Groupon And Real Estate | A Survival Guide
I answered a question on Quora tonight, and thought this audience would appreciate my take on the situation. The question is from someone I don’t know and references a Groupon deal that was run by a Chicago brokerage. You can see the original article here. (Personal note: I used to hold an Illinois broker’s license and I know Dream Town very well. They are an innovative company and were tough to recruit against when I was living in Chicago.)
The question on Quora: Will Groupon disrupt the real estate industry? Why or why not?
My answer:
“Disruption in real estate is on the horizon, but I don’t believe a Groupon model will be the one to get it done. First things first…a little background on the real estate industry.
Real estate laws are state-specific. That means there are 50 sets of real estate laws in the US and they are all different. There are some similarities from state to state, but each state is unique. That, by itself, presents some major challenges to overall disruption in the industry.
Most full-time real estate licensees are also REALTORS, which means they are part of a professional organization (National Association of REALTORS). The National Association of REALTORS has a very strong lobby and fights hard to protect the interests of its members and consumers as a whole. They are well-funded and they are very good at what they do.
The deal mentioned on Daily Deal Media is in Illinois. Illinois makes it fairly easy for real estate brokers to provide commission “rebates” to consumers, given the appropriate rules are followed and proper disclosures are made. Not all states make it that easy.
The general assessment in the article is absolutely correct. The author of the article makes some big assumptions (lead fees, commission rates, recruiting strategy, etc.), but we’ll run with it. The concept of attracting consumers through a coupon strategy who eventually turn into closed transactions is valid.
Statistically, consumers do not choose an agent or brokerage based on the amount of commission charged (the majority of those decisions come from referrals or an agent from a previous transaction). The percentage of consumers choosing an agent or brokerage based solely on the commission rate has been a single digit percentage for at least the past five years, according to the 2010 NAR Profile of Home Buyers and Sellers.
When people are dealing with the largest financial decision they are likely to make in their lives, they want the best representation possible. The vast majority of consumers choose a full service agent who charges a full commission, even when cheaper options are readily available. The “discount” real estate brokerage models have been around for many, many years, and none of them have become the standard brokerage models in their respective markets. The Groupon deal is targeting the same discount market.
I believe the real estate industry is ripe for disruption. Groupon has the opportunity to make real estate interesting by pushing harder on similar deals. If there is going to be disruptive change in the real estate industry based on a coupon or discount model, it will have to come from inside the industry, not from an outsider. As soon as the real estate community feels the Groupons (or similar) are becoming a threat to their way of life, you will stop seeing brokerages offering those deals.”
Would you like to praise me? Or argue with me? Awesome! Do it on Twitter (@mistersterling). I promise to play nice.
Also, don’t forget to check out the previous Groupon discussion.
Bhickey
Posted at 15:16h, 15 SeptemberI was thinking of blogging this today – it’s right on your subject.
Who will be the first to become a brokerage Zillow, Trulia,
MSN, AOL, Move.com?
For those of you that follow discussions about MLS’s ( I do)
and wonder about their future: structure, value, membership etc. you have to be
wondering when/if one of these well trafficked, information-based open portals
will flip the switch one day and become a full-service brokerage?
If some have information on all the homes in the U.S. (not
just the ones on the market) it won’t be long before the rest have the same. So, if these web destinations have
information similar to what the MLS’s have and at the same time are cataloging
a database of buyers (in the millions) – what the heck will NAR, our local
board, the local MLS do? Who would need
them? Who would be their customer?
Let’s remember, it is not necessary to be a Realtor to be licensed
to sell (and assist) buyer transactions of real estate. So, if these entities decided to be brokers
they don’t need to comply with any the rules and regs of the MLS’s or statues
like the Code of Ethics. They could open
franchisees and be the McDonald’s of residential real estate virtually
overnight.
Does the customer (that’s the buyer and seller in this case)
suffer? Franchisees could operate out of
a $300 a month shared office complex, hire agents at 50% splits (why not they
control all the leads) and boom – total disruption.
Now, I have no idea whether any of these companies have any
interest in becoming a brokerage – it’s not an easy business. But under this scenario it certainly could be
more profitable.
drewmeyers
Posted at 15:25h, 15 SeptemberYou know Zillow went the other way, right? They were a brokerage to start with, but got rid of all their brokerage licenses. http://www.zillow.com/blog/2008-11-13/zillow-drops-brokerage-licenses/
Pat Kitano
Posted at 17:24h, 16 SeptemberGreat analysis Jon… the real estate Groupon poses a lot of problems – regulatory and marketing wise. The marketing angle has been overlooked because offering discounts to new customers will obviously adversely affect existing and past customers who want the same discount treatment. Since publication of the article in April, daily deals as an industry has become mature enough to understand that real estate and big ticket purchases don’t work. Groupon won’t touch it, and hasn’t offered a real estate deal since that first one.
Daily deals is simply a crude “social discovery” mechanism, and there will be better ways to connect buyer/seller and Realtor than offering a simple deal.