Real Estate 3.0?

Real Estate 3.0?

Two major market transformations have defined the last 50 years of residential real estate. Is a third around the corner?

As the NAR settlement sends shockwaves through the industry, dogmatic camps are forming. On one side are those who argue that little will change: “The transaction is complicated,” they are heard to say. “Consumers will be at a disadvantage without us,” is the refrain of others. And then there is always the old standby: “There will always be a need for agents.”  

At the other extreme are those who proclaim this to be the end. “Realtors are no longer necessary,” they say. “Consumers can get all the information they need through Zillow and Redfin.” Some sound downright apocalyptic: “The day of reckoning is here!”  

The trouble with being dogmatic is the blinders you grow. But taking a side won’t determine the future.  

As agents, it’s important we realize that the market doesn’t care what either camp believes, no matter how entrenched they are. Instead, what matters—and has always mattered—is how great agents react to the constantly changing marketplace.  

While none of us has a crystal ball, we do have a view of history to help us see the playing field evolve. In fact, the winners in our industry over the past 50 years have been those who have seen patterns of marketplace change and pivoted to turn them into opportunities.  

Those who understand what these visionaries saw and how they approached the unsettling times they faced are poised to unlock the key to the next evolutionary phase in real estate.  

The two transformations of modern real estate over the past 50 years

Real Estate 1.0: The Shift to Standardization (Standardization leads to NAR and Brokerage Scale leads to Big Data) 

From the early 1970s to the early 2000s, the real estate industry went through an era of incredible standardization. The forms used to write contracts, how brokerages shared information in MLS agreements, and even the reconceptualization of buyer agency dramatically shaped industry norms.  

As a result, the industry established new agent education standards, new laws standardized consumer care, and it became common practice to teach new agents how to drum up business using repeatable scripts.  

Such standardization allowed for unprecedented scaling when it came to the number of agents. At the national level, in the first six decades of NAR’s existence, from 1908 to 1969, the number of Realtor members grew from 1,646 initial members to a modest 91,625. But over the next 35 years, from 1970 to 2005, the number of Realtors increased to 1,271,057.  

Real Estate 1.0’s standardization was to our industry what Henry Ford’s assembly line was to cars. It fueled an annual NAR growth rate over twenty times that of the previous period and ballooned the overall number of agents tenfold in a generation.  

Broker entrepreneurs saw the opportunity this population boom provided and created large-scale brokerages. Family-run giants like Howard Hannah, William Raveis, and Long and Foster pulled in thousands of agents regionally. At the same time, franchise visionaries like Art Bartlet, Gary Keller, and Dave Liniger partnered with local agents across the U.S. and abroad.  

Big business also contains big data. As technology made the internet faster, agents could not just list data but also quickly search data and enhance it with images that could load quickly. In fact, this data revolution led to a new transformation. 

Real Estate 2.0: The Development of Democratization (Democratization Leads to Team Scale and Tech-Enabled Brokerage) 

In 2005, I was in a room of veteran agents and brokers who had built admirable businesses. Between glances at our Blackberries and Palm Pilots, we discussed a new website called Zillow. “The estimates are lousy,” one agent chimed in. “These guys aren’t even in the industry!” another proclaimed. But the question no one dared whisper, but that every one of us was asking ourselves, was this: “If consumers have the listings, how will we protect our value?” 

We had entered the age of democratization of listing data. The technologists behind Zillow, Trulia, and myriad other sites that sprang up in the race for consumer eyeballs transformed the experience of buying and selling a home. In the previous era, agents were taught that “listers last.” But now that the consumers who used to call the listing agent for information could search anonymously, the value of inventory diminished for listing agents. Zillow had begun to capture this lead flow by rerouting consumers to the highest bidder. 

New and predictable lead sources allowed the agent-led team to scale and become less dependent on brokerage brands, driving down brokerage margins. With this increase in agent negotiation power, the table stakes to play the game of brokerage changed. According to a Real Trends study, between 2012 and 2022, the size of the average brokerage office shot up 84% from 54 to nearly 101 agents on the roster. 

New technology-enabled, lean brokerage models like eXp, Fathom, and REAL cut off the fat and overhead of office space and recruiter salaries, then baked-in virtual training. Agent count thresholds, which had taken the fast-growth brands of 1.0 decades to build, were achieved by lean models in mere years. 

If the impact of 1.0's standardization-driven growth felt like the exciting drop at the beginning of a roller coaster ride, 2.0’s democratization was the acceleration through the big loops and turns. These dramatic changes in direction and speed were unsettling and even disruptive if you were not braced for them. But those who were prepared didn’t just enjoy the ride but made the most of the experience. 

Industry veterans who have lived through this wild ride sense that there’s something coming around the bend—not just another barrel roll but an entire reimagining of the ride. It’s my belief our industry is poised for a transformative change equal to that of 1.0 and 2.0 that will require embracing new rules, being a pacesetter when it comes to the A.I. revolution, and quickly adapting to evolving consumer behavior. For some agents, the changes coming will be too much to bear, but for those poised to take the real estate 3.0 plunge, it’s going to be an entirely new and exciting ride. 

Ty Whaley, PMP, CSPO

CEO @ Coastal Realty Services | Legacy Equity Holdings

8mo

This is a great perspective. I agree there is change on the horizon. What 3.0 will look like is yet to be seen, but a combination of AI and tech startups focused on automating the tactical transitional part of our business will be a big part of it. Adapting to these changes and capitalizing on them by embracing and finding new use cases for these technologies will be key.

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Bruce Cotting, Realtor

Residential Realtor, SIlver Spring, DC, Montgomery County & more

8mo

Congratulations and thank you for an extremely thought-provoking article in Inman today Pat! You're always a deep thinker and three steps ahead, and we are all the more fortunate that you share your wisdom!

Michael T.

CGI Partner | IT and management consultant, team leader, operations manager who brings insight, rigor, and empathy to every interaction | Passionate about creating value and helping people grow at work and in life

9mo

Interesting perspective Pat. I was recently thinking of the parallels to the nascent NIL market for college athletes and the world of sports agents. However, that industry is still in the 1.0 era since there is a dire need to standardize and mandate rules for “certifying” agents so there are uniform guardrails and safeguards for young athletes and their families.

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