Innovator Series: E-Commerce Roundtable

How and When E-Commerce will Change Your Life

February 1, 2001

To help you get a handle on the magnitude of change that technology is bringing to your profession, REALTOR® Magazine brought together some of the leaders in the coming world of real estate e-commerce. Their task: to discuss what this world will look like and how it will affect you.

Here’s the transcript of what these innovators had to say. The roundtable was convened Nov. 9, 2000, in San Francisco, as part of the 2000 REALTORS® Conference & Expo. An article describing the conclusions of the roundtable members, “Welcome to Your Online Future,” appears in the February print issue of REALTOR®Magazine.

The panelists were asked to open the discussion with remarks on specific topics.

Stuart Wolff—Defining real estate e-commerce
Richard Mendenhall—Discussing the NATIONAL ASSOCIATION OF REALTORS®' goals for
Tom Koenig—Outlining the benefits brokers expect from e-commerce
Scott Kucirek—Describing his company’s hybrid approach of traditional and electronic brokerage
Joel Singer--Explaining the role of REALTOR® boards in moving e-commerce forward.

Stuart Wolff: For our purposes, e-commerce is an electronic real estate transaction, from contract to close, that will probably take place over the Internet. People won’t be faxing or Fed Ex-ing documents. Beyond that point is speculation.

Richard Mendenhall: It’s the right focus now to define real estate e-commerce as contract to close. That’s what people think of as the transaction. But I think it will also include list to close.

We have a great four-year partnership with REALTOR.COM and Homestore. We set the bar on data protection and on a lot of other issues, and now other providers have to play by the parameters we’ve set. Competition is still strong, and that’s healthy. But that’s why we want to work with Homestore and do transactions under the brand, so that the public understands that the REALTOR® is going to serve the consumer.

Tom Koenig: What Stuart said about a Web-based, single source for data is critical in the evolution of the business. As a large broker, we have a brokerage, a mortgage operation, title insurance, and a home services company, so having a single source for data would offer enormous cost savings for us. A single source would also give us the ability to put together a collaborative environment that moves the transition from a brokerage focus to a transaction focus. And without the electronic transaction management platform we’re talking about, that single-source transaction is proving to be very difficult. At the end of the day, it’s not a technology issue; it’s really a business process issue. What we will have is a transaction management platform that enables the evolution of a business process that is quicker, cheaper, and simpler for both the company and the consumer, saving time and money for both.

A company saving money is a huge issue; from the consumer point of view, it may be the issue. Having said that, we’re talking about expanding the service package at the company level and expanding the skill set at the salesperson level. It puts consumers at the center of the transaction with the salesperson, which is some place they’ve never been before. At our company, we talk about it as the sacred space of the salesperson and the consumer. So, from the point of view of the large broker, this is a fabulous direction for the industry.

Scott Kucirek: Our model is a little different because we have salespeople who are salaried, who came on board with the idea that we would be conducting customer-focused transactions from the get-go. They started work with the idea of using the Internet as a platform for service delivery first and foremost and trying to leverage that technology to provide a more efficient and better service to buyers and sellers. That is the whole reason we keep going. As for other salespeople or NAR adopting a system that improves efficiency and helps customers, we welcome it. We are always limited on our side of the transactions by the technology adoption of those on the other side of the transaction. We do very few [so-called] “double ends.” Any system that would speed communication between our agency, our broker, our salespeople, and other salespeople out in the marketplace we operate in is ultimately to the consumer’s benefit.

Stacey Moncrieff: Do you foresee these systems operating with one another, or do both salespeople on both sides have to have

Stuart: Well, is going to be an open platform, so there will be plug-ins, but under certain rules and conditions. And I think Tom hit the nail on the head. It’s really business process first, technology second. And there are going to be issues like data security. If someone’s logging in from the Philippines, I don’t know that we want to give that person complete access behind the firewall with all the confidential information. So there’s obviously going to have to be ground rules established on how this thing is going to work. Technologically, it’s going to be an open platform. Absolutely. But the business process we are still working out.

Richard: What Stuart just said is important. Establishing standards of security was exactly [the key issue] when we first launched REALTOR.COM. The standards of security on any kind of a transaction platform are absolutely critical, no matter whose platform it is.

Tom: Well, the standards of security are certainly of primary importance, but the platform has to be large enough and have significant market share. There’s no question about it. It also has to be flexible enough to recognize the industry differences in the ways we do business in, say, the San Francisco Bay Area and in Chicago. And it must be flexible enough to accommodate these regional differences in customs and practices.

Scott: We’re already encountering [problems with those differences] because we operate over such a large geographic area. I see two challenges [with an electronic platform]: One is adoption by the actual, current salesperson force; second is adoption by the brokers. Many brokers that I talk to are creating their own internal systems to get more efficiency. I don’t know how these things are going to intersect with this product. There’s going to be a lot of work down the road to have them harmonize. But ultimately it’s good that people are taking the time now to start because I don’t think it’s going to happen in one year, two years, or three years. This is a five-to-10 year process. At the end of that time frame, you really have improved the entire process.

Tom: From your point of view [as one broker], and from my point of view [as another broker], we have some terrific [individual] solutions, but they’re not scalable. Working on scalable solutions is a whole different ballgame.

Stuart: That’s part of what we’re working out--the backbone. The security issue is an example [of a backbone issue]. The protocols to protect confidentiality and security are part of the global solution. I think there can be some elements there, some network design issues that can be scalable. And you need to allow for the local variation or the regional variation. It’s a combination of both. But ultimately it has to work for practitioners. That’s the bottom line. We’ll keep coming back to business processes. Ultimately it has to work for people in the business.

Stacey: Can you give an example of a process that may be different in Chicago versus the Bay Area that might impact the transaction platform?

Scott: One of the stark differences for us out here, since we started in California and we’re now on the East Coast, is the difference between what we call the brokerage model here in California, which is mainly broker-to-broker driven negotiations, and the East Coast and Boston, where there’s lawyer participation in the transaction at the closing. Even within the state of California, you have differences on, say, when you open escrow. In Los Angeles, they like to get that deal started right from the get-go. Here in Northern California, they don’t really want to do that until the contract is ratified. So, you see these subtle variances, some of them legislatively mandated in certain states, others by common practice. There doesn’t seem to be any drive toward standardization or harmonization. There seems to be more effort just to keep getting better at the current system. We long ago gave up the idea that we’re going to modify the different practices of all the different states we operate in; we’re just trying to keep on top of the regulations and work within those guidelines.

Richard: We’ve got seven different contracts in Missouri. We don’t even have a statewide contract. We’re working toward that. If you’re on the St. Louis side, seller pays for the client. If you’re on the Kansas City site, the buyer pays for the client. If you’re down in [another part of Missouri], people move in thirty days before they close. Those are real realities of the marketplace, and people aren’t going to say, ‘Oh, I’ll do this [develop a platform] when we have a clean model.’ Every model is going to have to adapt.

Robert: There’s likely to be higher productivity for brokers once they start processing their information electronically. And I can see brokers capturing more ancillary, home services-type business because of the efficiencies of an electronic platform. The platform would lower your costs for obtaining and retaining customers. But how do these broker benefits translate into benefits for the salesperson? What’s their buy-in to this?

Richard: Everywhere I go, the first thing everybody says to me is that the obstacle to adaptation [of a platform] is the broker’s salespeople. I don’t believe that for a second. We are ahead of the consumers, if you look at the number of REALTORS® who have adopted e-mail and who have launched Web sites. The biggest problem is going to be building a useful transaction that integrates all of the various components, so that the transaction works, can be customized for my area and for your area and is useful for your large brokerage and for your business model.

Look at all the [basic software] products that have come out -- the differences between WordPerfect and Word. People want different kinds of ways of doing things, they adapt to these things. That’s why we have over 1,000 MLSs in the United States. Even though there may only be two or three big providers, and [different MLSs may be hosted] by the same provider, they look entirely different.

Tom: The first question you have to ask isn’t about the salesperson but about the consumer. This is a consumer-driven change [just as it has been] in every industry. Take the stock brokerage industry. A story was told to the consumer: “Use E-Trade, and you’ll save money.” That’s a story that consumers bought into.

We have to educate consumers that this [electronic transaction platform] will be highly beneficial to them. It will be single-source, less hassle, less time. The salesperson will do something different in the future. He’ll be more like Scott’s salesperson [at zipRealty], or he’ll be more like a transaction manager or relationship manager. The salesperson will migrate in response to consumer demand. The salesperson will not migrate in response to an industry [initiative] or a directive from a broker. That’s the first thing. Business is being reengineered because technology allows for it. Then you’ve got a consumer who is going to be in the middle of the transaction. We have to speak to the consumer so that this is something that engages their interest and they see the benefit.

Stuart: Though I agree the consumer is a key piece of it, you can benefit the salesperson. If you can make the salespeople’s lives easier by some of the things we’re doing, there’s an opportunity there to get them to adopt some of the new technology. It’s imperative on us to build technology that they want to use, make their lives easier, not harder. A lot of technologies out there are flat-out bad.

There are a lot of Web sites in which the off-line process is better than the online process. In some cases it’s the opposite. The consumer can be a part of it. But it’s imperative that the technology be developed in such a way that it’s improving how people are operating. And that puts a lot of pressure on our product development crew, which I challenged, in fact, yesterday. We were in front of some folks, and this question came up by some of the investors in our company. They said, ‘Will REALTORS® adapt to technology?’ and I said, ‘It’s up to us. If they don’t adopt technology, it’s because we didn’t build good technology.’ And I’m not going to blame the REALTORS®; I’m going to blame our team because if you build it in a way that makes their lives easier, they’ll use it. And if it doesn’t, they won’t use it. That, ultimately, comes down to product development.

[Joel Singer joins the roundtable]

Joel Singer: In California, we have seen a lot of movement toward the use of automated technology. Web pages have been fairly [common] with top producers. Having said that, while we can point to a strong upward trend, we need to build [more] infrastructure. The fact that you have ubiquitous hardware does not mean there’s a comfort level yet that will push us in the right direction. Education, security, a large dose of training at the company level, a role for the association, and the right environment both legislatively and intellectually [are all key].

Robert: At the PikeNet conference in mid-October, speakers were talking about what Stuart is saying. If the technology isn’t simple to use, people won’t use it. One of the persons there said that, if it’s going to take more than an hour training to get the salesperson to use a certain technology, they wouldn’t use it. Joel, is that what you were talking about?

Joel: The successful person is not there because of their technical skills. The successful person is there because of a whole series of skills that don’t necessarily include their ability to manipulate software. In many instances, particularly in the California model, our high performers have assistants, both licensed and unlicensed, and they to a large extent are on the vanguard of technological change. I’m more interested in making sure the top producer’s team is comfortable and can use the software.

That’s why Stuart’s comment is on target. If you produce good software, the top producers and their teams will be the first to see the benefits that accrue in terms of efficiency. In terms of the REALTOR down stream, you can’t train them for long periods of time. Part of the problem is, we have to train them from stage one. A lot of it is [basic] Windows training. To the extent consumer real estate technology becomes better suited [to practitioners], we can train them in an hour or two.

You can’t go from fear of a computer to the use of a complex transaction management system in a period of four months or six months. You’re looking at building an infrastructure over a number of years. You’re looking at building an infrastructure for the average REALTOR® that has to start with a very basic education and move on from there.

Richard: That education is so simple, and so easy, and happens so fast based on the motivation of the salespeople that I’m just tired of hearing people talk about the salespeople not being able to adapt [to technology]. When I first put up our Web site, at that time we had about 80 real estate salespeople, and I would say that less than 10 percent were on e-mail. Then all of a sudden I got hits on e-mail, inquiries into our company. I walked into our sales meeting, and I said, ‘I have really good referrals to give out, for three good pieces of property.’ I read out not the names of the people but the facts of what they wanted, and I said, ‘Who wants these referrals?’ I had 100 percent of the salespeople raise their hands. I said, ‘Who has e-mail?’ Those people put their hands up. I had them put their cards in a hat. I drew three cards out of the hat, and I gave the leads to them. All the others at the meeting said, ‘How come I didn’t get this?’ And I said, “Because the people who e-mailed me wanted a response [via e-mail].

I’m not exaggerating; within 30 days, 50 percent of the people at that meeting who did not have e-mail –over 40 people – had e-mail. It was that quick. Installing e-mail into a computer and trying to learn new e-mail software is no piece of cake. That is not an easy thing to do. What motivated these people is exactly what Tom was talking about. Consumers out there wanted to interact this way.

Second thing, Stuart told us back in Atlanta a year ago that only 15 percent of REALTORS® were responding to their e-mails within 48 hours. And I just thought that that was the worst statistic I ever heard. I was getting about 50 percent in 48 hours at my company, but I still thought that was terrible. So, we had a contest [to motivate my salespeople], and at the end of 60 days, we had 50 percent of my salespeople responding to e-mails in two hours or less, which is exactly where I wanted to be. And I’m not talking about elaborate training. I’m talking about motivation of entrepreneurs when they see the business that’s there. I’m absolutely confident that if we build the transaction platform, no matter how difficult it is from a technological perspective, if it has usefulness and the salespeople can see it, they’ll figure out how to use it.

Tom: It’s hard to disagree with that. It proves that consumer demand does work. But it’s not just a walk in the park once you have consumer demand. As Stuart says, these systems have to be highly intuitive because salespeople have to be able to do it easily. You’re not going to be able to train them on a wonderful solution that’s terribly complex. The other thing is, we’re talking about migrating from what is essentially a paper environment, where we have individual files and lots of them, some with the real estate broker, some with the mortgage company, some with the title company, and some with the attorneys.

Salespeople will have to give up their individual paper processes in favor of a systems-based collaborative process. And you know and I know that when we talk about traditional real estate salespeople, we’re talking about [people who’s view is that these files represent] “my customers that are locked in my files, and you want me to give up my paper files, my customers?” These people have tremendous loyalty to their files, maybe even more so than to their brokers. To put that paper process into a systems-based, collaborative process requires more than just a little leap of faith.

Stuart: Which really leads back into security, which is a major topic. There are some nuts-and-bolts fundamentals. There’s the ability to do e-mail, as Richard was talking about. It’s good that we’ve started getting everybody geared up for that. That’s a precursor to doing these transactions. But the process has to be secure. The salespeople care about the security of their information. The consumer is obviously going to care a whole lot. The lenders are going to care about it. That to me is one of the biggest challenges. We have to make sure this thing is secure. We can’t afford major setbacks. It’s on all our shoulders to make sure when we do this, [operate on an all-electronic platform] we do it right. [Buying a house online is] not like a book transaction. I want to make sure we don’t get set back.

This [creation of an electronic transaction platform] is a multiyear build-out, and we should set our expectations right. What I’m concerned about is a major incident that could happen over the next couple of years that could set us back. We could easily lose a year or two with some kind of major security problem, given the sensitivity around this kind of transaction. There’s trust on the part of the salespeople, on the part of the brokers, on the part of the consumers. As we put this thing together, we have to maintain that trust.

Security is a big challenge, I will tell you. We’ve been hacked into on our side. We were able to repel it after about 20 minutes, but the best Internet companies in the world have had incidents where they had hackers. The Pentagon has, the CIA has. We can overcome it. I’m confident we’ll find a way to deal with it. But everyone ought to be sensitive to that. Every year there has to be more and more trust. [Most] people are going to wait. We’ll have the early-adopters. They’re going to come in and use it. If they have a bad experience, then their neighbors won’t come in. If they have a good experience, their neighbors will come in.

Joel: The notion of turning on an automatic transaction management platform that goes from first contact to close is a mythology. You end up building it in stages. Part of that is for technological reasons. Security plays into that. The comfort level also leads to just getting the little pieces [one at a time]. E-mail is complex, but it’s only the precursor.

One of the things C.A.R. [California Association of REALTORS] is involved in is automated forms. I can tell you how long it takes to get automated forms out into the marketplace and get people comfortable using them. And that again is only another precursor of how things are going to flow through the system. The whole closing piece is entirely up in the air at this point. There are some good versions from the secondary market, but, except for financial institutions, they’re not going to be very heavily used for some period of time. So, we’re looking at building blocks in the transaction network. To a degree, we’ve oversold and overpromised; people are looking at turnkey solutions, to go from our current paper clock system to an automated paperless system overnight. That’s not a reality at all.

Richard: Joel is making a good point. I came from the Fannie Mae advisory board, and every month they have three tractor-trailer trucks of paper that comes to Washington, D.C., that they have to put in a warehouse, even though they have all this automated stuff upfront. There’s all this paper in the background. Nobody sees that; they think they’re doing it online, but then here comes the paper.

Joel: Isn’t that a role for us? It seems to me on the association level, we better start looking at our state department of real estate codes. You’re going to find that many of them mandate paper storage of records. This is a battle we’ve been dealing with for over five years already. Certain things have to be kept on paper so the auditor can find the record. Well, you can have a perfectly automated transaction system that focuses on the consumer, at the same time that regulator require the old paper transaction to maintain comfort on their end. You’re defeating half your purpose and hurting your efficiency.

Richard: I just learned that, in California, if salespeople transfer from one company to another, the department of real estate sends them some paperwork that they don’t actually get for months. In Missouri, you cannot transfer firms until you have the paperwork back. So, Joel makes a great point. Even state to state, there’s a huge variance in the way agencies deal with paper.

Joel: You’ll find that almost every real estate commission still is very much dependent from an audit and regulatory standpoint on lots of paper.

Robert: The federal e-signature law enacted earlier this year involves maintaining a paper audit trail. Scott, how automated is your process?

Scott: Different parts are more automated than others. We run into these things that Tom was talking about. Even our salespeople, who are apt to be the early adopters of new ideas, resist giving up that autonomy of control they have over their customers’ files. It’s tough. It’s tough because it’s ingrained in their entrepreneurship. [As a hybrid e-broker], I have a pool of people I go to. I go to good salespeople out in the field who want to do something different, who want to change the industry, and then they get in here and it’s still tough.

We like to say that the difference between us [and traditional brokerages] is that we provide the best of both worlds. We use tech to improve the service we can deliver by empowering the consumers, give them information, allowing them to communicate any time they want. Then we use great salespeople in the local market and give them a centralized service team to make sure the service is delivered properly and on time. There’s always someone there to answer the calls, essentially return the information the consumers need. Yet, [our salespeople] still are experts in this very complex transaction. We try to roll those efficiencies up and pass the savings back to the customer. Which is what every one of our research and focus groups say [consumers] are looking for. A real estate sale is a very complex and expensive process, and most consumers don’t understand why it’s so expensive.

I know salespeople are optimistic, but I’m there doing it every day. You can talk about it all you want, but I’m sitting on the floor with salespeople doing it every day. Our process is automated in some parts; the files are all kept electronically. It’s tough.

It’s tough for me to tell a person, ‘Look, you’ve worked 10 hours today; you can go home. Don’t worry. Someone else here is staying later, [and can help] if your customer calls in.’ To them, that’s such a tough concept, even though they’ve been here one month, two months, three months. [However], there’s this time adoption when they finally get it and they see that they can give it up, but they have to trust that our escrow people can really handle the escrows, that customer service people really can answer those phone calls, and that the people out in the field will show the homes and answer the questions the customers want answered. Once they get on board, they’ll see. There is this evolution, this freedom: ‘Wow, I can just focus on the service.’ That’s when we get them. That’s when it’s great.

Richard: I saw a study earlier this year on what drives e-loyalty. The number one answer was the quality of customer support. The salesperson needs to believe that whatever transaction platform they’re using has the customer support that’s going to make the difference. The consumer has to believe that whatever the transaction [platform] is, it has quality customer support. The response on that question [in the study] was 65 percent. That answer was so high. The bottom answer was price. That was the last consideration. People want to know when they’re using the system, whatever hardware or software, that there’s support when they need to learn how to use it and so on.

And how are they to find that? I’m sure there are different definitions of what quality support is, but that’s a significant thing to think about. The first level is going to be the salesperson relating to this transaction platform. The second level is going to be the consumer relating to this platform in terms of, ‘is this working? Is it functional? Does it do the things it wants it to do?’ There’s a telecom company in Japan whose highest paid employee, in terms of stock options and all that, is a little old lady who didn’t know how to use cell phones [before she started], and didn’t know how to relate to the whole [cell phone] market. She is advising them on how to build what they build. She interacts with consumers. And the company is killing the rest of the companies they’re competing with. Because they’re not letting the technology people design the products. They’re designing the products in relationship to someone who normally wouldn’t even use them. It’s a pretty powerful concept in terms of how that company is succeeding against its competitors.

Robert Freedman

Robert Freedman is the former director of multimedia communications at NAR.

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