Disrupting Realtors will make you rich

John Fulton
19 min readFeb 19, 2023
The people have spoken

Can you solve a $100 billion dollar gatekeeping problem?

Fortunes are made at the three way collision of new technology, new regulations and new behaviors. These three giant asteroids are headed straight toward traditional residential real estate.

Realtors are very much involved in the listing and purchasing of homes, but is it out of necessity, or are we cornered?

New regulations

The 5–6% commission is still considered the norm despite the fact its a 100 years old. As you probably know, the fee gets split between the seller’s agent and the buyer’s agent. Trelora took issue with the arrangement and let homeowners offer buyer-agents less than 2.5%. The CEO stated in an interview, “We’ve had bricks thrown through car windows, we’ve had our cars egged, we’ve had hate mail sent to our sellers.”

Oddly, in America, the buyer-agent’s fee isn’t paid for by the buyer, the one who enlisted their services. It’s paid for by the homeowner. This arrangement creates a situation where we see buyer-agents holding the homebuyer hostage for 2.5%. If the seller doesn’t want to pay their buyer’s Realtor, let alone a 2.5% fee, maybe their home will be vandalized, maybe not, but they almost certainly won’t be able to get their home sold. The fact that in the 21st century a home buyer can find the home all on their own, but we’re still paying buyer-agents tens of thousands of dollars is evidence that we have an issue with the system. It’s why we see some of the fed-up comments made by the homeowners pictured above.

Realtor fees are a $100 billion dollar gatekeeping problem, and antitrust officials and class action law firms are making the case that this arrangement, regardless of whether its just poor design, or poor by design, doesn’t allow for negotiations and we need new laws on the books. A massive class action lawsuit filed by Cohen Milstein targets the National Association of Realtors and makes the case that home buyers are being put behind a 2.5–3% paywall, and this is resulting in illegal price fixing. Rex Homes to my knowledge, was the first alt-brokerage to advertise an ‘all-in’ commission to sellers. 2% all-in; they didn’t offer the buyer-agent any commission, so the buyer would have to pay their own agent.

In January 2021, Rex released over 700 incriminating calls of Realtors refusing to show properties to their clients. These tapes have been submitted by the Plaintiffs as evidence. The National Association of Realtor’s motion to dismiss Cohen Milstein’s suit was denied, and the case will be decided by a jury trial. This will most likely make its way up to the Supreme Court, where we can expect a permanent injunction to be put into place that would outlaw buyer-agents receiving commission sourced from the homeowner’s equity. This would be a death blow to the buyer agent as we know it, and many brokerages as buy-side sales are half the revenue.

I realize real estate commissions is a boring topic, but if homeowners could save 1 trillion in fees every ten years, it would be one of the greatest financial comebacks in the history of capitalism.

New behaviors

If we started all over, would we rebuild what we have today or do it fundamentally differently? It seems to be the case that homeowners feel forced to use Realtors, perceiving them to be a kind of Toll you just have to pay if you want to cross. Seven hundred Multiple Listing Services, two million agent, the saturation of the REALTOR® brand — hiring an agent has been institutionalized so its very difficult to think and act independently as homeowners. Many homeowners just go through the motions, and it isn’t until settlement, when they see the closing disclosure and what they’re netting on the sale is $42,000 less than what it could have been if not for Realtors.

While this a very difficult problem to solve, its not impossible. In fact, the solution is inevitable.

Unlike Millennials, Gen-Z and Gen-Alpha were born into tech. They’re rethinking everything and are very open to doing things fundamentally differently. When they own most of the homes, and are mostly selling to each other, Realtors will not be opening the doors, blowing up balloons, scanning and emailing purchase contracts, or staking sale signs into the ground. My children are not going to believe that we used to pick up the phone and make a call to a Realtor, who would show up to the house, sit down at the coffee table and flip through a listing presentation binder for an hour before sliding over a big stack of contracts and paperwork.

“Dad, you paid forty two thousand dollars to sell your house?!”

“Son, that’s just the way it was.”

No, future homeowners will not involve Realtors. Try to picture what that new environment looks like. The founders that develop an environment that facilitates a seamless, permissionless and frictionless experience, stand to make a fortune that will increase in proportion to the rate in which the Baby Boomers are phased out of the market.

From an engineering perspective, there are three pillars propping up the current $100B market, making it very difficult to introduce better experiences and time saving efficiencies.

  1. The Multiple Listing Service. There are approximately 700 scattered across the country, the majority of which are cleverly owned by the National Association of Realtors (NAR) and require membership. Thus, its closed-off and centralized.
  2. Real estate agents. There are roughly two million agents, who are essentially the data entry organisms for those MLS’s.
  3. Portals. Zillow, Trulia, Realtor.com and the like, receive the MLS data feed of photography and housing data, and make listings accessible to the public. Before the internet, you’d have to walk into a brokerage and flip through their inventory binders.

The components of a real estate sale are straightforward. The supply needs to make itself available, ‘Active’. The buyer needs to deliver a purchase contract. The lender needs to fund the purchase. The title company transfers ownership.

I’ve sold dozens and dozens of homes, I can tell you, once that purchase contract is in place, Realtors take a back seat and the lender and title company are responsible for the sale of your property. The job of the Realtor has always been to just market the property. That is why it takes just 3 months to obtain your real estate license, whereas it takes thousands of hours to obtain a license to become an appraiser. The State Real Estate Commissions deems the Realtor profession to be of little consequence.

The real estate supply chain in a nutshell: A homeowner enlists an agent to sell their house. That agent uploads the photography and enters the housing details into their local MLS, which syndicates it out to consumer-facing portals like Zillow. Home buyers like what they see and contact an agent who books an appointment to see the property. That buyer-agent may call the listing agent, or book the appointment through the MLS if that scheduling feature is integrated. In that instance, the homeowner gets an Appointment Request text message. They can reply Y, or N, or suggest a different time.

How does this get disrupted in a wholesale way? Consider for a moment that the CD to MP3 format was an advancement in technology. But it was culture that took to iTunes, and Smart phone penetration pulled it all together. A very similar story is going to play out in real estate over the next couple decades. MLS’s lose relevance when authenticated sellers can list property on a barrierless platform, and transact directly with pre-screened buyers with tools and resources, both AI and human. Information about school systems and hiking trails is crowd sourced.

Zillow is not consumer-centric, they’re Realtor friendly

Zillow could do a lot of very helpful, innovative things, but they don’t want buyers talking to sellers. 70% of their revenue comes from capturing the buyer’s contact details, and selling the lead to a buyer agent, who pays thousands a month to be a “Premier Agent”. The only reason buyer agents agree to pay these exorbitant sums is because they can bank on receiving a 2.5–3% commission at closing, paid by the seller. Of course, if that gets upended, Zillow will have to rethink their business model.

Below is a map, with homeowner-generated icons, to tell the buyer where the hiking trails or campgrounds are, their favorite restaurants, etc. The future of real estate will be ‘disintermediated’, peer-to-peer, social.

Useful housing information is limited by virtue of Zillow not wanting consumers to talk to each other, and instead engage a buyer-agent who pays Zillow for the buyer’s contact info.

While Zillow is rightly applauded for making real estate listings accessible to the public, they are perpetuating inflated fees. Homeowners have been spending over a $100 billion a year Realtor commissions, then Zillow came along and wedged themselves in between consumers and Realtors to help themselves to about $4 billion of that commission each year. They didn’t change the rate in which homeowners buy or sell homes. Most proptech innovation does nothing to create economic value for homeowners or put hard-won equity back into the pockets of homeowners. They’re parasitic — leeching off the $100b commission market, not reducing it.

Zillow does not generate housing information.

They has an agreement with the 700+ MLS’ across the country to post the information. So who should own the housing information?

The seller generates it, they provide their Realtor with all the data points on a piece of paper called a seller disclosure — the Realtor simply does the data entry. Buyers and sellers should own their data. Housing records should not exist behind the closed-off MLS, but should instead be democratized through a free-entry, peer-to-peer platform.

The great un-conditioning

I’ll explain why Realtors have stuck around this long and detail the durable advantages of the traditional brokerage industry are, and why flat fee brokerages will never replace traditional brokerages. I’ll also explain why the future of real estate does not involve Realtors, what the new ecosystem will look like, and how a peer-to-peer, decentralized, consumer facing MLS will it will earn its founders billions of dollars.

Immediately after we’re expelled from our mother’s uterus, like being shot out of a cannon, the conditioning begins. It’s clear however, that Gen-Z are inclined to make up their own minds and choose products or services that their parents wouldn’t recommend or understand. Here’s what’s going on…

Access to Information: Younger generations have grown up in a world with greater access to information and alternative viewpoints than previous generations. This can lead to greater exposure to ideas and beliefs that differ from their own and the questioning of traditional beliefs and practices.

Social and Cultural Changes: The world has undergone significant social and cultural changes in recent decades, and younger generations have grown up in a more diverse and globally connected society. This can lead to greater acceptance of differences and a greater willingness to challenge traditional norms and beliefs. The connection economy has made it easy to believe that you’re not just a consumer, you’re also a producer of content. Your life, your home, your interests, should all be curated and published.

Technological Advancements: The tech enables this worldview. Younger generations have grown up with technology and are more comfortable with using it in their daily lives. This has led to a greater interest in and comfort with new technologies, and a greater willingness to adopt new technologies more quickly.

Born into technology: Younger generations were born into internet, they didn’t adopt it later like Millennials. Gen-z and Gen-Alpha have grown up in a world that is generally more secure and stable than previous generations. This can lead to a greater willingness to take risks and explore new ideas and experiences.

There are approximately 72 million baby boomers alive in the United States. When the last boomer dies, so too will the Realtor profession.

Unlike other middlemen, Realtors have stuck around

Despite internet, networks, technology and software, Americans pay the highest real estate fees in the developed world. Traditional brokerages can come and go, and many go out of business, many agents fail, but the model’s defensibility is quite durable. It should be pointed out that unlike stocks, entertainment, insurance and travel, there are moving parts in a real estate transaction. There are several stakeholders; home inspector, appraisal, lender and title company. Still, about 10% of the market sells by-owner, 700,000 people each year.

Durable advantages

The three months to acquire a real estate license is a low-barrier to entry, creating a steady influx of free advertising for the brand.

One study titled, The Costs of Free Entry. An Empirical Study of Real Estate Agents in Greater Boston, found that entry does not increase sales probabilities or reduce the time it takes for properties to sell, decreases the market share of experienced agents, and leads to a reduction in average service quality. NAR is the worlds largest trade group, their loyalty is to membership dues, not the consumer. The study found that a one-half reduction in the commission rate leads to a 73% increase in the number of houses each agent sells and benefits consumers by about $2 billion.

More nurses, more social benefit. More Realtors, fewer social benefits. According to Gallup, nurses are among the most trusted professional, Realtors are among the lowest. The Realtor profession struggles to make a case in the 21st century. A study titled The Superfluousness of Realtors show they do not pay for themselves, they add no value. Economists refer to their commission as a social waste: Fixed Commissions and Social Waste in the Real Estate Industry.

Regardless, these agents work for free, and they’re an outbound sales force army for the brokerages — a perpetual advertisement. Director to consumer brands have to rely on branding and exposure generating inbound interest. There are two million real estate agents, but just 7 million homes resell each year. There are not nearly enough homes to go around, but we can be certain a homeowner will always be within earshot of real estate propaganda.

Coldwell Banker, Berkshire Hathaway, Weichert, Compass, Keller Williams — these aren’t brands that have any attachment to consumers. They are generic and totally interchangeable. Homeowners are attached to the Realtor they know. You cannot tell the different between a KW listing and a Compass listing. Agents often move from brokerage to brokerage, it makes no difference to that agent’s clientele where they hang their license. Regardless of what brokerage they work for, the Realtor brand is front of mind, disabling consumer’s from a critical thinking standpoint. They’re on autopilot: I need to sell my home, I need to call a Realtor. This is precisely why brokerages are in the Realtor recruiting business. A flat fee brokerage however, is in the branding business and has to evangelize the flat fee concept. They salary agents and don’t have that free sales force to achieve reach frequency.

Are the so-called disrupters really disrupting anything?

Disrupting price, while delivering the same offline experience, will not make you a fortune. Disrupting the traditional offline experience will.

Rex Homes raised a whopping $145 million dollars and went belly up. Door dot com and Reali similarly raised millions and lost it all. So many have come and gone trying to disrupt price. They disrupted price within the old fashioned, offline experience, rather than offer a new experience.

The 2 million agents and 700 MLS ecosystem that’s propping up how property is listed for sale is not going to be undone by discount brokerages, iBuyers, flat-fee brokerages and the like.

Lets take a look at the five ways to sell your home:

  1. Traditional 6% brokerages
  2. Alternatives to traditional brokerages (Redfin types)
  3. For-sale-by-owner (Manually upload your home to Zillow. Hire an attorney to handle the paperwork)
  4. Alternatives to going FSBO (Pay a fee, get your home in the MLS, some professional help on the backend)
  5. Instant offers (iBuyers like Offerpad, Opendoor)

The current landscape:

iBuyers

Its telling that the most powerful proptech company in the world, Zillow, shutdown its iBuying business, declared losses of $405 million and laid off 25% of its employees. Offerpad is down 91.7%, Opendoor is down 81.6% and there is little chance they are bouncing back. The lesson to be learned here is, if you give homeowners fair market value, there’s demand, but no profit. Give homeowners a bad price, there’s profit, but no demand.

Homeowners feel that it’s one thing to have to pay a boat load of fees to sell your house, but if someone gets the value of your house wrong, thats fundamentally offensive. iBuyers, unlike local wholesalers, aren’t targeting distressed property owners, they’re trying to make wholesaling applicable to homes in good condition.

Gap in the market

The market currently consists of a bunch of tradeoffs. Instant offers are quick and painless, but come at a very high price. Hiring a Realtor is a painful, lengthy and expensive process, but feels safe. Flat fee brokerages are more affordable, but they’re not totally trusted, and even though they’ve reduced the listing commission, they still encourage the homeowner to offer the buyer’s agent 2.5%. Rex Homes realized that buyer-agents can absolutely hold the buyer hostage for that fee. Buyers can have no idea that their agents commission is what caused a deal to fall apart. NAR rather cleverly doesn’t require their signature on forms between Realtors dealing with commission.

The gap in the market:

Transaction frequency and size

Real estate transactions are massive and infrequent. Unlike stock brokers and travel agents, real estate brokerages have been flying under the radar. Consumers are on autopilot and give into the outrageous fees and exploitation because they rarely think about selling a home, and when it comes time, the stakes are very high.

Source: Breadcrumb.vc

A major growth driver for Airbnb was national news reporting. Airbnb could operate in all 50 states without licensure. This enabled them to ‘activate’ their new category and expedite crossing the chasm between early adopters and the early majority. Real estate brokerages are required to be licensed in their respective state, making it very difficult to grow and scale quickly. Although homie.com and houwzer.com do very well in the states they operate, they could not expand overnight the way they could if they were an e-commerce marketplace. They’ll never be a substitute for the current system, or make billions.

Will Realtors ever go away?

In 2012 Seth Godin wrote,

The definition of a revolution: it destroys the perfect and enables the impossible.

The music business was perfect. Radio, record chains, Rolling Stone magazine, the senior prom, limited access to recording studios, the replaceable nature of the LP, the baby boomers… it all added up to a business that seemed perfect, one that could run for ever and ever.

The digital revolution destroyed this perfect business while enabling the seemingly impossible: easy access to the market by new musicians, a cosmic jukebox of just about every song ever recorded, music as a social connector…

If you are in love with the perfect, prepare to see it swept away. If you are able to dream of the impossible, it just might happen.

Bill Gates put it another way; “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.”

The persons who solve this problem will have fundamentally changed the ecosystem. Disrupting on the incumbents turf doesn’t work. iTunes didn’t open a brick and mortar record store. As Jobs said, start with the customer experience and work backwards to the technology: CD to MP3s and a smart phone that can store it all. Consumers expect frictionless, on-demand experiences; a byproduct of human evolution that guaranteed the adoption of Amazon, Netflix, Blockbuster and Uber. The music industry supply chain was engrained in culture, protected by distribution agreements, there were tall barriers to entry, lobbying and trade groups; nearly impossible to disrupt. Real estate is similarly multi-faceted.

Realtors will be extinct in 20 years

Children can’t believe we ever got in the car and drove to a record store to purchase physical albums. What they find particularly amusing about this is that you had to pay for songs you didn’t want. e-commerce enabled curation, and solved the problem of bundling.

My daughter playing songs on her iPad.

Today’s ten year olds, twenty years from now, will be buying and selling homes. They are not going to believe we used to pick up the phone, and make a call to a Realtor, when you can instead simply pull your phone out of your pocket and use technology to list your home for sale.

Decentralizing the MLS

Decentralized, consumer-facing MLS

Its just poor service design, its a failure of engineering to pay 6% finders fees to middlemen when the demand can find the supply for free online. Homeowners should have a barrierless way to add inventory to the supply. Realtors take pictures, gather the information, drive back to their office, sit down at their desk and enter the information line by line into a dated MLS. If consumers had their own MLS, built by modern day technologists and digital experience designers, it would create remarkable efficiencies and would be a barrierless way to list a home for sale without necessarily sacrificing licensed expertise.

Ring door bells, virtual reality, interior cameras, bluetooth door locks and temporary keys, identity authentication, push-button generative agreements of sale, transaction rooms — there is no need to require sellers leave for showings, which subsequently requires a buyer-agent to open the door.

This creates an infinitely more homeowner-centric experience. From this:

To this:

Automating offline workflows, removing unnecessary contracts and paperwork, and providing society with push-button technology will dramatically reduce the amount of steps involved in listing a home and improve the selling experience.

Why real estate listings don’t have comment sections

Because Zillow can only display the data from the MLS feed, their listings are really, really boring. Gen-Z are expert content curators. Zillow could not be an outlet for their real estate creativity. You have to dig for quite some time to find a video, if there is one. When an agent takes a video of the property, its reduced to a link, that becomes a bullet point embedded in the listing. This is terrible UI/UX.

Zillows limiting and inelegant appearance is the byproduct of the MLS old archaic RETS data feed

Contrast this with a grid of pictures of video, similar to Instagram.

Zillow a very Realtor-centric product, and they do not provide consumers with the tools and resources they otherwise could. For example, comment sections:

Or direct messaging between buyers and sellers, with the tools and resources needed to generate contracts between amicable parties.

Or the ability to review offers and manage offers.

Gen-Z identify as content creators, and will prefer to curate their own listings, and use push-button technology to take minutes introduce their property into the marketplace of inventory, opposed to the weeks invovled in using an agent. When it becomes as easy to list a home for sale as it is to post to Instagram, fewer and fewer homeowners will use an agent to do what they can do in minutes, for a fraction of the cost.

Solving the real estate problem will make you rich

Real estate fees are the worst thing to happen to American finances in the history of capitalism. Economists refer real estate commissions as a social waste, because the fees are so grossly in excess of the value provided. An article titled, The Superfluousness of Realtors, shows Realtors do not add any value; they don’t pay for their own commissions. In their absence, you will sell your home for what they would have sold it for. Another study, titled The Relative Performance of Marketing Platforms, found Realtors were actually achieving lower selling prices than by-owners, and that using a Realtor may mean you’re paying an inflated fee on top of getting a worse selling price. Two million agents, 7 million homes sell a year, there aren’t enough homes to go around and commission desperation leads to poor selling price recommendations.

Studies show FSBOs do a better job than Realtors

The MLS loses relevance when a peer-to-peer marketplace makes it easy for home buyers to add their homes to the supply of inventory, and homebuyers can contact the owners directly. The internet is disruptive because of this platform model, where you take the supply side, connect them with the demand and take a cut of the transactions that occur on your platform that would otherwise be performed offline. Transacting at scale manes your cut goes from millions to billions.

It’s my estimate that by 2043, instead of having Zillow, Trulia and Realtor.com being the dominant search portals who are receiving feeds from MLS’s, we will have a handful of popular two-sided marketplaces instead, who publish listings for free and charge a small fee to facilitate peer-to-peer transacting.

A platform that facilitates a third of the transactions each year, about 2.5 million, at an average transaction cost of $2,500 would be generating $6.2 billion in revenue, before ancillary services. Airbnb similarly does $6 billion a year in revenues and has a market cap of $85 billion.

AI

I’m particularly intrigued by the generative types of AI, that at the push of a button can create real estate contracts, answer questions about escrow monies, calculate seller proceeds, calculate the final check amount, summarize an inspection report, etc. Below is an impressive, but very early example of the types of automation impacting the customer value chain:

The rise of sites like www.donotpay.com are a glimpse into tech enabled autonomy.

From wikipedia:

“DoNotPay is a legal services chatbot. The chatbot was originally built to contest parking tickets, but has expanded to include other services as well. As a “robot lawyer,” DoNotPay is a downloadable mobile application that claims to make use of artificial intelligence to provide legal services, with a subscription cost of $36 every three months.[1] It is currently available in the United Kingdom and United States (in all 50 states). In 2021, DoNotPay raised $10 million by investors including Andreesen Horowitz, Lux Capital, Tribe Capital and more reaching a valuation of $210 million.”

Here’s ChatGPT drawing up a real estate sales contract with perfect accuracy. In states like New Jersey, an “attorney review period” is required by law because Realtors regularly get the contracts wrong.

What do you think? Do you believe Gen-Z and Gen-Alpha are going to pay 6% to sell a home? Are Realtors inextricably tangled to that fee?

About me:

In 2016 I was Rookie of the Year at Berkshire Hathaway. Today I’m a real estate advocate for Gen-Z, building at the intersection of technology, culture and homeownership. www.inlyst.com

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John Fulton

Proptech contemplative. Founding inlyst, a marketplace for homeowners and home buyers.