Editor’s note: Explore the future form and function of the real estate industry in the Inman News Roadmap to Recovery project. Click here for more details.
The following is the second part of an Inman News Q&A with Donald S. Teel is founder, president and CEO for ePartnerUSA.com, and editor and senior analyst for REALonomics (read Part 1 here):
Q: What technology trends will change the industry in the future?
A: We are going to see technology tributaries begin to merge into more single channels that combine the necessary property information and transaction components into new integrated packages that are marketed to consumers. We are close but we are not there yet. We have disjointed informational services that are too proprietary. We are already seeing, however, adoption by local associations of informational services such as paperless transaction-management platforms that are good for the consumer. We need to shove this train down the tracks a little faster by creating financial structures that will allow proprietary models to be used in a package of data standards.
The tools are all sitting there on the shelf. But we are engaged in a struggle over who controls the tools and which tools get used and which tools get thrown out. Again, we as an industry should be calling on ourselves to demand that NAR address the notion of standardizing and merging the best technologies we have into an evolving bundle that can include many players working on a common platform.
This approach would be the most significant technology trend we can adopt. We don’t necessarily need a new gadget or a new online social network. What we need to do is create a technology standard for the industry that allows us to attract and turn loose the great minds who can compete for a place at the table. This is what happened back in the days of IBM’s operating system and MS-DOS and Windows. The PC industry adopted standards. Our standards should be completely open-sourced so that the collaborative excellence available can emerge to create the best we have for the consumer.
Q: What skills will the real estate agent of the future require?
A: We have some cross-grain opinions on this subject. We understand the industry has typically used a hiring approach akin to a "come one, come all" approach. This worked very well in the broker-centric and agent-centric eras of the industry where many played the numbers game. It doesn’t work well in the consumer-centric era where numbers of agents mean little and expertise and precision mean everything. If we cling to this model it will continue to cause us problems.
There is a perception on the part of the consumer that our practitioners are too interested in commission income and not enough in the delivery of specific financial skill sets to the consumer. A few things come to mind. First, it’s our contention that we need "standards-based brokerage" that provides unequivocal consumer recourse in the event of faulty advice. This goes beyond the Code of Ethics to a higher level of managing risk — not for us but for our clients. We have done a good job of risk management for ourselves but not as well in the arena of risk management for consumers.
Secondly, we need mechanisms to control the labor force. There are too many of us. In 2006 there were roughly 2 million agents and 6 million transactions. That’s three transactions per agent. We should look at creating an industry of talent where the numbers are throttled so that profitability can return on an individual basis.
Thirdly, we will begin to insist upon a higher level of financial training that elevates us to consummate advisers who can take a transaction apart and put it together in a sort of worst-case performance actuary that starts with assumptions with respect to how the transaction’s capital asset will perform for the client. After nearly 25 years in the business, I can truthfully say that we are not strong in the financial consultation arena.
Many agents are not able to define the components of a mortgage for their client nor can they calculate the performance of real estate investment based on historical data. While some in the industry will argue "that’s not our job," we counter with "why not?" Despite RESPA, agents still recommend their "favorite" lender and in so doing tie themselves to the components of the mortgage used by the client to purchase property.
Q: How will real estate advertising dollars be spent in the future?
A: Very carefully!
On Dec. 8, the Tribune Co., owner of the Los Angeles Times, Chicago Tribune, The Sun of Baltimore, The Hartford Courant and about a half-dozen other newspapers announced it was filing bankruptcy due to $13 billion in debt. The Internet is destroying print media.
With the national decline of newspaper readership, the consumer is clearly telling us, "We don’t read the classifieds — we like craigslist, we use eBay — and we want to be entertained while in route to property research. So, give us multimedia and lots of visual and statistical detail in formats we understand and like, including an aerial photo of the neighborhood that shows us the alleys, the trashy little bar up the street and the interstate one-quarter mile away."
We should be looking at more video and better video that moves us beyond the real estate agent walking through a house talking while recording on his or her video camera. The industry, franchises and brokerage firms should be creating partnerships with production companies that can serve as a standard media platform for educating the consumer via visual presentation.
Once again, we are talking again about the consumer being empowered with not only more information but better delivery of higher-quality marketing that is truly educational.
Q: Will sales activity in your local housing market contract or expand in 2009? Will national sales activity contract or expand?
A: There is no doubt about it, with the exception of a few markets we will continue to contract in transaction count, dollar-volume sales, gross commission income and property values throughout 2009. The primary real estate market expansion will be seen in increased inventories.
There are absolutely no statistics that currently demonstrate to our satisfaction that we have hit bottom and are on the rise. We are going to have to grit our teeth and face the music. We are in this for another 12-36 months or perhaps longer.
Q: What will drive the expansion or contraction?
A: This requires a very fundamental answer. Any expansion that comes will only come following a decrease in housing inventories. Contraction is not being fueled by high interest rates and lower interest rates will not bring expansion.
Contraction is being fanned into flames by foreclosures and almost panic listing inventories. The $700 billion question, pun definitely intended, is, "What ingredient or set of ingredients will stimulate a decline in inventories?" We think it’s more than mortgage money and contains many psychological factors latent in our economy, such as personal debt and the lack of savings.
Expansion could and should be driven by the infusion of private capital coming to the table to buy up pre-foreclosures, foreclosures, distressed and REO properties in bundled packages. We are already seeing some activity of this sort.
We think further creative tinkering with the economy by Washington may bite us in the backside, creating a further languishing of the economy in general and the housing market in particular. Recent housing stimulus proposals by the National Association of Realtors are a marked improvement over its blanket endorsement of the $700 billion rescue plan, a plan that later proved to have nothing to do with a buy-up and resale of toxic subprime loans. After all, why would any investor want to buy bad loans? Investors want to buy good loans with above-market return-on-investment margins that allow their risk to be rewarded handsomely.
Donald S. Teel is founder, president and CEO for ePartnerUSA.com, and editor and senior analyst for REALonomics.
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