Being out at Inman Connect last week, I had far more time than usual to think about the big picture—what are we doing? How is it different? What’s wrong with the current system? Several themes emerged from this thinking, and I don’t have time for all of them right now. So I will start with one...
Online real estate directs consumers toward less-good agents.
Think of the pool of local real estate agents as a pyramid, with the best agents at the top. They are experienced, knowledgeable, professional, and businesslike; they are an active part of a local community of other top agents. If you were the ultimate real estate insider, these are the agents with whom you would work.
They actually do help you sell homes for more, buy better homes for less and solve problems when they inevitably arise. In short, they really do all the things NAR says every Realtor does.
At the bottom are the opposite kind of agents: newbies, part-timers, outdated old-timers, low-volume, slow-volume, no-volume. Basically, they’ve got a license. Over 2.77 million people in the U.S. do—what are the chances that any particular one of them is really good at their job?
In between is everyone else—OK, average, and pretty-good agents who do their job and move buyers, sellers and homes through the system.
So there’s your pyramid, probably similar to that of any other field or occupation. Take doctors or architects or IT guys and the breakdown works the same way (though the ease of entry to real estate caused the bottom of our pyramid to swell between 2002 and 2006). In all cases, it’s pretty obvious who you want to work with, right? The question is just how you identify and find them.
The Internet was supposed to make this easier. When you have more information, you can make a better choice. This transparency has served consumers well for everything from stocks to concert tickets to schools to, yes, homes. But it is not working for real estate agents. There is very little objective data on real estate agents available to consumers.
Why can’t I quickly look up any agent’s recent deals on their broker’s web site? Or their MLS site? Why can’t I quickly get a list of who is doing the most business in a certain zip code? The reason is that most brokers are not in the consumer business, they are in the agent business. Their #1 goal is to get more agents (especially new ones) and not do anything that would annoy them and cause them to go elsewhere.
So they can’t do anything that would appear to direct consumers to their best agents at the expense of the rest, even if consumers might really appreciate it. That is too bad. But it gets worse...
Virtually all online models ultimately direct consumers to agents in the bottom half of our pyramid. Reread that last sentence again. It’s true, and you’ll see why.
In most brokerages, the agents at the top of our pyramid receive the highest splits from their broker—they keep the vast majority of their commissions. The agents towards the bottom might keep half. Agents at the top are far less likely to use the in-house mortgage and settlement services that are the lifeblood of most big brokers. Agents at the bottom are far more likely to routinely direct clients towards those profit centers.
In short, there is a financial disincentive to connect consumers with agents at the top. The broker can make an order of magnitude more by sending deals toward the bottom half.
I’ll come at it from one other angle. When brokers generate online “leads” through whatever means (their own site, online advertising, buying clicks, partnerships, etc.), they send those leads to a special team of agents trained to stay after them until they become a client (or get annoyed and stop answering the phone). But in exchange for the lead, the broker extracts a significant concession. In our experience, those agents keep only 25-35% of the commission. The broker keeps the rest.
Those numbers just don’t work for the agents at the top of our pyramid. So these special online lead teams tend to be made up of newer agents who are trying to break into the business. Now, some of these might be future pyramid-toppers; but most aren’t.
These stark financial realities are virtually inescapable for any online model, especially those that go through the brokers’ corporate office. So most online roads lead toward the bottom-half.
This is one reason Sawbuck’s model can really stand out. Sawbuck partners directly with other brokers’ best local agents. They keep the vast majority of their commissions, even after paying our referral fee. (Plus, we are doing a significant portion of the work for them.) So they are willing to work with us when most would never participate in their company’s online lead program.
And this keeps us out of the agent business. We can focus exclusively on being in the consumer business. That hyper-focus on consumers makes us different and is our only route to success.
