The Great American Real Estate Alchemy
For centuries, the notion of turning lead into gold has captured the imagination of countless Alchemists, all of whom were doomed to failure.
The real estate industry’s economic model has been for decades akin to conjuring concoctions that claim to convert the weight of our tarnished enterprise models into shining bars of profitability.
We have not always understood the true alchemy of our industry and the relationship between the decline of profitability with the introduction and application of new technologies to our industry.
Each of the two great historical shifts (economic eras) in our industry have occurred with the rise of new technology, the independence of agents and the empowerment of the consumer. Consider the following diagram and then listen to the accompanying presentation.
The shift from the Broker-Centric era to the Agent-Centric era was created largely as a result of the introduction of a technology known as the Personal Computer (PC) to the daily work habits of agents, empowering them to globalize their reach. From that point on, Broker-Owners were not able to fully contain the spillage of property information into the streets of their marketplace.
The loss of the MLS Book coupled with PC access to MLS data created a decline in the control of property information (always a key contributor to loss of profit) and the empowerment of the consumer who no longer had to enter a real estate office in order to see the Holy Grail.
Nor have we fully appreciated how technology has always defined each of the three economic eras of our history and most importantly how each increase in technology within the industry reduces profitability.
In 1994, along came the Information Super Highway and property data began to find its way to the Internet, where a hungry consumer was waiting. The Internet created a bridge from MLS sources to consumers who were also empowered with PCs. This was the beginning of a shift from the agent-centric model to the current new real estate economy where the consumer is now the central character.
“Pb” (lead) can become “Au” (gold). The alchemetrics (not sure that is a word but I’ll run with it) are simply undeniable. Technology creates the shift and transition from one real estate economic era to the next. With each transition three things always occur:
1. Technology always defines the shift, the model and the wealth in our economic models
2. Owner profitability declines as control over property information control diminishes
3. Information control is distributed over time to an increasing number of people thus, democratizing real estate
What does all of this mean? Simply, and yet rather profoundly, this means that ours is a history made up of transitions created primarily by the introduction of new technologies and a fundamental shift in economic control from us to consumers. It also means that the principle of alchemy is real.
Our lead-based model (forget lead-based paint for a moment!) is in the process of being turned into gold. However, in the alchemic (not sure that is a word either but I’ll run with it as well) process, we will not necessarily become the benefactors of the creation of new wealth being created by the introduction of new consumer-centric technologies. We could be but we are not, it appears, equipped to transition with the consumer into The New Real Estate Economy.