I put a premium on making things happen and getting things done. If I compare a bunch of B+ deal that I can actually get done vs. an A+ deal that doesn’t close guess which one I prefer?

This is a philosophy that I’ve learned over time, and one that doesn’t really jive too well with my background as an Army officer and my academic training as an engineer – two disciplines where finding the right solution is pretty darn important. So this is something that I have to work at.

This extends to the way that I deal with people. Real estate is a people business. Yeah there’s financing, and strategies and technical know-how, but at the end of the day it’s all about you and the person sitting across the table from you – whether she’s a contractor, a Realtor, or a buyer.

So I’m rarely thinking about cutting the best deal I can. I focus on cutting a good deal; one that I’m satisfied with, which gives me a good return and one which builds the relationship. A good relationship today will yield more good deals tomorrow.

Loyalty is important to me, and that is a value I try to communicate through my actions. Case in point - when I have a maintenance issue that I have to deal with here’s what I like to do: I call the contractor and tell him to head over to 123 Elm Street and take care of it, then send me the bill. No bid. Just fix it.

Now I certainly can’t always do this because many contractors are evil and dishonest (sorry if I offend anyone, but this is a statement of fact.) But I can do this with one particular contractor that I work with on a regular basis. I trust him, he trusts me, and we have a symbiotic relationship – this is a relationship that I value like gold. I know he’s not going to rip me off because he knows I’ll be coming back – he values the repeat business. And he knows I will treat him fairly, because he knows that our arrangement helps me manage my life – I value the ease and convenience. We both value the relationship and we both take care of it. Honesty. Trust. Case closed.

Reciprocal, symbiotic relationships don’t grow on trees and they don’t happen overnight. I always think of those hippos on the Discover Channel with the little birds perched in their wide open mouths. A real win-win deal: the hippo gets clean gums and the little bird gets an easy, risk-free meal of leeches and whatever else hippos end up getting stuck between their teeth. Kind of a disgusting analogy, when you really think about it.  Anyway, what you don’t want is to realize that you’re more like one of those whale sharks that has a bunch of blood sucking remoras attached to his underside; the remoras get a free meal and free transportation to boot, but the whale shark gets jack.

So relationships are something you have to keep reevaluating; make sure you're getting what you think you're getting. 

A few days ago I wrote a post about inefficiencies in the real estate industry, and how most investors who sell a home using a Realtor will end up overpaying if they pay a five or six percent commission.

I wrote a similar post over at ActiveRain, a real estate network populated primarily by Realtors. A fairly interesting dialogue ensued, but overall I felt about as welcome as Don Imus at a rap concert.

But no surprise there; ours isn’t an industry that embraces change. But some of the comments did illustrate the fact that working with Realtors is an important topic for real estate investors, and it’s one that’s worth spending a few minutes considering.

Just to set the record straight: I’m a fan of Realtors. The good ones are part financial analyst, part industry specialist, with a healthy dollop of psychologist in the mix. There are a couple of Realtors out there in blogland who write particularly good copy for real estate investors – particularly Jeff Brown and Chris Lengquist (Jeff might be a little in-your-face for sensitive readers; make sure you bring your sense of humor).

But, ironically, having these guys around can be a little dangerous – especially for new investors. Is it because they give bad advice. No – they give great advice – and that’s just the point. It’s a fair bet that the Realtor that gave you that magnet advertisement that’s stuck to your refrigerator right now is billing himself as an investment specialist too; but the chances are slim to none that he has the experience or background that Jeff and Chris have. Don’t be fooled; your chances of finding a Jeff or a Chris in the real world: slim to none.

So: what’s an investor to do? Well you gotta know what to expect, so here’s four things that I think you should keep in mind…

• Realtors help you get deals done. The vast majority of investors – yours truly included – are part time investors. You invest in real estate to diversify your investments, earn a superior rate of return, and secure your future – but you have a day job too. There will be times that if you try to do everything yourself you either won’t get the deal done, or you won’t run all of the traps and end up making a mistake. Here’s my analogy: I can put a tile floor in myself – but this is work that I tend to outsource. Getting help will assist you in making things happen. Hire one when you need to.
• Realtors won’t bring you deals. In my experience you’ll never get a Realtor to bring you a good deal. That’s just not the way it works. A Realtor with the ability to spot a good deal will take it for herself when one comes along. So by definition if a Realtor hands you an opportunity it means either a) she doesn’t know a good deal when she sees one or b) she does know a good deal when she sees one and this one ain’t. But hey, in her view a commission is a commission. Word to the wise: expect to find your own deals.
• A Realtor is unlikely to be able to give you good investing advice. But you should expect him to give you competent advice on buying and selling a house. I use a Realtor at times, and she doesn’t really know much about investing. And that’s ok with me; I’m not paying her to give me investing advice. I read some writers insist that investors should only work with Realtors who own real estate investments themselves, but that advice strikes me as a bit wrongheaded; you shouldn’t be depending on the person who’s going to bag a commission from your purchase/sale to give you advice on whether or not said purchase/sale is a good investment.
• Loyalty, loyalty, loyalty. Ours is a business of relationships, and creating a symbiotic, mutually beneficial relationship is one of the best investments that you can make. Your average homebuyer buys a home and sticks around a while. Your average investor buys a home, then buys another one, then buys another one. Create a relationship with your Realtor and show him that you value his services and it won’t take him long to figure out that you’ll be coming back – and there’s no way to get a service provider’s undivided attention than being a repeat customer.

The four points above apply to everyone. Here’s another couple for those of you with a few deals under your belt.

• Take charge of the negotiation. You should be in the driver’s seat, not your Realtor. Call your own shots, drive the negotiation tactics, set your own pricing strategy. Your Realtor should be there to advise and execute, not to decide.
• Cut costs when you sell. That means FSBO, flat fee, or deep discount. In the past I’ve argued that the buyer bears part of the sales commission via an increased sales price, but when you’re the seller there’s no doubt that this hits you in the pocketbook. Once you’re confident about handling the deal yourself an extra 6% in your pocket at closing is no small deal.

There’s no getting around it: there’s simply too many real estate agents out there.

I wrote in a recent post that real estate investors who work with a Realtor will generally end up overpaying for their services; if you pay a $12,000 commission check it’s highly unlikely that you’ve actually gotten $12,000 worth of time or effort out of the Realtor that supported you. And note that a healthy portion of that fee will be passed directly to the buyer – the idea that “the buyer doesn’t pay a commission” is a myth.

This isn’t to suggest, however, that agents are greedy or that they’re raking in the big bucks. Average Realtor income, according to the National Association of Realtors, is under $50,000. This is more than the average elementary school teacher but less than a financial service representative or an engineer.

Buyers and sellers pay too much in commission but many agents still struggle. What gives? The answer is simple too many real estate agents.  

But there is an odd phenomenon at work here. Usually when there is a glut of supply for services the price for those services drops accordingly. Supply and demand reset that price accordingly, delivering better value for the consumer at the new equilibrium point. However, in this case the National Association of Realtors has done everything in its power to resist the market’s natural ability to find equilibrium: everything from attempting to monopolize MLS data to doggedly defending the current commission structure to fighting to keep the banks out of the game.

I lived in Bogotá Colombia for three years. Bogotá is a beautiful city with great people and I enjoyed my time there. But the traffic is awful – mainly because there are too many taxi cabs on the roads. And the taxi drivers have to work morning, noon and night just to scrape by because there is so much competition – and that just keeps everyone on the road more hours (using more gasoline) which in turn creates more completion...and so on and so on.

The same thing is happening here in our real estate industry. As the market booms more and more agents are pulled into the industry chasing the same number of 6% commissions. And the industry’s leadership clings to the status quo instead of encouraging new business models that will evolve with the consumer’s needs.

:: So what does this mean for investors?

First of all a new business model is coming. Will it be Redfin? This question makes me think of a now forgotten company who’s stock I bought back during the dot com boom. This particular company was working on a groundbreaking new music format called MP3. I saw that this technology was going to be big, but unfortunately I bet on the wrong horse. Apple won and the stock I bought tanked.

So...has Redfin picked the right model? I think so. But will they win the race? Who knows – but the odds are against them. If I were a betting man I’d put my money on someone coming out of left field. Citibank? Google?

But for now: no investor should be paying 6% to sell a house. New options are already popping up – I'll talk about this in a future post.

Update - 11 July:  I posted this topic over on Active Rain, a blogging network populated primarily by Realtors.  I got a pretty lively reaction...

Three academics from Northwestern University have just published a study comparing for-sale-by-owner sellers with sellers who used a Realtor. The researchers started with the hypothesis that a good Realtor might make up some of the commission that he or she is paid by helping the seller to get a better outcome – either in terms of higher price or a quicker sale.

They tested this by evaluating sales in Madison Wisconsin from 1998 to 2004. The dominance of a single local FSBO website makes Madison an ideal location to compare results – working with the local MLS and www.fsbomadison.com the authors of the study were able to access nearly every sale that occurred during the period.

The results are surprising: the average sale price of FSBO homes is higher than the average price of homes sold by a Realtor.

This directly contradicts a claim made by the National Association of Realtors that using a Realtor results in a 16 percent increase in average sales price. The NAR does not detail their methodology or the assumptions that they used to reach this number.

The Northwestern University study, however, is meticulous and transparent. The authors discuss the consistency of their data sets, study methodology, and their approach to resolving biases in the data sets.

But…the gig isn’t up for Realtors…yet.

1. The study was conducted in a relatively special place – Madison, Wisconsin – a region which has, for reasons not discussed in the study, developed a special culture in which FSBO sales have captured a significant percentage of the market. This fact, in itself, might skew the results. FSBO penetration hasn’t reached these levels in most other markets, and an FSBO seller is more likely to be viewed as an oddball, and that matters.

2. There’s a self-selecting factor which the study doesn’t adequately address. Negotiating a sale isn’t for everyone. Logic dictates that a) sellers who are good negotiators are more likely to get a higher price whether or not they use a Realtor and, b) sellers who are good negotiations are more likely, on average, to sell FSBO. The study addresses this, but not to my satisfaction (if anyone cares about this you can ask in the comments…)

FSBO conditions haven’t spread nationwide, and FSBO isn’t for everyone. The later condition won’t change, but the first one will.

So…who cares? What does this mean to me?

You’re an investor and this trend will impact you. Thoughtful studies like this one will continue to demonstrate that paying a Realtor $18,000 to sell your $300,000 house isn’t good value. FSBO listings will proliferate, and that’s a good thing for the investor market. A commission is a classic transaction cost, and transaction costs decrease liquidity and pull profit out of every trade, both for the buyer and the seller.

Realtors, however, will continue to be an important part of your business as a real estate investor. To respond to market pressures the real estate industry will have to start offering a suite of products that meet your needs and price them accordingly. As an investor you don’t need help finding your dream home, you don’t need a negotiator, and you don’t need to have your hand held through the transaction. What you do need is a competent business partner to supervise the paperwork drill and help make sure the deal closes efficiently.

That’s not $18 thousand worth of service that you’re asking for. Realtors who understand this and tailor their offerings and pricing will have investors beating a path to their doors

Recently I was looking for a new tenant for a single family home that was going to be vacant in about a month’s time. The house is in the back of a quiet cul-de-sac, so I spoke to a neighbor a couple of houses over on a busy corner and paid her $20 bucks to put a “For Rent” sign with my phone number in her front yard.

It’s a popular area so I got lots of calls. Some of them, of course, were from Realtors who wanted to help me lease the house. I like developing relationships with Realtors (as I’ll explain below) so I agreed to meet one. She rolled up on Saturday afternoon in a massive shiny SUV with a magnetized sign featuring a large glossy portrait of her smiling face.

She took a look at the place, declared that she thought she could help me, and explained that the charge would be one month’s rent plus a $150 listing fee. And free of charge she offered me lots of advice, like check the applicant’s credit and make sure the property is clean before you show it and call the applicant’s references before signing a contract.

She called me the following Tuesday to see if I was ready to list the property with her, but by then I already had it leased out myself.  This particular unit rented for $1,250/month, so I saved myself a total of $1,400.  Well, $1,380, including the $20 bucks I gave the neighbor to allow me to put the sign up. 

Realtors can offer a lot of value to investors…

…it’s just that your needs are different than the needs of standard consumers.

Bottom line: your needs, as an investor, are different than Joe Homebuyer’s needs.

There are three ways that Realtors will tend to react to this:

• Offer the same package of “value” that they offer to the general consumer and insist that you pay what the general consumer pays. You’ll get the “my services are worth it” angle from these Realtors. But that’s like arguing that a circular saw is worth fifty bucks: it might be worth that and more, but if the job calls for a drill then you’re paying for the wrong tool. Verdict: wrong answer.
• Offer you the “investor services” that fit the value drivers on the right hand side of the table above, but insist that you pay the same rate that they charge for the suite of services on the left. This is an “entitlement” mentality; the agent feels that his fee isn’t for service rendered, it’s for having his expertise supporting your deal. If you’re an investor this isn’t reasoning that you should accept. You should pay for the time and effort that agent puts into the deal; if you’re doing much of the heavy lifting then you shouldn’t pay the same as the next guy who buys a property once every other decade and needs his hand held through the entire transaction. Verdict: wrong answer.

• Offer you the “investor services” that fit the value drivers on the right hand side of the table above, and charge you appropriately. This…by process of elimination…is the “right answer.”

So, what does “charge you appropriately” mean? You’re the negotiator and so is your Realtor – sit down and work it out!

In January I announced a resolution for the New Year to sell a high-end property that had accumulated some equity and reinvest in a multi-family that generates better income. 

Well the first part of that mission has been accomplished; I sold the property, a three-story townhouse loft.  And what does that have to do with the headline on this post?  Well it highlights a couple of things that investors often overlook when screening for tenants.

1 :: Your tenant is a potential buyer.  I ended up making this sale to the tenant who was in the property.  This has some major advantages. 

Easier and cheaper for you :: No vacancy period.  No showings.  And no real estate agent – which means no commission. 

Easier and cheaper for the buyer :: No relocation costs, no inconvenience of moving

When the stars line up like this it tends to make it easier for the two parties to negotiate mutually beneficial terms.  So when you’re screening your tenants give extra points to applicants who might be potential buyers.  Note: (I’m not a rent to own fan – I’ll talk about this an another post soon.)

2 :: If you’re using a real estate agent to find a tenant make sure there’s not a clause in the contract which stipulates that she can come back and demand a commission in the tenant decides to buy the place from you in a year or two.  This is a flat non-starter for me.  If your agent demands that this is included then find someone else.  Going rate for placing a tenant here in Houston is one month’s rent – fair enough – but I don’t expect to pay the agent a big windfall in a year or two if I manage to build a relationship with the tenant and later negotiate a sale. 

Note:  as an investor you want to work with an agent who values your repeat business, not one who is trying to squeeze every cent out of each deal that you do.  Got a good agent (like I do)? Well share and let other investors know. 

The real estate industry slowly but surely continues it’s march towards a new, yet-to-be-defined future state – driven by technology, new players, new business models, and ever changing customer expectations.  Against this backdrop the National Association of REALTORS® continues it’s quest to block the freight train of progress, this time lauding H.R. 111, the deceptively titled Community Choice in Real Estate Act which was introduced Thursday by Congressmen Paul Kanjorski (D-PA) and Ken Calvert (R-CA).

In a statement released today, Pat Vredevoogd Combs, the NAR Presidents, states:

• Realtors® provide extensive personal attention to consumers during the lengthy process of buying a home.  It would be difficult for banks to provide that type of counsel because of conflicts with their other business objectives.

Wow, where to start?  First, banks already offer advice on a vast array of services, and they do this well because of the brutal competition between them.  Sure, it’s probable that some banks will do a shabby job of representing real estate customers – and these are the banks who won’t manage to make any money doing it.  The phrase “extensive personal attention” is buzzword filler.  The consumer will determine the standard, and whatever market player meets this standard will capture the business.  This is the very definition of competition.

More importantly, the banks will jump in if and when it's profitable to do so -  which means using synergies to pull cost out of the system and using this to compete with customers based on price (lower fees).  Beware an industry group who seeks legislation to keep a class of competitors out of the market in the name of… drum roll…competition. 

But perhaps I’m not being completely fair here.  It’s hard to knock the NAR for backing their friends Kanjorski and Calvert – after all this legislation is unambiguously a threat to Realtors®.  In corporate America “synergies” is a code word for “redundancies”.  This isn’t corporate America we’re talking about here, but the concept remains the same. 

The real problem, though, is that all of the arrows in the NAR’s quiver look kinda similar.  Storm clouds on the economic horizon?  Just send David Lereah out to tell everyone that everything looks rosy! .  Sales are down?  Proclaim that now is the perfect time to buy and sell a house!  .  New technology players offering new options?  Use your leverage to muscle ‘em out. 

Facing an evolving market with a brave face and a vision isn’t an easy thing, but 1.3 million Realtors® out there are waiting for some direction.  Bad idea.  Some regional associations are taking matters in their own hands, but there’s trouble on the horizon for the rest. 

So now that Zillow is officially in the listing business it’s the topic of the hour .  Some have compared Zillow.com with WebMD, a once promising startup with a now discredited business model.  In my opinion this isn't a good comparison - a doctor spends somewhere between 10 and 15 years in college, medical school, and residency before she can operate on you.  And the internet, no matter how good it gets, will never be able to remove your appendix. 

A much better comparison is with a stockbroker - a skilled profession that offers a more similar service.  The stockbroker profession hasn't been eliminated, but it has changed radically, and margins have plummeted.  I use a realtor, but I don't use a stockbroker.  I go online, log onto vanguard.com or etrade.com, check my stocks, read the research, buy, sell, and manage my own portfolio.  Ten years ago they told us this would be financial suicide - but now it's commonplace.

Remember E.F Hutton - the stock brokerage firm?  "My broker is E.F. Hutton...and E.F. Hutton says"...then everyone turns around and listens w/ rapt attention.  Hutton and their ilk sneered at the internet startups.  Financial suicide for foolish investors, they said.  Cheapskate clients...we don't want 'em.

Well, E.F. Hutton is gone.  Bankrupt.  People stopped listening, and they stopped paying those fat commissions.  Meanwhile, E*Trade, Ameritrade, Fidelity, Schwab, and the rest of the online guys survived the dot.com collapse and are churning and burning.  The point being that all competitive landscapes change...and market participants who don't go with the flow - those that stick to their guns with a religious fervor - are doomed to the dustbins of history. 

Has real estate gone that far?  No.  Not yet.  But it will if the response from the National Association of Realtors is simply to point out Zillow's flaws, insist that the public will always pay 6% commission to sell their house, and that technology isn't a threat. 

Six percent has been a rule of thumb that the National Association of Realtors has done everything in its power to protect (just as any industry - auto, energy, consumer products, whatever - will always try to protect its margins).   

Problem is: in the long run this strategy simply won’t work.  The New York Times  ran a great article on this. A quote from the article:  Traditional agents still firmly control the M.L.S., which allows all participating brokers, including Redfin, to view almost every home for sale in a particular area, even those being offered through competitors' agencies. But the typical 6 percent commission, paid out of the seller's proceeds and split between the seller's and buyer's agents, is under attack because, as economists note, it does not serve consumers well.

Disruptive technologies are notoriously hard to predict.  Zillow may be a flash in the pan.  But eventually – soon – something will come along that isn’t.  There are some stockbrokers and travel agents who survived the onslaught of e*trade, Ameritrade, Orbit and Travelocety, et al – but many didn’t.  The ones that made it adapted found a niche where they added a special kind of value.  But the bread-and-butter business will soon go away. 

There’s an interesting post on the National Association of Realtor website in response to a recent Harris Poll that ranked real estate agents as the least prestigious of professions.  The reason for the disappointing placing, reasons the NAR, is that "real estate agent" was offered as an option in the multiple choice survey instead of Realtor ® .  The NAR reasons that a Realtor® is to real estate agents as Mercedes is to car. 

Some of you will have read Steven Levitt’s excellent book Freakanomics, a thought provoking read on diverse topics relating to economics and market forces.  I look at Levitt’s blog every now and then.  He has an interesting comment on the NAR argument above:  “While I guess you’re supposed to assume that a Mercedes is more trustworthy and downright better than a plain old Car, you could just as easily assume that, in the eyes of most people, it’s simply more expensive.” 

Note:  I fear that two professions that would most accurately describe me -  real estate investor and dot.com entrepreneur - would have limped in even lower than real estate agent had they been included in the survey.  Oh well.  But I used to be a Military Officer and that ranked pretty high...I'll take that as some consolation. 

The National Community Reinvestment Coalition (NCRC) has issued a complaint to the Federal Trade Commission (FTC) against Zillow.com.   NCRC alleges that zillow’s valuation methodology is flawed and places consumers at risk, particularly in low-income minority communities.

The NCRC complaint sites statistics on the accuracy of the valuation tool, quoting an MSN Money study that reported that zillow is accurate to ten percent only 29% of the time.  A more damaging accusation is that inaccuracies specifically target African American and Latino consumers – but notably no evidence is included to support this claim.    

A company like Zillow that is seeking innovative ways to provide data and information to the consumer is always going to be at risk for these types of claims.  Information is like any tool and it can be used or misused (a fact that we’re aware of here at equityscout.com.)  On their corporate blog Zillow.com’s president Lloyd Frink expresses disappointment that the NCRC sent their letter directly to the FTC without first opening a dialogue with Zillow.com. That, combined with the fact that the compalint does not offer any evidence for the damaging discrimination accusations, makes the whole issue feel a bit like opportunism. 

The Zestimate tool (Zillow.com’s evaluation model) is not an appraisal, and therefore is not accurate enough to be the sole factor in making any financial decision.  By their own estimate, the median margin of error is 7.2 percent, and 38 percent of estimates fall outside of 10% of the actual sale price.  But having access to a national database of price comparisons, tax records, and other sales data is unambiguously useful for consumers wishing to inform themselves before making a purchase.

Zillow.com got around 3.5 million hits last month according to the New York Times – and being popular makes you a target.  It will be interesting to see how the company handles this issue. 

Ok - I know that rule #1 of blogging is to keep it short - 250 words max.  But rules are made to be broken.  Here's some thoughts on a whitepaper we're working on here at EquityScout.com.  Skip this one if you're looking for a short read...

For years Real Estate professionals are heard cries that the sky is falling – that the impending bursting of the real estate bubble along with advances in technology would soon make the profession obsolete.  But it’s been easy enough to disregard these predictions as alarmist exaggeration while the market zoomed along in the longest bull market in recent history. 

Now as we enter the fourth quarter of 2004 the picture is looking a bit less rosy.  According to recent market statistics prices are starting to stagnate in some areas, falling in other.  Houses are staying on the market longer as inventory levels hit record highs.  There are a variety of factors that lead me to believe that some changes might be on the horizon…

The real estate industry is poised to enter a period of instability.

The real estate industry, particular the customer-facing segment, exhibits a number of features that indicate that it is entering a period of transition:

• Large number of participants (estimated 1,275,000 registered Realtors® nationwide with around 10,000 joining the ranks every year.)
• Increasingly savvy customer base as consumers increase their understanding of the real estate markets and expect more from service providers.
• New market entrants on the technology front.

The three factors above are shifting influence towards the consumer and away from Realtors® and other real estate professionals.  This is a technology driven shift, and in the short term this will present a major challenge to the status quo 6% commission that agents earn on sales. 

 How does technology impact industries?

Technological innovation is nothing new, but the rapid rate at which new technological products and ideas appeared in the 1990’s prompted new efforts to understand the phenomenon.  Perhaps the most quoted reference is Clayton M. Christensen’s The Innovator’s Dilemma, which coined the term “disruptive technology.”

A “disruptive technology” is one that causes a major structural reordering of an industry.  Most major technological innovations are not truly “disruptive”.  Online retail is an illustrative example.  Destinations like Amazon.com have rocketed in popularity, but it’s now clear that traditional retailers are not headed for extinction.   In fact, online marketing has been embraced by the traditional segment as an enhancing strategy (example: barnesandnoble.com)

One the other hand, one doesn’t have to look far to find some technological innovations that truly have been disruptive.  Examples:

• The introduction and continual improvement of desktop computers revolutionized a variety of industries, from mainframe workstations to software design.
• The introduction and continual improvement of digital cameras impacted the entire photography industry.  Technology companies like Sony and Panasonic are capturing a major share of a market that was previously dominated by Cannon and Nikon.  Kodak has begun to discontinue some previously popular film-based product lines. 

In the two examples above, the structure of entire industries was permanently altered, long term strategies transformed, and the relative strength of market participants reordered. 

A number of industries are currently in a period of uncertainty as they go through technological shifts that may or may not be disruptive.  Examples:

• Online news outlets are threatening the structure of the newspaper industry.  The Economist magazine recently ran a feature “Who killed the newspaper?”  It remains to be seen what kind of impact this will have on the future of journalism. 
• Voice over Internet Protocol (VOIP) is challenging the telecommunications industry, and may permanently alter long-distance voice communication. 

…and most interestingly,

• The real estate industry is being challenged by a number of technologically-based innovations from companies as diverse as Craigslist, Zillow.com, Google, and a variety of for-sale-by-owner online solutions. 

 So what does this mean for the Real Estate industry?

Entrenched industries, by their very nature, tend to be slow to recognize and react to disruptive innovations when they arise.  Some factors to consider in the case of the real estate industry:

• The industry is made up of thousands of highly autonomous participants, with the National Association of Realtors (NAR) acting as a centralized but weak governing authority. 
• The information hierarchy is described as the progress from data (raw data), to information (processed data that answers a question), to knowledge (ability to apply information). 

• Within the traditional real estate industry, efforts to modernize, where they can be found, tend to focus on the data end of the information hierarchy (collecting leads, updating websites, digitizing contracts, etc.) 

These are the easiest challenges to undertake, however they will be the first to be assailed by new competitors, and they’re the services that Realtors® offer that consumers value least. 

NAR acknowledges that there is a gap to be bridged and challenges on the horizon, as evidenced by their commissioning of the 2006 Realtor® Technology Survey.  However, the same survey indicates a high level of complacency among Realtors® overall (although 86% of agents want MLS to expand technology tools, less than 40% were familiar with Zillow.com, a major emerging industry threat. 

If a major shift is eminent there is little that the industry as a whole can do to advert it.  However, individual participants can take steps to attempt to remain relevant.  (An example:  the emergence of digital photography pushed Polaroid into bankruptcy, but Kodak has thrived by using their position to move aggressively and early into designing and marketing digital cameras.  Witness also the major oil companies who are taking a position in renewable energy and biofuels refining.)

Market participants - companies, groups, partnerships, regional associations - need to recognize the threat that technology brings to their business model, move early and aggressively to preempt the threat by adopting technologies as necessary, and focus on shifting their value proposition away from the data end of the information hierarchy and towards the information/knowledge end.