Matthew Ferrara, Philosopher
 

Draw Back the Curtain

According to everyone with a microphone, now’s the best time to buy a home in decades. The recession has pushed home prices and mortgage interest rates so low that affordability has never been better. We’ll even throw in a few free Bernanke Bucks to help you cover closing and commission costs, and rebate you the remaining dollars even if you didn’t pay them in taxes. Between all the rebates, freebies, price reductions and home inventory options, doesn’t it seem strange that the market isn’t roaring? Sure, there’s a bit of unemployment rising here and there, but 9 out of 10 Americans still have jobs. So why are consumer still struggling to take advantage of the sales of the century?

Maybe it’s because they’re still confused. Not about mortgage rates or falling home prices: they get that stuff. Even short-term consumers like understands the growth potential of  investing in real estate today, even if the market falls further in the short term. For once, it’s not the raw market “numbers” that are holding back consumers. But it’s something real, nonetheless.

First, let’s ask who the key consumers are in today’s marketplace. Last year 50% of all deals in America were to first-time home buyers. That puts the market squarely in and Gen Y territory. Baby Boomers only constituted a fifth of the buyers, and ’ers prefer new construction to their parents’ homes anyway. What could it be, then, that’s holding back the X/Y consumer, considering they’re also the ones holding onto their jobs best despite rising unemployment?

That factor is mythology. Not the kind that has Greek heroes beheading Gorgons, but the comfortable-cliche kind that often infects and paralyzes an industry.

The myth in question is that consumers know more about real estate today than ever before.

Really? I’m beginning to doubt it.

It’s certainly true that consumers know more about homes than every before. They can find inventory faster than the 50-something agent they have to beg to respond by email with the lock-box combination. But even if it’s a truism that Gen X and Gen Y’ers can access the housing inventory online faster than ever, just what do they know as a result of it? Pretty much nothing more than construction specifications, sprinkled with the barest minimum of photos and rarest of videos. How does this help Gen X or Gen Y tap into the greatest home sale of all time? Not too much, actually. Raw housing data alone doesn’t do much for preparing, evaluating and deciding which opportunities are best in the marketplace. So the myth that internet inventory somehow has helped consumers buy homes (more, better, faster, whatever) is revealed to be a myth. Even NAR research shows that internet-shopping consumers took longer to decide and buy (although they physically toured less homes) than offline consumers. Anybody who spends hours comparing airline prices for the best deal knows that more data doesn’t mean better or faster outcomes.

The myth is subtle and dangerous, but it’s nonetheless real. Access to housing information – inventory, articles, how-to guides and experts – is now available on every Gen Y first-time buyer’s smartphone. It’s the ultimate level of access to everything and anything you could ask, desire, wonder or need to know about real estate. Except this massive access-ability isn’t causing more Y’ers to buy. Instead, many are putting it off, renting in groups or simply staying at home longer. Just as the early Boomers finally cleared their cellars of their reluctant Gen X’ers, late Boomers find themselves tethered to their Gen Y children while housing opportunities pass them by.

The myth that the consumer has everything they need to make decisions and “jump into the market” is compounded by the subtle ways in which even raw market data is made more complex for consumers than it has to be. The accompanying graphic from Stuff That Happens made me think that even today, most real estate websites are a nightmare to navigate.

And it’s not just our websites that are hard to navigate. It’s the entire process – the real estate transaction, we call it – is a mess of confusion and complexity. Ever wonder why so many deals fall apart? More likely we should wonder in amazement that so many come together. Too much about how the real estate transaction works is still kept secret, mysterious, and dangerously unreliable.

Almost nothing about the real estate transaction that consumers experience today is a simple as using an Apple product. Nor is it as reliable, and predictable, as searching on Google. While previous generations of consumers may have understood – or at least grudgingly accepted – that buying a home was complicated, Gen X and Gen Y just won’t stand for it. It’s why Gen X invented Wikipedia and why Gen Y prefers to shop at places that don’t require you to “negotiate” the final price (think, Saturn).

The myth that’s holding back today’s real estate consumer is that we’ve given them access – fast, online, always – to stuff that matters, when in fact, it’s just the opposite that continues to be the case. If a consumer finds a home they like, all by themselves, online, it still takes hours for someone to respond to their email inquiry. After they list their home with an agent, the single most persistent complaint from home today is that their agent is impossible to reach, and they don’t know where they stand on a convenient basis. We open the doors to potential buyers at Sunday open houses, except that Sundays are as inconvenient as our web search tools for busy Gen X and Gen Y’ers with overloaded weekend family schedules.

Over and over again, we continue to hide behind the curtain, like real estate wizards in a land long forgotten. What is most important to the consumer – the knowledge necessary to assess their options and make important decisions – still depends upon contact with a person. Yet our mythology that the consumer has more real estate information than ever before has caused us to think they have more of us than ever before.

And clearly they do not, because just as clearly, they are holding back from the marketplace.

It’s time for the real estate industry to come out from behind the curtain. And not just the small stuff, like offering easier access to inventory or cutesy checklists for buyers. It’s time for the entire transaction to be laid bare, from pre-start to chaotic-middle to successful-end. All of the players must be put on stage. Anyone with the ability to influence, and especially disrupt, a successful transaction has to be front-and-center before the consumer. They must be accountable. No more blaming  some mysterious third party that still hides behind the curtain.

If Gen X and Gen Y are to follow the road back into the marketplace, it’s time for the industry to address the real estate process. Like McDonald’s once did for hamburgers, it’s time for REALTORS to focus on the process of selling homes. Otherwise consumers will remain confused, befuddled, and mostly afraid of the man behind the curtain. Unlike Baby Boomers, Gen X and Gen Y won’t ever return to the days of “trust me” business relationships. For them, every transaction great and small must be open to inspection, scrutiny – and most of all, understanding.

It has already happened recently. When Cash for Clunkers offered free government money to buy cars, consumers jumped on it fast and furious. The amount offered wasn’t nearly as much as the first time home buyer tax credit, but consumers took immediate advantage of clunker-dollars because there are no curtains left in the car business. Every aspect of the car transaction is clearly understood today – from manufacturer rebates to in-house financing and clear-coating up-sells. Consumers know exactly how it’s going to happen when they hit the showroom, drive the car and then match wits with the sales manager. They know who to hold accountable if financing doesn’t come through; and later, when servicing the vehicle is required. After accessing the inventory “data” online, consumers can make rapid car purchase decisions because they can understand, anticipate and manage the car purchase transaction.

That still remains largely untrue for the real estate transaction today. It’s not enough to just provide data and blog entries; it’s time to open the books and let the consumer understand the process. It’s about transferring control from the practitioner to the consumer: and in an era of the best prices and financing, it’s about the only thing left that hasn’t happened to bring the consumer back to the table.

And until it does, the consumer will remain cautious, and the market flat.

  • Great article Matthew, and I agree with most everything you bring to light … however, the biggest gremlin that the industry can’t seem to conquer are the banks!

    Until the banks (and mortgage companies) get in line with this thinking nothing will change!

  • Great article Matthew, and I agree with most everything you bring to light … however, the biggest gremlin that the industry can’t seem to conquer are the banks!

    Until the banks (and mortgage companies) get in line with this thinking nothing will change!

  • I wholeheartedly agree…. and what a challenge it will be to design, create and deliver the information about the process of real estate! You have given my task list a huge jolt – as I was focused on delivering data – (albiet, with some analysis applied) My mind is now whirring on how to “Apple-ize” our website.

    Thanks you! Always a pleasure to read your posts.
    Brell

  • I wholeheartedly agree…. and what a challenge it will be to design, create and deliver the information about the process of real estate! You have given my task list a huge jolt – as I was focused on delivering data – (albiet, with some analysis applied) My mind is now whirring on how to “Apple-ize” our website.

    Thanks you! Always a pleasure to read your posts.
    Brell

  • Matthew Ferrara

    Art, I think you’re on to something with the Banks having the same challenge as we do – to bring their part of the process out of the shadows. To some degree, though, it will really fall on the REALTOR to make the banking part of the process transparent, I think, because in the consumer’s mind, that’s what they hire us for. It’s no different than hiring my lawyer; I don’t expect the judge to make the legal system more transparent for me – but I do expect my lawyer to do it. Still, everyone has to understand that the consumer needs more transparency before they come back into the marketplace for “discretionary” purchases for the next few years.

  • Matthew Ferrara

    Art, I think you’re on to something with the Banks having the same challenge as we do – to bring their part of the process out of the shadows. To some degree, though, it will really fall on the REALTOR to make the banking part of the process transparent, I think, because in the consumer’s mind, that’s what they hire us for. It’s no different than hiring my lawyer; I don’t expect the judge to make the legal system more transparent for me – but I do expect my lawyer to do it. Still, everyone has to understand that the consumer needs more transparency before they come back into the marketplace for “discretionary” purchases for the next few years.

  • Matthew Ferrara

    Brell, I hear you! It’s so easy to get caught up in the “send them stuff!” mind set (more listings, more neighborhood info, more photos, etc) that we sometimes forget to send them “guidance/knowledge” instead. If you look at many real estate websites, you’ll see that they fall into that trap: all the stuff you want, but no real guidance on what to do with it! We need to extend that into the communication channels, and that means positioning our agents in the middle, more, too. Thanks for stopping by and commenting. I appreciate it!

  • Matthew Ferrara

    Brell, I hear you! It’s so easy to get caught up in the “send them stuff!” mind set (more listings, more neighborhood info, more photos, etc) that we sometimes forget to send them “guidance/knowledge” instead. If you look at many real estate websites, you’ll see that they fall into that trap: all the stuff you want, but no real guidance on what to do with it! We need to extend that into the communication channels, and that means positioning our agents in the middle, more, too. Thanks for stopping by and commenting. I appreciate it!

  • Linda Fiunch

    Good article. I think that Coldwell Banker is on target with their HomeBase Program!

  • Linda Fiunch

    Good article. I think that Coldwell Banker is on target with their HomeBase Program!

  • I dont know Matt……i agree that the process remains somewhat shrouded but the notion that it is actually keeping buyers, (of whatever generation) out of the market is a huge oversimplification. This is the most complex set of market factors since 1929 and to lay the retincence of potential buyers at the feet of Realtors and brokers or lack of process transparency doesn’t do justice to the complexity of things.Easy on the rants. Youre not doing anyone any favors with this and its starting to sound like you are being provacative just to get the conversation going. Now whos the guy behind the curtain.No offense meant, just my take on it.

  • I dont know Matt……i agree that the process remains somewhat shrouded but the notion that it is actually keeping buyers, (of whatever generation) out of the market is a huge oversimplification. This is the most complex set of market factors since 1929 and to lay the retincence of potential buyers at the feet of Realtors and brokers or lack of process transparency doesn’t do justice to the complexity of things.Easy on the rants. Youre not doing anyone any favors with this and its starting to sound like you are being provacative just to get the conversation going. Now whos the guy behind the curtain.No offense meant, just my take on it.

  • Carol M. Tworek

    Many of the GenX/Y buyers I have spoken with while totally knowledgeable of the housing inventory have no idea on how to actually start the process of purchasing real estate. We need to be counselors and educators and stop waving that “magic wand attitude” of how complex the closing process is.

  • Carol M. Tworek

    Many of the GenX/Y buyers I have spoken with while totally knowledgeable of the housing inventory have no idea on how to actually start the process of purchasing real estate. We need to be counselors and educators and stop waving that “magic wand attitude” of how complex the closing process is.

  • Matthew Ferrara

    Exactly! It’s silly of us to think that “new” buyers and even “first time sellers” really know how the real estate transaction works – just because they know what homes are available in the market. If you’re a Gen Y’er, you’ve lived AT HOME, IN A DORM and in an APARTMENT. You don’t know ANYTHING about heating, siding, insulation, foundations, inspections, appraisals, etc… The industry has definitely made an “equation” error: Tech savvy buyers don’t mean real estate savvy. If we correct that error, we suddenly find ourselves in a much better position than we thought! Valuable!

  • Matthew Ferrara

    Exactly! It’s silly of us to think that “new” buyers and even “first time sellers” really know how the real estate transaction works – just because they know what homes are available in the market. If you’re a Gen Y’er, you’ve lived AT HOME, IN A DORM and in an APARTMENT. You don’t know ANYTHING about heating, siding, insulation, foundations, inspections, appraisals, etc… The industry has definitely made an “equation” error: Tech savvy buyers don’t mean real estate savvy. If we correct that error, we suddenly find ourselves in a much better position than we thought! Valuable!

  • Matthew – having been a customer myself in the last few years for an automobile, I agree that the car buying process is easier but not because the web and dealerships have made it easier. It’s easier because if I want a Honda Pilot, I know what they look like, drive like and have as features. If I want to compare a BMW and a Mercedes on mileage in the city as well as warranty info, I can do that without leaving my house. The only thing that might sway me one way or another is how far I have to drive to “test drive the product” and do I have any relationship with a dealer.

    In real estate, it’s much harder to find that “Honda Pilot” of a home because each home is so unique – location, condition, neighborhood amenties.

    I do agree though that our level of service before the sale could increase as an industry. If a used 1984 Buick LeSabre has 15+ photos on a website so I know how many cigarette holes there are on the front seat upholstery, I at least deserve 15+ photos on that $500K tudor, don’t you think?

  • Matthew – having been a customer myself in the last few years for an automobile, I agree that the car buying process is easier but not because the web and dealerships have made it easier. It’s easier because if I want a Honda Pilot, I know what they look like, drive like and have as features. If I want to compare a BMW and a Mercedes on mileage in the city as well as warranty info, I can do that without leaving my house. The only thing that might sway me one way or another is how far I have to drive to “test drive the product” and do I have any relationship with a dealer.

    In real estate, it’s much harder to find that “Honda Pilot” of a home because each home is so unique – location, condition, neighborhood amenties.

    I do agree though that our level of service before the sale could increase as an industry. If a used 1984 Buick LeSabre has 15+ photos on a website so I know how many cigarette holes there are on the front seat upholstery, I at least deserve 15+ photos on that $500K tudor, don’t you think?