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On the Road to Convergence

The residential real estate market is approaching the mid-point of the second quarter of 2014. We are well into the spring, and all signs point to a very productive year. Even now, the magic of Memorial Day weekend and the start of the summer season has begun to sound in our consciousness. As I write this, the NAR REALTOR® Party event in Washington, D.C. is approaching. By the time the industry comes up for air, it will be August again. This is a great time to pause to look around and take stock of the current industry forces and dynamics that will mark our lives, businesses and careers for the third and fourth quarter of 2014.

The current industry dynamic is much more under the surface than in years past. That is largely due to the fact that the industry and the marketplace are now exhibiting and manifesting actual changes rather than the threats and trend indicators we have been monitoring and reacting to over the past several years.
There is a sense of calm in the current marketplace. It is almost as if the industry has tired of being threatened and hassled about the “future” and has simple resigned itself to getting it over with.

What are these convergence patters forming, what dynamics do they reflect and how will they impact the marketplace, transaction and industry?

A critical element in understanding the current market and industry dynamic is understanding how convergence works. The folks who produce the Reese’s Peanut Butter Cup candy have been trying to explain convergence for years. They take the taste and qualities of chocolate and mix it with the equally unique properties of peanut butter and create a third and completely different taste of a branded candy.

Of course, one can still monitor specific trends and identify freestanding motion paths across the real estate marketplace. However, the more interesting activity has now become watching two or more unrelated forces crash together and form a totally new force field.

A classic example of convergence can be found in the current MLS environment. The industry has reached a relatively universal agreement that the classic traditional MLS is either unable to or is simply unwilling to move with the times and circumstances. Over the past few years, its failure to even consider changing its role or developing its leadership potential has been puzzling and annoying to those who have been attempting to bring their brokerages and other entities into the present.

Over the past few months, it has become increasingly obvious that the classic MLS is now on the endangered species list. But even more interesting are the forces now converging to accelerate and stage this downfall. The three most vibrant MLS predators are high-production agents through their “off MLS” marketing practices, consumers through “Community’ marketing programs and the largest brokerages in the country through the Realty Alliance’s efforts to design, develop and implement its listing diversion program. Note that none of these three groups are competitors; rather, they are customers and consumers who are simply unwilling to tolerate the existing experience. Making this situation even more amazing is the fact that among the three contenders for developing and building the MLS “killer” system is one of top MLS system vendors in the industry. In no other industry would such a situation be permitted.
Another example of how convergence is impacting the industry can be found in the dramatic expansion of the listing portal. Ignoring for the sake of this discussion the competition between Zillow, Trulia and REALTOR.com, the fact is that the activities of the portals have now converged with the growing power of the new consumer to create a whole new market configuration. Like the volcano that rises from the ocean floor to form an island, the portal has now become an essential player on the residential real estate landscape. The industry watched with great interest over the past five years as a new “Internet”-powered consumer arrived, developed and emerged as a major market power.

At each step of the way, consumers clearly announced through surveys, actions and elections what they were looking for with respect to a real estate experience. At each of these steps, the market examined the request and summarily rejected it as being too radical and not in the interest of the status quo. In so doing, it created the vacuum that nature so abhors. Into this vacuum grew the portal and now, five years later, the portal has become a permanent and potentially expensive part of the transaction process. The industry is currently considered from what source this new expense will be paid. There is really only one such source available.

The third convergence that is even now poking its head through the surface involves standards.The industry and the market has long prided itself on the fact that “it didn’t need no stinking standards.”  It accepted as a matter of pride distinction that it was the only industry still standing in the North American economy without articulated standards and quality assurance processes. This convergence has an equally unexpected cast of sponsors.

The first of these surprise sponsors is the National Association of REALTORS® (NAR). Lead by its visionary CEO Dale Stinton, NAR has declared that organized real estate is simply not positioned correctly to meet the challenges of the new industry.  A number of NAR reforms and initiatives are being prepared to remedy this situation. The first of these efforts can be found in a recently released “organizational realignment” report that establishes a number of new standards under the catch phrase “Mandatory Core Standard.”

Converging with these efforts are the current initiatives of the Consumer Financial Protection Bureau (CFPB). Only four years old, this new industry force has already supported consumer empowerment with radical changes and standards in the area of student loans, car loans, credit cards and, yes, home mortgages. A close and careful monitoring of current CFPB activities easily sustains the growing sense that given the fact that homeownership is clearly the most significant financial transaction the CFPB, already in the brokerage office inspecting mortgage programs, will soon expand its role and influence in the real estate transaction.  Interestingly enough, one of the CFPB primary avenues of regulation is through standards. As in the cases above, convergence is not being driven by competitive forces but rather by those with specific views regarding consumer experience.

Take some time out of your busy spring and summer schedule to track and appreciate the impacts of convergence in our industry. Whether through MLS regression, portal expansion or standards proliferation, our industry and marketplace will be measurably different by August.

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