Real Estate is Getting Small Again
In The Beginning, There Were Brokers
A not long, long time ago, real estate was a hyperlocal affair. Brokers owned the keys to the listing vault, were known around town, and built businesses based on genuine trust and relationships.
Old school marketing, like newspaper ads and bus benches, were the norm, and generally worked well. As is still true today, referrals are a lifeblood. What appeared to be a rather sleepy industry was shaken up with the advent of the internet and the birth of portals and consumer-controlled tools.
From A to Zillow
The disruption that Zillow (and its peers) were supposed to cause was largely overblown. Agent use has increased over the past decade and instead of removing the agent from the process, their role has transformed from guardian to guide.
What has meaningfully changed is the relationship and scale of the business. Whether it’s advertising or building professional networks, portals have taken what was traditionally a very local-focused business and made it national. Early adopters to Zillow benefitted by farming zip codes, creating brands, and reaching leads at scale.
Challenged during the hyper-growth phase was the ability to differentiate oneself through local knowledge and expertise. Those with fatter budgets had an easier time spending on leads and could focus on quantity over quality.
As mega-budgeted and branded Compass entered the market, it appeared that real estate was going to again get ‘bigger’ as firms like Keller Williams have thrown their hat in the we’re-a-tech-company ring. New technologies are threatening to change the real estate business model yet again, but is there instead a different shift happening within the industry that could undermine Compass and others in the ‘go big or go home’ mode?
Hyperlocal is Cool Again
It’s yet to be seen if Compass’s (and Redfin’s) impressive focus on branding and technology supports the company’s massive valuation. How powerful are brands to home buyers and sellers? How important can it be when there is a transaction so infrequently? What’s important to recognize is that even brokerages like Compass and Redfin operate in an almost niche capacity. The former on the luxury market and the latter to the cost conscious buyer and seller. Is it more true, in fact, to say that niche is actually what’s driving competitive advantages in this space? More clearly, are brokerages and teams better off focusing again on being recognized as local market experts than touting their brokerage brand?
As with any complex transaction, it generally pays to have expertise. One way the broker community is doing that is by going hyperlocal. Companies like Neighborhoods.com, Zavvie, and Homelight are playing on this theme.
Zavvie, for example, certifies agents in an attempt to identify true neighborhood experts, claiming consumers favor agents with local knowledge over other factors. Neighborhoods.com features ‘Neighborhood Experts’ on their listings and is built around the theme that the neighborhood is as important as any other factor in the home search. The company is taking on Redfin by pitching quality over quantity.
For as loud as Keller, Compass, Re/Max and other national franchises are yelling about adopting technology, growing their brands, and grabbing market share, the most effective agents are those who better understand the process, their local markets, and can connect with those within their community to establish relationships and grow their business. This is of course what top agents do, many of whom are being courted by the likes of Compass.
How else can we define the “hyper” movement? How about hyper-branded? This is a competitive advantage national brokerages, especially Compass, are building around. We know that brand-loyalty is low when it comes to consumers but the brokerage community has not had the resources it has now across social media to develop brands. Agents will continue to benefit from LinkedIn-like platforms that create the ability to establish personal and professional brands to be found by consumers on platforms like Homelight.
Hyper-tech? Think Compass, Keller Williams, Realogy, and other brokerages that are investing heavily in technology these days. Hyper-discounted? Purple Bricks in the UK, Redfin in the US and many others are causing fee compression and presenting niche offerings to consumers who value a discount.
An interesting hyper that has serious benefits and potential flaws is what I’ll call hyper-performance. Top Agent Network (“TAN”), for example, affords agents who are in the top 10% of their market (based on trailing 24 months) access to a platform to share pre and off MLS listings with peers.
The Top 10%
Recognizing that the majority of the commissions generated in the industry are by a vast minority of agents, TAN created the ability to allow top producers to differentiate themselves by joining an elite network.
TAN creates the ability for agents to differentiate themselves when selling themselves to potential clients. This model has some obvious benefits and some interesting flaw that are worth digging into.
What They Do Well
By joining networks like TAN, brokerages can meaningfully differentiate themselves and create a competitive advantage. Additionally, given the access to pre-MLS listings, agents can provide more value to clients. We recently spoke with a TAN agent who said 30% of his business is done on TAN, so the benefits are real. Others, however, have pointed to the fact that the value of private listings can change with market dynamics.
TAN also simplifies what many agents are already doing elsewhere. Agents have their professional sphere from where they share information, listings, and referrals, and platforms like TAN provide a common place to do this.
Lastly, TAN helps separate the wheat from the chaff, quantifying high quality agents in an effort to create a more liquid network. This also happens to be a potential area of weakness and opportunity for other platforms to rethink how consumers can benefit from these exclusionary networks and help the broader broker network grow.
Areas for Opportunity
Does limiting access to these networks to the top 10% of brokers create a self-fulfilling effect? By that I mean, does it ensure the remaining 90% remain on the outside looking in? Furthermore, drawing a hard line in the sand to define quality is challenging in a cyclical business.
Importantly, while buyers who work with a TAN agent stand to benefit, those that do not are at a disadvantage. Similarly, sellers are presenting their home to fewer eyes. To be fair, in almost all cases, this is during the pre-MLS period, meaning the listing will eventually be on the MLS, but in fast-moving markets, even a few days can make a big difference.
Where Do We Go From Here?
A common theme throughout is the importance the role of the agent plays. Whether it’s in the form of teams, who benefit from specialists, traditional brokerages, national franchises, or something else, it’s generally a good idea to carve out a niche within any business and simply be the best you can be at that one thing.
Social media has created an easy ability to promote your face to thousands of people nearly instantaneously. Are consumers flooded by this fact such that we’re now at a point of diminishing marginal returns on social media advertising? Is going small the most effective way to get big results?