Go Lean…Caribbean

Go Lean Commentary

Change has come to the world of real estate. According to many sources, the real estate brokerage industry will be one of the next industries to become obsolete due to the ubiquity of the internet. If you doubt this statement, just think of travel agents, record stores, book retailers, video rental, etc. Enough said…

This subject is pivotal in the roadmap for elevation of the Caribbean economy, which maintains that internet/electronic commerce business models are critical in creating jobs and growing the region’s GDP. The publishers of the book Go Lean…Caribbean project that 2.2 million new jobs hang in the balance.

This commentary is also about managing change!

At the heart of a real estate transaction is a buyer and a seller, looking for each other. This is a perfect application for social media networks; think online dating. But instead of social media, the industry has MLS or Multiple Listing Services (see Appendix* below). Now come the internet and all the application developers. Here’s the problem, for the MLS world: the buyer or seller is not the end consumer, but rather the buyer’s agent and the seller’s agent. The commission money involved, normally 6% of selling price, is split between the two agents. This applies on small transactions (think: $50,000) and large $million transactions. Yet now, the internet allows buyers and sellers to get together without the brokerage agents; one major player in this online race is Zillow (see Appendix^# below); an online real estate database that was founded in 2005 by former Microsoft executives.

Change is afoot…
If the internet option continues to gain more and more market share, this will neutralize the role of agents, and their industry-exclusive MLS options. Zillow reported more than 24 million unique visitors in September 2011, representing year-over-year growth of 103 percent.^[23][24] (Zillow has data on 110 million homes across the United States, not just those homes currently for sale).

VIDEO – Zillow: “Lake House” Commercial – http://youtu.be/WZk__l8yCHo

Published on February 20, 2015 – “Lake House” is Zillow’s fifth TV spot, the latest in the company’s highly successful first-ever national advertising campaign, “Find Your Way Home.” The spot was produced by Deutsch LA and features the single “Atlas Hands” by Benjamin Francis Leftwich. See all of Zillow’s TV spots at http://www.zillow.com/tv/.

Most MLS systems restrict membership and access to real estate brokers (and their agents) who are appropriately licensed by the state/province, and are members of industry association (e.g., NAR or CREA). But access is becoming more open as Internet sites offer the public the ability to view portions of MLS listings. (There still remains some limitation to access to information within MLS’s; generally, only agents who are compensated proportional to the value of the sale have uninhibited access to the MLS database). Many public Web forums have a limited ability in terms of reviewing comparable properties, past sales prices or monthly supply statistics.

A person selling his/her own property – acting as a For Sale By Owner (or FSBO) seller – cannot generally put a listing for the home directly into an MLS. (An example of an exception to this general practice is the national MLS for Spain, AMLASpain, where FSBO listings are allowed.^[3] Similarly, a licensed broker who chooses to neither join the trade association nor operate a business within the association’s rules, cannot join most MLS’s.) However, there are brokers and many online services which offer FSBO sellers the option of listing their property in their local MLS database by paying a flat fee or another non-traditional compensation method.^[4]

In Canada, CREA has come under scrutiny and investigation by the Competition Bureau and litigation by former CREA member and real estate brokerage Realtysellers (Ontario) Ltd., for the organization’s control over the Canadian MLS system.^[5] In 2001, Realtysellers (Ontario) Ltd., a discount real-estate firm was launched that reduced the role of agents and the commissions they collect from home buyers and sellers. The brokerage later shut down and launched a $100 million lawsuit against CREA and TREB, alleging that they breached an earlier out-of-court settlement that the parties entered into in 2003.

The Empire Strikes Back…
In January (2015), Zillow and ListHub, a subsidiary of Move, Inc. the operator of Realtor.com, ended their agreement for Zillow to receive listings through ListHub. This will take effect on April 6, 2015. Earlier this month (February 16), Zillow closed on its acquisition of Trulia, forming the new Zillow Group. As a result, ListHub announced that it ended its relationship with Trulia; giving a 5 day transition period before it stops sending listings to Trulia.

The actions and conflicts between the online real estate portals and MLS’s are continuing to escalate. One of the major industry players TREND, the exclusive MLS for the Greater Philadelphia-area (Pennsylvania) sent out a communications to their broker clients on February 20, openingly acknowledging the jockeying taking place; with their commitment to stay engaged:

TREND has been in discussions to determine how we can best help our members protect their interests and easily distribute their listings to portals they choose. We plan to continue these discussions.

The issues presented in this commentary is the cornerstone of several ongoing arguments about the current health of the real-estate market, which are centered on free and open information being necessary for both the buying and selling parties to ensure fair prices are negotiated during closing, ultimately allowing a stable and less volatile market.

No doubt, there is some collusion between MLS’s and the brokerage industry to maintain the status quo. But the industry claims to still bring added-value. According to this article, the MLS systems hold sway over the industry, impacting its customers (real estate brokers and agents) with optimized sales and profits; they claim that the homes they market sell for more money. See story here:

Title: Study Finds Homes Marketed via the Cooperative Brokerage Community on the MLS Sell for More
Posted: December 5, 2014, Philadelphia, Pennsylvania; retrieved February 24, 2015 from: http://www.trendmls.com/Guest/News/ShowDoc.aspx?id=7425#.VoybLp0o673

Earlier this year, TREND, the Multiple Listing Service (MLS) for the Philadelphia Metropolitan Area, studied the percent of sales marketed on the MLS. The study found that in the last 3 years more than 80% of sales were marketed on the MLS, and that properties marketed on the MLS had a higher median sold price compared to properties that were marketed off the MLS.

To perform this study, TREND examined 13 years of MLS and Public Records data, comparing each Public Records sale record to MLS sale records to determine which sales were marketed on the MLS.

“Our goal with this study was to see how many sales that would typically involve a real estate professional were listed on the MLS. Knowing there are various ways and reasons real estate is transacted in the market, we wanted to focus the study on the ‘bread and butter’ market segment of the brokerage community. To do this we honed in on residential, single-family resale properties over 50 thousand dollars,” Vice President of Product Management, Ken Schneider said.

Due to the quantity of data accessible, as an MLS and Public Records provider, TREND was able to determine that the percent of sales marketed on the MLS across the Philadelphia Metropolitan Area has grown over the last 13 years. It also remains strong, with an average of 82% of sales in 2013 marketed on the MLS, and many communities posting even higher numbers.

The study also uncovered a quantifiable benefit to marketing a property on the MLS: higher sold prices. For example, in 2013, properties marketed on the MLS had a 21% higher median sold price compared to properties marketed off the MLS.

“These numbers showed that over the years and through various market conditions, it is in a consumer’s best interest to work with a real estate professional that will expose their property to the cooperative brokerage community,” Vice President of Product Management, Ken Schneider said.

Ultimately, the study showed when properties are advertised in a competitive marketplace to the cooperative brokerage community on the MLS, they command the highest prices.

“The results of this study are a testament to the historical and ongoing integrity, commitment, cooperation and collaboration of the brokers and brokerages in the Philadelphia Metropolitan Area, which ultimately benefits their clients”, Vice President of Product Management, Ken Schneider said.

For more information on this study, view the complete report. View the Full Report.

About TREND
The TREND community encompasses approximately 27,000 real estate brokers and agents in Delaware, New Jersey and Pennsylvania. As partners in the business of real estate information and technology, TREND members guide the evolution of our MLS and Public Records systems, and contribute to the MLS database of approximately 2.9 million listings. TREND also provides member access to public records for over 5.1 million properties, appointment management tools, valuable industry and market information, and personalized customer service. Together, the TREND community facilitates the sale of more than 70,000 properties a year at a value of over 18 billion dollars. For more information, visit www.trendmls.com.

The issues of MLS versus online portals affect the Caribbean as well. The book Go Lean… Caribbean, serves as a roadmap for the introduction and implementation of the Caribbean Union Trade Federation (CU). The CU/Go Lean roadmap has 3 prime directives:

• Optimization of the economic engines to grow the regional economy to $800 Billion GDP & create 2.2 million new jobs.
• Establishment of a security apparatus to protect the resultant economic engines and marshal against economic crimes.
• Improvement of Caribbean governance to support these engines.

The roadmap envisions a robust social media network, www.myCaribbean.gov, and e-Government insourcing of property registrations in the region. Early in the book, the benefits of technology empowerment is pronounced in the Declaration of Interdependence (Page 14), with these opening statements:

xxvi.     Whereas the Caribbean region must have new jobs to empower the engines of the economy and create the income sources for prosperity, and encourage the next generation to forge their dreams right at home, the Federation must therefore foster the development of new industries… In addition, the Federation must invigorate the enterprises related to existing industries … impacting the region with more jobs.

xxvii.   Whereas the region has endured a spectator status during the Industrial Revolution, we cannot stand on the sidelines of this new economy, the Information Revolution. Rather, the Federation must embrace all the tenets of Internet Communications Technology (ICT) to serve as an equalizing element in competition with the rest of the world. The Federation must bridge the digital divide and promote the community ethos that research/development is valuable and must be promoted and incentivized for adoption.

xxviii.  Whereas intellectual property can easily traverse national borders, the rights and privileges of intellectual property must be respected at home and abroad. The Federation must install protections to ensure that no abuse of these rights go with impunity, and to ensure that foreign authorities enforce the rights of the intellectual property registered in our region.

The Caribbean has the eco-system of Multiple Listing Services, and real estate brokers and agents. But where there are buyers and sellers, the marketplace will always find a way to complete transactions. In the US, change has come, the stakeholders will simply adapt. With Zillow’s 24 million unique website visitors, individual brokerage firms will have to negotiate direct feeds to Zillow – a trend already started – and agents will simply upload their listings directly. The status quo now is for selling-agents to promote properties on up to 160 different websites. The photo here and foregoing VIDEO of Zillow Advertising – designed to generate even more consumer traffic to designated web site – demonstrate the changing landscape for the real estate brokerage industry.

There is much for the Caribbean to glean from observing the developments of this American industry. The Go Lean book already details best-practices for the full embrace of Internet Communications Technologies (ICT). Imagine the www.myCaribbean.gov site with 150 million unique profiles (residents, visitors, Diaspora, businesses, trading partners, etc.). Then add new profiles, a single property site with property address as the URL, for every house that is “For Sale”.

Electronic introduction: buyers meet sellers; sellers meet buyers. That opening “prophecy” manifested: real estate brokerage – a next industry to become obsolete due to the ubiquity of the internet.

The book details the community ethos to adapt to the changed ICT landscape, plus the executions of the following strategies, tactics, implementations and advocacies to forge best practices:

This subject of managing the changing ICT landscape has been detailed in previous Go Lean blogs/commentaries, as sampled here:

The CU implementation is necessary to regulate and oversee many of the developments that are occurring because of our changing world. The world will continue to change whether we want it to or not. The smart move is to exploit the changes. The Go Lean book concludes in exhortation to the region:

Get moving … now is the time. Opportunities abound; even if there is only little commerce to exploit now, there is opportunity enough in the preparation for the coming change. So act now! Get moving to that place, the “corner” of preparation and opportunity.

Now is the time to lean-in for the changes and empowerments in the Go Lean roadmap. Now is the time to make the Caribbean a better homeland to live, work and play.  🙂
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APPENDIX * – MLS or Multiple Listing Service/System

A MLS is a suite of services that enables real estate brokers to establish contractual offers of compensation (among brokers), facilitates cooperation with other broker participants, accumulates and disseminates information to enable appraisals, and is a facility for the orderly correlation and dissemination of listing information to better serve broker’s clients, customers and the public. A multiple listing service’s database and software is used by real estate brokers in real estate, representing sellers under a listing contract to widely share information about properties with other brokers who may represent potential buyers or wish to cooperate with a seller’s broker in finding a buyer for the property or asset. The listing data stored in a multiple listing service’s database is the proprietary information of the broker who has obtained a listing agreement with a property’s seller. (Source: http://en.wikipedia.org/wiki/Multiple_listing_service)

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APPENDIX ^#: Additional “home” work – July 28, 2014 News Report: Zillow Buying Trulia

Video Direct Link: http://abcnews.go.com/Business/video/zillow-buying-trulia-35-billion-24748326