February 2009

DOJ & NAR SETTLE SUIT – It looks like everyone’s coming up roses!

REALonomics Editorial

There is an old saying, “After all is said and done, more will be said than is done.” The long battle between the Department of Justice (DOJ) and the National Association of Realtors (NAR) was declared “settled” today.

Not so fast! After a reading of the Final Judgment document, REALonomics offers the following cursory observations:

• THE GOOD: NAR cannot prohibit the distribution of full MLS listing information;
• THE BAD: Local Associations cannot engage in unique policies about local listing distribution;
• THE UGLY: NAR must report to the DOJ quarterly…this ain’t over, folks;

After all has been said and done, more has been said…and spent…than done with respect to how the real estate industry under the leadership of NAR has moved from its control model to a transparent model that will unleash the kind of innovation and consumer-centric services we need.

Furthermore, the DOJ has now completed one of its central objectives, to position itselfself as the sole arbiter of real estate property information access, all local associations and members of NAR and more importantly, as we have said before, to eventually control services and commissions.

Mark this down and highlight it: When the DOJ does anything under the banner of “public interest” there is a north and south point of reference, depending on one’s facing. Decide for yourself what this important section of the settlement might mean to the industry, long term and short term (highlights ours):

The big loser here is actually the industry itself, the thousands of broker/owners and yes, temporarily, even the consumer. NAR will remain under the DOJ microscope for some time to come. This entire debacle, we predict, is the precursor to mandated services and commission control. In this case, we hope to be wrong. The solution, we have long contended, is a reinvention of our models, how we use and distribute property information and finally, how we best serve the consumer, our ultimate client.

The settlement serves no real purpose yet! It’s just more of the same old square dancing between NAR and the DOJ. But watch out when people say it means nothing fail to see the overall DOJ strategy fuel by anti real estate indutry sentiment from consumer watch dog groups.

PRINCIPLE: It’s about the MONEY, stupid…commissions. This is just the beginning of a long death march toward more national scrutiny. We are going to tango with the DOJ again. This is not really about VOWs and property information. It truly is about US, the industry and our practices that smell of control and dominance and to quote the DOJ, anti-trust inclinations.

BIG WINNERS: The non-brokers, non-industry innovators and the neo-brokers are the big winners here. The “judgement” is a precursor, nothing more, nothing less. It’s the swinging open of a previously locked door so that we can see what’s on the other side. It’s what lawyers call “precident” and “legal trending.”

BIG WINNERS: Transparent advocates. It will be impossible to thwart the Democratization of Real Estate in an ultimate sense. This decision is like a strand of DNA but not the entire structure.

True, NAR may now face restrictions on its traditional control tactics but there’s more to the story when we recognize that competitors are waiting in the wings to bring open-sourced property information models to the forefront by empowering property owners to do whatever they please.

Our issue as an industry remains completely unchanged. Why haven’t we been able or willing or both to reinvent this industry into a vibrant, consumer-centric model that both empowers users and delivers adequate and sustained profit to broker/owners. The short answer is we don’t know how to do it!

For now we will simply continue the NAR/DOJ dance until one of them collapses. Does anyone think the DOJ will collapse?

READ THE Final Judgment.

REALONOPOLY – Does Anyone Still Wanna Play this Old Game?

In a previous post (Nori’s Leaky World) we spoke about the real estate industry being built, in part, on a control model.

Throughout our history we have deployed control-based business models. Like the real game of Monopoly® our industry has created its own market game board governed by a set of rules we wrote and occasionally edited to extend our control.

During previous eras an owner’s business model was based largely on mechanisms designed to control information, markets, brands and for a long time we even tried to control the real estate agents who were part of companies.

It is equally important important to note and to admit that the real estate industry has historically attempted to control the consumer with respect to our business models utilizing our clever control over access to property information as the primary mechanism for doing so.

Control and Dominance

Large segments of the real estate industry and its core service providers still engage in Realonopoly, a game about market control and dominance. In the game of Realonopoly we carve out spots within defined markets…we then seek to control our position, until, as we have all experienced in the game of Monopoly®, we can no longer pay the rent; a position in which too many owners find themselves today.

Within real estate, mortgage and title companies, creating one’s board is the first initial step; everything flows from there. Position on the board can mean power and power typically equates to a kind of control measured by muscle flexing. Control has historically been everything in the real estate industry.

The ultimate control was consumer control.

Losing control creates a depression and a void…a crack where others can slip in. Yet, it is the contention of REALonomics that each era in the historical timeline of the real estate industry unravels when control is challenged and the challenge typically stems from a change in informational technology…the means by which people gain access to real property data.

Collaboration and Community Forcing Change

Business models typically change when the old models are confronted by new technologies and people empowered by concepts of innovation. Most of the change in business modeling is induced by innovation driven primarily by advances in technology. These advances in real estate technology create a “democratizing” of information, which then empowers others to innovate and challenge the control status of the prevailing models.

This is precisely what has taken place in the real estate industry. REALonomics has presented this as the Democratization of Real Estate, a time where the industry loses its grip on the game of Realonopoly and finally is forced to abandon its position in favor of a new board game. Think of this concept as three distinct eras as follows and notice how transitions occur when new technology is introduced…then, notice how control is relinquished as information is decentralized and ultimately democratized.

Examine the following illustration, extracted from our archives. It demonstrates the evolution of the real estate industry’s business models.

Control works well in business model climates where informational access and free exchange are blunted, where collaboration is limited to the controllers and where the rules only change when the controllers are finally confronted by free thinking people who are initially labeled as rebellious fringe lunatics.

We have now entered an economic era with a new personality being formed by collaboration and communities, rather than control and corporate bureaucracies. Each consumer who is empowered with Internet access is empowered to shape our business models and help us write the rules that will govern The New Real Estate Economy.

There is a new board game emerging that will redefine how we will play the real estate game tomorrow, next month, next year and for quite some time in the future. It’s now a game without many rules, one of collaboration and community, of open, free-flowing dialogue where one person is just as powerful as a group. How do our current models stack up to his new reality.

The question we ask is “Does anyone still want to play the old game, Realonopoly, a game in which we predict there will be no winners?”