Why Free Software Is Best for Real Estate

You know the adage, "If you're not paying for it, you are not the customer, you are the product being sold!" Possibly, the genius author of this quote is a guy named Andrew Lewis on Twitter who posted it on September 13, 2010. Fact checking this was a bit of a rabbit's hole. Andrew is a Canadian with 387 followers. Regardless, I am happy to give him credit until the real genius teaches Google the truth.

The point is the real estate industry has wrangled with this issue for a long time. The barter from software companies is a trade of data about properties, real estate agents, real estate brokers, their client information and all the behavioral data they can collect for software. The real problem with this barter is that it is not very transparent. Generally, the barter that exchanges data for software is outlined in the "Terms of Use" or "Privacy Policy" of a software provider, with the provision that they reserve the right to change those terms or policies at any time.

We have written many articles about Terms of Use, stemming from our review of the dangers of listing syndication. Generally, the default language on many property advertising websites is that the content (listing and contact information) that you provide will be displayed as "free advertising," but they retain the right to use the contributed information forever; also they repurpose it however they like, but you maintain all of the liability over the contributed content.

If you are shortsighted, you do not really care about the data—you just want to market and sell the property. If you have experience and vision, you understand that the data contributed by the broker or agent leads to the creation of multi-billion dollar media companies and data companies. Look at the largest companies in real estate: CoStar, Zillow Group, NewsCorp, CoreLogic, Black Knight – all data and media companies.

So... why is free good?

So far, it does not sound like the trade of data for advertising or software is a very good barter. The truth is, it was not always a good barter. However, thanks to the efforts of hardworking consultants and real estate data licensing lawyers, the leaky bucket of Terms of Use and Privacy Policy mistakes has been mostly plugged. If you want, check out this whitepaper from Silicon Valley based MLSListings to read the best practices around Privacy Policy.

California, along with most of Europe, has adopted laws that give the consumer the right to be forgotten. That is good news, but data licensing is a bit trickier. The laws around enforcing data licenses have a lot to do with the sovereignty of the data and copyright, which is not always clear unless you do the heavy lifting of creating copyrights and data sovereignty. The opaque nature of this issue makes the barter for free software interesting.

The real problem solved by free software in real estate is product adoption and overlapping distribution

Product adoption is a massive problem in real estate software site licenses at every point of distribution. Unless an agent is required to use software to get paid, it's unlikely that you will have high adoption. Moreover, because agents are independent contractors, there is very little that you can "require" an agent to do. Some systems, like the MLS service, enjoy the unique position of requiring that all agents use the MLS software (Clear Cooperation Policy). But even so, during the melt down of 2008, some MLSs reported that 25% to 50% of their subscribers had not logged in for more than a year.

Normal participation rates for software are in the 10-20% range, meaning that only 15% of agents who have access to software through their REALTOR association (national, state, local), franchise, MLS, network, brokerage or team will use the software. So, a $1 per seat site license to a 10,000 seat customer brings in $10k per month at a true cost per active user of $5-$10 per user, per month.

The primary cause of low adoption rates is overlapping distribution of competitive products. The same product is often offered to the agent through their association, franchise, MLS, network, broker, or other source. All these companies that serve the agent build their "value" through the tools they provide to help agents. To realize that value, they need to be differentiated – so each of those distributprs overlap on offering many types of the same software – like websites, CRM, CMA, marketing suite, etc. A RE/MAX agent in Los Angeles has access to websites from the local, state, national REALTOR associations, multiple options from the MLS, multiple options from the franchise, and an option from their broker. If they are a member of a team, they might have that option, too.

Freemium is perfect for real estate

The value that associations, franchises, MLSs, networks, brokers, and teams are trying to build with the offer of software solutions is sincere and effective. First of all, each of those distribution points must make the software available to everyone. eXp cannot recruit agents and tell them that they only get access to Inside Real Estate's kvCORE if they meet certain criteria. They must offer it to all eXp agents.

For decades of working in the industry, the champion of Freemium software was Russ Bergeron when he was the Chief Executive Officer of SoCAL MLS. They structured tight data licensing terms that only allowed the data to be used for the purpose of serving the agent. Dozens of software providers flocked to SoCAL MLS to gain access to their 60,000-agent marketplace. SoCAL MLS developed the most comprehensive suite of software services for agents for free, and shared revenue when agents upgraded to the premium version of the software. It was a real win-win. The Houston Association of REALTORS® made the maverick decision to offer core and premium services with great success. Many brokers have done the same by offering a basic set of software, with an upgrade path to premium products.

When to switch from free to paid?

It is difficult to know when you switch from a free product to paying the upgrade fee for all agents. The calculus considers more than just adoption; the character of the vendor, customer service, and cost are additional key elements to consider. If you are large and well-funded like Compass, rather than license a CRM like Contactually, you acquire the company – but this option is limited to a few companies. Perhaps the best path is not offering a single product, but offering variety.

Variety vs. site license

One of the key issues with a site license is that you are stuck in a contract with a company that delivers operational software which keeps your business running. For the most part, software is stable today and you do not suffer long outages. Many companies ran redundant systems in the old days when software outages were common. The bigger concern today is the disruption to the business if the software company gets sold. The industry freaked out when Zillow acquired dotloop, when Compass acquired Contactually, or when RE/MAX acquired booj, and so on. When you have all your eggs in one basket, and the company holding that basket gets sold to a person that you have uncertainties about, it is a huge distraction.

MLSs have been proactive in offering system of choice. This is a dual benefit of giving agents a variety of options without undertaking the associated risks of being dependent on a single vendor. System of choice adds complexity to support and training, but the increased costs are marginal. Generally, agents use one of the choices and not multiple choices. You only pay for the number of actual users each month, so you do not pay for users that do not log in. In some cases, this has reduced costs for MLSs who have "ghost" agents who never log in but pay annual MLS fees – and there are lots of those in every market.

Next steps

As you can see, this is a complex issue that requires a lot of research and strategy to get right. WAV Group starts the process with an agent-first perspective. When you know the products used by every agent regardless of source – association, MLS, franchise, broker, self-paid, etc. – then you can visualize the roadmap for free vs. premium.

We like to use the terms "vitamins" and "pain killers." Pain killers are services that the agent must have; vitamins are nice to have. Honestly, with the few exceptions of a few dozen of our clients, I doubt that anyone is collecting this information. Some brokers even extend the research to their key competitors to make sure that their "value" proposition is right for recruiting.

Marilyn Wilson, David Gumpper, and Victor Lund are all specialists at helping you get your technology offerings right. Reach out if you would like to discuss a project. When the market is sagging, it's a great time to reevaluate your strategy.

To view the original article, visit the WAV Group blog.