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Op/Ed

Artificial Intelligence (AI) in real estate: Negating or monetizing an agent’s experience?

There is a growing interest and concern regarding the role of artificial intelligence in real estate, but most arguments miss the core of what makes an agent appealing.

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Have you ever emailed or texted someone, and subsequently opened Facebook on your phone to immediately see that person in your news feed?

You read the entire terms of service when you downloaded that app, right? So you remember agreeing to every bit of your phone’s hardware and software recording and interpreting the signals that your everyday actions are creating (just nod your head yes—it’s watching you right now).

Artificial Intelligence is seeing tremendous growth in consumer-driven industries. It is the ability for software to learn and adapt to consumer behavior via live feedback. Cars, websites, wearables, and apps are becoming more intelligent and adaptable.

We’re seeing huge advances in the affordability of AI software that match the exponential growth of hardware’s computing power.

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Simultaneously, human labor in developed countries is increasing in cost. Minimum wage laws, increasing liability, and rising health care costs are pushing employers to replace labor with technology. McDonald’s employees become kiosks that order Big Macs. Chase Bank tellers are replaced by apps that scan and deposit checks. Companies like Circuit City and Borders Books shutter their stores as websites more efficiently serve their customers.

How AI intersects with RE

Intelligent software has massive potential for creating technology that changes labor markets. Real estate labor is a natural target, and a couple of recent pieces got the ball rolling this past week. Russ Cofano penned a broker outlook that viewed “cognitive computing” not as a threat to labor, but an asset to the baseline of real estate’s agent intelligence:

“So here’s the question. What if cognitive computing enables agents to be better professionals and make better recommendations to their clients? What if access to cognitive computing power, and the data necessary to power it, becomes the 21st century equivalent of the MLS utility?”

Further, Cofano states, “Cognitive computing has the potential to add massive value to the real estate brokerage value proposition and do for agent professionalism what no other initiative could touch.”

While the piece focused on the superior delivery mechanism (Upstream vs. the MLS), it provided support to the idea that brokers could adopt intelligent data systems to improve agent capabilities industry-wide.

Not surprisingly, a different take came from Rob Hahn, focused on the costs of repetitive labor and the likely evolution:

“The $6 billion question is where real estate brokerage services fit in the spectrum of services if we put McDonald’s order-taker on the one extreme and the Chief Engineer of Nuclear Fusion Reactors on the other extreme in terms of specialized skill and knowledge.

I think most of my readers know the answer. Real estate is far, far closer to McDonald’s than it is to McDonnell-Douglas.

…rote procedures and manual inputs are being displaced by technology. Why would it be any different for the rote procedures and manual inputs in the real estate business?

Answer: it won’t.

Those real estate agents who survive will have to be ‘upskilled’ and focus on niche areas or ‘be equipped to handle smart systems.'”

Comparing two views on AI

So we have two very different views of software intelligence’s effect on real estate agents. In one, brokers might adopt cognitive computing measures to improve agents’ core capabilities to serve consumers. They improve and survive as a unified group of forward-thinking adopters.

In another, AI wipes away the entire foundation of repetitive services performed in real estate. This debases the masses of agents and eliminates the need for their services. It leaves only the specialized practitioners above water when it’s done.

It would be remiss of me to gloss over the McDonald’s analogy. The skills that allow agents to survive in their occupation can’t be crammed into a single linear comparison. It seems prudent to point out that the comparison of rocket scientists, real estate agents, and Egg McMuffin order takers should be complex.

In recent real estate history, replacing a repetitive procedure in the sales process with software has simply changed the sales process. It hasn’t removed the sales person. There are graveyards full of real estate labor would-be disruptors who have a poignant understanding of that history.

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The intrinsic skills that keep real estate agents strongly entrenched in the industry seem to center on two things:

  • Personalized intelligence (unique local knowledge, negotiation, transactional experience)
  • Personal relationships (emotional IQ and sphere building)

The latter is almost invariably ignored in real estate labor disruption conversations, yet it’s probably the single greatest barrier to disruption. People list with people. Sellers’ top three requirements for a listing agent are reputation, honesty, and trustworthiness.

AI is the intrusive stalker in your phone. Thelma is the amazing woman who comes to book club and walks with you on weekends. H.A.L. 2000 can’t touch her in terms of trust. This should be the overriding theme of every disruption conversation.

On to bottling knowledge

In the future, personalized intelligence might be a different story. If part of the value of exceptional agents comes from what they know from experience, the way they negotiate, and how they interact with clients, how much of that could be learned by an exceptional AI platform?

Could exceptional agents allow themselves to be profiled by their devices and capture that intelligence to monetize it? Would brokers be able to conglomerate the practices and intelligence of their best agents to provide a unique set of processes for their agents and answers for their clients that aren’t available to the general public?

It might not be as crazy as it sounds. Think about the vast amount of information that could be gleaned from one agent over a single year with all of his/her devices in “AI learn mode.” Spoken word, tone, movement, visual cues, timing, location data, digital communication, social engagement, contract negotiation—all of these and more could be processed into a database describing when, where, and how top agents interact with their environments to close more sales transactions.

Who owns the AI?

While the aforementioned could be done on an industry-wide basis to inform brokers as a whole, it might also be led by savvy top producing agents or brokers who would profit from it as a differentiator. Melded with predictive analytics on consumer behavior and market statistics, the right set of personalized intelligence could tell an agent when and where to meet a consumer, and how to begin interacting with that person to provide a greater likelihood of a client and a sale.

Of course, until personality can be direct-ported into the agent’s brain, we still need a human with emotional IQ to show up and close the deal. The creation of a relationship might be initiated by data, but it’s going to be sealed with emotion.

ThelmaRealtor software version 2.5 could be an AI profile that’s sold to brokers or new agents as a foundational of intelligence for their careers. Whether these benefits and profits go to the real Thelma, her brokerage, or the industry depends on who adopts the technology first.

Back to the people

If that’s all a bit too much sci-fi, let’s get back to the basics. There are huge opportunities for the brokerage community to leverage greater technology and AI to improve how they do business. Those that do will have valuable differentiating tools and skills.

Still, Thelma v. 2.5 isn’t going to wipe out the physical agents on the ground. Technologists with armies of software agents will continue to stare at screens, while real life agents are cementing unbreakable relationships with real people. Consumers will work with agents they view as trustworthy, no matter what amazing intelligence is dangled in front of them by H.A.L. 2000 Realty.

It’s true that consumers want more intelligent real estate transactions. Before that, though, they want trust. AI has great prospects for helping brokers and agents improve their business intelligence, but it’s not going to take the human element out of the transaction any time soon. The real Thelma’s role may change, but she still owns the most valuable, subjective, and defensible portion of the real estate transaction: the relationship.

#AIinRE

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Sam DeBord is managing broker of Seattle Homes Group with Coldwell Banker Danforth, and 2016 president-elect of Seattle King Country REALTORS®. You can find his team at SeattleHome.com and BellevueHomes.com.

Op/Ed

True success is measured by how often you can enjoy a nap

(EDITORIAL) We spend so much time trying to emulate what seems like success – what if we just followed our own path?

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Some classic R&R

According to actress Sarah Paulson, true success is measured by how often you can enjoy a nap. Alright, that doesn’t make any sense right now but once you listen to her reasoning, you can have that “ah-ha” moment.

You might know Sarah from her recent roles on American Horror Story and The People v O.J. Simpson, success that she is now experiencing later in her life. For her, it couldn’t have come at a better time.

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The truth about success

These days, Sarah can now enjoy “better and deeper” success as a more seasoned actress. “When you’re young and things come easily to you or if you reach the stars right out the gate, then you think that that is how it works,” she shares.

As a young actress, she was young and eager, taking any and every part that was offered to her. The goal was to not be forgotten, to stay in the limelight. For her, success meant being Julia Roberts.

However, all of the daydreaming and emulating left her unable to figure out what she was good at.

Harness the humility

Often when people picture prosperity, they only consider the end result. The goal is to get there, fast, but the truth is that everyone’s journey is different. Seeing your idols in their prime makes it easy to forget that they had moments of rejection too.

You should harness the humility this breeds, because when the success does come you can truly enjoy it. Being accomplished at a young age does not mean that it wasn’t earned. However, immaturity can make it harder to deal with. Just look at the paths of former child stars.

Your success can be different and feel different but at the end of the day, it needs to be yours.

Choose what it means for you

For Sarah, success is choosing when she wants to work and when she wants to nap. The power to choose what acting roles she wants is something she never imagined when the goal was simply to become a megastar.

It may have taken her a while to get there, but I think she will agree that it this type of success is well worth the wait.

#chooseyourownpath

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Op/Ed

Working with liars without going morally bankrupt yourself

(EDITORIAL) People are liars for about a million different reasons – here’s how to sniff out the bull and come out the other end smiling.

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liars

Pants on fire

“The honest man invariably succeeds in business,” Mark Twain once wrote, “until his path crosses that of the ingenious man, who is willing to allow the honest man to be so, to his own disadvantage.”

Let’s face it, no one wants to be taken advantage of or lied to. However, in a world teeming with people wanting our attention, it’s likely that we will eventually be the victims of those who try to lie to us, whether baldly to our faces, or through the relative safety of an email. Beyond just the efforts of individuals who try to lie to us, we’re also confronted with a plethora of misinformation, whether it be in the form of partial truths, or complete fabrications.

That Twain quote up above? He never wrote that; I just did. It’s completely made up. See how easy it can be?

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There’s no magic tell

So when we’re looking for an answer to how to detect lies, there’s no uniform reliable way to determine when we’re being lied to. Lie detector test? There’s no such thing. A polygraph machine detects only physiological changes in the subject. A trained polygrapher has to determine if those changes mean that the subject is being deceptive or not.

All the physical and verbal cues that are common when people aren’t telling the truth? You know, liars look up and to the right because they’re concocting their story. Or they touch their face and cover their mouths. Or use words that try to distance themselves from the lie, like an absence of first person pronouns.

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These are true in some cases, and not in others. Like just about everything else in life, it depends. Some people may do all of those things and be lying directly to you. Others will do those same things, but are just exhibiting nervous tics due to being questioned.

And it’s not easier for the experts. Research conducted by the University of Portsmouth identified that law enforcement officials often do no better than the average layman when attempting to detect a liar. Both groups barely exceeded the 50/50 expectation (either someone is telling a lie, or they aren’t) when trying to figure out what’s the truth.

What can we do? Instead of looking for physical clues of dubious value, look instead to a factual analysis of what you’re being told, and the motivations of the people behind them to be honest, dishonest, or somewhere in between with you.

Does it pass the smell test?

When looking at a situation in which you’re not sure if you’re being lied to or not, stop and consider the information in question. Most things that are too good to be true usually are. “Trust, but verify,” said Ronald Reagan, and he was right.

You should always trust your own instincts when something doesn’t feel or sound right. Inspect what you’re being told, if you feel it deserves further scrutiny. Most facts are checkable, and while you shouldn’t feel the need to investigate everything you’re told or see it in every detail, don’t be afraid to check those that just don’t seem right to you.

Why lie?

People can have multiple reasons for which telling a lie may be perceived as the safer course than telling the truth. There’s a reason, after all, that the Cadet Prayer at West Point includes the line, “Make us to choose the harder right instead of the easier wrong, and never to be content with a half-truth when the whole can be won.”

If you think you’re being lied to, stop and take yourself out of the equation for a moment. Try to put yourself in the other’s position. What would they have to gain or preserve by lying to you?

People have been known to lie for wide ranging reasons: greed, apathy, fear of disappointment, self-preservation, self-aggrandizement, or because they’re sociopaths, just to name but a few.

For example, studies on the percentage of resumes that contain at least some false information peg that number between 46 percent and 63 percent, depending on the level of falsehood reviewed. Common lies included salary, responsibilities, and ranged all the way to fake positions at ersatz companies, along with phony degrees. Some of that is an ethically spent attempt at standing out from a crowded field of job applicants. Some of it is to feel better about one’s own self and accomplishments.

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That self-aggrandizement is often behind the acts of stolen valor, in which individuals attempt to claim that they had military service or were stationed in dangerous active duty assignments when they often were not. These individuals have been caught claiming ranks and honors that they weren’t entitled to, leading to debate on whether being a liar is a form of free speech or not. In this instance, the U.S. Supreme Court ruled that it’s morally bankrupt, but not against the law.

For others, you’ll be able to understand their need to lie by understanding what it costs them to tell the truth. Are they afraid of being fired, even when you’ve got them on video doing the very things that they deny? Are they afraid of disappointing their loved ones by revealing a spending habit gone out of control, and therefore lying about the bills? Again, it depends.

By taking yourself out of the equation and trying to understand their motivations not to be honest with you, you can come one step closer to finding out why they feel they win by destroying your trust.

Mirror, mirror, who’s the fairest?

Let’s be honest with ourselves for a moment, shall we? We all want to feel that we’re important, smart, and attractive, in whatever form means the most to us. Sometimes, even if we won’t admit it to anyone, including ourselves, we’re perfectly happy with reveling in the feedback of what’s socially termed as the “little white lie”.

This makes us human, but it doesn’t make things any better for us in the long run. We owe it to ourselves to be self-critical and accept the honest feedback from those around us whom we trust enough to ask it from, even when it stings at times.

It would be great if there were a way to know conclusively at all times when we were being told the truth, whether in person or online, but it just doesn’t exist yet. And as complex as humans are, it may be some time yet before a fully vetted version of a tool to do so comes about. In the meantime, we have to think alongside those who we interact with and try to understand their purposes, as well as our needs, as we search for the truth.

To paraphrase Tarantino’s adaptation of Jackie Brown, there are some people who you can’t trust, but you can always trust them to be them. Take a moment to consider those around you and figure out which camp they belong in: those you can trust, or those that you just have to trust to be them. If there are more in the latter group than the former, shouldn’t it be time for a change? After all, there’s no need to lie to yourself any longer.

#Trust

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Op/Ed

Brokers, agents taking on too many listings and hurting homeowners: How many is too many?

With technology connecting agents and consumers in new ways, the industry has responded by taking on more and more listings, but who really pays the price? Homeowners. Let’s look at a new study on the topic.

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It stands to reason that with a finite number of work hours a week, agents, no matter how efficient or technologically empowered they might be, can handle a limited number of listings successfully at any given time.

Yet some brokers and business models today—and agents themselves–are flirting with disaster by taking on too many listings to reap rewards from a system built upon commission-based compensation. The emergence of discount models that seek to increase agent productivity with technology based tools may be making the problem worse.

It stands to reason that if this hamster wheel keeps spinning out of control, somebody is going to lose. Now there’s proof. The big loser is the home seller, but it stands to reason their disappointment will rub off on the agencies and agents that that push too hard for profits.

A new study published in the current issue of the Journal of Housing Economics, How Many Listings Are Too Many? Agent Inventory Externalities and the Residential Housing Market, was conducted by Scott A. Wentland, Xun Bian and Bennie D. Waller of Longwood University in Farmville, VA and Geoffrey K. Turnbull of the University of Central Florida in Orlando.

It found that agents who take on too many listings (15 or more) will end up selling them for 3.0 percent less and will take significantly longer to sell them (129 percent more time) than agents with modest listing inventories (2 to 7 listings).

Moreover, they found that home sellers are the victims of a system that rewards agents with inventories that are too large

Too Many Clients, Too Little Time

“Agents representing 15 or more listings may be trying to represent ‘too many’ clients at one time, resulting in a substantially longer marketing duration and an important source of illiquidity for numerous homes in this market…The compensation structure in the real estate brokerage industry constantly puts agents in situations where they must balance their own interests with various clients’ interests. Agents are rewarded only if the property sells, as traditional full service broker compensation does not take into account the effort exerted to sell a particular property,” the authors concluded.

The study looked at whether agents have an incentive to take on too many listings—at least from the point of view of their clients. Additional listings may represent additional broker commissions, but they also place greater claims on the broker’s time and energy, which in turn can have adverse sales performance consequences for their clients. The dilution of agent effort and agency costs by very large numbers of listings adversely affects home prices and liquidity, the study found.

The study consisted of 21,450 properties residential properties obtained from a Virginia multiple listing service (MLS) for the period April 1999 through June 2009. Roughly half of all listings were represented by agents with medium inventory, where the agent is representing anywhere from two to seven additional listings. Nearly 10 percent of listings were represented by agents with very high inventory where agent inventory exceeded 15 or more additional listings. Nearly 17 percent of listings in the data set were represented by agents with a high or above average number of listings, from 8 to 14 additional listings. Nearly 20 percent of homes sold with listing agents who had one or zero additional inventory on the market. The bulk of the low listings were likely represented by agents who work part-time.

Baseline results showed that a small increase in agent inventory is associated with a slight discount in price and a substantial increase in time on market. The magnitude of the marginal effects are small, which is consistent with the expectation that one additional listing may not impose a very high marginal cost. An increase in agent inventory (9 listings) reduces the sale price by only 0.6 percent and increases marketing time by 13.6 percent, or approximately $1,000 and 15 days on average, respectively.

However, if the listing agent representing a seller had a very high number of other listings (i.e., 15+), that home generally sold for approximately 3 percent less and remained on the market for 129 percent longer than a home listed with an agent with a more modest inventory (i.e., 2 to 7 listings). This amounted to 142 days compared to the reference group whose time on market was on average 110 days. Despite the fact that this group represented only 10 percent of their sample, the result was still striking.

Greater Inventory = Lower Price, Longer DOM

“It is clear from the results that there is a relationship between agent inventory and sales outcomes that sellers care most about: selling price and time on market. Greater agent inventory is associated with a slightly lower price and a significantly higher time on market,” wrote the authors.

The study also compared sales of agent-owned homes with homes owned by clients and found that agents generally sell their homes for approximately 1.6 percent more than client properties. Inventory competition increases the time on market by 26 percent for clients, but only 12 percent for agents. In sum, agent-owned homes still take longer to sell with additional inventory, but not as long as client properties. This supports the theory that the inventory effect is driven primarily by agent incentives.

In the end, the authors place blame on agents, not their brokers or business models. “The results imply that agent incentives to secure additional contracts and potential commissions generate negative externalities for other properties in their inventory. Greater inventory diverts selling effort from existing inventory, resulting in longer time on market for all houses in the inventory. Agent effort to list properties has a direct effect on selling effort itself—a relationship previously overlooked. Further, the effect appears to be causal as well, in light of the identification strategy of employing an owner-agent interaction. It is clear than agent incentives drive this effect,” they said.

This story was originally published on June 08, 2015.

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