This press release just hit the wires …
Okay. That’s interesting. Uber certainly disrupted the taxi business, so anyone interested in real estate should probably pay attention.
What’s the angle?
Well, according to their press release they’ve come up with the innovative value proposition of cutting commissions …
“Uber Real Estate is disrupting the traditional real estate brokerage brick and mortar business model by reducing the transaction cost by up to 50 percent using their unique on-demand model.”
BUT … we should be open minded. After all, we were snarky about Bitcoin and missed out on a big pile of free money for adding no value.
Oops. Sorry, more snarkiness.
Back to Uber’s press release …
“You will never again pay a full commission using Uber Real Estate.”
“Consumers receive Uber – Like Execution with only experienced professionals, no more drama and only substantive yes or no, answers.”
“Uber Real Estate provides Broker and Broker Attorneys with ten to thirty years of experience to the company’s clients.”
“They actually do provide agency and work for the clients of the company as it should be …”
“Consumers just want to go online and get it done with Uber – Like Execution.”
“ …we are completely website driven. An Uber, mobile application, for Real Estate, is under development.”
So let’s consider what all this really means …
From a practical standpoint, for real estate investors, we’re not sure there’s much direct impact.
Maybe if you’re flipping homes on thin margin, shaving a few bucks off the listing commission means more beer money … and extra profit is always nice.
Of course, we think if you need the agent’s commission to make your deal pencil … you don’t really have a deal.
But that’s not the point. There’s a MUCH bigger picture here, which is why this blip of news caught our attention.
Uber’s a big brand with a powerful reputation for disruption. They claim they can disrupt real estate.
But they are NOT real estate guys. They’re tech guys. Just ask us to fix a website, and you’ll realize there’s a HUGE difference between the two.
And THAT’s the point …
We often say that what you think and believe will affect your actions … and your actions produce your results. So beliefs are at the root of strategy.
In this case, we see the solution being presented as the fruit of a core belief held by tech people … and many in the paper asset investing world as well …
… that real estate is a commodity, and brokerage is about facilitating transactions.
They think that’s a given. We’re not so sure.
But because SO many people outside real estate believe this also, from time to time they attempt to enter the real estate arena with solutions which don’t really fit the actual problem.
In fact, the problem they’re trying to solve is actually what gives Main Street real estate investors opportunity.
Further, we’d argue that if they actually could solve the “problem”, it would dramatically change the opportunity that so many Main Street investors THRIVE on …
Real estate brokerage is inherently inefficient. And the reason is because real estate is NOT a commodity.
EVERY property, ownership, and location is UNIQUE.
Even two houses on the same street, built by the same builder, are different …
… based on their condition, modifications, seller motivations, financing, and many other factors unique to the property and people involved.
In this case, Uber is focusing on properties marketed to and by owner-occupants, which means the idiosyncratic preferences and financial capacity of the buyers come into play.
Last time we looked, no two buyers are the same either.
Even if you’re talking income properties (which Uber isn’t, so to Uber “real estate” is just houses for homeowners) … there’s the tenant mix, payment history, property management skill, expenses, etc.
On other words, real estate is a diverse, complex, messy hot-bed of drama, inefficiency, and opportunity.
It’s why the paper guys can’t figure it out on an individual property basis.
Paper guys have to pool everything together into a REIT or mortgage-backed security, so they can blend it all into a single commodity they can focus on.
But you can’t do that with individual properties owned by individual sellers being marketed to individual buyers.
So Uber’s going to cut commissions “by up to 50 percent” so sellers will “never again pay a full commission”.
Yet somehow with 50 percent less, Uber will attract “only experienced professionals” who will deal with real estate transactions in a drama-free, binary, “yes, no answers” way?
Yes/no binarism is the epitome of tech think … but not real estate.
Real estate at the homeowner level is about feelings … yes, “drama” … and it’s quite the opposite of binary. It’s more complexity theory.
Real estate agents are negotiators, not transaction facilitators. It’s all very squishy.
Maybe Uber’s next project will be to automate hostage negotiations, corporate mergers, or international diplomacy. Good luck with that.
Tech is GREAT for eliminating transactional inefficiency … and certainly there’s some of that in real estate brokerage. But 50 percent? Probably not.
The bulk of inefficiency in real estate transactions is the HUMAN component of the negotiation. The art of the deal.
The skill-set of a great agent is that of uncovering and understanding the unique circumstances of the property …
… AND the unique needs, wants, desires, goals, and objectives of at least two (sometimes there’s family, advisors, and other influencers involved) very different principals …
… and then negotiating through the extremely non-binary thoughts and emotions of both sides. And then, ultimately, getting a deal done.
This is why a SKILLED negotiator can get a GREAT deal.
So we don’t think there’s an app for that … nor will there be anytime soon because computers don’t do empathy very well.
Just ask anyone who’s called in to an automated attendant.
So while tech people bark up the wrong tree trying to solve the “problem” of transactional inefficiency in real estate brokerage …
… Main Street investors are busy CAPITALIZING on the opportunities created by the true cause of brokerage inefficiency …
Real estate is not a commodity and brokerage is not about transactions.
Just like the properties and people involved, EVERY single transaction is unique … and full of drama. Get used to it.
But that’s why real estate is both fun and profitable for those with the skills and temperament to embrace it for what it is.
Until next time … good investing!
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