Digital Disruption Prepares to Strike Again

No less than five issues of this column in 2015 raised concerns and awareness regarding the continuing march of digital disruption across the industry's landscape. With that in mind, it is with mixed emotions that we start out 2016 with yet another example of how digital disruption has already—or will, over the short-term future—change virtually every aspect of the traditional real estate and transaction.

The would-be target of this report is a tradition that, while it has long been controversial within organized real estate and the overall marketplace, has over the past three years reached a state of almost open warfare within the agent ranks.

The object of all this attention is the longstanding, unwritten rule of the REALTOR® culture that an individual who has applied for membership, paid their dues and sworn to uphold the Code of Ethics is entitled to full faith and credit with respect to the real estate industry and marketplace. It then followed that no other REALTOR®, regardless of background, training or credentials would be discussed within the circle in terms that would suggest that they had any higher status or ranking than the newest recruit.

This tradition continues to play out in the industry's representation of itself to both consumers and the marketplace. Over the past few years, research conducted by such industry notables as Steve Murray of the Real Trends organization have established what everyone, including consumers, already knew—that being that only about 20 percent of REALTORS® (AKA, the counselors) ever reach levels of unquestionable expertise and skill while the remaining 80 percent live out their REALTOR® experience as facilitators.

This situation appeared to be acceptable to all, including American consumers, until the Internet enhanced technology and the real estate market crash of 2005 began to more dramatically demonstrate the true cost and pain of professional mediocrity. By 2007, with the increased incidence of foreclosures and short sales, real estate had actually become an intellectually challenging activity. By the beginning of this decade, a clear and compelling case had been made with respect to the damage caused by agents that don't commit the time, energy and intellect necessary to be a counselor.

Interestingly, the initial human cry was not raised by consumers but rather by the counselor sector itself who had discovered that unqualified agents were not only sabotaging significant numbers of would-be deals by lacking the knowledge necessary to properly represent their clients, but—perhaps even worse—were, through their incompetence, requiring the counselors to do the lion's share of the work to close the deal. Even worse, in some cases, they even caused high performance agents to compromise their professional standards as they leaned overboard to save transactions.

This situation first broke the silence barriers of the professional societies in 2012 when the counselors, totally disgusted by the non-productive and unprofessional behavior of the facilitators, decided that the only solution to the dilemma was to withhold listings from the MLS in a strategy that ultimately became known as "off MLS marketing." In some markets across the country, this practice impacted close to 30 percent of the marketplace. The refusal of organized real estate to either deal with the crisis or abandon its "headcount" philosophy raised additional hostility on the part of the counselors, causing damage that is still being felt at local levels.

The good news at that time was that the situation remained generally within the realm of the family. But now, even that refuge appears to be about ready to dissolve, forcing the industry come to grips with its longstanding "one size fits all" approach. The focus of this new concern is what some call the portal sector's "premium" agent programs.

A number of current industry and market factors are being credited with bringing about the premium agent phenomenon. Agent rating and ranking, long considered a major insider "no no" has become ubiquitous. A wide range of portals, alternative brokerages and websites are now providing consumers information regarding which agents perform and which not so much. The basis of agent performance has now gone far beyond basic production metrics into programs that measure skills such as communications, neighborhood familiarity, lifestyles and negotiation skills. Consider that the Consumer Financial Protection Bureau now routinely collects and publishes thousands of consumer comments and, yes, complaints, from consumers who have fallen victim to unqualified facilitator agents.

But perhaps even more impactive is the fact that over the past six months, the prevailing agent attitude about professionally interacting with one of the national portals has changed from abject rejection to close to enthusiastic acceptance. This change has been driven, in part, by the fact that more counselor agents have come to realize that portal leads, once seen as junk on a stick, have matured to become a significant professional opportunity. This change of status has, in turn, been driven by the fact that some portal leads are now being delivered with a number of very sophisticated tools that provide participating agents with greatly improved odds of closing on the lead.

The industry has now come to understand that the secret to the successful conversion of any lead, portal or otherwise, is competence and the ability to process the lead and assist the client correctly. The industry is increasingly aware of the fact that success in real estate is not about being lucky, or an agent's personality or about outfoxing the client, but rather it is all about "doing it right."

The events discussed above to this point would have been purely academic, as it has been for years, but for one additional factor. There is reason to believe that at some point in 2016, one or more of the programs promoting a "premium" agent status will undertake aggressive marketing efforts to finally break the golden bond in the consumer's mind and establish that there is, in fact, a premium agent and that failing to use this species can cause a very personal form of disruption.

While it is a matter of supposition with respect to the full ramifications and impact of this upcoming confrontation, some things are very clear. Consumers demanding the services of counselors over facilitators will cause untold disruption within the ranks of organized real estate at the very point in time it can least afford it. This disruption will continue within the brokerage sector, especially within those firms that are owned and most sensitive to publicity. One cannot help but wonder whether or not facilitators and counselors will be able to exist together in a fully transparent environment.

While the counselor agent will probably be the ultimate beneficiary of these circumstances, there will be some pain all around. Brokerage, association and MLS leaders would be wise to begin the solution discussion process. In the same vein, they would be wise not to build their solution around an attempt to deny or to distract their audience with trite and unfounded claims and counter arguments. This is the new world and lots of smart people have the ability to respond in very large ways. It is time to be really smart and competent.

To view the original article, visit the RECON Intelligence Services blog.