to their buyers. These are just two of the many new online business models having success with buyers and sellers alike. • Some will do it for free: In California, I would be surprised if there is any title and escrow company that would turn down an escrow even knowing that they will JS Harper, Harper Consulting – 2610 Presidio Drive, Brentwood, CA 94513 – jack@jackharper.com
  3. 3. Harper 3 have to perform many of the tasks of the typical buyer’s agent, such as document creation, and are too willing to point the consumers to a list of inspectors, contractors, insurers and more. • Information is Everywhere: Beginning with the inception of Realtor®.com in 1995 and growing every year into an incredibly long list of providers, any consumer who is ready willing and able to search can find nearly every property for sale anywhere in America. And they can find them on literally thousands of sites! Title companies can provide property profiles, Zillow can provide - “Zestimates” – their own flavor of AVM data, and inspectors and service providers are now advertising directly to consumers on the Web. • Consumer Willingness: Every year we see more and more consumers willing to “go it alone.” This is a result of both the increase in technical savvy of the average consumer and the growing reports of friends and associates who have done this and have been successful. It is a trend that will continue, and it is accelerating. We need to examine consumer attitudes toward the real estate profession in general as a causative factor in the new wave of self-served clients. It is no secret that for many years organized real estate professionals leveraged ownership of the MLS into the proverbial keys to the kingdom. If you want to play, you have to pay. Buy a home, work through a Realtor®. Sell a home, work through a Realtor®. The bottom line was that if you wanted to participate in the process, Realtor®s held the keys. And those keys were rather expensive, at least in the eyes of the consumers. Until recently, we did a terrible job of explaining just exactly what it is we do for them. From the consumer perspective, we were almost secretive, unwilling to let them see our back room operations. Naturally, their reaction was such that some distrusted us and began to believe that all we did was drive around in fancy cars putting up signs and picking up checks. This is hardly a prescription for a healthy relationship. Add to this a growing sense that just having a Realtor® “R” after ones name doesn’t guarantee quality. Otherwise, try to convince a 30 year industry veteran that a one week newcomer to the industry is as well equipped to serve clients with the same standard of care that an experienced professional can. Of course, there are exceptions to every rule, but experience does add to the value of the service in most cases. Consumers know this. They also hear all the time that it is easier to get a real estate license that to get a cosmetologist license in states such as California. JS Harper, Harper Consulting – 2610 Presidio Drive, Brentwood, CA 94513 – jack@jackharper.com
  4. 4. Harper 4 Over the years, many companies came into and went out of favor, each trying to capture market share through various schemes of discount, flat fee and fee for service scenarios. Unfortunately, as they invested heavily in their branding by marketing themselves as the white knight coming to the rescue of the consumer being preyed upon by the bad guys (traditional practitioners), they often argued that traditional commissions were a bad thing - inflated, vague - and their way was the fair way. Organized real estate countered, but the counters did little to erase the incorrect image of the fat cat Realtor® picking the pockets of the poor consumers. Once an image is there, it is difficult to erase. Often in our desire to market ourselves as “different” or “Better” we do so by denigrating others. Consumers are listening and they don’t forget. As data and transactional tools came into the hands of consumers, mostly via the Internet, many were reluctant to try them, fearing that a mistake could cost significant money. After standing back and watching others take advantage of online resources, consumers began their gradual shift from fully supported to partially self-supported. They expect to be rewarded financially for their participation. Today, we are seeing the beginnings of a movement. Consumers are no longer willing to buy a blanket program that they don’t understand for what they perceive as a huge fee. They want value, they want service for their dollars, they want choices and they demand transparency. And, they will get them more and more every year, until we have been relegated to the back burner of the transaction, unless we redesign our business model and our value proposition. In the words of Ruth Stafford Peale, “Find a need and fill it.” She does not say find a way to coerce them into your desired product. And what will the new business model look like? There are any number of ideas out in our world that speak to the need for a new structure and new business model. On the other hand, if we take the lead from consumers here, we can likely approach a model that will work for all; consumers and professionals alike. For a number of years now in the Northern California market where I am based, consumers have been diligent in performing their own property searches on the Internet and through driving around the markets where they want to live. These same consumers work very hard to come up with probable valuations for the properties that they wish to buy. Still others have no shyness when it comes to asking the listing agent directly what the price is based on. And listing agents, by and large justify their prices through comparable sales data. Thus armed, these buyers go directly to the listing agent with a simple request: “If I buy this through you, what kind of discount or rebate of the commission will you give me?” This same model is a basis for one of the faster growing JS Harper, Harper Consulting – 2610 Presidio Drive, Brentwood, CA 94513 – jack@jackharper.com
  5. 5. Harper 5 real estate companies. Under their model, a predetermined percentage of the commission will be rebated to every buyer or seller who uses them. The current evolution of this model comes to us in the form of buyer and seller requests that we work for them under a specific set of activities with a specific compensation for these activities. As an example, a would-be seller called one of my agents to ask her “I f I sell my property myself, will you manage the transaction for $XX.XX?” Of course, we then have a need to clearly define our role under this arrangement and the milestones for compensation. This has happened in the background for some time now. It is now coming to the foreground, as more and more clients become emboldened and as we become better able to perform under a consulting agreement. Today, we have agreements in place, billing and accounting tools that help us perform for these clients, and we expect that this will become a larger percentage of our business over the next few years. This is only one of many models we could investigate. It happens to be one introduced to us through consumer demand, which makes it more important and should be considered very carefully. It is probable, that unless we pay more attention to consumers and provide relationship structures that are appealing to them, someone else will. It is very clear to me that the traditional business model: X% of Sales Price for a vaguely defined “full service” will not be acceptable to many consumers in the months and years ahead. Task-based and skills-based activities for predetermined fees will likely become the norm. Competitor Evolution: The traditional competitors in the real estate industry were the different franchises with their different brandings and their different ways of providing for and charging for their services. Although this is still somewhat the case, we are beginning to see a shift. The very real threat, on a competitive basis today, is the threat from what I will label “Outside Players.” These companies are not in the business of helping consumers buy and sell real estate – at least their base business is not. These are companies who have something that consumers want: data and access paths to the data. They offer analysis tools and valuation models, and they are well aware of the huge demand from the consumer side for tools and products that will make it easier for consumers to participate more deeply and with more control in the real estate transaction. JS Harper, Harper Consulting – 2610 Presidio Drive, Brentwood, CA 94513 – jack@jackharper.com
  6. 6. Harper 6 Data Access Vehicles: This spans the range from Search Engines to IDX sites and is situated to become one of the most significant game changers in our lifetime. There are many Google-like providers who intend to enter and stay in the battle for consumer eyeballs. In the online advertising industry, consumer clicks, time on site and pages visited equal revenue. Add to the mix such notables as Yahoo, MSN, and many more search engines whose capitalize on consumer loyalty. I was at Altavista.com creating a real estate portal at their behest when Google came along with their plain white page with the now familiar search box. Within a year, Google proved to everyone, including Altavista, Yahoo, Ask Jeeves and more that the consumers are quite capable of finding their own data and they actually preferred it to canned decisions made by portals. All they wanted was simple and immediate access to all the data at one location. Over the ensuing years, Google-like services have begun to position themselves as much more than simple search engines. Google, itself, has amassed a king’s ransom of tools: YouTube; video, Picasa; image, Android; mobile, AOL; broadband, Gizmo; VOIP, and scores more. (WikiPedia) Real Estate is a huge query bucket. The ad revenue for this segment is incredibly large. They correctly focused on the real estate user experience. They offer a feature- rich search environment that is map-driven. Simply type in an address or city and all of the available properties in the surrounding area are displayed in thumbnail form with corresponding locational flags on the adjacent map. It is fast and it is comprehensive. Most of all, it is simple to use. Consumers love it. Now, layer on the possibilities available with mobile, video, and photos. Since data can be pulled from nearly all web sites, Realtor®-friendly and not so friendly, this could become more comprehensive than even the MLS, as far as finding available properties. This wave of consumer empowerment drives a wealth of tools that are here to stay. Reconcile the strength of sophisticated but simple search capabilities against the consumer desire to participate deeply in and control the transaction, and you will likely see a very significant need to revamp the real estate business model. Data Analysis Vehicles: This will include the search engines, as well as every IDX-based MLS search tool out on the web. Some are friendly, some are not. Today, they offer vehicles for consumers to access property and ranges of approximate value for those properties. The data is “scrubbed (but no control is placed over the scrubbing, who does it, how real it is, etc.). As an example, I put my own property address into a search and received 1187 properties in return. These properties ranged from $175,000 to a high of $5,250,000! This also included properties in a neighboring town. When I drilled down to my own property details, I learned that they have compared mine with homes of similar number of bedrooms and similar square footage. Some backed the freeway, some were falling down and some were on very small lots. Only one, mine, JS Harper, Harper Consulting – 2610 Presidio Drive, Brentwood, CA 94513 – jack@jackharper.com
  7. 7. Harper 7 was on a large lot with no rear or side neighbors, and on the golf course with views of the local mountain. Transactional Support: In many parts of the country, Title Companies and Escrow companies provide document management, transactional management and data and disclosure support for Realtor®s and clients alike. Without their support we would be hard pressed to perform closings on our own. In other areas (New York as an example) attorneys are required to perform actual closings. During the heady times of 2003 – 2007, in many parts of the country, sellers found it relatively easy to sell their homes without the help of a Realtor®. Numbers will probably not show a significant increase in the number of FSBO closings, but they are there. How we find and account for them is a likely problem. What we did see, and very clearly, is that Title and Escrow companies were only too happy to fill the closing needs that listing and/or selling agents traditionally filled. They guided the clients through the disclosures, performed document and schedule management and generally made it easy and somewhat safe for the seller to “go it alone.” Add to this the recent discussion I had with a well placed industry veteran from one of the big three title companies. During the conversation, he indicated clearly that the title industry resents the need to perform free services for the Realtor®s just to win their business. Property profiles, farm mailing lists, pre-Short Sale HUD1’s and more become so much “work for free” that title companies would prefer not doing them. But they must if they want our business. He further indicated that these behemoth companies have sales and support offices in every pocket of the country. If they ever decided to launch a consumer-facing real estate effort, they could easily win a very large portion of the business of the new consumers: echo boomer, Gen X, Gen Y and the like. Given they already have many of the ingredients needed; property data, accounting and transactional systems, disclosures, attorneys on staff, it would be possible to create a consumer-facing support team fairly quickly. And, he hinted, this has been recently looked into. FSBO on Steroids, or Are Banks Really Out of Real Estate? I live in a part of the country that has been decimated with foreclosures and “buy and bail” scenarios. As a result, you can drive around town and see brown grass, dead bushes and empty homes all over the place. For a couple of years we saw these properties go through a standard process: Go empty, get neglected, get listed, cleaned up and sold. Everyone bemoaned the fact that owner-occupier buyers didn’t stand a chance to get these properties as they were scooped up by investors with cash in hand. Today the situation has changed dramatically. The new scenario is: Go empty, stay empty, get sold, come on as a rental. No signs, no listings, just sales. I recently had a lengthy interview with an industry veteran who happily informed me that he had been given a war chest of approximately $300 million to buy up foreclosed and pre-foreclosed properties in JS Harper, Harper Consulting – 2610 Presidio Drive, Brentwood, CA 94513 – jack@jackharper.com
  8. 8. Harper 8 bulk from the lenders. These would likely stay rented for a year or two then come back on the market as FSBO sales. This is not a bad mark against the lenders, by the way. They are in a bind. There are estimated to be between 3 - 5 million homes in foreclosure standing as “hidden inventory” with millions more headed that way. Of course they are going to sell to bulk buyers. They have to move this inventory. What better way to keep from flooding the market and creating even more downward pressure on prices? Banks ARE in real estate. Self Devolution: There is an almost lemming-like ease with which anyone who has any web traffic can get brokers to share their listings with them. Listings go out everywhere via Google, Trulia, Zillow, Point2, Postlets, Craigslist, Ebay and the list goes on forever. Some of the data is clean and unique, some is unclean and duplicative. We are in a rush to push the listings out to anywhere. This rush is so strong that we don’t always take the time to clean and strip duplicates, remove invalid and outdated listings, update price changes and the like. The result is that we have an Internet filled with confusing and incorrect listings. And why do we leap off the cliff so quickly to post our listings everywhere? There are as many reasons as there are listings, but two stand out: Our need to fulfill a fiduciary obligation and our desire to win the SEO (Search Engine Optimization) battle. As listing brokers, we have an obligation to our sellers to market their home in such a manner as to enable them to get the very best offer possible. But, does this mean we have to spread the listings out everywhere? What did we do before there was an Internet? Did we also place ads in every newspaper in the area? Did we advertise in every magazine? Of course not. We placed our property ads where we felt they would get the most productive exposure. Did anyone think we were shirking our fiduciary duty if we decided to only advertise in the San Jose Mercury and not the San Francisco Chronicle? I am pretty sure they didn’t. Often the brokers take a positive position, refusing to push their listings out to just any site that promises leads and traffic, understanding the loss of value caused as a result of consumer confusion over the duplication, incorrect and outdated information already fueling the real estate web. Listing agents, on the other hand, continue to push their listings out to any site that will take them. In too many cases, brokers are not aware of the sheer magnitude of this problem. It is estimated that over 90% of all active listings are pushed out to just about the entire slate of available listing sites. The ubiquitous nature of online listings has begun to have the reverse effect, i.e.…, that consumers have been so confused and frustrated looking at the same listing over and over on every site, they actually begin to see this as “white noise.” JS Harper, Harper Consulting – 2610 Presidio Drive, Brentwood, CA 94513 – jack@jackharper.com
  9. 9. Harper 9 Everyone wants to be on the first page of a search. Basic search engine optimization tells us that the more our site is linked to from outside sites the better our results will be. To a degree this is still true; however search engines are fine tuning their search algorithms to be suspicious of redundancy. This scenario is starting to backfire. The result again is duplicative and outdated listings everywhere. The best solution to this involves a single point of entry and syndication. If all of our listings came through a single point of entry, and all updates came from that same syndicating source, there would be an immediate increase in listing credibility and relevance. A welcome by-product would be that our own professional image might increase overnight. In his MLS 5.0 white paper, Saul Klein of Internet Crusade and Point2 states: “The MLS of the future will include a syndication engine with comprehensive reporting features to enhance web advertising initiatives by brokers and agents.” (Realtown) On this, we agree. Single entry saves brokers and MLS time and money. Single entry provides cleaner and limited duplication of data. Once we have a single entry/ single syndication vehicle, we can approach a gold standard of listing data. “Certified Listings” takes on a new importance. Who Is Positioned to Win, and Why? Consumers will win. Make no mistake. Clearly, given the rapid growth in consumer- facing applications and data access, consumers will have more and more ability to take the reins and control the transaction. Naturally they will expect to be rewarded in the form of lower costs to do business. As Baby Boomers retire and the follow-on generations become significant markets, they will adopt technological solutions with an instinctive passion. As more data, better access and more tools come into play, consumers will race to accept these to their advantage. No, the Googles of the world will likely never become industry practitioners or brokerages. All they want to do is enhance the user experience. What does it matter that they are not the final transactors of real estate, as long as they are able to exact a hefty price from us for every lead gained from our listings? In addition to the fees paid out, we will see an erosion of the fees paid in for our efforts. The more consumers perceive they can do without industry professionals, the less they will want the professionals to do, and consequently the less they will be willing to pay for services. JS Harper, Harper Consulting – 2610 Presidio Drive, Brentwood, CA 94513 – jack@jackharper.com
  10. 10. Harper 10 Consider the history of the industry and who might be “lurking”! Title companies were just that at one time; title searchers and insurance providers. Some also provided escrow services. Over the past couple of decades, things have changed. Title companies have acquired and created software companies. Title companies have acquired insurance companies and home warranty companies. Title companies have become financial giants. Title companies have all of the data about every property in the country. They have been proven to have voracious appetites for growth and diversification. Title companies, in conjunction with strategic partners, at a minimum could make real estate life very interesting in the future. Is There Any Hope At All? Yes, Go Back To Basics! At every level of the industry, we need to apply the brakes, come to a halt then turn in the correct direction. If you were to create a brand new industry today, one that is all about helping people buy and sell homes, how would it look? I suspect it would look nothing like the existing model so I offer the following framework: • Meaningful Barrier to Entry o Require more than cursory education o Create and push for meaningful apprentice programs o Consider meaningful minimum standards of practice for graduation to full license • Elevate listing responsibility to its former value and requirements o Place broker back in charge of listing distribution o Create and enforce “gold standard” Certified Listings o Single point of entry – single syndicator • Build more relevant relationships with online partners o Require Certified Listings only o Return leads to listing broker at no charge o Value to partner is traffic and ad revenue, not lead revenue o Associations, Brokers, and MLS actively promote gold standard JS Harper, Harper Consulting – 2610 Presidio Drive, Brentwood, CA 94513 – jack@jackharper.com
  11. 11. Harper 11 • Consumer-facing Business Model Adoption o Give them value for dollars o Adopt non-standard models  Consulting or fee-for-service Ralph Waldo Emerson said it well: “MAKE YOURSELF NECESSARY TO SOMEONE.” JS Harper, Harper Consulting – 2610 Presidio Drive, Brentwood, CA 94513 – jack@jackharper.com
  12. 12. Harper 12 Works Cited "About Trulia - Trulia Real Estate Search." Trulia - Real Estate, Homes For Sale, Sold Properties, Real Estate Maps. Web. 20 Mar. 2010. <http://www.trulia.com/about/>. "List of Acquisitions by Google -." Wikipedia, the Free Encyclopedia. Web. 20 Mar. 2010. <http://en.wikipedia.org/wiki/List_of_acquisitions_by_Google>. "RealTown - Real Estate Social Network, Real Estate Articles, Real Estate Blogs." Real Estate Network. Web. 20 Mar. 2010. <http://www.realtown.com/about/resources/FutureofMLS>. "Search Real Estate in." Google Maps. Web. 20 Mar. 2010. <http://maps.google.com/help/maps/realestate/>. "What Are Google's Plans for Real Estate? |." Real Estate and Technology News for Agents, Brokers and Investors | Inman News. Web. 21 Mar. 2010. <http://www.inman.com/video/inman- tv/2010/01/14/what-are-googles-plans-real-estate>. JS Harper, Harper Consulting – 2610 Presidio Drive, Brentwood, CA 94513 – jack@jackharper.com

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