By Greg Perry,
Kirkland, Realtor
Will technology replace the traditional real estate model as we know it? Will new technologies make real estate agents obsolete? This is a great question. A question that seemingly attracts endless debate. Technology has fundamentally changed many industries, but real estate continues to frustrate those who are looking for technology to create meaningful wholesale fundamental changes resulting in reduced transaction costs.
As we look at industries that have been fundamentally changed by technology, we see mostly simple products and services. On-line sales for products are skyrocketing. Examples of complicated service industries that have been changed by technology include the travel industry. One of the most complicated services to be impacted may be personal taxes (Turbo Tax).
Real estate has very complicated issues. The reality is that real estate will never be reduced to a "simple" transaction. Some of the hurdles technology will have to overcome are:
1. Real Estate is very litigious. Lawsuits result in:
2. Real estate transactions get more complicated every year.
3. Casual buyers do not understand value especially as it relates to economic and functional obsolescence.
4. Buyers do not understand value in relation to location.
5.. A body will always be required to let someone into homes for the comfort and safety of the seller.
6. There will always be professionals negotiating on behalf of one or the other party. A professional negotiator loves negotiating with amateurs. Real estate agents also serve as an emotional buffer between highly charged buyers and sellers.
7. There are too many CONSUMER issues past, present and future for the average person to understand and keep up with.
8. Transaction management. Because real estate is so litigious, it is way to easy to lose a contingency AND OR earnest money.
9. Problem solving. Often it takes the combined skill of two highly skilled agents to make a deal happen that both parties want. The agent often assumes the role of Chief Solutions Officer.
10. TIME. The vast majority of buyers and sellers are working and are experts in their own professions and do not have, or want to make the time to gain expertise in real estate.
11. People get in trouble when the don’t know what the don’t know. Technology gives some a false sense of expertise in any given subject.
At this time most of the technology developed in real estate centers on the concept of "finding" the home and in the area of valuation. Many consumers mistakenly think that finding the home is the most important part of a real estate deal. However, finding the home is just a part of the process. The "valuation" models can't look inside the home for upgrades or deterioraton, or account for functional or economic obsolescence issues. At best, valuation models are never completely accurate.
Since the markets have tightened, full service traditional companies are gaining in market share, here and all across the country, and profit problems are forcing may alternatinve models out of business. Real estate innovation and market shares are market driven, just as median prices are market driven. When market conditions improve, more innovations and choices will be created.
So here is the $200,000 question:
At our recent seminar, Eric Campbell, president of Cam West homes showed examples from the early ’60’s where a buyer could buy a home in the Lake Hills area of Bellevue and Fairwood in Renton for virtually the exact same price. Today, that Lake Hills home is worth about $200k more than the Fairwood home. Why? Both are good areas.
Will technology ever be able to guide a prospective buyer to the right location? Will technology solve the ever increasing complexity of a real estate transaction, accurate valuations accounting for obsolescence, and the intricate problem solving it takes to put a deal together?
Maybe. However, some consumer don't care about real estate complexities. They like to do it themselves. They often "think" they are getting the right deal while saving money, but often come up short. Some consumers have deep experience in real estate and can shave transaction costs and benefit.
In every industry where technology has helped shave costs to the consumer and give the consumer streamlined options, the full service option still exists. A large group of consumers, however, are looking for service and will pay for service. This group values their time and doesn't want to devote their energy to creating expertise in real estate and wants to pay someone else to take care of the details.
In the end, consumer choice is important and good. There should be outlets for those who want to save transaction costs. However, a good full service real estate agent continues to represents great value for the majority of people looking to buy or sell a home. Good full service agents exist in today's marketplace, and good full service agents will be around for a long, long time.
