Curious Things Are Afoot, Part 2: Commodities, Power, and Change

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In Part One, we congratulated Ernie Graham and his team at SocialBios for getting acquired. I hope he picked out a nice Lamborghini Reventon in taxicab yellow.

The second Curious Thing that came about just as Move was announcing its acquisition of SocialBios was the confluence of two seemingly unrelated things. Making sense out of unrelated things — that’s what we do here.

First, over on Notorious ROB, I wrote about the terrible June jobs report, and the statement by Lawrence Yun, Chief Economist of NAR, that because of “shrinkage” in the real estate industry, most REALTORS would see a bump in their personal income.  That is, pie might be shrinking, but the number of people who want to eat pie is shrinking even faster.

Second, the Federal Trade Commission announced that it would not enforce MARS (Mortgage Assistance Relief Services) regulations against licensed real estate brokers and agents. From the statement:

In recent months, a number of real estate brokers and agents (“real estate professionals”) and their representatives have contacted the Commission to question the applicability of certain provisions of the MARS Rule to real estate professionals who assist consumers in obtaining short sales. In particular, these persons have raised concerns about the accuracy and comprehensibility of the disclosures mandated by the Rule, and the unintended consequences that might result from application of the advance fee ban, in the context of a real estate professional assisting a consumer in negotiating or obtaining a short sale. [Emphasis mine.]

As a result, except for certain provisions having to do with misrepresentation, real estate agents are not subject to MARS rules as long as they are licensed and in good standing, and working on a short sale. Behold the power of NAR.

What the hell do these two things have to do with each other, nevermind with social and real estate? Has Rob finally gone over the edge? Read on, but as always, caveat lector.

Shrinkage and Social

Social directly implicates, and is implicated by, the shrinkage question. After all, as Errol Samuelson, President of, said, the number one question from consumer surveys is, “How do I find the right agent for me?”

The way he worded that question at first, before correcting himself, was, “How do I find the best agent?

I think the actual answers from consumers were quite likely “How do I find the best agent”, but the interpretation that we in the industry put on it is, “How do I find the agent who is the best fit for me?” There’s a lot of talking and thinking about how emotional the home purchase is, how the agent is more like a counselor than anything else, and so on. All of these things are, as far as I know, true. But the consumer doesn’t know that. Consumers, as they do with any other product or service, always want The Best as long as they can afford it.

No one thinks about buying the “right TV for me”; they think about buying the best TV within their budget. People want to buy the best car they can afford, not the “right car for me”. They define best in a very personal way, of course, but to think that consumers do not want the best, however defined, is a mistake.

In a different post on Notorious, I stated that the assumption underlying social media marketing was that the product or service is a commodity. Unlike TVs or cars or digital cameras, in order for social to be the driving force for real estate, there can be no real difference in the actual service. It becomes like airline flights: sure, there are minor differences between Delta and Continental, but really… a flight is a flight is a flight. Unless you’re flying First Class, or you’ve got a private jet somewhere.

The assumption that Move made with its acquisition of SocialBios is precisely this same assumption: that consumers will choose agents based on social factors, which are easily seen/heard/felt, rather than on competence factors which are impossible to evaluate. Hence, “best agent” is transformed into “right agent for me”. It isn’t what the consumer meant, necessarily, but we know that the industry can’t give consumers ‘the best’ since we have no reliable way of defining (nevermind measuring) quality.

And yet, the shrinkage continues. And is likely to continue for the foreseeable future. The question then becomes, “Will Social stanch the losses?”

Hold that thought.

By the Power of NAR…

The FTC exemption of real estate agents is a clear demonstration of the power of NAR as a political advocacy organization. Yes, big issues like QRM and MID and others are still out there, and NAR may not come out on top on those, but in dozens of other ways, NAR’s power to influence legislation and regulation cannot be doubted.

But there is a curious dichotomy going on within real estate, and one that social will ultimately bring to the forefront.

The dichotomy is that real estate brokers and agents are by their very nature independent people. They are, after all, independent contractors, and see themselves as running a business, rather than working for a company. At the same time, their current livelihood depends upon government action. They work in a protected industry that sits behind the wall of licensing. (Granted, there are many who think the wall is more like a short hedge, but still… there it is.) The battles of the past, when NAR went to the mattresses to keep the banks out of providing real estate services, for example, are legion. Without continued government subsidies to housing, whether through mortgage subsidies, tax subsidies, and the like, it seems quite clear that the industry would have to settle for a New Normal of a far smaller pie.

Yet, NAR has to be the only trade association in the country the majority of whose members dislike it.

What glue binds together such a bunch of unwilling members into the political power that is NAR? The MLS.

And what is the MLS? It is, essentially, a property database for the use of real estate professionals. The MLS is the ultimate source of power in a property-centric model of real estate. Real estate brokers join the MLS because without access to listings, they can’t be in business; they can’t generate leads from their IDX solutions, can’t find properties to show their buyers, etc. etc. (Unless you’re in New York City, of course, which doesn’t have a MLS.)

The entire edifice of contemporary real estate is built on this property-centric model. Brokers and agents join together to share property data, so that they can generate leads and serve customers. Some million real estate agents join the local, state and national Association of REALTORS in order to get access to (or preferential treatment from) this property data. The political power generated continue to create opportunities for real estate licensees, as in the exemption from MARS rules.

Property-centricity has been the underlying foundation of real estate for hundreds of years, even as real estate professionals preach that real estate is all about relationships.

We may get to find out if that’s true.

Social vs. Property: Deep Thoughts

So let’s bring the two strands together.

Let’s assume, as Move did, that real estate services are a commodity good. That what matters, at the end of the day, isn’t one’s track record, quality of service delivery, or the like, but how many mutual friends and connections a consumer has with the agent. What matters is not that the agent knows (or doesn’t know) the implications of zoning regulations or transfer tax rules, but that the agent likes the same bands that the consumer likes, and dines at the same restaurants.

As a result, lead generation shifts from being driven by property (which is now ubiquitous) to being driven by social connections.

What is the value of the MLS and by extension the Association in the world of social real estate?

If in fact social takes over — or even puts a big dent in — the property-centric basis of contemporary real estate, the big franchises will feel the pain (as I wrote in Part 1). So will existing infrastructure of the industry.

To make the paranoia even more dire, consider that the economic law of “He that hath, gets” does not change in the social sphere either. Why do some people have over a million followers on Twitter, while others celebrate getting one new follower and mourn over losing one? Why do some people open up Facebook to see hundreds of friend requests every day, while others stare at empty inboxes?

Because the social economy is not that different from the real economy. People want to get to know others who are more popular, who are more connected, who are more influential. And such popularity, influence, and visibility begets more popularity, influence, and visibility. There is a tipping point, to be sure, after which one would have to work extra hard not to increase one’s sphere of influence.

I suspect, therefore, that even if Move is correct, and even if social does become an extremely important factor in real estate by getting baked into everything, and even if the fundamental basis shifts from property-centric to social-centric, the continued shrinkage of the real estate industry will continue. If anything, it will become accelerated, since success begets success, and social winners will be rewarded with even more social victories.  The transformation from an 80/20 industry to a 95/5 industry will, if anything, be accelerated. With attendant consequences.

Change, Change, Change

The single biggest misconception about change is that it is always positive, and without pain. People think revolutions are bad, but evolution is wonderful. Except that evolution is nature, red in tooth and claw.

This is, of course, mere speculation. But in the next and final part, we examine the third and final Curious Thing, which may signal that this time, in fact, the visions of mad prophets may not be entirely premature.


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Rob Hahn

Managing Partner of 7DS Associates, and the grand poobah of this here blog. Once called "a revolutionary in a really nice suit", people often wonder what I do for a living because I have the temerity to not talk about my clients and my work for clients. Suffice to say that I do strategy work for some of the largest organizations and companies in real estate, as well as some of the smallest startups and agent teams, but usually only on projects that interest me with big implications for reforming this wonderful, crazy, lovable yet frustrating real estate industry of ours.

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8 thoughts on “Curious Things Are Afoot, Part 2: Commodities, Power, and Change”

  1. To summarize your post from my prospective:  if RE agents, associations, and NAR do not realize that MLS is not the only game in town (accurate info or not) and aggregate the information to at least a statewide entity, the shift will be even greater to social-centric.  

    Good post.

    • Arizona is exploring going to a statewide MLS, partially because the Phoenix ARMLS already carries 1600+ active listings outside of the metro area, and partially because Phoenix & Tucson use the same provider. That covers about 90% of all sales activity in the state right there.

  2. Deep & Dark Rob – well said. However…While Social relationships may grow and expand with the “Haves” rather than the “Have Nots” and the power may further shift in that direction, I don’t see a reduction of the value of the property content.  Perhaps a decrease in the value of the organization and management of the content?

  3. A hedge eh?  Nice one.

    So as Online Social becomes as important as Offline Social, would Dunbar Disciples continue to profess a max Social Sphere of 150?  Maybe the Online Social World isn’t flat after all.

  4. A hedge eh?  Nice one.

    So as Online Social becomes as important as Offline Social, would Dunbar Disciples continue to profess a max Social Sphere of 150?  Maybe the Online Social World isn’t flat after all.

  5. There are a few here things that I’d love to explore with everyone over drinks next week.  I guess Rob, I question your comment, “Consumers, as they do with any other product or service, always want The Best as long as they can afford it.”  I guess I don’t see enough evidence of that.  There are too many agents that do a one or two transactions a year.  The consumer chooses them because they like them, they inspire some level of confidence, and the consumer (and sometimes the industry itself) has a hard time defining the qualities of ‘best’.

    What’s interesting is this idea of the consumer being influenced by some of these social elements in that type of environment.  I’ll be interested in seeing the interface.  Does it focus on shared friends, common interests, or both? 

    If you ask people why they chose their agent, they will likely talk about experience, trustworthiness, and market knowledge.  But clearly, that isn’t always the case.  My sense is that the buyer or seller still wants to feel that they are
    making an educated, wise choice and I’m not sure these social elements
    intermixed with a home search create that sense.  Even if they choose
    agents based on some of those commonalities in reality, they certainly
    don’t want to believe that is what drove their decision making process.

    As to your larger point about social vs property, I think you are exploring this as an either/or environment.  Even if the social lead gen takes hold and becomes effective in that space, I don’t know if I see the value of property lead gen going away.  I’m far from an MLS expert though, so…

    • We certainly shall explore this. But note the context of “consumers want the best”. I’m saying that consumers always want ‘the best’ (however they define that term) in every other arena. The only time they don’t is when the good/service is a total commodity (like gasoline, or flights). In which case, they want the cheapest.

      With RE, since there is no price competition to speak of, when consumers choose that “one or two deals a year” agent, what that says to me is that they don’t think there is such a thing as “best” in RE. They think it’s a commodity service, with no differentiation.

      I think what’s interesting is your second point — that people will talk about experience, trustworthiness, and the like, while behaving in exactly the opposite way. Is that self-deception? Is that good marketing? What is that? I don’t know.

      And I don’t think it’s a either/or social vs. property situation; I acknowledged as much with “a big dent in”. How it all plays out is totally unknown, of course. 🙂
      Great comment though. Talk more next week.

  6. The Edelman trust survey noted a decline in the importance of peer to peer recommendations.  Speculated that the proliferation of social friends diluted trustworthiness of reviews.  Also could be poor track record for online reviews or growing suspicion of them. 

    Not to say that reading reviews of an area or agent won’t have a residual effect – it will just create more work for users who will need to sift through them to find an agent (NAR study showed that buyers given real person referrals were more likely to stop looking for an agent vs buyers who used other sources).

    More work needs to be done before online reviews can carry more weight – like amazon verifies that a person has bought what they’ve reviewed (not enough, really…) or identity verification.  Categorization of connections can help isolate the trusted from the non-trusted in closed systems but not much help on “anyone can post a review” sites.

    Re change is positive or negative.  Change is neutral. It’s how you react to it that counts.

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