Bad Math

Stephen Phillips

By Stephen Phillips

Why, you may take the most gallant sailor, the most intrepid airman or the most audacious soldier, put them at a table together – what do you get? The sum of their fears.

—Winston Churchill

Since first entering the residential real estate services business in 2001, I’ve heard and read hundreds of times how the existing agent/brokerage business model is badly broken and will be replaced in its entirety, any day now, by a new, technology-driven paradigm. Pundits and prognosticators paint a scenario where a garage-based startup invents a super-algorithm that reduces the home buying and selling process to a mobile phone-based, 1-click operation that can be accomplished while riding an exercise bike before breakfast in the morning.

At the same time, these forecasters seem to believe in free enterprise and the market-based economic system: they appear to think consumers exercise free will and make decisions representing their individual best interests. But, surprisingly, they conclude that buyers and sellers, through engaging in the process with real estate agents, make over 4 million grievous errors of financial judgment on an annual basis. They think consumers blunder, with big bucks on the line, more than 15,000 times every business day.

That just doesn’t add up. If the current system is ineffective and uneconomic, then why hasn’t radical change occurred over the past decade or more, the golden age of Internet technology? Why aren’t we buying and selling real estate in a completely automated fashion, like we can buy a new pair of shoes? Because buying or selling a home is a very large, infrequent, increasingly complex and highly emotional undertaking, that’s why. And skilled, trained and experienced human beings are needed to help people work through the process.Suited man before complicated math chalkboard

Real estate agents exist for a reason, in fact for many reasons. Technology has taken over a portion of the search function that agents once solely provided, but many other aspects of the process are still primarily the province of real estate professionals. And the total cost of the real estate transaction is not at all out of line with the relative cost of providing the same types of functions in other consumer-oriented industries. Ours is a highly-regulated, extremely transparent business that provides substantial benefit to consumers, and they know it. They can do the math. That’s why real estate agents handle more than 80% of all transactions, a share of the market that hasn’t changed in at least 15 years.

So be confident about the future of our industry. Don’t take counsel of the pundits’ fears. Focus on and invest in what you’re doing today, in the context of the business as it exists now. Technological change will come, it’s inevitable, but it will enhance, not replace the highly-effective system we already have.

Stephen Phillips is COO for HSF Affiliates LLC, responsible for the daily operations of the company. He also serves as president of Berkshire Hathaway HomeServices. Find him on Twitter @SPhillipsBHHS.

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