The first thing I experienced after getting my real estate license was disappointment.
It was 2010. I had read the glossy prep books, or, more precisely, skimmed them with an eye on anything that might be turned into a test question. I had passed the online tests, proving that I had internalized the material, or at least that I could exhume it from the text in the amount of time provided.
I even spent a weekend stuck inside a Holiday Inn Express conference room for a test prep class. I still vividly remember the teacher with her Dolly Parton smile, hair-sprayed updo and shoulder pads. Her wiry frame would puff up as she would look nostalgically off into the distance as she talked about how she had sold a house for Fred Astaire. Or, on second thought, she might have just sold a house that was once owned by him. Her turtle of a husband would sit in the front row everyday, staring at her with the heartwarming and pitiful adoration of a puppy. I took the test, worried about being on the last question over an hour before the time limit was up. Did I skip something? Why is everyone else not done? After my results were in and my license was issued I headed straight to the local Realtor association. This is where the disappointment really set in.
One thing they don’t teach you in the fancy real estate textbooks is that the privileges provided to real estate agents (e.g., Multiple Listing Service access, standardized forms and lockbox codes) isn’t a right, but rather a service that must be paid for. This service is provided by the National Association of Realtors (NAR) and their local affiliates.
Back when I got my license I wasn’t sure that I wanted a full-time career in real estate. I was in the market to buy a house, so I thought I could save myself some fees and get some good experience by jumping through a few hoops. To my surprise, the Realtor association, in my case the SDAR, was not well suited for a casual agent. I just wanted access to the MLS and a few blank “Offer to Purchase Residential Property” forms. At the time, the forms were still available in print, but they were phasing them out in lieu of an online subscription based portal with a cute name, ZipForms. They were out of “Offer” forms, so I was told I would have to subscribe. All in all, I walked out of the SDAR office having paid over $500 for a one-year membership.
My disappointment didn’t peak until I got home, sat in front of my laptop and logged into the MLS. In preparation for the test and to familiarize myself with my local market, I had been spending a lot of time searching around on Redfin. After two months of pain-free browsing I just assumed that Redfin was a free, scaled down version of the MLS software. Within three seconds of signing into the official MLS website I realized that this was not the case.
Instead of being able to intuitively scroll around on a map and look at listings in various neighborhoods, I was prompted to type in the zip codes for the listing I was searching for. San Diego has 17 zip codes and they don’t have any recognizable order, so I found myself working with a post-it cheat sheet of zip codes permanently stuck to my computer screen. Not surprisingly, the monopolistic nature of having only one MLS service didn’t create a great environment for innovation. This left the door wide open for the changes that we have seen in the residential real estate industry.
There is not a real estate professional working today that won’t admit that technology has changed the way they do business in the last 5 years. The residential real estate market has already felt the intrusion of the tech world. Social media has become the new bench ad. Text blasts are less awkward substitutes for cold-calls. Even more impactful to agents and brokers, the MLS is no longer the only access point for current local market data. Many agents and brokers I talk to see this as a clear undermining of the power of being a licensed salesperson. They argue that when sites like Zillow and Redfin “scrape” data from the MLS and other sources they are often displaying an unverified listing which can be confusing to consumers.
Currently, a legal battle is being played out between Zillow and local multiple listing services to prohibit syndicating the market data. Realtors from San Diego and Denver brought the suit to stop companies like Zillow from republishing content that was intended for their clients only. Many industry experts think that sites like Zillow and Redfin are already too far established to be stopped at this point.
While residential real estate has already felt the effects of innovation, commercial real estate has been mostly insulated from adapting to change. One reason might be that there has been little reason to.
But some people are finding opportunity where others see doom. Some of the best residential agents I know drive clients to viewings with a tablet tuned to Redfin, in case the client sees a nearby listing that might be attractive. They say that because consumers are more informed they can spend more time networking and less time prospecting hot sheets for new listings.
While residential real estate has already felt the effects of innovation, commercial real estate has been mostly insulated from adapting to change. One reason might be that there has been little reason to. The average commercial real estate agent makes $90,000 a year, compared to $51,000 for residential agents. Plus, the professionals themselves are not prepared to change a lifetime worth of practice. The average age for a commercial agent is 60, whereas the average American worker is only 41. But, the inflow of venture money and innovative human capital seems to be changing this graying, relationship based industry.
“There are two types of tech emerging in commercial real estate. First, there is the technology that is bringing real estate into the modern business world,” says David Mandell, co-founder of PivotDesk, a commercial subleasing startup. “I can run my business from my phone, but up until recently, real estate professionals could not.” He is talking about companies like Hightower, a leasing management software that recently raised $13 million in a Series B funding round. Through this comprehensive tool, commercial lessors can manage their listing on multiple devices and advertise with an automated listing syndication.
While technology like Hightower is making life easier for commercial real estate professionals, it’s the second type of emerging real estate technology that stands to be a threat to their very existence. Mandell’s company, PivotDesk, falls into this second category. The kind that is “changing the way people use commercial real estate in general.” Running a previous startup, Mandell saw the agony in his CFO’s eyes when they had to let go of personnel, but were locked into a long-term lease, leaving a huge number of desks empty. “I asked the CFO if it would be helpful to rent the empty desks out to another company.” The CFO’s reply is still vivid in Mandell’s memory. “It would be great…but there is no f—ing way I have the time to do that!”
Now PivotDesk acts as a subleasing portal for 2,000+ companies, subleasing over 15,000 desks. Terms are month-to-month and companies have profiles “much like a dating app.” This shifts power from the property owners and their agents to the property lessors. If subletting becomes a viable way for business to supplement rent costs, then they will have an incentive to take long-term leases or to own the property themselves. Property owners would no longer be the only holders of the valuable commodity of office space. They will have to compete with companies renting out space on much more flexible terms.
Mandell says there are signs that the owners and their brokers are reluctantly adapting. “When we started it was 85/15 businesses to brokers advertising space through our service. Now the breakdown is closer to 60/40.”
“Knowing the right agent” used to be an advantage for lessors and lessees alike. Due to the relatively small amount of players, agents were able to use their relationships to find off-market properties by convincing an owner that a property was being underutilized or undervalued. In comes the sharing economy, with its transparent markets and filterable search engines. Through universally accessible leasing portals, property owners and businesses are increasingly able to find each other without the help or financial burden of an agent.
In the future, the true advantage might be “using the right platform.” There is much to be gained when businesses cluster geographically. Shared workspace exists due to this very fact. Exorbitant Palo Alto rents are also a testament to this principle. Mandell has seen proof of this — startups using PivotDesk have found partners and even venture funding from the companies with whom they shared space.
Even if the industry professionals are able to maintain their position as gatekeepers of space, they will no doubt find another advantage slip away due to a new global powerhouse: big data. “Real estate data is getting shared and transformed in more ways in the last couple of years than it ever has been previously.” Those are the words of Stefan Martinovic, founder of mapping startup Create. Create’s mission is to “organize building and property information, and empower stakeholders.” It does this with a slick 3-D mapping tool that is as fun to use as it is powerful. One click on a parcel unlocks comprehensive data like comparable sales and leasing prices, neighborhood vacancy rates, and construction cost projections.
“The expansion of The Freedom of Information Act and The DATA Act is forcing governments to expose all this info and make it a value-add to the community,” says Martinovic. “The question is, who is going to organize it for the public?” The local and national governments, not surprisingly, have been slow in providing a place for “public” data to be accessed. Up until now, CoStar has been the major player in commercial real estate data, providing reports and analytics to commercial real estate professionals since 1987. While the data that they provide has become easier for industry professional to obtain, CoStar has found growth by organizing the information for the general public. It’s subsidiaries Apartments.com (think hotels.com for long term leases) and LoopNet.com (think Zillow for commercial real estate) have helped CoStar grow to a nearly $6 billion company by valuation.
The closer a middleman can get to the end-user, the more margin he will be able to extract. Mobile technology’s advantage is that you can’t get any closer to someone than being in their front pocket.
Martinovic realizes the task of organizing data and finding a user base can be a long, arduous process. “Putting the data together is expensive and hasn’t been that accessible. We are focusing on one market at a time and trying to get as much data as possible.” Currently, Create is only available for the Washington D.C. market, a place where Martinovic, as a former area developer, has intimate knowledge. They plan to expand into other major metropolitan areas this year, but not until they are satisfied that they have enough data to sufficiently “empower stakeholders.”
What Uber did to the taxi industry, Amazon did to bookstores, or Netflix did to BlockBuster all have one thing in common. Namely, the new technologies won the favor of the end-user by empowering them with more choices, easier access and increased transparency. After all, the people writing the checks ultimately steer any market. The closer a middleman can get to the end-user, the more margin he will be able to extract. Mobile technology’s advantage is that you can’t get any closer to someone than being in their front pocket.
Plenty of things in commercial real estate will stay the same. Businesses will need places to operate. Commercially zoned properties will continue to be desirable income generating assets. Owners will look to maximize profits and companies will look for the most favorable terms. The change will be in who has the power. For now, real estate professionals have power in the form of knowledge, networks and expertise. But they are getting squeezed from both sides. Property owners have control of a finite resource. Businesses are the ones that make a property useful and thus valuable. Both have incentives to cut out a middleman and deal with each other directly. If the new generation of real estate professionals are not able to harness technology for their advantage, we may soon be talking about leasing agents the same way we talk about Blockbuster Video.