On the brighter side: 2 things that suggest a path for online real estate innovation in '09

My post on online real estate innovation yesterday was pretty bleak.

That's still my sentiment, but here's a counterbalance:

I think the single biggest opportunity in online real estate in 2009 lies in improving our grasp on the real estate market at a hyper-local level.

Yes, we have Shiller's index. Yes, NAR cranks out its numbers. And companies like Altos and Terradatum have done a great job using listings on public search sites or MLS data to provide metrics like DOM and price medians.

But still, as the owner of a 3-bed, 3-bath home in the Redwood Heights neighborhood in Oakland, CA, I am pretty much in the dark about my local market. I get a lot of information, but the level of analysis is off. Or the UI is crappy. It's always something.

Two things that popped up yesterday point to ways we may be able to improve on that in 2009.

Realius [disclosure: 1000watt performed consulting work for the company in 2007] announced a partnership with ZipRealty to place its property price prediction application on the Zip site. The idea is simple: Users predict the price they think a listing will sell for. The predictions are collected and run through an algorithm. What comes out is an aggregate prediction based on the "wisdom of the crowd."

I have concerns about accuracy (among other things, including legal bugaboos) but Realius CEO Chuck Teller tells me that, looking back, the model performs very well, which suggests that the model may perform well looking forward.

Which is the point.

We'll see if the idea takes off. HomePredict also plays in this space and has been at it for a while.

Second, REI, the outdoor gear retailer, announced an iPhone application that provides snow reports at ski resorts across North America. In other words: Current conditions at numerous and variable hyper-local "markets." 

I'd love to see a mobile app that applies this to real estate market conditions. To do it right, the data need to be good, the level of analysis needs to be right, and the interface has to be super simple.

The REI app offers some good cues.

I'd love to hear your thoughts on this. I am off base? What am I missing? Where do you see opportunity heading in '09?

-- Brian Boero

The School of Redfin, Part III

If you're in the "traditional" real estate brokerage business, make sure you send Glenn Kelman at Redfin a gift basket this holiday season. Make it one of those extra fancy ones, with the mini salamis and the macadamia nuts.

I'm serious. He deserves it.

Glenn's a really smart guy, with really smart people working for him, who has spent the past few years giving me and you a world class education on consumer engagement, marketing, and website user experience in the course of building his company. 

I have written about this before.

This week, the company released a significant update to its website. It is worth a close look. Redfin has used its access to MLS data to generate powerful and easy-to-understand analytics.

Consumers searching for homes on Redfin.com can now get accurate and current data on list prices, sold prices, days on market, price reductions and more -- at the neighborhood level. One particularly ingenious graph displays these last two data points side-by-side, allowing buyers to get a clearer read on the "offer now or wait" question.

This type of thing is not entirely new. Altos Research provides similar charts, but they are not derived from MLS data, and thus not as useful. Terradatum's Broker Metrics product does offer a solution that is MLS based, but its coverage is limited. Much of this information is available inside MLS systems, but is not optimized for public display.

And currently none of these solutions get users down the neighborhood level, where market data really becomes meaningful.

Redfin's effort sets a new standard for presenting market information on a brokerage website, which has heretofore been too reliant on stale public solds data.

This development also raises a larger issue: The value an MLS delivers to its subscribers. With dues dwindling, MLS organizations across the country are bolting applications onto their platforms in a scramble to justify their fees or generate new ones.

However, I think it might be more effective for them to pool resources and develop web applications based on the goldmine of information sitting at their feet. We have 12 years of research -- and the fantastical attractive power of the Zestimate -- telling us consumers love value and market data. Shouldn't more MLSs help their subscribers give it to them?

Most brokerage companies do not have a roomful of web developers or millions in VC like Redfin does, but they do have access to MLS data. And the off-the-shelf solutions I mention above offer some of what Redfin has done.

Some brokers will move on this. And I am nearly certain we will see more vendors enter the data and analytics space in online real estate. There's lots of opportunity here.

-- Brian Boero

Sawbuck offers an "alternative" alternative brokerage model

Cut your commission, offer buyer rebates, rock the website, get that consumer religion ... and, after a few hard-bitten years, fade away.

Such has been the trajectory of nearly all discount or "alternative" brokerage shops for the past decade.

Today, however, I spoke with Guy Wolcott, Co-founder of Sawbuck Realty, a new brokerage company in the DC market unveiling an "alternative" alternative model.

Without getting into the captious snarl of the "discounter" debate, I'll offer a few quick observations gleaned from my conversation with Guy and a test drive of the site:

1. They have turned the conventional wisdom on the alternative brokerage model on its head -- shunning buyer rebates. Instead, they buy down the mortgage rate from their banking partner and negotiate rock bottom settlement pricing from a national provider. This, it's worth noting, also goes against the recent trend among traditional companies who often look at the brokerage deal as a loss leader for the higher margins an in-house mortgage or settlement operation can offer.
2. From a consumer standpoint, the immediate settlement savings coupled with the long-term savings associated with a below market mortgage rate seems more appealing than a rebate check.
3. The company makes money by handing off buyers to hand picked agents (mostly teams) who the company claims are top performing experts in the buyer's target neighborhood.
   
4. They have really nailed the home search. It's as if they took all the great user experience queues from Estately and then stripped out all the noise. As someone in the "less is more" design camp, I think this offers a fine model for any brokerage company looking to retool its search.
5. They claim that the business model pencils, of course. Though I remain skeptical, I give them points for trying a different angle. They still have to pay programmers and phone "agents", but the amount they are paying to buy down the mortgage rate is likely less than a lump sum rebate, while offering more value to the consumer long term.

It's going to be interesting to see how this one plays out.

-- Brian Boero

The school of Redfin, Part II

I wouldn't use Redfin to sell my home.

But I really like them. And I admire Glenn Kelman. I hope he and his company thrive. And carve out a nice slice of the market. For the company, and the man, are doing this industry a great favor. They are challenging it to face its demons, to contend with ugly things that were glossed over with boom market shine.

But most importantly, they are offering up some fine lessons. If that $20 million in VC does nothing else, it will add more the real estate marketing playbook than the sum total of seminar speeches given this century.

I have expressed this opinion before. And I am still puzzled why any self-assured agent or broker finds the fact that a competitor wants to put them out of business appalling. Isn't that the way it always is?

It's much more useful to go to school on them.

Consider, then, the marvelous "Real Estate Scientist" play and its big media hit, the Today show appearance. What might we learn here?

• That there is a hunger for real estate facts, however obvious they may be
• That most Americans, to the extent that their wants can be divined through Today's programming choices, want to hear something different from a real estate brokerage company
• That saying and doing things differently in real estate -- even just a little -- has enormous marketing power
• That sellers, many heavily leveraged and some tapped out, respond to comfort
• That what "the marketing department" does every week probably needs to be reconsidered
• That your CEO needs to be talking to, an with, your customers much, much more

I think most any brokerage could to take a cue from Redfin and do something that resonates. To take that weekly newspaper spread and get imaginative with it; to connect with a jaded customer with candor; to create its own list of hype-free recommendations for selling a home in [your market here]; or to issue a letter from its CEO explaining why, depending on your circumstances, it very well may not be a good time to buy or sell.

It's a matter of will.

Redfin may indeed go out of business someday. But unless those who celebrate do so because they have simultaneously eradicated the plague of mistrust from which it was propelled into the media spotlight, the revelry will be joyless.

So take the lessons. Do what you do, better.

-- Brian Boero

Things that cost around $66,000

1. 1 year's tuition with room, board and flights home from Princeton
2. A 2008 Mercedes GL320 CDI SUV
3. A10% down payment on a luxury condo with panoramic views at the Rivage Tower in Panama
4. A month's vacation at Frégate Private Island in the Seychelles
5. 1 pear-shaped 4.25 ct diamond ring flanked by 2 tapered baguette diamonds at Doyle New York
6. A Montessori education for a child for their first 8 years of schooling
7. Marriage counseling 2 days a week for the next 5 years.
8. A fully remodeled kitchen
9. A liver transplant
10. The commission to sell my home at 6%. 

The argument over protecting real estate commissions will continue until the services performed by agents are viewed by consumers as being equal in value to the other luxuries in its class.

This has nothing to do with Redfin and their right to price their service anyway they want. This is about the traditional model steeped in yesterday, unyielding to change and unwilling to put a ladder of benefits in place that resonates with the consumer.

Ask 10 consumers to:

1. Describe the benefits of a stay at a 5-star hotel.
2. Define the experience of driving a Mercedes.
3. Speak of the miracle that is a liver transplant.

If you asked these people if these things are worth their high-dollar price tags, most will say yes. It's why the Wynn Hotel in Vegas and Macau are both sold out for months in advance and why Doyle of New York gets 50% more than list price in their estate auctions.

What about real estate services?

Can consumers define what agents do, differentiate one agent from another or one brand from another, describe what a luxury real estate experience would be like or describe what innovations they believe Realtors bring to the table?

When they can, the industry will no longer ever need to bother justifying itself or worry an iota about Redfin. Ever.

- Davison

Redfin: A gift from the venture community to traditional real estate

I’ve always had a very low tolerance for discount real estate bashing. It’s a slimy, stinking red herring. And one that serves the “traditional” industry poorly in the minds of consumers.

It is unlikely Redfin will achieve dominant share in any of its markets. It may even collapse under the weight of its high-dollar payroll. But what is certain is that the industry could to learn a lot from this company (in other words, steal its ideas) if it stopped bashing and started observing.

Let me give you two simple examples.

This week, a Redfin sign appeared in my neighborhood for the first time. Take a close look:

How about that? A call to action on a for sale sign. Makes sense in the sales business. Also, note the absence of riders, headshots and other clutter. And the shape itself: Totally distinctive yet not radical enough to confuse. Yard signs are a significant driver of leads and serve to brand brokers in their markets. It’s about time someone got it right.

Here’s another. Consider two facts:

1. Listings are the most valuable content a broker has.
2. Listings are the number one thing consumers look for when they turn to the Web for their real estate needs.

Most brokers fail to execute properly on this information. Take this shot from Alain Pinel’s home page (APR actually does many things right with this site, if you can find your way to them):

As the user, I really have to work at finding what I want: A full feed of listings from the MLS. Grocery stores can get away with making you walk past everything else to get to the milk. That’s doesn’t work online. If I have to work hard, I’m gone.

Now take a look at Redfin’s home page:

See what I mean? Not only have they made it made it easy for visitors to get what we all know they want, they probably user tested this to death to get it just right. I have yet to speak with a broker that took the time to user test.

Next time you feel the urge to jump onto the Redfin dogpile, resist. Quiet study on the sidelines will probably serve you better.

-- Brian Boero

Heidi Fleiss and the future of real estate

The escort business has brokers (madams) who oversee a stable of independent agents (escorts) who deal in very expensive and intimate transactions. All kinds of escort services coexist; luxury brands charging $10,000 a session to independent brands with rates that can be negotiated based on street market conditions. Like real estate, there is also a FSBO market of sorts where clients handle the transaction themselves without the assistance of a professional. 

Heidi Fleiss is an interesting case study for real estate. During a boom in her industry where competition was fierce, she decided to build a luxury model and charge the highest prices in the marketplace.

But the reverse occurred during the real estate boom. New entrants built discount models despite the fact that America was consumed by a luxury brand mentality.

Hour for hour, Heidi’s services were vastly more expensive than what consumers pay for real estate brokerage. Yet no one ever accused her of “stealing” from the consumer. In the midst of a profession rife with discounters, Heidi never worried about a deathblow from a street pimp.

So why is “traditional” real estate worried about Redfin, et al?

Seppuku

If a deathblow befalls the traditional real estate pricing model, it will undoubtedly come at its own hands, the culmination of a decades-long muddling of the public’s perception of what full service real estate really means.

Despite the hundreds of millions of dollars Realtors collectively spend in self-branding each year, can anyone tell one from the other? Confusion creates a global stereotype with a dense fog around commissions and value. It is here, inside this muck of Realtor independence, that the deathblow marinates.

Samurai were uniform. Systematic. They excelled on that account. Today business is adorned by Samurai beliefs. Starbucks. Quiznos. Starwood Hotels. UPS stores. Warrior models with a ladder of benefits that slay the millions of new decisions we’re faced with daily.

This ideology eludes real estate. Everyone is independent. Two million individual brands inside tens of thousands of broker brands inside dozens of corporate brands resulting in millions of individual credos and promises.

Aside from a few stellar exceptions, real estate companies have not aligned themselves to the consumer. We’re left struggling to make sense of it all. We hate doing that and that’s why we end up doing stupid things like buying homes without representation and paying unqualified agents to sell our most cherished asset. Consumers want leaders. And they’ve proven over and over that they’ll pay for it.   

The paths toward Princeton

Traditional pricing will eventually crumble in the absence of perceived value. Today, consumers can’t spend money fast enough buying high-end services & products. Enough bestsellers have made this clear. It’s the elusive value of real estate services that drives consumers away. The

The way I see things, no model puts another out of business. The only reason a model goes out is because it failed to make adjustments to meet the times.   

Even the strongest brands must continue to uplift public perception so value is clearly understood. Your current pricing model is safe as long as you continue to deliver a ladder of valuable benefits that differentiate you from cheaper models. If a madam can do it, you can.

A good place to start is here:

• Build a W2 model that works so you can mandate consistency and service propositions across the board.
• Embrace the ethos of Web 2.0, which is fundamentally about talking with rather than talking at friends, family, prospects and clients. There’s never been more opportunity to demonstrate value.
• Enhance customer service to Zappos-like heights.
• Forbid newly licensed agents from representing anyone on their own. Apprenticeships must be enforced.
• Mandate agents upgrade everything – tech tools, websites, education, etc. -- so they are perceived to be a better value than their competition.
• Mandate and control branding. Forbid agents to use any unapproved material across the board. More damage to consumer perception is done by this one action that anything else.   
• Rework all advertising so that your ads aren’t interchangeable with your competitors’.
• Insist all agents stop spending $10,000 to create useless tri-fold brochures that depict them “as human” -- playing tennis, hugging their dog and walking on the beach with their spouses. Not one consumer cares about that. Instead enforce investment into continued education.
• If you cannot enforce agents to comply, show them the door and send them and their bad habits to your competitors.
• Accept the fact that the consumer believes you charge too much money and respond by creating more value.

If you don’t want to suffer the deathblow you have to prove value. Wal-Mart will never put Neiman Marcus out business and Help-U-Sell will never put Coldwell Banker out of business … as long as the differences between them all are crystal clear.      

-- Davison and Boero

$12 million we can all be thankful for

When I was at Inman News, an executive at NAR told me, during a period when we were reporting heavily - and sometimes critically -- on their online listings policy, "If Brad Inman didn't exist, we'd have to invent him."

So it is with Redfin and Glenn Kelman. Sometimes it's good to have a lightning rod. It helps control - or distract -- your own constituency. It can relieve pressure, deflect anger, or lead to new understandings.

I don't think Redfin will catalyze a new real estate experience -- directly. If Kelman and his team execute well with the $12 million they received this week, they'll end up like ZipRealty, which isn't bad. People sometimes forget that ZIP, for all its struggles, is now a company of 1,800 agents that did over a billion in sales volume in Q1 of this year alone. And how many real estate companies aren't struggling with profitability these days? 

So I am happy for them. But I'm happy for the rest of us too. Redfin's continued growth ensures that we can look forward many more spirited debates, ham-fisted NAR memos and media splashes. These things will do more to shape the future of our industry that anything Redfin will do directly

And for that we should be thankful.

-- Brian Boero

Trading Down

Next time you stand on line for a $4.00 cup of steamed milk and espresso ask yourself how, during a time when America was littered with dime-a-dozen coffee shops, when Krups, Braun, et al, were manufacturing affordable, home coffee brew machines, when a cup of coffee was $.60 a cup and that was considered too much, could Starbucks enter the markert with prices 200-400% higher than the norm.

I've asked myself that 1,000 times over the years. Usually after I ask myself how it is that during that same decade, during a time when Americans where making conscious choices to pay more for almost everything - $350 billion to be exact according to the authors of Trading Up - did real estate think to Trade itself Down by launching one discount model after another.

Forget about what it actually costs to list and market a home. I hear the arguments all the time. The average Realtor spends less than 1% of their commission to get the job done. So what! If you can sustain a business model with that markup - rock on.

No one cares what Starbucks charges. They care even less about their COGS. People gladly pay the price.

Starbucks, Callaway, W Hotels, William Sonoma and other brands like them get their high markup because Americans value innovation and upscale service.

Real estate is under scrutiny for one reason: Whatever innovation or service real estate provides must not be good enough or impressive enough. Certainly, in many cases, it is no different that it was two decades ago. The marketplace is saying it doesn't feel it should pay a premium price for the same old real estate brokerage experience.

W Hotels has "Whatever Whenever". You're in your $500 a night room and you need something odd like a Cuban cigar at 2:00 am. Pick up the phone, dial 0. Someone who sounds like they are your old friend attends to your need. Might cost you $200 but if you want a Cuban bad enough ...

Same person lists a million dollar home. Fee is somewhere around $50,000 - $70,000. Does their Realtor have a Whatever, Whenever? If not, if all they get is a voice mail that says, "Hi, this is Alice. I'm either on the phone or away from my desk..." Where does that leave Joe consumer?

No URL. No alternative number. No cigar.

Real estate needs to start investing in the consumer. Not what it THINKS they want. Not what they seem to enjoy. Real estate needs to KNOW what they want. And what they VALUE

Do you know what that is? 

- Davison

The New York Times article: hold your fire

A study covered by the New York Times today that researched home sales in Madison, Wisconsin over a period of several years concluded that people who sold their homes through a real estate agent typically did not get a higher sale price than people who sold their homes themselves. When agent commissions were factored in, the for-sale-by-owner people came out ahead financially.

This directly hits at our industry’s standard response to attacks on the “traditional” real estate commission – “A full-service Realtor will get you a higher price for your home.”

As of right now, on the New York Times website, there are 192 comments from consumers in response to this article. This will continue to grow as this article spreads virally.

Are they wrong? Possibly. Can we pick apart the study? Certainly. But please, let’s not go down that road. The consumer is speaking. It’s time to accept what they have to say and meet their challenge – not offer one in return.

My point here is not to diminish the role of the Realtor or give up the ship, but rather to help our industry understand why their arguments for The Way Things Have Always Been are now hurting more than helping.

The bottom line is that if “traditional” real estate wants to effectively justify itself and its fees, it needs to start addressing real issues. Like standards. Professionalism. Training agents in the skills that will make it unquestionably clear that working with a Realtor is always in the consumer’s best interest. Then it needs to formulate a campaign that speaks those truths.

 

That’s the response I’d like to see.