Notorious R.O.B.

In Part 1, I explored how large law firms and big brokerages are similar, based on the forthcoming paper by Glenn Reynolds, a law professor and blogging pioneer.  Then in Part 2, we looked at how they’re different in some fundamental ways, particularly compensation models, that makes the size of Big Brokerage appear to be all of the disadvantages with none of the advantages.

In this Part 3, I would like to explore how size could be made relevant again.  There are still areas where size does matter, even in real estate.  And the future of the industry really depends on how big brokerages respond to the rapid changes in the social and economic marketplace.  Up to this point, most have been extremely slow to react, believing that a strategy of evolutionary adaptation makes more sense than a risky revolutionary act.  I no longer believe, if I ever did, that slow evolution will get the job done for the giants in our industry.  The window of opportunity is closing, and quickly at that.  Unless something fairly dramatic is done, and soon, I believe that by 2020, the large brokerage as we know it will be a thing of the past.

So, with that Cassandra moment out of the way, what are the areas where size still matters?  And how might big brokerage respond to make size matter once again?

Read the rest of this entry »

In Part 1 of this series, I examined a scholarly paper by one Glenn Reynolds(aka, Instapundit, who is a law professor, the author of Army of Davids, and one of the most important and influential bloggers in the United States today) about the future of big law firms and drew some lessons about how big law firms and big real estate brokerages are similar.

In this part, we focus on how they’re different.  And before you say, “Duh, Rob” (or since you’ve probably already said that, before you say it again), of course lawyers are not realtors, and law firms are not brokerages.  But there are lessons to be drawn from some of the fundamental differences as they go to issues of business models.

Read the rest of this entry »

Pocket Hercules (Photo by Sam Greenwood/Getty Images)

Aaaaand I can hear the tee-hee’ing going on in Costa Mesa from here.  While I’m not above making cheap jokes in order to erect a logical argument about brokerage performance, business dysfunction, and customer satisfaction, this post is actually about serious issues in real estate, technology, and marketing.  So stop giggling.

We begin with a question: does the size of a brokerage matter in real estate?

I have argued in the past that the Big Broker holds the key to the future of the real estate industry, and that small independents and boutiques will end up surviving on the good graces of the various titans in their markets.  Of course, that argument was counter-factual at the time I made it (over a year ago now) and I conceded that as the industry was then, big brokerages were boned.  What I argued then, and still believe to some extent, is that the Big Brokerage with the will to change has the resources to do so.  But in the almost year and a full quarter since I wrote that post, I don’t know that I’ve seen too many examples of such visionary brokerages.

Meanwhile, technology continues its remorseless march.

Then comes this paper by one of the pioneers of the blogosphere: Glenn Reynolds, aka, Instapundit, the Beauchamp Brogan Distinguished Professor of Law at the University of Tennessee.  If you’re at all interested in the impact of technology and of the Web (and its offspring, social media) on the real estate industry, I urge you to read it in full.  While it is a scholarly paper published in a law review, it’s written in plain English for the layman, and does not deal with legal issues as much as it does with business and social issues.

The implications are profound, and the questions Reynolds raise are significant.  And insofar as law is the epitome of professional services, and one that many realtors look to as an example of client-driven professional services, changes in the legal business model are something we should pay close attention to.

This will be a multi-part post, as the topic is large enough and complex enough to warrant breaking up into bite-size pieces.  This first part focuses on understanding Reynolds’s argument as it applies to law firms, then extrapolating similarities to real estate brokerages.

Read the rest of this entry »

I think I might have fallen in love with Larson/Sobotka.  I haven’t the faintest idea who they are, but it looks like they combine some business consulting with legal work with something else involving MLSes and such.  Bears looking into more.

But they have done a great service for the RE.net by compiling a guide to the new VOW policy.  In fact, they call it a clearinghouse for the new NAR VOW rules, and I think it fits.  There’s a lot of depth here, and a lot of breadth.  Check it out in full.

For myself, I immediately zeroed in on this:

What a VOW is

For purposes of the DOJ/NAR settlement, a VOW is:

A web site, or feature of a web site, operated by a Broker or for a Broker by another Person through which the Broker is capable of providing real estate brokerage services to consumer with whom the Broker has first established a Broker-consumer relationship (as defined by state law) where the consumer has the opportunity to search MLS data, subject to the Broker’s oversight, supervision, and accountability. (See Policy Section I.1.) [Emphasis mine.]

Interesting.  The law-school training kicks in and I see at least three questions to be resolved, probably through litigation:

1.  What does “providing” mean?

2.  What sorts of activities constitute “real estate brokerage services”?  Is this governed by state regulations?  Or is this to be under some common law agency theories?

3.  If state law defines “Broker-consumer relationship”, then what to make of provisions like this one from Delaware?:

Entering a name and email address on an Internet or World Wide Web site is sufficient to establish a broker-consumer relationship for the use of that system, but does not in of itself create a broker-customer or client relationship for any other purpose.

Especially in light of the clause that reads, “capable of providing real estate services” in the NAR DOJ settlement, under Delaware law, there may be enough of a relationship created by entering a name and email address to use a VOW but not to take advantage of any of the real estate services provided.  Does that even make any sense?  Isn’t the display of property information itself a “provision of real estate services”?

Or does the NAR-DOJ settlement override Delaware law by operation of the Supremacy Clause?  Even when it specifically says state law controls definition of “Broker-consumer relationship”?

Heh.  I love regulations written by lawyers, don’t you?

But Larson/Sobotka has more riches in store for us:

• An IDX site is not a VOW. IDX is an MLS policy under which a brokerage firm participating in MLS grants permission to other brokers participating in MLS to advertise its listings on their web sites, in return for their permission to advertise their listings on its web site. IDX sites are governed by MLS IDX rules, which are entirely unaffected by the settlement. Note that a brokerage firm can operate both an IDX site and a VOW at the same location on the web. (For example, the brokerage can show the consumer some information on its IDX site but then require her to register to see the information available only through its VOW.)
• Zillow, Trulia, and other national aggregators and commercial distributors of listings are generally not VOWs. (Note that these sites are not IDX sites either, and the data feeds that some MLSs provide to them are not “IDX feeds,” as they are sometimes erroneously labeled.) These companies may receive listing data from brokers or MLSs, but display of those listings is subject to the agreements between the brokers or the MLSs and the aggregators. Neither the settlement, nor any of the policies imposed under it, applies to any of these types of sites. Note that if Zillow or one of these other sites were to become licensed as a brokerage firm, become a participant in an MLS, and actively assist consumers in buying or selling real estate (or both), it would be eligible to operate a VOW.
• MLS public consumer-accessible web sites are not VOWs. (Note that these sites are not IDX sites either, as they are sometimes erroneously labeled.) A VOW is by definition the web site of a real estate broker. An MLS could operate a VOW only if it were acting as a real estate broker – we are aware of no MLS that claims the right to do so.

If for nothing else, Larson/Sobotka deserves some sort of award for spelling these things out so clearly.  Now, to be sure, these should be construed as opinions of one law firm until litigation gives us definitive court rulings, but they strike me as being largely correct.

Assuming that Larson/Sobotka’s interpretations are correct, there are many implications that flow from the above three observations.

One, if IDX is entirely ungoverned by the settlement, then as Brian Larson points out, one can expect that the industry will begin to move towards VOW websites and away from IDX sites.  That could, in theory, be a Very Bad Thing for brokers and agents, however, as the plain fact is that imposing a “signup requirement” to consumers (especially if defined under state law, and that state law is onerous) will drive consumers away from such websites to those that are far more user-friendly.  How that will play out is wholly unknown.  Perhaps MLSes start relaxing IDX rules in response; perhaps brokers start working through their Real Estate Boards to change state regulations; perhaps something else altogether.  But this could be huge.

Two, if Zillow, et. al. are not VOW sites, then they do not fall under the protections (if that’s what they are) of the NAR-DOJ settlement.  So brokers or MLSes can explicitly prohibit its agents or members from giving data to these national aggregators without running afoul of the Settlement. Now, before you shrug, I happen to think there’s a fairly high likelihood of this happening.  Why?  Because of #3 –>

Three, if public-facing MLS websites (such as www.har.com) are not covered under the Settlement in any way, then they also don’t have to follow the “Broker-consumer relationship” rule either.  Which means that of all of the possible websites out there, only the MLS or Realtor Association websites can have all of the property info on every single listing without being subject to IDX rules, and without having to share any of those privileges with anyone else.

In other words, unless I’m totally misreading this, it seems to me that we now have a situation in which HAR (just to use an example; not that they would do this) could

1. display all of the listings info on HAR.com without limitation, and without the “signup” requirement;
2. prohibit all members of HAR from sending any data to Trulia, Zillow, or any national aggregator; and
3. force brokerages to use either shut-from-the-public VOW requirements, or ass-backwards IDX rules filled with purposely inane requirements to discourage the use of IDX.

Wow.  Just wow.

If this is a correct reading, then I differ with Brian Larson only in that even if there are 10,000 VOW’s by 2010, there will only be 50 websites by 2010 that any consumer goes to.

And how does this impact Realtor.com?  As Brian points out, nothing in the Settlement even mentions Realtor.com at all:

The settlement between DOJ and NAR makes no reference whatsoever to Realtor.com, either in the settlement agreement, in the attached VOW policy, or in the attached policy regarding the definition of “participant” in MLS. (In fact, the DOJ press release makes no mention of Realtor.com, either.) The DOJ lawsuit, and its settlement, deal almost exclusively with “virtual office web sites” which are by definition web sites of brokers participating in MLS offering brokerage services to their customers/clients. Realtor.com is not a VOW.

So Realtor.com is not a VOW.  Does its special relationship with NAR give it the same access that all of the local associations and MLSes now have? Will it be the sole national real estate website that can offer all of the information on a listing without requiring a consumer-broker relationship?

I’m thinking the answer might be Yes.

Talk about a seismic shift in the online real estate world.

Am I missing something crucial here?  Am I misinterpreting things?

-rsh

PS: I’m definitely adding the MLSTesseract to the blogroll.  A great site if you’re into some of the details of this stuff.

So I promised a more serious post about Blip.fm, the social music network that I’m fairly obsessed with these days. It’s taken a few days for the thoughts to gel, and I’m not convinced that they have fully. But in the interests of starting the discussion, I want to get this out there.

Could a blip.fm type of service work in real estate?

On Blip Itself

First, we must talk a little bit about Blip for those who don’t know that the *blip* I’m ranting about.

Blip is basically Twitter + Online Radio. The concept is really cute — every person signs up and can become a “DJ” by “blipping” various tunes. Each tune, with its 140 character message, goes on a blipstream that is identical to Twitter. Your listeners/followers can hear the songs you’ve blipped in turn.

So rather than listening to a professional DJ on some online radio station (and I guess that makes the term “professional” somewhat loose here), you can listen to music that all of your friends think is cool.

The mechanism for how one actually goes about doing blips is worth a look. First, the box at top is a search box, rather than a Twitter-style message box. That search then activates an in-screen search of songs/artists that match the keywords:

From right here, you can “Preview” — meaning, you can listen to the song — then you can “Blip” which means you actually publish that song as your choice.

The actual Blip then brings up the message window:

Second, the social aspect of Blip.fm is pretty strong. The basic one is that people listen to you — if you’re blipping the tunes that more people like, then they’re more likely to listen to you. The other one is that you can give and get “Props” to other DJ’s for their selections. The props then lead to little stars on your profile pic. Ego-stroking is a very important thing on the Web.

The whole thing is very addicting, especially if you’re into obscure 80′s new wave songs and old school rap and such.

So… RE Blip?

What I was wondering is whether this mechanism can work in real estate, as a replacement for traditional search.

I don’t mean traditional search as in the search box that exists on a website — I mean the actual process of looking for a house: checking websites, driving around neighborhoods, talking to people, and so on.

Why not crowdsource the whole thing, as Blip does for music?

Imagine a scenario where I can go onto reblip.com, do a basic keyword search, find a bunch of listings, find a bunch of neighborhood info pages, etc. and “blip” it with commentary.  Such commentary could be something positive like “This looks like a great deal” to something critical like “I can’t believe someone actually put this piece of crap up for sale”.

Folks who are actually IN the search process can blip the houses they’ve gone to see with commentary; their friends and followers would pick up on that.

Realtors can continuously blip listings that they really like, or interesting neighborhoods, etc. and see if anyone follows them.  That seems obvious.

The traditional “featured listing” mechanism won’t work here — because if you’re just pimping your highest priced property, or blipping a listing only because you’ve promised the seller that you’d do that — then no one is likely to follow you.  What’s the point?

Furthermore, if you’re good at finding neat houses, or underpriced properties, or whatever, then you can get props propelling your visibility upwards as well.

Now… I understand that all of this can actually be done via Twitter.  Just put a tinyurl link of the listing itself into the tweet, and there you go.

Thing is, I don’t think that’s enough.  To me, what makes Blip compelling is that the entire experience is unified and self-contained.  There are no external links for fetching music.  No external search.  In fact, I can listen to the music directly from within Blip.  Twitter can be used for this sort of crowdsourced search of properties, but that makes the experience disjointed.

A single site, with a unified user experience, that is able to showcase at least the highlights directly in the “blipstream” would work better, I think.  Because that lets me, if I’m a follower of various REBlippers, to quickly scan a bunch of properties that those people think are cool for one reason or another.

The Recommendation Engine

There is one other key to Blip: the recommendation engine.  It’s a very simple one for Blip.  Whenever you blip a song, the system tells you (and shows you) who else has blipped that song.  You can then decide to follow them, seeing as how you have similar tastes in music.

For REBlip, this is going to be a bit more complicated.  Non-realtor users are unlikely to blip anything, as they’re the consumers of information.  But even if they did, it strikes me as unlikely that others who blipped the same house have the same taste as you do.  Plus, the properties themselves do not necessarily share commonalities as music does.

A song by Jay-Z and a song by Public Enemy are both rap songs, a distinct genre of music.  But is a 3BR/2BA Tudor in one city the same “genre” of housing as a different 3BR/2BA ranch in another city?

Taken together, these challenges suggests to me that a relatively sophisticated recommendation engine would need to be developed with something like a “House Genome Project” — patterened after Pandora’s pioneering Music Genome Project.  This way, if I’m a consumer user, I can follow certain folks who have a knack for blipping properties I find interesting for one reason or another.

The Dream Search

It probably has to do with the fact that I am a fairly lazy guy when it comes to things like shopping for stuff, but my dream house search looks very much like my dream shopping experience.  Which I’ve actually had at Emporio Armani.  I walk in, find an associate, tell him in vague and general terms what I’m looking for (“Something appropriate for business, but still casual and hip”), have someone hand me a caffe latte, and I sit around and wait for various well-dressed minions to bring me merchandise.  In most cases, the good salespeople bring me items that I personally would never have looked at twice, but end up buying because their fashion eye is better than mine.

I kinda want to be able to tell my friends and various professionals out there in vague general terms what I’m looking for in a house or in a neighborhood, and have them bring me merchandise.  Maybe my friends know me better than I do and blip me properties they think I’d be happy with.  Perhaps the professionals I follow have a knack for finding stuff that is spot on for needs of a thirtysomething officeworker with a family.

But I think something like a REBlip could be pretty cool to have.  Crowdsourced real estate search.  Somebody get on that please.

-rsh

In Part 1 of this series, I put forth the notion that a real estate company built on the law firm model — rainmaking partners + salaried associates + support staff — could work. The main requirement is that there is some sort of a competitive advantage that arises from the structure of the partnership such that individual rainmakers would want to pool their resources.

But how does such a competitive advantage arise? In this and succeeding parts, I hope to explore some ideas on how it might be possible.

———————

The similarity between legal practice and the post-Internet real estate brokerage is remarkable. In both cases, you have service providers who provide what is essentially a commodity service in all but the extremes, and yet are of varying qualities as professionals.

The typical lawyer does not do only the extremely complex, novel questions of law that end up before the Supreme Court. The average attorney does run of the mill contracts, wills, real estate transactions, incorporations, and typical lawsuits — the so-called “slip and fall” cases, or breach of contract cases, or some such. There isn’t much to that practice — the law is more or less settled in most of the situations, and all that the attorney is doing is to represent his client in the most favorable light possible. Yet, there is no question that some lawyers are simply better than others. They are more knowledgeable about the law; they are better writers, better researchers, and better negotiators. Some speak better than others, and are more effective in litigation. Still others are just smarter, and can help their clients more than another attorney can.

Similarly, in the post-Internet real estate brokerage, where simply matching buyer to property is no longer seen as particularly valuable, real estate brokerage is a fairly commodity service (except at the extremes). Brokers help sellers list a house, market it using various techniques, price the house in order to move it, coordinate various activities with third parties (lawyers, inspectors, government, etc.), and promote the listing in various ways. For buyers, brokers do inventory searches, work with third parties, negotiate on their behalf, advise them on various subjects, and educate them about the real estate process, about the local market, and so on. Again, there are clearly brokers who are more talented than others, smarter, more informed, better educated, and so forth.

In both cases, the consumer is confronted with a conundrum: How do you select a professional for something of which you yourself have very limited knowledge, but the importance of which is extremely high? Pick the wrong lawyer, and you could end up going to jail. Pick the wrong realtor, and you could end up stuck for years in a house built on top of a toxic waste dump.

In both cases, consumers often end up going with either (a) brand names, (b) recommendations, or (c) gut feelings.

For all three — branding, recommendations, and emotional connection — there are enormous advantages to institutionalization for a service provider. In Part 1, I listed five things a real estate firm (“The Firm” hereafter) must do:

• Institutional CRM: The Killer App
• Systemic Brokerage: Learning from Bill Belichick
• Redefine the Profession: Shifting the Grounds of Competition
• Specialization for Domination
• Outsource Everything But Profit Centers

Three of the five are directly related to institutionalization: Customer Relationship Management, Systemic Brokerage, and Specialization. In this part, let us cover CRM: The Killer App.

[CAVEAT: Before we begin, I feel it is imperative to stress once again that in real estate -- as in law, or any professional service -- the commoditization of the service and therefore the institutional advantage fades. Meaning, if you absolutely MUST have the best criminal defense attorney for your death-penalty trial, you really won't care whether he's with Big Law Firm or a solo practitioner. If your company is involved in some ridiculously complicated international tax case, you are going to seek out the absolute best specialist -- institution be damned. Same with real estate. If you're trying to list a $50 million condo, there just aren't that many people who can service your needs -- finding buyers for a $50m house is in and of itself a valuable service. Traditional "transactional" brokerage based entirely on personal relationships may be the best solution when you're in an extreme situation.

These posts are not intended to address the exceptional cases. They are, rather, intended to discuss the vast majority of non-exceptional brokerage.] Read the rest of this entry »

Georg Wilhelm Friedrich Hegel

It must be zeitgeist, a change in the real estate weltanschauung. I wrote a long post back in March of 2008 having a conversation with Mike Farmer on his original Biz 2.0 post on the Bloodhound Blog. He then responded with some additional thoughts. I had a 1500 word draft that wasn’t even halfway finished, then life got really busy.

Fast forward to Inman Connect SF. I’m having lunch with Joseph Ferrara of Sellsius fame, who is also an attorney, and I say to him, “You know, Joe, I’ve been thinking alot about brokerage business models — why couldn’t it replicate how law firms work?” Joe and I talk about this for a pleasant half hour or so. I end up talking to people about the idea of the “Bill Belichick Brokerage” (more on that later). Then I get back home and I see these two great posts by Sean Purcell on Bloodhound Blog on this very topic: Disbrokeration and Super-Teams.

There’s something in the air.

In any case, Sean’s posts are worth reading in full. Disbrokeration strikes me as a decent review of what’s wrong with the brokerage industry today — some of those weaknesses are being revealed by the impact of technology. In Super-Teams, Sean lays out his vision:

Our Goal Model Defined
Yes, greed must be accounted for if we are to design a blueprint for the industry as a whole. Even more importantly, we must acknowledge the premier ingredient in creating real estate success: lead generation. The broker is no longer germane. The ability to create leads is THE most important factor and defines the primary actors in the model that will take us forward. But we are looking for more. If we wish to create a model for the future, let’s charge it with an even higher level of responsibility. Let’s create a model that also rids the industry of loafers and under performing “shoe salesmen“. Let’s create a model that sustains its growth by success rather than law. Let’s create a model that generates its own need and reward for education. Let’s create a model that allows any to enter, but demands dedication and professionalism for success. Let’s create a model without help from rigged tax laws and a “loose” interpretation of independent contractors. Finally, and most important to universal portability, let’s create a model that is achievable now and with our current skill sets. The Basic Real Estate Team model fails right from the beginning. It takes into account almost none of our needs and few of our desires. What about Super Teams?

Super Teams
They look like this: one or possibly two agents are the Team Leaders; they are the Rain Makers (RMs). Beyond the RMs there may be nothing more than a part time administrator; or there may be multiple buyers’ agents, listing agents, lead coordinators, customer service managers, marketing directors and so on. What makes them unique is the fact that they all work on the RMs’ team and directly for the RMs. They may bring in some business of their own (and the splits on that business may be higher) but the primary responsibility of those that work on the Super Team is to benefit the RMs. The entire team exists to enrich the RMs; to help them in their mayoral marketing – to help them become mayor for life. Super Teams do allow for change. If someone on the team decides they can be an RM too, they are free to start their own team (and well trained for it too). But for a great many, the idea of enjoying the profession of real estate without all the messy marketing and concerns over a commission lifestyle makes the Super Team a cozy home.

This model certainly accounts for the greed aspect and literally defines the importance of lead generation. It also quite adequately rids us of loafers and water cooler whiners (RM’s would have short patience for someone not pulling their weight). After that though, this model begins to fall off.

My initial thought was, “Didn’t I write something that is directly on point to this already?” My second thought was, “Oh yeah, but I never published it, did I?”

So here it is, the 1,500-word essay that is swiftly heading towards like 3,000 words. Read more at your peril. You have been warned. Read the rest of this entry »

Pat Kitano at Transparent Real Estate has an interesting post speculating on what the future of the real estate industry might look like, by taking a look-see at the finance world.

If one subscribes to the idea that a real estate transaction is basically matching capital with opportunity, and that the transactional process has become more transparent due to internet data, then it’s logical to see that any intermediary based transaction is also fair game.

Investment banking and venture capital is a relationship based business that matches investor bases, often institutional investors, with opportunities – stocks, bonds, M&A, start ups, etc. Like any other lucrative business model, maintaining the mystique of “high finance” and managing deals behind the scenes keeps power contained within the select few who live on Park Avenue or in Woodside.

Read the whole thing.

I think Kitano is on to something, but at the same time, his analysis doesn’t work for me. He essentially ignores what may be the most important element, either in real estate or in high finance: people.

For example, he believes that finance — whether venture capital or investment banking — is just a matter of matching capital with opportunity. Stripped to its bare essentials, that would make sense. Except that you could also say that automobiles are about getting from point A to point B. Or that sex is about combining genetic materials for the propagation of the species.

While true, in a reductive sense, once you inject people into the equation, the story changes dramatically.

Entrepreneurs don’t select VC’s simply because they offer the best term sheet. TheFunded.com, the site that Kitano mentions, is not a NASDAQ for startups matching bid-ask prices for investment — the message boards are filled with human-on-human interaction stories. Investment banking may be matching capital to need at its core, but as Jonathan Knee of The Accidental Investment Banker posits in his book, there is an enormous human element to that business as well.

Knee, a former managing director at Goldman Sachs and Morgan Stanley, talks on and on at length about how the investment banking community has lost its way, how it has abandoned the traditions of client service in search of the next kill. He seems to believe that at the heart of investment banking is being a trusted advisor to the CEO’s and CFO’s — men and women who are powerful, but lonely because of their power. Surrounded by asskissers and yes-men, these executives need someone who understands their business and isn’t afraid to tell them what they need to hear, a business confidante or sorts.

Knee left the big Wall Street banks and joined a boutique firm that specializes in the kind of handholding services that he believes clients need.

That stands in stark contrast to the future that Kitano is describing:

Now that the jig is up, investment banks need to prove another business model for 2008+, but like many of the transactional industries disintermediated by the internet – travel, real estate – the new reality will be lower fee structures distributed among more players who can provide services that were once the sole province of investment banks. For example, Kessler posits that new players will be consolidated financial powerhouses with the capital strength to provide a continuum of financial services – think Goldman Sachs merged with Citigroup.

Kitano and Kessler both seem to think that the future of investment banking will be some sort of a financial Super Wal-Mart. Presumably, for real estate, that means the future will be some sort of a real estate One-Stop-Shopping combining brokerage, buyer agency, mortgage, appraisal, title, legal, moving, home maintenance, and Home Depot to boot.

I don’t think so.

If anything, I foresee a future that splits sharply, just as retail has done. On the one hand, you’ll have the low-cost Wal-Mart types that competes on the basis of one-stop convenience combined with pricing power. Frankly, the various FSBO type companies coming up are shaping up to be these. Low-service, low-prices, low-interaction. That’s one model, and lies at the heart of Kitano’s new model for real estate.

Thing is, I just don’t believe these will be the dominant model for real estate, anymore than I believe the Super Goldman Citibank Dean Witter will be the dominant model for investment banking.

Investment banking — the buying and selling of companies, and the locating of massive amounts of capital — isn’t exactly picking up the groceries. It’s one of the most difficult, traumatic, and life-changing events in a company’s lifecycle. If you’re the CEO, do you really want to go with the lowest bidder on something like that? That’s like selecting your brain surgeon on the basis of price only. I believe investment bankers get chosen on the basis of trust. I believe the successful investment bankers of the future will go smaller and more focused, instead of bigger and more diversified.
Similarly, buying and selling a home isn’t picking out the latest CD or pair of shoes. It’s one of the most important, financially significant, and traumatic experiences a family goes through. The disconnect today isn’t that capital-finding-opportunity has been disintermediated by the Internet. The disconnect today is that the person the family turns to for advice and counsel doesn’t care. The real estate agent looks at the family as just another deal. Too many of them pretend to give a crap, but really, all they’re thinking about is the commission check. Buyers and sellers are just wallets with legs to far too many Realtors.
And that insincerity shines through in everything these brokers do.

That is what is wrong with VC’s, with investment bankers, and with Realtors: they are supposed to be selected on the basis of trust, but they do things to make sure that they are not trustworthy. Conflict of interest is so rampant in all three industries that lawyers are getting verrrrry interested in them. Mercenary behavior is the norm, not the exception.

No wonder the customers are looking to disintermediate, and boil things down to capital-matching-need. If you’ve got to deal with mercenary scumbags who only see you as a pile of cash, wouldn’t you want to minimize what you have to pay these hyenas? I would.

But here’s the bright side: If you actually found someone who is trustworthy, who is professional, who is an expert, and who actually gives a crap about you, would you really mind paying them whatever the cost for the most important financial transaction of your life? I don’t think so.

If an investment banker can really earn the client’s trust, disavow the mercenary behavior, would the client — who is buying a $10 billion competitor — really haggle over a few million here or there? I just don’t believe they will. I think those clients will gladly sign the check over knowing that they didn’t get conned, didn’t get snowjobbed, and got someone’s honest, objective, professional, best-effort assistance.

The same goes for real estate. 6% of the sale is a rather large sum of money. I would pay it without hesitation if I really felt that the agent representing me did so with no conflict, with forthright honesty, and with genuine caring about me and my family. If she really worked for me, to advance my interests, did the homework and the research, and knew the market, and knew her stuff, and got me what I think is the best price possible for my house… I’d sign that check without hesitation. I hesitate only because I don’t believe she did any of those things.

Why doesn’t the real estate industry try a much older idea: actual, fiduciary client service. Realtors talk the talk, but then try their damnedest to get ‘both sides of the deal’. Come on now!

Maybe the business model of real estate is just broken. Maybe the buyer agents need to be completely separated from sell-side brokers. Maybe both need to be paid a salary to encourage professionalism instead of mercenary hunt-and-kill mindset. Maybe the regulations surrounding Realtors need to be toughened up a bunch, and the equivalent of the Bar Exam in law needs to be instituted.

But whatever the solution, I’m convinced that at the heart of any major transaction — whether investment banking or buying a home — is the human being.

Get more human. That seems like the ‘new’ model for real estate to me.

-rsh