The role of the insider in an age with no mysteries.
So there I was, out with clients the other day, and I happened to drive past a few car dealerships I'd hit recently. Here, I said, you can get X off the price of a new Volvo S80. There, I gestured broadly, is the Acura dealership with the RL I drove and didn't much like. Then I slowed to point out—"it'd better still be there"—the Mercedes C300 Sport that'd captured my affections.
A guided tour of Auto Row: adding value to the agent-client relationship.
Yes, I said, the Internet has certainly made car buying easier. I can find any car's real-world transaction price just by calculating its "True Market Value" at Edmunds.com—or so Edmunds.com tells me. The bad old days of blindly guessing what to offer for a car are over—in theory. The Internet can even tell me whether a car has incentives—rebates, low-rate financing, subsidized lease deals, manufacturer's cash to dealers—at least most of the time.
Yes, friends, all the mystery of buying a new or late-model used car is gone—so they claim. Mystery that favors the auto industry. Mystery that costs the consumer. Stamp out mystery and it's dollars in your pocket and mine.
Then one of my clients asked, "I wonder how long it'll be before the Internet has that kind of information on real estate?" It's a great question, and one you might expect from a young man who works in the Internet industry. It's an even better question if rephrased thusly: "How long will the real estate agent stay relevant when the Internet has apparently 'leveled the playing field' and demystified the buying process for so many consumers of so many goods and other services?"
It's a question near and dear to my heart, one I've thought long and hard on and written about extensively for this Web site. So, naturally, my mind went completely blank. All I could do was mutter that homes aren't commodities like cars are, mention my Web site, and sidle off to some other subject.
A few hours later, naturally, I had three snappy responses.
1. The Internet has had "that kind of information on real estate" since the late 1990s, when listings first appeared on Web sites. Back in 1998 many inside the real estate industry feared—and many outside the industry fervently hoped—that the Internet would "disintermediate" (apparently a $5 business-school euphemism for "bypass") the former gate-keepers of listing information, agents, thereby rendering them irrelevant. That this didn't happen affirms that a) agents play an essential role, and b) many outside, and even inside, the industry lack a clear idea as to what that role is. The Internet did change the real estate industry but, at least from the individual agent's perspective, the change has been largely in the area of marketing. Now virtually every agent has a Web site virtually nobody reads. (Just kidding, a little.) But the Internet didn't eliminate the agent-client relationship, because it didn't eliminate the need for one. Online listings weren't a death knell for the real estate industry; instead of withering away, the industry expanded during the boom. That's amazing, given all the hype about the power of the Internet and its undeniable impact on other industries.
So maybe there's more to real estate than meets the eye—a "mystery", in other words. Sorry, I forgot: the Internet don't 'low no mystery.
Over the past few years, sites like Trulia and Zillow have stepped forward to apparently provide the information consumers need to be well-informed and even self-directed buyers or sellers. Yet the buyers and sellers I meet these days are no more knowledgeable about buying and selling than they were ten years ago. That's also amazing, even unbelievable, and perhaps my experience is unique, but I doubt it. I live and work in the heart of the Internet Bible belt, Silicon Valley, and I can't believe that Internet-empowered consumers can be any more empowered about real estate anywhere else.
How can this gaping knowledge gap still gape? Maybe because:
2. Who says the Internet has taken all the mystery out of car buying?
The more I know about the Byzantine world of car sales, the more I know how little I know and how unlikely it is that I'll ever know what I need to know. Despite the Web sites, the auto industry retains over the car-buying consumer what Roger Penske, former racing team manager and current auto retailing kingpin, used to call "the unfair advantage". Because the consumer still doesn't know where the "free money" is in the car-buying transaction, or even if it's there.
Here's an example.
You go to your nearby Viking dealer, Dealer A, because Edmunds.com tells you that Viking has a special "subsidized" lease on its 2008 GT. You're attracted to this subsidized (or "subvented") lease because it offers you a monthly payment well below what you'd pay with any other lease for the same car. How does Viking get those monthly payments so low? Viking's captive financing arm plays around with the GT's "capitalized cost", or maybe it monkeys with the car's "residual", or maybe it jacks up the "cap cost reduction", or maybe it extends the lease period to some odd-ball number like 39 months so the payment can be slightly less than a 36-month lease, or maybe it sets the lease's "money factor" really low—got all this?—or some combination thereof, all this sleight-of-hand designed to come up with the low low monthly payment that stampedes payment-driven buyers into showrooms.
And the car industry loves payment-driven buyers. Payment-driven buyers are the auto industry's meat. Never mind the total cost, it says. Just focus on the payment.
So there you are, payment-driven buyer, in Dealer A's showroom, panting in anticipation—my double! my brother! You begin by telling the salesperson that Dealer A's Web site must not have been updated recently, since it shows 2007 Viking GTs still in stock and hey! we're well into the 2008 model year. This irritates the salesperson. You soon find out why. Dealer A does indeed have a number of unsold, never-registered 2007 GTs in stock. And these unsold 2007 GTs are virtually identical to the 2008 GT you came in to look at. You test drive a 2007 GT. You love it! The salesperson tells you they're offering $5000 off the MSRP!
All this new-car goodness for thousands off the MSRP!!! Ka-ching!!!??? Maybe yes, maybe no.
You go home, go on the Internet again and find that a used 2007 GT just like the new unsold 2007 you drove, in as-new condition and with minimal miles, would theoretically cost you less than the deal Dealer A is offering you. In other words, an identical used 2007 GT is a better deal than Dealer A's heavily discounted new unsold 2007 GT—assuming that you could find a used 2007 in as-new condition and with virtually no miles. You figure that's not impossible, but it might be tough. You wonder what you've proved by this, if anything, except perhaps that Dealer A's screaming deal suddenly got quieter.
You're also a little perturbed that your ol' buddy the Internet never told you that 2007 GTs languish unsold on Viking lots, nor that Viking offers cash back to its dealers to move those 2007s off the lots. This would've been good information, even if you weren't interested in buying a 2007, because it tells you it's very much a buyer's market for Viking GTs of any recent vintage.
You have a little more time (actually, you're obsessed, but I won't tell anyone) so you use the Internet to search the inventory of other nearby Viking dealers. You've still got a touch of unsold 2007 GT bargain fever! and you're hoping that the dealership employees who update Internet inventories are completely dependable (fond hope). It turns out that Viking Dealer B, not as close as Dealer A but still within the well-known easy driving distance, also stocks unsold 2007s. You drive down, brimming with hope. Bingo! The moment you hit the lot you're greeted by a big neon-colored "$10,500 off MSRP!" stuck to the windshield of a winsome 2007 GT. $10,500 off? Be still my heart! Dealer A only mentioned $5000. You've struck gold! Your buying decision is suddenly easy. Dealer B just showed you some of that exciting free money. Dealer B is more forthright with consumers and therefore deserves your business.
Of course, the Internet didn't get you to this point. Experience—getting in your car and kicking tires—did. What a life lesson!
But wait a second. Get a grip. Yesterday $5000 off MSRP looked like the best deal you could get and a screaming deal at that. Today you can get twice that deal and more. So is $10,500 off MSRP the best deal? Is $10,500 off MSRP even a good deal? Anyone could walk in and get that deal, and you're not anyone. How much free money does Viking and Dealer B have, on or off the table?
Here's another mystery to ponder: just what the heck is any Viking GT worth? The Internet says one thing, Dealer A says another, Dealer B says yet another. And as the true transaction price of the Viking GT sinks, your doubts about the resale value of the Viking GT—about the desirability of the Viking GT in general—rise. What do other car buyers know that you don't?
You back away, dazed and confused. A week later you happen to drive past Dealer B's lot and see a 2007 GT with "$11,000 off MSRP!". That day Dealer B's salesperson calls you to say he might do "even a little better" than the $10,500 he offered. Maybe only suckers settle for $10,500 off, or $5000 off, or felt good back in 2007 when they got $1000 off the MSRP of a new 2007.
And we haven't even talked about where the car dealer often makes his money: in the office of his Finance & Insurance manager. From a wily vet who's been making arcane financial calculations for years. Calculations we don't even know exist. Calculations he can make in his head.
In real estate, they say you make your profit when you buy, not when you sell. For many car buyers, negotiating the price is just the warm-up for the main event. Car buyers often make their profit (or take their licks) in the F&I office.
I speak to you as someone who likes, or at least doesn't loath, kicking tires and talking to car salespersons, someone with a zest for obsessive research, zeal for a deal, twenty years experience buying and selling used cars, then seventeen years buying or leasing new cars, plus ten years experience negotiating the sales terms of that big-ticket item called "home". I'm a savvy real estate professional, cold of eye, stern of visage, yet every time I run up against the auto retailing industry I'm a babe in the woods. Every time I buy a car, I leave money on the table. The more I think I've whupped the system, the more I find out the system whupped me. Real estate is the very model of transparency, a shining beacon on the hill, compared to auto sales.
The only difference between me and the guy who peels out of the dealership pounding his chest and making Tarzan yells about the deal he got is that I know I've left strips of flesh behind. I know I've run up against insiders who work their insider's game far better than I can or ever will, despite the promises of the Internet, despite the reality of all that real-world experience. I'll lose their confusing and one-sided game, the insider's game each industry has, every time. But each time I lose, I lose a little less. I think.
I won't win or even draw in this unequal contest until every sales manager starts blogging about how much money he's got on the table for each car, how much he needs to move that car, what tricks he and the other boys and girls at the dealership find particularly effective these days to "kick" the customers, and how bullish or bearish he feels this particular morning.
Then—and only then—will all the mystery be removed from car buying. Thanks to the Internet.
3. It's true: houses really aren't the commodities cars are. So what does this mean?
To answer, let's first define "commodity". Then let's look at the reason my clients and I were in my car.
According to the Merriam-Webster Online Dictionary, a commodity is, among other things, "a mass-produced unspecialized product". A car is a commodity because one 2008 Mercedes C300 Sport with Premium Package 1 will perform just like, and serve as well as, any other 2008 Mercedes C300 Sport with Premium Package 1. Yes, performance may differ minutely between two identically-equipped cars, but often this is due to different testing environments, and any real differences are undetectable to the consumer.
The Internet excels at providing product information for commodities. I'd never buy a car, or camera, or printer without hitting the Internet and reading the editor and especially the consumer reviews. Sure, consumer reviews can be flakey, but you learn to read between the lines and, barring the occasional lemon, the HP 3600n color laser printer I get will be the HP 3600n color laser printer everyone else has and enough love.
It's hard to screw up when rating commodities. But real estate markets in general, and individual houses in particular, have all kinds of nuances. To demonstrate, let's look at one highly-nuanced house.
We're in my car because one of my clients has found a property on Craigslist that appears to be what his family—what anyone's family—is looking for. "GREAT VALUE, curb appeal and large lot." "Beautiful large home." "Over-size garage." "Highly desirable area." "Some updates, shows great." A property a heck of a lot more promising than any I've shown them, yet potentially within their price range with some good-natured grinding on the sellers.
Hallelujah! The Internet strips away yet another layer of mystery.
When I first heard about this house, I emailed my clients a satellite photograph showing it backed on an eight-lane freeway. The lot's back fence is a sound wall. They responded by sending me photos of what appeared to be a well-maintained, nicely-landscaped home. We piled in my car.
I knew and liked the area, but this wasn't a house I'd normally show clients. It's not even a house I'd preview so I could rule it out before showing it to clients.
Why not? Since I'd seen homes in similar locations, I didn't expect an oasis of tranquility. Since county records told me the home was built in the 1960s and last sold in 1976, I didn't expect much real updating. Since the sellers had owned it for over thirty years, I didn't expect the house to be young and hip. Since the sellers were long-time owners, I did expect that they were relocating to a less-expensive area, perhaps to a retirement community up north or in the Valley. Since the house had been on the market many many days with only one price reduction, I didn't expect highly-motivated sellers—in a market where sellers must be highly-motivated to sell. Since the home was priced almost 10 percent higher than my estimate of its market value, I didn't expect to see a SOLD sign when I pulled up. Since the house had so many strikes against it, I didn't expect my clients to like it.
I guess you could say I had minimal expectations of the house. The expectations of someone who knows what to expect. Someone who might be called an insider. An initiate in the mysteries. Mysteries that refuse to die.
I don't want to put down the house, because the sellers obviously love it and it's their home. It does indeed have good curb appeal. It is indeed in a desirable neighborhood, and within walking distance of one of the better elementary schools in the local district. But not much has been done to update the house since the sellers bought it, freshly remodeled, in 1976. The home shows well to the extent that it's clean and organized, but it's stuffed to the rafters with furniture and kitsch. The back yard, lovingly designed for California living and so appealing in the photos, is unusable. The howling of eight lanes of freeway traffic is deafening. The exhaust fumes had me wheezing, and I'm not close to asthmatic. I warned my clients that opening the back windows was out of the question, not just because of the noise and fumes, but because sticky black tire dust would cover everything inside.
I also warned them that a house next to a freeway might sell at only a 10 percent discount in a good market, with inventory scarce and buoyant buyers buying everything in sight. In a poor market, however, with buyers scarce and surly and shell-shocked sellers trying to get out of Dodge while the gettin' is good, this home would sell at much more of a discount. Since my buyers' timeline might not be long enough to get them out of the current market slump by the time they sold, I told them they'd probably have to steal the house today to avoid taking a beating in two or three years. And even then, they wouldn't be stealing the house. And I didn't think the sellers, who were indeed relocating to a retirement community, were motivated enough to let my buyers steal it.
I said "don't buy this house" without saying "don't buy this house", because I never say "don't buy this house" even though, oddly enough, I've had several clients thank me for saying "don't buy this house". I do present the pros and cons of each house, and let my clients draw their own conclusions. After all, it'll be their house, not mine.
Those of you who are budding or actual Internet entrepreneurs may already be thinking, "Wow, how do I design a Web site that will replicate what this agent does? How do I design a site that warns buyers not to waste time on one particular house and encourages them to focus on a more suitable one? Plainly put, how can I deliver real insider information on the Internet?"
I know! You could upload tiny, poorly-lit and highly selective photos to Web sites! No, wait. They already do that.
Then you could take a page from the Redfin playbook and send reviewers out to every(?) house on the market. Of course, this raises several questions.
1. What's your budget? Will your reviewers be minimum-wage drones with no more insider insight than a questionnaire stuck to a clipboard gives them, or will they be well-paid highly-qualified insiders? Thought so. Then let me ask you this: how else do you replace well-paid highly-qualified insiders except with other well-paid highly-qualified insiders? Insider insight is valuable, and everything valuable costs money. Still. Even in the Age of Big Promises.
2. Taste is subjective. Someone in their sixties with a fetish for beer steins and golf knickknacks would love the house we just saw. Someone in their twenties would run out screaming. The insider looks beyond the knickknacks and stein collection, or tries to.
3. More blogging. This time we have sellers blogging about how much they want to sell and how little they'll take. Of course, you could get the same information by making an offer, but I'm sure sellers wouldn't mind spilling their guts on the Internet.
There are only two ironies here.
One is that for ten years the Internet has tried to commoditize the real estate insider's insight with the assistance, no, not of real estate insiders, but of Internet technical and marketing insiders. The question "how do you demystify an industry that's a complete mystery to you" has had a predictable answer: you don't. You don't even know you can't. Until your funding runs out. And then you blame someone else, preferably the real estate industry, because then everyone will believe you and sympathize with you. Better a martyr than a failure.
The other irony here is that this isn't the first time science has tried to replace mystery with reason, spurred on either by a mystical devotion to reason or by the desire to make a quick buck (and note how skillfully the Internet entrepreneur mixes these two motivations). The Internet is the latest and greatest manifestation of a social revolution that started with the Industrial Revolution, a social revolution that's largely succeeded in replacing the old mysteries with science or, so often, what passes for science.
Yet mysteries stubbornly persist, mysteries even the almighty Internet may not penetrate. Why? Strip it of its high-flown mission statements and ecstatic mystery religion trappings, and the Internet is just another medium. A potentially powerful medium, yes, but when it comes to real estate sites, both creators and consumers have virtually always settled for big promises and sneaky compromises instead of real performance. Mainstream sites take a largely quantitative approach, supplying easily-acquired raw data to folks who think that life's secrets can be downloaded to their smartphone. Qualitative analysis is limited to recycled old wives' tales ("Ten Things Your Realtor Won't Tell You") or to Dick-and-Jane tutorials that barely scratch the surface of the mysteries.
Hardly the leading edge stuff the Internet boasts of. No wonder there's a knowledge gap. Real estate's secrets are safe with the Internet.
It's the old contest, man versus machine. Man—even real estate man—is a reasoning animal. So far that's kept him one step ahead of even his most illustrious creations, including the Internet. When a nuanced situation offers a multitude of permutations, man is still more than a match.
Real insight can't be banged out on virtual assembly lines.