Sunday, June 30, 2024

Digitization and the Real Estate Professional

There is no denying that the role and purpose of a real estate professional has changed over the past five years. From advances in artificial intelligence, to the popularity of digital real estate, to the presence of large full service real estate companies in the market, like Zillow 2024, this market is very different from that of 2019. Add to this mix the weakening of real estate professional organizations, like the National Association of Realtors via the NAR settlement and it becomes even more apparent that the real estate service market is in a state of change. Given the current state of flux in the market, some have begun to question the role of a real estate professional. It has therefore become imperative that real estate professionals recognize their current competitive advantages in order to thrive.

Setting the Context

There has been a general movement in the United States toward the digitization of most tasks. Initially digitization dominated mundane tasks, such ordering and delivering food and products, but today it is not unusual for an entire real estate transactions to take place online, from the initial property showing, to the procurement of funds, to the contract signing and even the closing.

In tandem with increasing digitization, there has been a great deal of consolidation in the real estate service industry. Real estate sales, funding and data are now all dominated by large companies such as Coldwell Banker, Rocket Mortgage and Zillow. As these companies obtain larger portions of market share, they are able to mold both market practices and customer expectations. Under the banners of convenience, security and increased access and control for customers, these companies have pushed to digitize more aspects of real estate transactions. In service of this digitization, transactions have become more virtual and the mobile device has become the point of first contact for many customers and clients, replacing the role once played by many real estate professionals.

Another dimension to the growing digitization of real estate is the weaking of the largest lobby group of real estate professionals—NAR. The recent NAR settlement has not only served to severely limit the reach and influence of NAR, but it also shed light on how powerful the organization truly was prior. Leaving aside any opinions of the settlement, which are explored in other articles and podcast episodes on this blog, organizations like NAR, the National Association of Mortgage Broker, Mortgage Bankers Association and the various national appraiser organizations, serve to advocate for real estate industry standards and practices on behalf of real estate professionals. This advocacy served to temper some of the effects of the expanding digitization of the real estate industry, for better or worse. In the wake of the NAR settlement, however, these organizations find their influence greatly diminished.

Further adding to the increasing digitization of the real estate market is the increased development and use of AI. Predictive AI has been used by real estate companies for years. Its current uses include marketing, lead generation, valuation, and even virtual tours. Entire articles have been written about the uses of AI in the real estate industry and one may be coming soon to the Real Estate Think Tank, in the meantime, .addepto has a great article on real estate AI usages.  The net effects of these usages in the real estate market are targeted ads to potential customers, auto-populated property searches, auto-populated mortgage applications and higher quality lead generation. AI has given real estate professionals constant and direct access to customers and clients, whose preferences are aligned with the services they offer. For real estate consumers, AI offers higher levels of convenience, providing smoother and more seamless real estate transactions.

The Good, The Bad and The Ugly

Ostensibly, digitization and the three aforementioned factors in particular, have led to higher convenience, faster transactions and better customer service. These changes could facilitate greater transactions volumes and better customer retention for all real estate businesses. Since real estate is the quintessential low volume, high value business, in that most consumers do not transact multiple times a year and many may only engage once every few years, customer/client retention is very valuable. This type of progress can be valuable to all real estate professionals. Caution, however, must be taken that the uses of AI and the increasing consolidation of the real estate market players does not lead to more insidious uses of AI and technology. Darker side of AI usage includes such practices as price fixing, prejudicial practice, steering and consumer manipulation. In the past, real estate professional organizations served as a check to some of the more insidious tactics of the larger business in the industry. This was done by direct opposition to certain practices, but more frequently, these organizations created an environment in which smaller real estate businesses could survive and provide an alternative to the larger companies. This in no way suggests that these professional organizations sought to protect consumers, but their presence did serve as a check on the ills that typically accompany industry consolidation. As these professional organizations play a less influential role in the market going forward, special attention must be paid to the business practices of the larger companies in the real estate industry.

Digitization and Real Estate Professionals

Despite the changes brought about by digitization of the real estate industry, real estate professionals will continue to be in demand. This sustained demand comes primarily from two competitive advantages that professionals have over technology—relationship building and agency over the use of local information. These two abilities offer anyone with a career in real estate the ability to navigate the currently changing landscape in the face of increasing digitization.

Relationship Building

Real estate professionals offer the “human factor” to all their customers. No amount of digitization can replace the personability of a real estate professional. The interactions that customers and clients have with real estate professionals put them at ease and are responsive in real time. Consumers can develop a rapport with the professionals that serve them. These professionals can make adjustments quickly, without the trial-and-error process of AI algorithms. Above all, we still live in a time in which having a human face to associate with a company or transactions puts everyone at ease. It is this very humanity that leads consumers to connect with the real estate professionals that serve them and build relationships that benefit both parties and produce recurring business.

Agency Over Local Information

There is no disputing that AI is the most powerful tool that exists for data collection. Just about every action of every user on the Internet has been collected over the past few decades. AI, however, does not inherently understand how to apply the data it has collected in novel ways. This is where real estate professionals are invaluable—when presented with the abundance of data currently available on their customers, they can determine which data is relevant to their real estate needs. Furthermore, real estate professionals can readily find new applications for collected data and determine what other types of information is needed. Digitization, in fact, is a means to facilitate this process of applying data and should not be thought of as a way to replace real estate professionals in this regard.  Though digitization can make information like housing starts and property records more readily accessible, this data can only be put to use in an effective way by competent real estate professionals.

Digitization and Real Estate

Digitization, industry consolidation and automation are trends that are taking place across many industries and their presence in real estate is not unique. Real estate professionals, however, add real value to their industry and are essential to a world that is increasingly moving its transactions online and trending toward quicker, more seamless transactions. As the business world moves toward more convenience, the tradeoffs made to establish the convenience must be examined. For real estate professionals, this means that a facility with technology is key to survival, so that its limits and application can be known and harnessed.

It is important to clarify, that when real estate professionals are mentioned in this article, it does not simply refer to real estate salespeople and brokers. All professionals that work in real estate are included. This would include real estate securities professionals, attorneys, appraisers the whole host of other people who make up the real estate industry. In the face of increasing digitization, real estate practitioners must capitalize on their competitive advantages in order to grow.

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