Lead Aggregators Are Positioning to Take-Down the Realtor Profession
I've been perplexed by recent posts of real estate industry leaders/influencers maintaining that the expansion of Big Lead Aggregators is of little concern since those Aggregators have not yet put agents or brokerages out of business.
Often these “no worries” comments are in response to conversations -- yes, some that I initiated – about the growing threat these Big Business players pose for their small business competitors: real estate agents.
When I see industry leaders downplaying the significance of a deep-pocket competitor with advanced technologies continuing to take market share from agents, I am reminded of the warnings of Jim Collins in his book, “How the Mighty Fall and Why Some Companies Never Give In.”
Collins, a business consultant and teacher, describes a business’ Five Stages of Decline, including Stage 3, “Denial of Risk and Peril”:
"In Stage 3, internal warning signs begin to mount, yet external results remain strong enough to "explain away" disturbing data or to suggest that the difficulties are "temporary" or "cyclic" or "not that bad," and "nothing is fundamentally wrong.".... In Stage 3, leaders discount negative data, amplify positive, and put a positive spin on ambiguous data.
Reality Check #1: Big Money is in the Business of Arbitraging Profits from Other Businesses
The market in general is constantly evolving, at ever faster speeds, through the combination of Wall Street funding and Silicon Valley tech start-ups.
The mission of these Big Players is to build platforms to arbitrage away profits from businesses by creating vertically integrated transaction terminals.
A vertically integrated transaction terminal is, for example, a one-stop shop for all things real estate: brokerage, mortgage, title, insurance, home maintenance — all under one roof.
Then, once their technology is built and scaled, they collect transaction fees (think Airbnb or Uber/Lyft) from the users on their fully integrated platform in order to maximize their profits.
Reality Check #2: Big Lead Aggregators Are Doing the Same Thing
This vertically integrated, transaction terminal approach is the same that Big Lead Aggregators are taking.
At first, the Aggregators were simply a conduit for buying information: listings. They were at the wide top of the funnel, with real estate agents closing the transactions at the bottom. In between are title companies, mortgage companies, home insurance companies, and so on.
A diverse group of real estate related businesses were all involved in the transaction of one person selling a home to another; the Aggregators were just one of many.
That is rapidly changing. Now, instead of selling their leads for a flat fee to multiple agents, these Aggregators are partnering with one brokerage in each local area that is willing to pay the Aggregators a nice, big slice of the commission pie in return for the Aggregators limiting access to those leads to the complying brokerage.
The commission pie is only so big. If there is now another mouth to feed -- the Aggregator -- guess who gets a smaller piece?
Indeed, some local brokerages who are in partnership with these Aggregators are paying their agents as little as 12-13% of the commission they generated.
Aggregators’ Vertical Integration Compounds Concerns.
The assault on non-complying brokerages and agents doesn’t end there.
The Aggregators are also vertically integrating. Some actually become a brokerage, some add mortgage and title services, and now, instead of simply being at the wide end of the funnel, the Aggregators own both ends and the middle, too.
With access to Big Money, these Big Business competitors are bundling their services together for a discount directly to consumers.
The eventual result isn’t hard to envision.
Are we really expected to believe that the rise of the Big Lead Aggregators will not eventually end up driving brokerages and agents toward a smaller piece of the pie?
Reality Check #3: Agents Are Inadvertently Helping Aggregators Bring Them Down
Sad to say, some agents are inadvertently helping the Aggregators take over the industry. How?
Let’s consider this example that I often see on social media:
Average agent Joe shares a Big Lead Aggregator's listing link to his social media profile. Really Cool House!
A social media user sees the listing link Joe posted and clicks on it. This takes them directly to that Aggregator's website.
Aggregator loves this move, because that click improves their SEO, giving them free organic branding. Thanks, Joe!
If that social media user is someone who is part of Joe's social media profile, that means he is part of Joe’s database, his life blood. And if that social media user decides to click the Aggregator’s link for more information about the Really Cool House, then guess what? They also become a valuable part of the Aggregator’s database.
The Lead Aggregator is licking its lips now, because that data that originated from Joe has become data that the Aggregator can sell or refer as a lead. Yup, it’s gonna make some money off Joe’s data base.
But wait, it gets more interesting! Who is that Aggregator selling those leads (originating from Joe’s data base) to? It used to be to an open market for agents willing to pay flat fees for leads. But now, increasingly, it is to the one local brokerage that has chosen to partner with the Aggregators. One.
In other words, that Aggregator is often sending what began as Joe’s data to an agent call center run by a competing brokerage who pays the Aggregator a hefty commission, mainly by reducing the commission percentage that it gives to its agents.
Bottom line:
Joe just actively, though unknowingly, sent his database information to his competitor's website.
He helped them with their branding and their search engine optimization.
And he may well have helped his competitor get the lead that originated from Joe’s database.
Joe has no idea that he is slowly, but actively, putting himself out-of-business with these seemingly innocuous social media posts.
Also the Bottom Line:
Since these Big Lead Aggregators are also vertically integrating – buying up ancillary businesses and offering consumers a discount package for title, mortgage, even household and moving services-- Joe is inadvertently putting his referral partners out of business, too.
Think I am being too alarmist?
I wonder if that’s what Blockbuster said when it learned about a new start-up called Netflix.
Reality Check #4: Agents Have to Open Their Eyes to the Problem and Find Ways to Address It
So how do the brokerages and agents who do not -- or will not -- partner with these Aggregators defend themselves against a Big Business take-over of their profession?
It begins with small choices.
First, don’t be Joe. Act mindfully when you take actions like sharing the links of competitors. Think about how your seemingly harmless actions could end up playing into your Big Business competitor’s hand.
Second, consider carefully whether you want to be part of this effort by Big Lead Aggregators to take over your profession. An Aggregator's entry point into the market is the real estate brokerage that they choose to partner with. If no brokerage is willing to sacrifice their agents’ financial health in order to partner with an Aggregator, Wall Street can’t take over. If local brokerages refuse to play their game, the Aggregators will be denied entry – or at least have to spend more time and money finding a new way in.
So, if you are a local broker, think twice before making what some might call “a deal with the devil.”
Are you really willing to sell out your agents and potentially contribute to the demise of the profession?
Likewise, if you are an agent considering joining one of these brokerages, ask yourself a few questions first.
Of course, one is whether the job even pays enough to get by.
In order to satisfy the appetite of the Aggregators, these complying brokerages often pay their agents a tiny % of the commission they spend countless hours earning.
Is this what you got into real estate for?
And do you see real estate as a career?
Because if you do, joining a brokerage that is helping to bring down the agent profession is not the way to do it.
There are better options out there. Just shoot me an email to discuss.
Third, what about the brokerages who are already in bed with the Aggregators? Mainly, all we can do is hope that business takes its course. Often these brokerages have a revolving door of agents because their pay is so low and the hours so long that good, experienced agents refuse to stay.
With a lack of experienced Talent, these brokerages may die out on their own, as consumers refuse to entrust their largest asset, and other agents prefer not to work with, over-worked, barely over minimum-wage-pay agents with no or little experience.
Fourth, we have to educate each other, and encourage individual brokers and agents not to become part of the downfall of our profession as we know it.
Feel free to share this post and, importantly, give your own opinion in the comments below.
It is coming.
Eventually, Wall Street and Big Lead Aggregators will find a creative way to get around any of these barriers.
They have their eyes on this lucrative industry and their appetites are insatiable. But if we acknowledge this reality, we can buy our marketplace more time to find our own creative ways to continue to compete.
Agents and brokerages must figure out how to evolve to add value in the market of tomorrow.
How can we provide such superior service that consumers are willing to pay extra for it, and forego the quick and cheap Aggregator marketplace?
Brokerages not aligned with the Aggregators might begin vertical integration themselves (like Momentum Realty has started doing). Even if not on an even playing field against Big Money, they can set themselves up to compete by partnering with top companies that are ancillary to the real estate transaction.
It’s time to stop rationalizing and denying the reality of our future, and the disruption that is coming.
It’s time to think hard about how to get real, remain relevant, and get right.
It’s time to start preparing for tomorrow, today.
