I gather that with 2020 just around the corner, navel gazing and thinking big thoughts about the ’10’s have become a relatively popular activity. Hell, I did it myself on the Industry Relations podcast with Greg Robertson. But I’m going to do it again, in writing, because it helps me think things through.
What’s sort of interesting is that looking back on the past 10 years roughly coincides with how long I’ve been writing Notorious ROB. I spent some time the last couple of days skimming some old posts, just to get a sense of what seemed important in 2009 or 2010.
So this is going to be not at all practical or useful. This is going to be a bit more esoteric, I suppose, and a bit more woolgathery than usual… which is saying something.
General Thesis: Decade of New Institutionalization
Let me start with my general thesis on the past decade:
The 2010’s will be remembered as the decade when real estate became institutionalized, but in a way few people saw coming.
Now, a part of me wants to use the meaning of institutionalization that signifies that the industry went insane and had to be put into a mental asylum. I don’t think that would be that far off the mark, actually, since some of the thoughts, behaviors and strategies of the past ten years on the part of agents, brokers, MLSs, REALTOR Associations, and even technology companies appear utterly crazy in retrospect.
Example? How do we now understand RPR? The continued obsession with listing syndication has always puzzled me, and that was the biggest fight of the past 10 years.
But the more interesting angle ultimately is the meaning of institutionalization, which is to make into “an established organization or corporation.”
As we head into 2020, I think real estate is going to be dominated by fewer and larger institutions in the decade ahead. There are lots of reasons why: technology, efficiency, automation, regulation, and above all, capital. And I realize many smart and rational people will disagree, but I see a general trend towards greater and greater consolidation: the many becoming the few.
I think we’re going to see the old adage, “real estate is local,” be turned on its head as the forces of capital and technology (particularly the modern data technologies and AI) continue their march through society.
Let me give you an example from outside the real estate industry. I heard a podcast last week in which Andrew Yang, the presidential candidate, claimed that Amazon was closing 30% of American retail stores. I don’t know whether he’s right or wrong, but I do know retail is hurting badly:
Some of the United States’ most prominent retailers are shuttering stores or declaring bankruptcy in recent months amid sagging sales in the troubled sector.
The rise of ecommerce outlets like Amazon has made it harder for traditional retailers to attract customers to their stores and forced companies to change their sales strategies. Many companies have turned to sales promotions and increased digital efforts to lure shoppers while shutting down brick-and-mortar locations.
There was a time when retail was also intensely local. I grew up in an era when teenagers begged their parents to drop them off at the mall, because that’s where all the other teenagers would be hanging out. Mail order existed, of course, and Walmart was on its way crushing mom-n-pop stores across America, but retail was still about what was at your local Macy’s or local mall.
Not anymore. First, the big box stores crushed local merchants, and now, ecommerce is crushing big box stores.
A huge part of the reason for ecommerce’s dominance (particularly Amazon) is its usage of sophisticated data analytics, recommendations engines, and advanced information technology. It’s taking Walmart’s IT strategy to the next level.
We can say the same about politics, in a way also. Google and Facebook and Twitter might be more powerful today than political parties are. Seriously. I think they might be more powerful than even news media. Local papers and local television are both getting crushed as people can just go find whatever news they want on the Web, and even more importantly, be fed what information/news Google, Facebook, Twitter and other high-tech organizations think they want or should be fed.
We have a wave of institutionalization across our entire society going on, and real estate is no exception.
I think if we really take a 30,000 foot look back at the decade that was, we’ll see that the 2010s was the decade of institutionalization.
The Old Institutions: Big Brokerage
What strikes me after skimming through a decade of writings is the extent to which the existing institutions in real estate either refused to take action, or were unable to take action, despite all signs that they needed to do something to stay relevant.
I wrote this post called Onward Kristian Soldiers in January of 2009, in which I laid out my belief that big brokerages would respond to the changing environment:
Big Brokers, in the Kristian view, are anachronistic dinosaurs stuck back in the days, who provide no meaningful support to high-quality agents. There is a role for Big Brokerage in the Kristian worldview, but it’s limited to some sort of a training factory to churn through the ranks of inexperienced newbies who aren’t serious about the business of real estate. A nursery, if you will, for realtors who will go independent as soon as they are able.
In contrast, you have those who believe that the future of real estate will be dictated by Big Brokerage (including Big Franchise, such as Remax, Coldwell Banker, and the like) which I have dubbed The Robnecks.
The Robnecks believe that despite the current buzz being generated by social media, “Web 2.0”, and the like, the fundamental realities of business and the industry will reassert themselves and in the not-too-distant future. Robnecks hold that Big Brokers are not dinosaurs doomed to extinction as much as they are sleeping giants. Some will never wake up, and end up being devoured by the Swarm; but those who do wake up have established business models, established brand, established infrastructure, and most importantly, have the resources to invest in to technology.
The Robneckian theory posits that there are technology solutions available in the market today — such as enterprise CRM — that are enormously expensive to implement and to operate, but provide lasting institutional advantage. Given that some of these Big Brokerages have billions in sales, and hundreds of millions in revenues, they will not go gentle into that dark night. They will fight and rage against the dying of the light.
We believe, therefore, that the future of real estate will be charted by those Big Brokerages who have woken up, seen the light, and have begun to streamline their operations, understanding the critical levers of power in the industry. Marrying their institutional expertise with infrastructure with significant investment into productivity technology will provide these Big Brokerages with a profit advantage over big competitors and a brand advantage over The Swarm, which will lead to their changing the industry.
You might find this post from January of 2009 entertaining, as well as its followup a couple of days later. I know I did at the time, and re-reading it ten years later. The main hypothesis of those posts?
“Suppose this Trillow were to launch a virtual brokerage, backed up with all of the tools and resources currently available. How does a traditional big broker or big brand compete?”
That led to my theorizing that traditional brokerages suffered from institutional disadvantages:
What Aybaf points to is the significant institutional disadvantage that brokerages and brands have in today’s real estate industry. As Kris Berg points out, the old economies of scale do not work anymore:
It seems like only yesterday that I needed a company brand for credibility. I needed the resources of a big company, both the fixtures and the systems, because there was an economy of scale which I couldn’t touch on my own. Today, I can work from anywhere. I don’t need the desk and computer bank and copiers; I have my own. I don’t need the listing feeds; I can place my listings any place my broker might, and in doing so all roads lead back to me. I don’t need the brand; I long ago branded myself. Group print advertising rates which used to be a huge benefit of associating with the 1000 pound gorilla are now an antiquated concept. [Emphasis added.]
So the current brokerages of all stripes are stuck with the costs of operating an institution that generates economies of scale that don’t matter anymore to the experienced, producing agents.
Feels prophetic in retrospect, doesn’t it? It did to me.
We now know that the Big Brokerages did nothing of the sort. Maybe they woke up and saw the light, but found it impossible to streamline operations or to make significant investment into productivity technology. For that matter, even if they tried to invest into productivity technology (as Realogy did when it acquired ZipRealty and its Zap platform), they found it impossible to get their 1099 independent contractor agents to adopt said technology.
But what if Realogy had really taken truly bold steps?
In May of 2013, Realogy’s market cap was north of $7.7 billion. It was the largest and most powerful company in real estate without peer. Zillow had just gone public in 2011 and its shares had surged but in May of 2013, its market cap was under $2 billion.
What does our industry look like if Realogy had acquired Zillow in 2013 to add that capability to its Value Circle?
And that’s just looking at big brokerages, who I had bet on at the start of the decade to emerge victorious in the end as they woke up and realized they needed to make enormous investments into technology and institutionalize their operations.
The Old Institutions: MLS & Associations
MLS and REALTOR Associations have done… what exactly in the past decade to deal with the changing landscape?
Many an MLS today is running the same software it was running in 2009, with minor changes. Most REALTOR Associations operate exactly the same way today as they did at the start of the decade. There are quite a few MLSs and Associations who take pride in the fact that they haven’t raised dues since the start of the decade.
That’s… impressive, since inflation is a thing.
Everybody and his cousin knew in 2009 that 850+ MLSs were far too many. Consolidation was the call to action at every industry conference for many years. Ten years later, we have 650 or so MLSs. That’s progress… I guess. At that pace, we might have 450 MLSs by 2030, and 250 MLSs by 2040.
Except that doesn’t feel like a real future, does it? Not with the institutionalization of real estate we are seeing all around us.
Trade organizations are rarely the place to look for innovation, since by their very nature, they are supposed to protect the status quo for their members. That’s not just NAR, but every trade organization like the American Bar Association. Their role is not to innovate.
Having said that, the entire industry has known for decades — and certainly for the past decade — that the problem was the decline in the value of the REALTOR brand. Raise the Bar has been going on for as long as I’ve been in the industry. Every single President of NAR since 2009 has talked about the importance of professionalism.
And what has been done about that single biggest problem in the past decade? C2EX?
The New Institutions
Into the space created by the inactions or inability to act of old institutions of real estate, the new institutions have slid in as nature abhors a vacuum.
In my podcast with Greg, I said that the advent of iBuyer by Opendoor was one of the most significant developments in real estate in the past decade. I stand by that.
Had big brokerages truly embraced and invested in technology in the 2010s, they might have come to the conclusion that technology alone would not transform the transaction itself. That would require massive amounts of capital. They might have transformed real estate as we know it.
Instead, it’s Opendoor, a startup with enormously connected founders, that started the revolution. Zillow then fully embraced the revolution with its pivot to Zillow 2.0. (The fact that Zillow made the pivot, at enormous risk, is significant to me, since none of the old institutions in real estate have managed to do the same.)
I also said that the rise of the agent team is one of the most significant developments; I stand by that as well.
Because the agent team solved the twin problems of brokerages: profitability and control. Could brokerages have solved that problem back in 2009? Maybe. But they needed to have tried, and none did, which left the door wide open for agent teams and super agent teams and whatever is coming in the next decade that is going to look a whole lot more like super agent teams than they do traditional brokerages.
In fact, they probably look at whole lot like Redfin, which I have called a massive national-scale agent team, but one that has a giant website instead of a top producing agent at the top of its funnel. And looking at wider trends, I’m seeing new brokerages and new models that copy much of what Redfin did. Companies like Houwzer, Door, REX, and others are trying new and different ideas, but holding on to solving the profitability and control problems.
REX in particular is so interesting because it has abandoned pretty much all of the old institutions of real estate and is betting on data technology to move it forward. Whether it works or not, others will be watching carefully to see what they do, how they do it, and what pitfalls they encounter.
I think maybe I should have mentioned on the podcast that a far more recent development, the introduction of Best of Zillow, is another significant milestone in the 2010s, even though it is so recent.
This is a brand that has meaning to consumers, unlike the REALTOR brand (which everybody has) or some brokerage brand (which is carried by the weakest, most ill-trained, and most unethical of the agent at that brokerage). Because it has real requirements, and is enforced.
This is a move that NAR needed to have made in the past ten years. In the absence of action, a new institution has moved in to claim the mantle of a brand as a guarantee of quality.
So the story of the past ten years is that of new institutions moving in to fill the vacuum left by old institutions.
The Future is Not Written
Having said that, making predictions is tough to do, especially about the future. The 2010s may have been the era of new institutionalization of real estate. There is nothing that says that 2020s must also be that.
Nothing is guaranteed, and nothing is predetermined. There are trends and forces, of course, but those have never guaranteed anything at all.
In 2009, the top five largest companies in the Fortune 500 were:
- General Electric
In 2019, that list is:
- Berkshire Hathaway
Trends and forces suggest that perhaps by 2029, Amazon and Wal-Mart might trade places. But who knows? It isn’t as if Wal-Mart is unaware of the challenges; they are trying very hard to respond.
Similarly, just looking at the past might make you gloomy about the old institutions. I say, don’t be gloomy; be energized instead.
It’s not too late to start changing course. It’s never too late, until the end actually comes. And for the important institutions in real estate today, the end is not at their doorsteps just yet.
Companies like Realogy, Keller Williams, RE/MAX, HomeServices of America, Howard Hanna, and others are filled with extremely intelligent, extremely savvy, and extremely motivated people who are not ready to write their companies’ epitaphs. Smaller brokers and agents are not ready to lay down and die; they’ll figure things out, one way or another, or go by the wayside.
There will surely be losers in the decade ahead, but you know, there will also be winners. And the names of those winners are not yet written in stone, and will never be… as the race is never over until the end. Instead, we will have those who are leading the race… who will be overtaken by others… and then overtake them in turn. The race never ends; only some racers drop out and new racers enter.
Zillow may look dominant today, but so did General Electric in 2009. Ten years later, GE isn’t even in the Top 10. Nothing is guaranteed, nothing is written, and nothing is for certain.
Don’t get down; get up instead.
What does that mean, exactly?
I do strategy consulting for a living, so here are some thoughts for institutions new and old as they look ahead to a new decade.
One, the age of technology is behind us. The time to really invest in technology was 2010, not 2020. The next era will not be about technology, but about capital.
Two, the winning brokerages will figure out a way forward, but as they do, they must solve the twin problems of profitability and control as the agent teams (and team-like-brokerages like Redfin) have figured out. I look forward to seeing all of the innovative ways that people will come up with to win as the industry undergoes massive changes.
Three, the MLSs that survive will figure out how to remain relevant in the era of big data, AI, and mobile-everything. They might have to slaughter sacred cows, turn old ways of doing things upside down, and endure enormous pain to do so… but the winners will figure out a way. (Oh, and they’ll also have to figure out how to get capital, as we are entering the age of capital….)
Four, the REALTOR Association will figure out how to solve the brand promise problem, whether in partnership with other institutions or on its own. It might transform completely, but it will do so in order to remain relevant to the industry and to society at large.
One thing that strikes me today in 2019 as I write this is that institutions in 2030 may not look like anything we have today. Maybe the winning brokerages of the future will look nothing like what we today think of as brokerages. The MLSs that remain in 2030 might not be something we today would look at and call an MLS… but they’ll be filling similar roles. Perhaps the Associations that remain in 2030 will, like the MLS, be something we today can’t even visualize as being a REALTOR Association at all.
But as I contemplate the past ten years in real estate, and think about the next ten years… let me close with this final piece of advice… based on what I’ve seen over the last decade: Sometimes, not taking a bet-everything risk is the biggest risk of all.
That which doesn’t kill me can only makes me stronger.
Those are my thoughts. If you have thoughts on the past decade, the biggest changes, the overall trend, I’d love to hear them in the comments.
Happy New Year, and Happy New Decade, everybody!